Warren, Cornyn introduce bill to block judge-shopping in bankruptcy

U.S. Senator Elizabeth Warren (D-MA) speaks during a news conference outside the U.S. Capitol in Washington, U.S., September 21, 2021. REUTERS/Elizabeth Frantz
  • Bill calls for companies, wealthy people to file bankruptcy in home state
  • Warren aims to prevent 'cherry-picking' favorable judges
  • Cornyn says bill will close bankruptcy law 'loophole'

(Reuters) - Senators Elizabeth Warren, a Democrat from Massachusetts, and John Cornyn, a Texas Republican, on Thursday introduced a bill to combat large, corporate entities filing for bankruptcy before judges they believe will be favorable to their interests.

Under the Bankruptcy Venue Reform Act of 2021, big businesses and wealthy individuals would be required to file for bankruptcy in their home states or where their largest assets are located. A version of the bill was introduced in the U.S. House of Representatives in June by Rep. Zoe Lofgren, a Democrat from California, and Rep. Ken Buck, a Republican from Colorado, and has gained some bipartisan support, with four Democrats and three Republicans signing on as co-sponsors.

The venue issue has garnered attention in recent months in the Chapter 11 case of OxyContin maker Purdue Pharma, which filed for bankruptcy in White Plains, New York, even though it is headquartered in Stamford, Connecticut.

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"Wealthy corporations should not be able to run across the country to find a favorable court to file bankruptcy. While they manipulate the system to file for bankruptcy wherever they please, affected communities — like workers, creditors, and consumers — lose," Warren said in a statement.

The bill would "prevent big companies from cherry-picking courts that they think will rule in their favor and to crack down on this corporate abuse of our nation's bankruptcy laws," she added.

Bankruptcy law currently permits businesses to file in districts where they are incorporated or where affiliates are located. This leads many large corporate Chapter 11 cases to be filed in Delaware, New York or Texas, where judges are accustomed to overseeing complex commercial bankruptcies.

Cornyn called the proposal a “bipartisan, common-sense solution to close this loophole.”

The Commercial Law League of America said in a statement on Thursday that the bill would “address runaway forum and judge shopping.”

The legislation follows another bill introduced by Warren this year that aims to block litigation shields for owners or insiders of bankrupt companies.

Critics of Purdue and the Sackler family members that owned the OxyContin maker accused them of filing the case in White Plains to ensure it would be overseen by a judge whom they believed would approve legal protections against future opioid litigation for the Sacklers, even though they are not themselves in bankruptcy.

U.S. Bankruptcy Judge Robert Drain, who recently said he did not feel "manipulated" during the Purdue case, did ultimately approve those protections for the Sacklers. His ruling is being appealed by the U.S. Department of Justice’s bankruptcy watchdog and the states of Connecticut, Washington and Maryland, as well as Washington, D.C.

The Sacklers have long denied wrongdoing with respect to allegations that they helped fuel the national opioid crisis by pushing OxyContin sales.

Read more:

DOJ appeals Purdue Pharma bankruptcy deal, aims to pause approval order

U.S. judge grants Purdue Pharma's $7 mln exec bonus plan, faces blunt criticism

Bankruptcy reform debate targets bad corporate actors, popular judges

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Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.