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So, GM’s going to bankruptcy court–in the Southern District of New York. What’s that you say? GM is located in Michigan? Yes, that is true, but GM owns a car dealership in Harlem and has used it as a shoehorn to get the cases venued in SDNY. Some call this forum shopping. Others think maybe the GM lawyers just want a trip to the Big Apple now that the weather has turned fine. Me, I’m less interested in "why" GM is here, since it’s a fait accomplis, than I am in what this venue might mean for the case.
The SDNY bankruptcy bench has some pretty heavy hitters in the world of corporate and commercial law. Folks with major experience before joining the bankruptcy bench, not to mention those who developed really in depth expertise after joining the bench.
For example, Judge Adlai Hardin was a litigation partner at Milbank Tweed prior to joining the bench, with a practice focused on complex litigation of antitrust, securities and bankruptcy matters.
Judge Allan Gropper is an expert in international insolvency matters and co-authored a book on the subject.
Judge Martin Glenn was partner at O’Melveny & Meyers focusing on complex litigation of securities, RICO, unfair competition and and financial and accounting fraud. (conflict alert: Judge Glenn and I have served together on the Program Committee of the Federal Bar Council for years–even before he was a judge–and I think very highly of him.)
Judge Prudence Beatty is the author of two works on Bankruptcy — one has the incredibly sexy title The Doctrine of Equitable Subordination as Applied to Nonmangement Creditors – and she is a fellow of the American College of Bankruptcy and a Director of the American Bankruptcy Institute and an editor of its Journal.
I could go on and on, and my failure to mention here is not a negative reflection on the rest of the SDNY bankruptcy bench, but merely the realization that I have made my point with the examples above.
The GM bankruptcy is likely to be complex, will effect workers and creditors in many states and around the world and will require a level of sophistication that the SDNY bankruptcy bench is more than able to provide. Is it improper forum shopping to gain some advantage for incumbent management? Or, is it an acknowlegement that some jurisdictions have developed a level of sophistication and expertise in a given area that might be needed in a difficult case? After all, no one is surprised when corporate litigations are sited in Delaware, are they?
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I don’t think anyone questions the depth of expertise of both the judges of the SDNY and the bankruptcy bar of Wall Street. But there are issues with forum shopping in large Chapter 11 bankruptcies. See “Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts” by Professor Lynn LoPucki of UCLA – he states that competition for the big cases has harmed the bankruptcy system and the economy, transferring wealth from creditors and employees to incumbent management and bankruptcy professionals. Also, that these cases have had poor outcomes, leading to second bankruptcies of “restructured” companies.
Although after the Chrysler BK and how quickly that worked, the government wanted to go with the precedent set by the SDNY on the 363 sales and expedited process, and probably wanted to go with the “devil” they knew for GM.
OT: Can you say “pissant” on the teevee machine?
Tweety just did irt the Right’s fianting spell over Obama’s jaunt to the big apple…
;~P
I thought it was just a southern word but I’m glad he used it.
Is the rule still that venue in bankruptcy is transitory, assuming minimum jurisdictional contacts, eg, the dealership? A majority of the creditors could claim forum non conveniens to shift back to Michigan. Who really gets fucked is the UAW, and none of the other creditors could care less that the union is litigating from Detroit. Plus I’m quite sure DOJ is fine with it, since their clients aren’t trying to “win” anything except watching the Auto Workers erode while Obamco says we’re doing all we can, here’s a minority common position in the stack of shit with no board representation and no say in management. Plus as already noted by Ishmael, there’s the covering argument that the BSDNY has the experience and expertise based on the fucking the union took in Chrysler. Not, BTW, that a bankruptcy judge sitting in Michigan is bound by any means (or likely to) give the workers a better shake.
Well, then, maybe these expert judges need to be reassigned to other circuits, so that their expertise is available nationwide.
BK judges are assigned cases on rotation. In fact there are geographic areas that compete for cases. The key is that you need to have a toe-hold in that area. My guess is that the dealership filed for bankruptcy last week. This week, when the mothership filed, they asked to have the cases consolidated — hence it is in NYC.
Eastern Airlines did this back in the day. They were worried about what judge they would get in Miami, so they had their executive club file first in NYC, because that is where it was incorporated, and then they had the cases consolidated after they knew what judge they had. Had they got a sucky judge, they were prepared to file in Miami.
This is done all the time. It is generally done for the benefit of the corporation, not the shareholders. My guess is that this was an inside job from the start. Obama was in New York this weekend, and I bet he just happened to stop by the judge’s chambers or favorite coffee shop and say how important it is to America that this thing happen right away.
The one thing I find funny that no one is talking about is if the US owns 60%, Canada 15%, and the unions 25%, what happened to all those bondholders who didn’t want to swap debt for equity? I wonder if that new $30 billion had anything to do with getting them to shut the fuck up?!!!
Thanks Cynthia.
How many of the surviving dealerships are complaining about “socialism”?
Even if this doesn’t work out long term, the collapse can be deferred to a time when the overall economy is strong and better able to absorb it.
No, and for very particular reasons having naught to do with expertise.
The degree of expertise is irrelevant when the motives are elsewhere.
I notice, btw, this is cross-posted elsewhere. Why it shows up here is rather curious.
Years ago when I was a business news reporter, a North Carolina-company with its HQ in New Jersey filed for chapter 11 in NY. Confused by this I asked a veteran lawyer I knew. He said (paraphrase) “Oh, all big businesses prefer to file in New York. If they file in North Carolina some hilly billy judge might actually expect them to pay back all the money they owe.”
Not for nuthin’, but I linked to that article in my post.
I sincerely doubt that Obama, who has been a practicing lawyer, would have an ex-parte communication with a judge about a pending case. Nor would I expect any of the judges in SDNY to permit such a thing.
‘Tis a big No-No
This post was written for FDL. If it crossposted elsewhere, that was done w/o requesting my permission or contacting our editors or publisher.
This is an FDL post.