Has Permissive Venue Gone Too Far?
Few issues in modern restructuring have generated more debate than bankruptcy venue selection.
The recent decision by Judge Michael Kaplan in the Multi-Color Corporation bankruptcy has again placed the spotlight on whether permissive venue rules have gone too far.
Multi-Color established venue in New Jersey through a newly created affiliate and a bank account opened shortly before the filing. Although Judge Kaplan observed that the maneuvering “did not sit right,” he concluded that the Bankruptcy Code, as currently written, permitted the filing.
Our Contributors approach the issue from sharply different perspectives. Nancy Rapoport argues that manufactured venue undermines public confidence in the bankruptcy system, while Phil Anker urges Congress to narrow the venue statute to reduce the appearance of unfairness. Mark Lightner draws a distinction between selecting a district and selecting a judge, proposing broader random assignment within each district rather than statutory venue reform. Kevin Eckhardt argues more broadly that judge selection encourages aggressive litigation positions and risks recreating the institutional problems that prompted earlier bankruptcy reforms.
Their responses frame the central questions: Has permissive bankruptcy venue gone too far? Would statutory reform strengthen the integrity of the system, or would it sacrifice the experience, predictability, and efficiency developed in courts that regularly administer large Chapter 11 cases? And can concerns about judge selection be addressed through local assignment rules without restricting venue itself?
We invited our Contributors to share their perspectives.
The views of our Contributors should not be attributed to their respective firms or the Creditor Rights Coalition. In addition, the Coalition may take positions as part of its Advocacy efforts that do not necessarily reflect the view of Contributors and should not be attributed to any Contributor.
Has Permissive Bankruptcy Venue Gone Too Far?
Nancy B. Rapoport
UNLV Distinguished Professor
Garman Turner Gordon Professor of Law
William S. Boyd School of Law
University of Nevada, Las Vegas,
Las Vegas Las Vegas, NV
“The law lets [sic] you do it, but don’t. It’s a rotten thing to do.”
—Elihu Root1
Half the fun of being a good lawyer is coming up with an idea that no other lawyer has done before. Not only can a smart lawyer “get there” first, but that lawyer can enjoy the (sometimes brief) lag before other lawyers jump on the bandwagon.2 I first fell in love with bankruptcy law because it was a field in which the only limits seemed to be a lawyer’s imagination.
Not too long ago, venue in bankruptcy cases was sort of boring. We had a statute, and we had some guardrails:
Except as provided in section 1410 of this title, a case under title 11 may be commenced in the district court for the district—
(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; or
(2) in which there is pending a case under title 11 concerning such person’s affiliate, general partner, or partnership.3
But then lawyers started getting creative. The creativity that figuratively snapped my spine appeared in Sorrento Therapeutics,4 in which Debtors’ counsel apparently opened up a UPS mailbox and deposited some cash into a non-depository bank as a way of establishing venue.5
I understand that lawyers love certainty (or near certainty) and that they like to be in locations that are friendly to the types of arguments that they tend to make, especially in big chapter 11 cases. Their clients probably love near-certainty, too. But there are a lot of parties in interest in bankruptcy cases, including, of course, creditors and equity holders. They’d love to be close to the court in which their rights are being affected. Ever since Enron did that abrupt record-scratch when it filed its bankruptcy in the S.D.N.Y., lawyers have been looking for ways to appear in front of their favorite judges.6 There are, however, wonderful bankruptcy judges all over the country, and they are also well-equipped to handle mega-cases. We don’t have to concentrate the mega-cases in just a few districts.
In a world in which the public questions the evenhandedness of various branches of government, including the judiciary,7 using venue to put an anvil on the scale is legal, but it’s another means of chipping away at the legitimacy of our legal system. Elihu Root was spot-on.
Has Permissive Bankruptcy Venue Gone Too Far?
By Phil Anker, Wilmer Hale
In my view, the answer is “yes.” To be clear, I am not suggesting that bankruptcy courts have erred in construing the venue statute as broadly as they have. That statute is, on its face, very broad. Nor am I criticizing debtor’s counsel for taking advantage of the statute, so as to file in the Circuit and district they believe would be best for their client. We lawyers have an ethical responsibility to represent our clients zealously. Rather, I am suggesting that Congress should amend the statutory provision in order to narrow, meaningfully, the venue options.
