© 2014 The Texas Lawbook.
By Mark Curriden
(Jan. 14) – Large Texas companies continue to snub the state’s bankruptcy courts when they seek protection and restructuring under Chapter 11 of the U.S. Bankruptcy Code.
Instead, corporations involved in the biggest and most complex bankruptcies continue to favor judges in Delaware and New York to handle their reorganizations.
High profile companies such as Energy Future Holdings and the Dallas Stars filed for bankruptcy in Delaware, while American Airlines and Dynegy sought restructuring in the Southern District of New York.
The result is that corporate lawyers based in Texas who specialize in bankruptcy have seen their business decline significantly over the past five years. Texas bankruptcy attorneys have had to shift or refocus their practices to New York and Delaware or face their own financial distress.
“The perception by lawyers at some law firms is that Texas is not a good place to file a complex Chapter 11 bankruptcy,” says Lou Strubeck, a bankruptcy partner at Norton Rose Fulbright. “These lawyers think the Texas bankruptcy judges are not as good, which is simply not true.”
“It is a shame because it has done harm to a very fine bankruptcy bar in Texas,” Judge Lynn says. “Lawyers study the judges in Delaware so much that they think they know what the outcomes will be.”
Judge Lynn says he was disappointed that the Texas Attorney General’s Office gave its public support to EFH’s bankruptcy being litigated in Delaware instead of Texas.
“I’m surprised Greg Abbott would want to force Texas consumers to have to travel to Delaware to make their claims and to have a voice,” the judge says.
Another Texas bankruptcy judge, who spoke on the condition of anonymity, says judges in Dallas, Fort Worth and Houston will give significantly greater scrutiny to high legal fees.
“It is true that a few judges here in Texas wonder why a company that is in bankruptcy is paying its lawyers $1,100 an hour,” the jurist says. “But I guess it is just too much to ask that these lawyers live on $700 or $800 an hour.”
Lawyers point to the bankruptcy of the Dallas Rangers in 2010 as the most recent point of friction. According to court documents, the bankruptcy trustee strongly objected to the legal fees submitted by Weil, Gotshal & Manges. The national law firm sought $4.5 million in legal fees for representing the Rangers, but was forced to accept a $1 million reduction.
That case, according to legal observers, was closely watched by a handful of national law firms with strong bankruptcy practices, some of which said they would try to avoid Dallas bankruptcy courts if possible.
Other bankruptcy lawyers say that the controversy over venue has less to do with legal fees and more to do with expectations.
Michael Rosenthal, a bankruptcy partner at Gibson, Dunn & Crutcher who moved his practice from Dallas to New York, says the Dallas bankruptcy judges are much better than many national lawyers believe.
“Delaware and New York judges are very receptive to debtors and debtors want predictability,” Rosenthal says. “That being said, the decision to file somewhere other than Texas is mostly perception.”
“They are wrong,” says Daniel, who represents Sam Wyly in his ongoing bankruptcy case in Dallas.
The Dallas bankruptcy courts initially obtained a negative reputation among some national bankruptcy lawyers in the 1990s when Judge Harold Abramson was on the bench.
Judge Abramson took pride in the fact that he was unpredictable. He once described himself in court as “a monkey with a machine gun.”
But the days of Judge Abramson are long gone and the bankruptcy judges in Texas are now regarded as some of the best and most diligent, according to Daniel and Strubeck.
Former American Airlines General Counsel Gary Kennedy says he now regrets filing the Fort Worth company’s Chapter 11 in New York instead of Texas.
“I wish I had made all those New York bankers and financial advisers to have to travel to Fort Worth for court hearings,” Kennedy says. “Looking back, I think it would have benefited us by playing in our hometown court.”
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