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Vanderbilt Law Review

Marcus Cole

First Page

1845

Abstract

Over the last twelve years, the United States District Court for the District of Delaware has experienced exponential growth in the number of bankruptcy filings for large corporate debtors. This relatively recent rise in Delaware bankruptcy venue cannot, on its face, be explained by Delaware's eighty-five-year preeminence in the race for corporate charters, since the advantages most often postulated for Delaware's dominance in corporate law do not carry over to corporate bankruptcy. The state has limited influence over federal bankruptcy law and virtually no control over the selection of federal bankruptcy judges. This rise of Delaware bankruptcy venue, or Delawarization of bankruptcy, has drawn widespread criticism of the current bankruptcy venue provision, which, since 1978, has permitted a corporate debtor to file in either its "principal place of business" or its place of incorporation.

Although the Delawarization of corporate bankruptcy has raised alarm, no one has analyzed the motives underlying the actions of the parties that produced this curious development. To determine whether Congress should pass an "anti-Delaware" amendment to the Bankruptcy Code, we need to know why this development is taking place. This Article attempts to unravel the mystery by exploring the explanations proffered by the key decisionmakers: debtors' counsel, creditors' counsel, and bankruptcy judges. I have talked with over fifty lawyers and judges and have assembled their often-unexpected explanations for the Delaware bankruptcy phenomenon, as well as their forecasts for the future of Delawarization.

This Article proceeds in five parts. In Part I, I provide a chronological and factual account of the Delawarization of corporate bankruptcy and detail the normative positions that have been staked out by proponents and critics of the development. In-Part II, I present my findings with regard to the explanations provided by debtors' and creditors' counsel and the factors that they believe drive the choice of the District of Delaware. In Part III, I look at the "supply side" of the jurisdictional competition equation, surveying the opinions of bankruptcy and other judges as to why a court might participate in a competition for cases. In Part IV, I analyze these explanations in light of the literature on jurisdictional competition in order to determine whether the Delawarization of corporate bankruptcy is a desirable development.

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