As currently drafted, that statute (28 U.S.C. § 1408) can grant a debtor wide latitude in selecting the venue for a voluntary Chapter 11 case. For one thing, it provides that the debtor may commence the case in a number of potentially different districts – where, for the 180 days preceding the filing or for a longer part of that 180-day period than any alternative district, (1) the debtor has been domiciled, or (2) its principal place of business in the United States has been, or (3) it has resided, or (4) its principal assets in the United States have been. For another, when dealing with a debtor that is part of a conglomerate of affiliated companies, the debtor can file in a district in which it does not satisfy any of those tests, as long as one of its affiliates does, and that affiliate files a minute or two before it does. As a result, debtors have been able to form an affiliate and have that affiliate simply open a bank account (its only asset) shortly before the filing in the preferred district (or otherwise satisfy one of the four tests for filing in that district), and then have the affiliate and the other related debtors commence their cases in that district as well.
So, why in my view should Congress amend the statute to tighten these venue options? My simple answer is that any legal system that allows the party that is bringing the proceeding and seeking the relief (here, the debtor commencing a voluntary Chapter 11 case) vast discretion where it commences the proceeding – and, in fact, allows it to “create venue” through nothing more than the formation of a new affiliate and the opening of a single bank account – can foster an appearance of unfairness. There is nothing unique to bankruptcy venue in this regard. I read an article earlier this week about how the Trump Administration has filed a number of controversial civil cases in the Northern District of Texas where the cases have typically been assigned to one of two judges, both of whom have ruled for the Administration in a number of matters. So, too, private plaintiff lawyers have been known to prefer certain district courts to others for certain types of cases. From my perspective, it would be better if any such “forum shopping” were permitted by Congress as little as possible, not because I think any bankruptcy or other federal judges are failing to apply the law neutrally and call balls and strikes fairly as they see things, but rather simply because “forum shopping” can create an appearance of unfairness.
For this reason, and this reason only, I think it would be best if Congress were to limit the venue options for debtors. Indeed, while it may not be easy to design, I think the best system would be one in which every debtor or set of affiliated debtors had only one option – perhaps the district in which it or, in the case of affiliated debtors, the affiliate with the most revenue has had its principal place of business over the 180 days preceding the bankruptcy filing.
Finally, I am not moved by the counterarguments I sometimes hear in support of the current venue statute. One such argument is that some bankruptcy courts have developed considerable experience handling large Chapter 11 cases, whereas others have not, and forcing debtors with complex balance sheets or other complicated issues to file in bankruptcy courts without such experience could lead to inefficiencies or other “bad outcomes.” I have been involved in bankruptcy proceedings in a lot of different bankruptcy courts and have always been impressed by the diligence and quality of the judges. In any event, if the venue rules were less permissive, bankruptcy courts around the nation would handle more big cases and any discrepancy in experience between and among such courts would presumably disappear. So, too, I am not moved by the argument that debtors need to be able to file where they are located, and the current, very permissive venue rules allow that to happen. A more restrictive regime would presumably achieve the same end if it allowed a debtor to file in the district where (but only where) its corporate headquarters or principal place of business was located.
Picking the District Is Fine, Picking the Judge Is Not
Mark Lightner, Head of Legal Strategy, CreditSights
I do not believe that permissive venue has gone too far. I have no objection when a debtor chooses the district in which it wants to file. My concern is when a debtor can, for all intents and purposes, choose its judge within a district.
Framed this way, I believe that all large, complex chapter 11 cases should be assigned randomly across all sitting judges in a particular district. But if a district insists on a complex case panel, local courts should require that no fewer than the greater of three judges or half the bench sit on that panel. Three is the minimum because two is where the criticism begins—a debtor choosing between two judges is really choosing one—and the half-the-bench requirement makes sure a district with a deep bench does not create a token panel. I explain below why this may be the right target, and why it should be a judicial fix, not a congressional one, as the SDNY has already demonstrated.
Let’s be clear at the outset: Judge Kaplan’s discomfort in Multi-Color that it “did not sit right” is well taken. When I was a newly minted lawyer clerking in the SDNY during the great financial crisis, I would have felt the same way as a matter of principle. I vividly remember when GM manufactured venue in the SDNY using a Manhattan dealership as the affiliate hook. It struck me as distasteful (read: was Harvey Miller really that clever?), and I am sure the Eastern District of Michigan bench and bar would agree. I had a similar reaction upon learning that In re Ionosphere Clubs was really Eastern Air Lines, which used its airport-lounge subsidiary as the hook to land in Judge Lifland’s courtroom. These examples sat wrong with me.
