Legal News

Is Joe Biden the Patron Saint of Delaware Bankruptcy Lawyers?

By Nathan Koppel

Update: Biden’s office responds: David Wade, a spokesman for Senator Biden, says forum shopping is rare. “From 1989-2005, 80% of the companies that could have filed for Chapter 11 in Delaware declined to do so.” As for campaign contributions, he says, “It’d be a lot more surprising if a Democratic Senator didn’t have the support of the state’s legal community.”

Republicans have already taken aim at Joe Biden for purportedly being too cozy with lawyers. One thing’s for sure, he certainly has been good to lawyers in his home state of Delaware.

The First State is one of the more popular venues for corporate bankruptcies, in part, some lawyers say, because the state is overly accommodating to Chap. 11 debtors and the lawyers who represent them. Delaware courts, for example, have been considered relatively generous in awarding pay packages to the management of distressed companies — and in awarding legal fees to bankruptcy lawyers.

Current venue rules, which allow companies to file for bankruptcy where they are incorporated (often Delaware), has been a boon to Delaware attorneys, in part because state rules require bankrupt companies to retain local counsel. Law firms with Delaware offices have long ranked among the biggest contributors to Biden, according to the Center for Responsive Politics.

“The rule permitting forum shopping to Delaware helps not only Delaware lawyers, but Delaware office buildings, hotels and restaurants,” says Lynn LoPucki, a UCLA bankruptcy professor who has long argued for a halt to forum shopping.

Biden’s office did respond to requests for comment.

In 2005, Republican senator John Cornyn of Texas introduced a bill that would have clamped down on bankruptcy forum shopping in Delaware and other states. Companies, he asserted, should be forced to reorganize close to home, so that their local employees and creditors could more easily participate in the bankruptcy process. But Cornyn later dropped the bill after Biden promised a long fight.

Biden at the time said that Delaware was popular, because its courts have vast expertise in complex business bankruptcies. Here is a Legal Times article Biden wrote defending the venue rules.

Since the failed attempt at venue reform, Delaware has maintained a healthy share of the Chapter 11 market. In 2007, 77% of large public company bankruptcy filings took place in Delaware, says LoPucki, who is now a visiting profesor at Harvard Law. So far this year, Delaware has a 52% market share, “Most of us in the bankruptcy world,” LoPucki says, “believe that senator Biden is personally responsible for Delaware’s domination of big-case bankruptcies.”

Full post as published by Law Blog - WSJ.com on August 26, 2008 (boomark / email).