Well-known companies in financial trouble are increasingly seeking bankruptcy protection in New Jersey, upending a decades-old norm of firms filing in neighboring jurisdictions Manhattan and Delaware.
(Bloomberg) — Well-known companies in financial trouble are increasingly seeking bankruptcy protection in New Jersey, upending a decades-old norm of firms filing in neighboring jurisdictions Manhattan and Delaware.
Bed Bath & Beyond Inc. and David’s Bridal LLC both sought Chapter 11 protection last month in Newark and Trenton, New Jersey, respectively. A former chemical maker that’s affiliated with Berkshire Hathaway Inc. filed there last week. And Jersey City-based BlockFi Inc. did the same last year, along with a wave of retailers during the pandemic.
Perhaps most notably, Johnson & Johnson’s legal saga over talc lawsuits is also playing out in Trenton, with the company placing its LTL Management LLC unit back into bankruptcy there in April in an attempt to settle about 40,000 lawsuits. Its first bankruptcy was tossed out by a federal appeals court.
“There’s always a lot of talk of ‘how do we get cases to New Jersey,’” said Sydney Darling, a restructuring attorney with Trenk Isabel Siddiqi & Shahdanian PC, who’s based in the state. There’s been a “concerted effort by the bar to highlight our jurisdiction,” she said.
New Jersey’s rise as a bankruptcy venue also has something to do with predictability. A spate of judges retired from the courts in Manhattan and Delaware in recent years, taking their long track records with them.
Four of the eight bankruptcy judges currently presiding in Manhattan were appointed in 2021 or sooner. In Delaware, three of the eight presiding bankruptcy judges were appointed to the bench within the last two years, including Judge Thomas Horan, who was sworn in earlier this year.
David’s Bridal passed on a repeat trip to Delaware and picked New Jersey for its second Chapter 11 in five years. Jim Marcum, its chief executive officer, said that was a natural choice given its proximity to the retailer’s headquarters in a suburb of Philadelphia, a number of store locations and one of its distribution centers.
“After a lot of consideration, we just like the venue,” Marcum said. “It worked out well.”
During the pandemic, other familiar names started to pop up in bankruptcy courtrooms in New Jersey. Lotion seller L’Occitane Inc., Modell’s Sporting Goods Inc. and kitchenware retailer Sur La Table Inc. all filed in the district — though the latter was headquartered thousands of miles away, in Seattle.
“If I had my way, every New Jersey-based company would file in the state,” said Michael Sirota, an attorney with Cole Schotz, which is co-counsel to New Jersey-based Bed Bath & Beyond with Kirkland & Ellis.
Of course, for judges, there’s no financial incentive to attract big names to file for bankruptcy in New Jersey. But for lawyers, bigger cases mean more business.
Kirkland & Ellis, one of the most prolific insolvency firms in the country, has teamed up with Cole Schotz, headquartered in Hackensack, on a number of recent cases, including Bed Bath and David’s Bridal.
“When the Kirkland team evaluates venue, they’re very surgical about it,” said Sirota. “When people experience the New Jersey bench that haven’t before, they think that it’s just as good, if not better, than any jurisdiction in the country.”
Shopping Around
Bankruptcy law doesn’t force companies to file in the same state as their headquarters. Historically, many corporations have elected to file in Delaware and New York, two venues with experience handling large cases. Companies also like certainty, and in recent years many have gravitated toward jurisdictions like Houston, where complex Chapter 11 cases are assigned to only two judges. Knowing the judge that will oversee a company’s bankruptcy gives attorneys an edge.
“You’re picking a court for the judges,” said Robert Lawless, a law professor at the University of Illinois. “It’s not only knowing which way judges will lean. But also, a level of comfort with how the judge is likely to rule, and how they’re likely to conduct the proceedings.” Lawyers want to ensure that the judge won’t “strike out on a wild new way to approach” a case, he added.
Critics have accused big companies of gaming the system by filing for bankruptcy in districts where they aren’t based in order to snag favorable judges. Senators Elizabeth Warren and John Cornyn in 2018 began introducing bipartisan bills that would ban corporations from this sort of “venue shopping” but the proposed legislation hasn’t gained traction in Congress.
Ironically, one of the cases that garnered the most national attention for New Jersey, LTL Management, didn’t intend to be filed there. The case was forced to transfer after initially filing in North Carolina.
After the case was moved, victims suing J&J asked Judge Michael Kaplan, who’s based in Trenton, to dismiss the Chapter 11 filing, arguing the case wrongly manipulates the bankruptcy system. Kaplan ruled that the controversial Texas two-step was permissible, allowing J&J to continue with its strategy to force a settlement.
“Ruling the other way would have chilled New Jersey as a forum,” said Lawless.
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