But after practicing for many years, and now teaching and writing about the law, I no longer find it that troubling. Forum shopping is, to be sure, about choosing a sophisticated bench, but it is also more than that—it is about the governing case law, the appellate courts, the local and complex case rules, the availability of other judges to mediate cases, the local bar, and the quality of the U.S. Trustee’s and clerk’s offices. Indeed, I have learned from experience that large cases move smoothly through chapter 11 not necessarily because of a single judge, but because the entire apparatus, from judge to file clerk, runs on muscle memory and experience. Nothing costs a client more than a process that does not. The SDNY and Delaware earned their reputations over decades. The SDTX and, to a lesser extent, the DNJ and EDVA, have since followed. In my view, predictability and experience are not euphemisms for abuse or judge shopping. This is not to say that judges in other districts are any less competent; rather, it is to say that they have a different kind of experience that does not always include the administration of mega chapter 11 cases.
That is why a manufactured venue troubles me less than it used to. A debtor landing in a particular court through a newly incorporated affiliate gets access to the same institutional infrastructure as one filing through a forty-year-old subsidiary that, often by nothing more than mere happenstance, is domiciled or has assets in a district with a sophisticated bankruptcy bench and bar. Both arrive under 28 U.S.C. § 1408(2), and the statute does not distinguish between them. And the Bankruptcy Code is not defenseless against genuine abuse, see id. at § 1412, and Bankruptcy Rule 1014 already permits transferring cases. Seen in this light, there is even an argument that the coalescence of large cases in a few districts is a market-driven response to the absence of a specialized chapter 11 court of the sort Congress created for tax, trade, and patent disputes, as well as for claims against the government.
Of course, many people may disagree with my assessment, and the disagreement is a principled one—concentration means that a handful of judges shape an entire national restructuring practice. I should be candid, though, that my proposal does not answer the district-level concentration concern, and I do not intend it to. Random assignment across the entire bench will likely leave the largest cases in the same districts as they are today. I accept that because district-level concentration can be a benefit rather than a problem. What troubles me is that within those districts a self-selected handful of judges hear nearly all of them.
That has been the reality in the SDTX, and for years in the DNJ, where a large chapter 11 filing was effectively a choice between two judges. And the stakes are more than academic because many important and recurring questions in chapter 11 remain unsettled at the appellate level, so that in a one- or two-judge district, choosing the courthouse may be issue determinative. The SDNY learned this lesson the hard way. For years, filing in White Plains effectively guaranteed a debtor that Judge Drain, a revered mentor of mine, would get the case, until the district cured the problem by assigning large chapter 11 cases randomly across the entire bench. That was the right result, I think, because a one- or two-judge draw is naked judge shopping, whatever procedural gloss is put on it. And it is worth emphasizing that the SDNY recognized the problem and solved it by itself, by rule and without waiting for Congress to impose one.
In the end, I would leave Congress out of it. Any venue legislation would undoubtedly be the product of compromise, which means the bankruptcy community may not get what it asks for, and may get plenty that it does not want. The various districts, on the other hand, already have every tool they need to fix a problem that is largely one of their own making. There is no need to amend the venue statute to make the identity of the judge unpredictable—a standing order or a local rule should suffice, as the SDNY has proven. Of course, a fair criticism is that the fix cannot be compelled. Indeed, the Judicial Conference’s Bankruptcy Committee urged courts in August 2025 to avoid complex case panels altogether, while recognizing the statutory flexibility districts have to manage their own dockets, and that guidance has not been universally followed. I am hopeful, though, that persuasion will ultimately carry the day, and that professional organizations (such as the NCBJ, ABI, and CRC), academics, and the restructuring community will pressure districts to address this on their own because a statutory fix could be worse.
Finally, I recognize that some districts may not have three judges across whom to spread large cases, but I have not heard that those districts, or lawyers in them, are clamoring to attract large, complex chapter 11 filings. And even if they were, that is fine, at least for now—it is no different from how every other kind of civil litigation proceeds with a limited bench. What cannot be defended, in my view, is a district with a deep bench channeling its largest chapter 11 cases to one or two judges, even if the district acts with the best of intentions.
Has Permissive Bankruptcy Venue Gone Too Far?
Kevin Eckhardt, Octus
OF COURSE IT HAS. Is this even a serious question? Legal professionals and scholars have long agreed that allowing parties to choose their judge leads to unlawful and inequitable outcomes and diminishes policymaker and public confidence in the impartiality of the judicial system.
As I have repeatedly pointed out in the Court Opinion Review, it also encourages debtors to take radical positions, seek radical relief and avoid compromise. If you know the judge is on your side, you shoot the moon and you don’t compromise. That leads to more litigation, more objections and more expense. Opposing counsel can’t just surrender to the debtor’s whims, even if they know the judge will almost certainly go the debtor’s way in the end. So they fight.
