The Creditor Rights Coalition Encourages the Bankruptcy Court for the Southern District of Texas to Use Rule-Making Authority to Curb Judge Shopping

ALEXANDRIA, Va., March 7, 2022 /PRNewswire/ -- The Creditor Rights Coalition today asked the Bankruptcy Court for the Southern District of Texas to use its rule-making authority to curb judge shopping. In this regard, the Coalition has submitted a letter in response to the Court's request for public comments on proposed rule changes addressing where cases should be filed within the District. The Coalition notes in its letter that the proposed rule would not preclude out-of-state (or out-of-district) debtors from gaming the system to file in a division where a single judge is assigned to oversee all Chapter 11 cases filed in that division within the District.

The Creditor Rights Coalition supports the random assignment of bankruptcy cases for all cases filed within the District. The Coalition's letter notes that bankruptcy courts in the Southern District of New York and the Eastern District of Virginia have recently adopted amendments to their local rules to require the random assignment of cases throughout the district irrespective of the division in which they are filed.

The Creditor Rights Coalition letter is attached.

About The Creditor Rights Coalition
The Creditor Rights Coalition CRC is a nonprofit association established to serve as the leading voice representing all stakeholders with an interest in protecting creditor rights. The Coalition promotes transparency, accountability and equality to ensure fair and robust stakeholder participation in bankruptcy proceedings by monitoring judicial, legislative and regulatory matters associated with bankruptcy-related issues. More information about the Coalition can be found at www.creditorcoalition.org.

The Coalition is represented by Joshua L. Hedrick with Hedrick Kring Bailey PLLC.

CONTACT:
Joshua Hedrick
(214) 880-9605
[email protected]

March 6, 2022

VIA E- MAIL
The United States Bankruptcy Court
Southern District of Texas
515 Rusk Avenue
Houston, Texas 77002
[email protected]

To whom it may concern:

We submit this letter on behalf of The Creditor Rights Coalition ("CRC"). The CRC appreciates the opportunity to provide comments to the United States Bankruptcy Court for the Southern District of Texas concerning the potential impact on bankruptcy proceedings of the proposed amendments to Local Rule 1002-1.  CRC is a nonprofit association established to serve as the collective and leading voice representing all stakeholders with an interest in protecting creditor rights.  The Coalition's core mission is to promote transparency, accountability, and equality of treatment for similarly situated creditors to ensure fair and robust stakeholder participation in bankruptcy proceedings. More information about the CRC can be found at www.creditorcoalition.org.

The purpose of the proposed amendment to Local Rule 1002-1(b) is to eliminate a debtor's discretion to file in a division within the Southern District that is not its "principal location."  The proposed amendment to Local Rule 1002-1(d) would compare the time that a debtor had its principal location in any one county within the Southern District to the time the debtor had its principal location in any other county in the Southern District.  We commend the effort of the Bankruptcy Court of the Southern District of Texas to clarify its existing rules to require debtors to file in the division where they have their principal location.

However, because the proposed rule pre-supposes the debtor is located within the Southern District, this language only affects the Southern District division in which an in-district debtor is required to file. The proposed rule does not actually limit in any way the ability of an out-of-state (or out-of-district) debtor from filing within any division within the district. Despite the proposed rule, an out-of-state (or out-of-district) debtor can still pick the division in which it files for bankruptcy by incorporating a subsidiary within that division shortly before filing for bankruptcy claiming it as its principal location. Because all Chapter 11 cases filed in the Corpus Christi, Galveston, Laredo, and Victoria divisions are assigned to a single judge¹ and complex Chapter 11 cases filed in any division are assigned to one of two judges², out-of-state (or out-of-district) debtors can still effectively choose the judge of their choice.³ These practices have allowed and will continue to allow, despite the proposed rule, out-of-state (or out-of-district) debtors to game the system.  The Bankruptcy Court for the Southern District of New York and the Bankruptcy Court for the Eastern Division of Virginia have recently changed their rules to require random assignment of any case filed within the District (regardless of division or complexity/size of the case) to eliminate this practice.

Chief Justice John Roberts recently raised concerns about judge-shopping in patent cases in federal district courts in his 2021 Year-End Report on the Federal Judiciary.⁴ The Chief Justice tasked the Director for the Administrative Office of the United States Courts to review judicial assignment in these cases and report back to the full Conference by May 2022. The Director for the Administrative Office of the United States Courts wrote in relation to the Chief Justice's request that "[f]rom a longstanding national policy perspective, the Judicial Conference strongly supports the random assignment of cases . . . ."⁵  The Director went on to write that random case assignment "operates to safeguard the judiciary's autonomy while deterring judge-shopping and the assignment of cases based on the perceived merits or abilities of a particular judge."⁶  The same holds true in the context of judicial assignments in bankruptcy cases.⁷

In light of these developments, we respectfully request the Bankruptcy Court for the Southern District of Texas expand its existing proposed rule-making to address the ability of out-of-state (or out-of-district) companies to pick and choose the judges of their choice.

Respectfully,

/s/ Joshua L. Hedrick

Joshua L. Hedrick
Texas State Bar No. 24061123
Hedrick Kring Bailey PLLC
808 Travis Street, Suite 540
Houston, Texas 77002

¹ Bankr. S.D.T.X. 2019-4.
² Bankr. S.D.T.X. 2018-1.
³ Regardless of whether or not Bankr. S.D.T.X. 2019-4 applies to complex Chapter 11 cases, the effect of these rules is to allow judge shopping.
⁴ John G. Roberts, Jr., 2021 Year-End Report on the Federal Judiciary (2021), at 5.
⁵ Roslynn R. Mauskopf, U.S. Admin. Off. of the U.S. Cts.: Letter in Response to Concerns Raised Regarding Judicial Assignment and Venue for Patent Cases Within a District (Dec. 15, 2021). 
⁶ Id.   
⁷ John G. Roberts, Jr., 2021 Year-End Report on the Federal Judiciary (2021), at 5. "Senators from both sides of the aisle have expressed concern that case assignment procedures allowing the party filing to select a division of a district court might, in effect, enable a plaintiff to select a particular judge to hear a case."

SOURCE Creditor Rights Coalition