Winn-Dixie Case Likely to Stay Put; New York Courts Seen as More Friendly to Business, Experts Say
Basch, Mark, The Florida Times Union
Byline: Mark Basch, The Times-Union
Winn-Dixie Stores Inc.'s decision to file its Chapter 11 bankruptcy case in New York, rather than Jacksonville, isn't unusual.
In fact, it's become so commonplace for big companies to file their bankruptcy cases in New York or Delaware, no matter where they do business, that the issue is attracting attention from legal scholars and lawmakers. And one Texas senator, incensed that Houston-based Enron filed its bankruptcy case in New York, proposed federal legislation last month to ban this so-called "forum shopping."
Just two weeks before Jacksonville-based Winn-Dixie filed for a Chapter 11 reorganization in New York on Feb. 21, U.S. Sen. John Cornyn, R-Tex., introduced the Fairness in Bankruptcy Litigation Act of 2005. That legislation would require corporate debtors to file bankruptcy cases in the court where their principal place of business is located, rather than picking their own venue.
"This legislation will prevent bankrupt corporations from effectively selecting the judge in their own case, a necessary step because picking the judge isn't far off from picking the verdict," said a statement by Cornyn.
"The current loophole unfairly enables corporate debtors to evade their financial commitments and badly disables consumers, creditors, employees, pensioners, shareholders and small businesses from pursuing and receiving reasonable compensation from bankruptcy proceeding," he said.
Cornyn's proposal was not included in the bankruptcy reform bill passed by the Senate two weeks ago, which dealt mainly with personal bankruptcy filings. But it's an idea that has been drawing attention because of several high-profile corporate bankruptcies.
"This has been an issue that's been controversial for a number of years," said University of Florida law professor Jeffrey Davis.
Legal experts say that big corporations choose to file bankruptcy cases in New York or Delaware because the bankruptcy courts there are considered more friendly to business. Lynn LoPucki, a UCLA law professor who has done extensive research on forum shopping, said different bankruptcy courts actually compete for the big cases. So even though they all are subject to the same federal laws, some bankruptcy courts tend to favor corporate debtors to entice them to file their cases in those courts, he said.
"They will do things that are clearly in violation of federal law to get these cases," LoPucki said.
Winn-Dixie said at the time of its filing that representatives of many of its creditors are located in New York, so filing there would make the process more convenient and run smoothly.
But at least one creditor disagrees. Buffalo Rock Co., an Alabama-based beverage bottler, filed a motion in court last week seeking to have the Winn-Dixie case moved to Jacksonville or another Southeastern court, where Winn-Dixie does most of its business.
"Venue in New York virtually ensures that the creditors will be disenfranchised from complete and effective participation in these bankruptcy cases," Buffalo Rock said in its motion, which noted that only one of Winn-Dixie's 40 largest trade creditors is from New York. …