These dangers are especially pernicious in the context of specialized tribunals like bankruptcy courts, where the same advisors repeatedly appear before the same judges – often drawn from and, eventually, returning to that same shallow pool of advisors – over and over again.
Again: this ain’t exactly news. The bankruptcy reports overseen by then-SEC chair (and future SCOTUS Justice) William O. Douglas in the late 1930s exhaustively catalogued the institutional decay and abuses of a reorganization system captured by prominent debtor-side practitioners in a small handful of courts – especially the Southern District of New York.
Douglas’ thorough examination of the pre-Chandler Act system showed that the judges in New York and other financial centers that handled the largest corporate receivership cases allowed debtor insiders and their specialized lawyers and investment banks to take over the system and use it to favor themselves at the expense of creditors, eroding the absolute priority rule and securing massive fees for the advisors. Venue shopping was the foundation for that project.
Go ahead and read the SEC’s summaries of Part I of the Douglas reports HERE. My personal favorite is the summary of reorganizers’ (read: debtors’) perverse incentives:
Reorganizers have frequently been interested in expeditious reorganizations not primarily to avoid expense, not essentially because of the desire to have dividend and interest payments quickly resumed, but largely because of their desire to consummate a reorganization of their own liking. Reorganizers frequently have not been concerned, in the manner of investors, with economy in reorganization, as economy would interfere with their profits. Reorganizers at times have not been interested in fair reorganization, since fairness might seriously intrude into their own plans and affairs. Reorganizers at times have not desired honest reorganizations, in the investors’ sense of the word, because such reorganizations would be costly to them. They have been motivated by other factors. And they have endeavored — in large measure with success — to mould the reorganization processes so as to serve their own objectives.
Sound familiar? PREACH ON, BROTHER (“John Brown’s Body” plays in the background, American flag ripples in the breeze):
Reorganizers’ objectives are significant largely in terms of control of the reorganization. The emoluments of control are the stakes of reorganization. Control means profits and protection. He who controls the reorganization controls in large measure the assertion of claims based on fraud or mismanagement which the company or the security holders may have against the management or the bankers. Thus he may be able to protect himself, his associates, his affiliated interests, his friends, if he has that control. He who controls the reorganization controls the dispensation of the vast amount of business patronage present in any reorganization — contracts with the company and with the committees for goods or services; employment of lawyers, auditors, engineers, and the like; appointment of receivers, trustees, and masters; designation of depositaries for committees; determination of banking connections and the like …
[The reorganizers’] objectives will often result in a perversion of reorganization functions. They may mean that costs will mount; that assets of the company in the form of claims against the management, the bankers, and their affiliated interests will be lost; that incompetent or faithless managements will be restored to power; that investors will be exploited. Outwardly reorganizations may appear to be expeditious, economical, fair, and honest. Often, however, those characteristics will only be illusions.
AHHHHHH, that’s the stuff. How did this happen, according to Douglas? Friendly judges repeatedly appointed the same receivers proposed by management and captive creditors committees over and over again. Why? Because the receivers would retain the same lawyers with connections to the judges over and over again. The system was a small but extremely lucrative patronage network.
The lawyers who controlled where cases were filed knew that, and took advantage – because that’s what good lawyers did, even in a more genteel age. I have repeatedly emphasized that I do not blame lawyers for filing cases in the jurisdiction where they believe their clients will be successful in achieving their goals. It’s important to remember that will never change as long as our current adversary system remains in place.
So: we need to deprive debtors’ counsel of the ability to make that choice. Douglas didn’t see that as a solution; instead, he proposed the mandatory appointment of trustees in every Chapter X reorganization. The drafters of the 1978 Bankruptcy Code, charged with making reorganization more debtor-friendly than under the Chandler Act, eliminated this requirement, enshrining the concept of the “debtor-in-possession.”
This worked in the short term – up to about 2003 or so? GM/Chrysler? Discuss – and might have worked in the long term had the Code’s drafters also carefully limited the debtor-in-possession’s ability to repeatedly choose their own judge and recreate the pre-Chandler Act patronage system Douglas decried.
And what good reason would anyone have had for opposing a more rational, more limited venue rule at the time the Code was enacted? Would you have appeared before Congress in 1977 and testified that bankruptcy venue must be loosely defined, because some judges might gain valuable “expertise” handling large chapter 11 cases and debtors should be able to select those judges to handle their cases?
That’s a post hoc defense, and easily debunked: just look at the parade of cases headed for New Jersey, where a single judge with practically no chapter 11 experience created his own mega-case fiefdom by loudly broadcasting his willingness to do whatever debtors want. Not only do we have extremely liberal bankruptcy venue rules that allow the handful of firms handling big debtor cases to pick their judge, we also have zero legitimate justification for maintaining such a system.
Will this ever change? My suspicion is no. Bankruptcy venue reform has been proposed in every Congress for years – sometimes with bipartisan support – and never made much progress, even before the New Golden Age of Rent-Seeking, Corruption and Patronage in which we currently live.
Bankruptcy makes for strange political bedfellows – see e.g. the Purdue decision – but that’s probably because it offers insufficient red meat to motivate the base in these partisan times. Maybe we need a new Great Depression to spur bold, fact-based inquiries into suggestions for improving the bankruptcy system, a la Douglas? Probably not worth it.
Absent the realistic possibility of venue reform, the best any of us can do is write a monthly column for a niche financial and legal information platform that excoriates thirsty mega-case judges for their debtor-friendly nonsense. Keep the social pressure up, and I’m sure these judges will start feeling shame again.
Am I a modern-day American hero for doing just that? Perhaps.
Copyright 2026 Creditor Rights Coalition
1 Sol M. Linowitz, Moment of Truth for the Legal Profession, 1997 Wis. L. Rev. 1211, 1214-15 (“I believe Elihu Root once again had it exactly right when he told a client: ‘The law lets [sic] you do it but don’t …. It’s a rotten thing to do.”) (footnote omitted).
2 Don’t get me started on the Texas Two Step. I’m not a fan.
3 28 U.S. Code § 1408.
4 See United States Trustee’s Reply in Support of Motion to Transfer Venue or Dismiss Pursuant to 28 U.S.C. and Fed. R. Bankr. P. 1014(a)(2), In re Sorrento Therapeutics, Inc., United States Bankruptcy Court for the Southern District of Texas, Case No. 23-90085 (CML) 1408, Doc. No. 1990 (Mar. 7, 2024).
5 See id. at 2. Let’s not forget Northvolt AB, either. According to Cliff White, “After Intrum was welcomed into U.S. bankruptcy court, another Swedish company filed in Houston. Northvolt AB, case no. 24-90577 (S.D. Tex.), admitted that its main asset is a retainer held by its bankruptcy law firm. The company also admitted that it formed a Texas entity three days before filing because ‘the parties concluded that Texas was the preferred United States venue.’” Clifford J. White III, Two Unanswered Questions for 2025, Creditor Rights Coalition (Dec. 21, 2024), at https://creditorcoalition.org/two-unanswered-questions-for-2025/. Of course, Sorrento and its ilk figuratively snapped my spine for another reason. See, e.g., Nancy B. Rapoport, Failing to See What’s in Front of Our Eyes: The Effect of Cognitive Errors on Corporate Scandals, 16 Wm. & Mary Bus. L. Rev. 45 (2024); Nancy B. Rapoport, Am I My Colleagues’ Keeper When It Comes to Disclosing Connections?, 40 Emory Banker. Dev. J. 333 (2024).
6 And, for whatever reason (because federal judges don’t get bonuses for handling lots of mega-cases), some courts love to court mega-11s and have found ways to entice lawyers to file in their districts.
… David [Jones] is not being honored tonight because of his work in consumer cases. That is true even though in my mind and in his, that may be his most important work. Instead, he is being honored because he had a vision of a bankruptcy court that would provide service to the business community. It would not favor debtors or creditors. It would not operate for the convenience of the judges. It would not only be available during banker’s hours. It would not rely on outdated technology that makes commercial bankruptcy practice harder. David envisioned a Court in which he would want to practice. Many attribute that to a team effort between me and David. Nope. David, at times, had to have son-father talks with me to force me to adapt to his vision. And I, on much rarer occasions, would have to restrain the speed and vigor with which he moved. But the revolution in mega-case bankruptcy practice that has been started in the Southern District of Texas is a David Revolution. It is a system without fear or favor, available if needed seven days a week. Run for the benefit of all constituents. With hoped-for efficiency and fairness and respect. And with world class technology. All part of the vision that David had in 2016.
Marvin Isgur, Presentation Remarks, 39 Emory Bankr. Dev. J. 487, 489 (2023), at https://scholarlycommons.law.emory.edu/cgi/viewcontent.cgi?article=1234&context=ebdj.
7 Although both sides of the political spectrum have been questioning the legitimacy of the three branches of government, they’ve done so at different times in our history.