Steve Bainbridge, commenting on Lynn LoPucki’s Forbes piece and book on perverse competition in bankruptcy, says:
One of these days I need to explain why LoPucki's right that competition is bad in bankruptcy courts but wrong in claiming that it's bad in corporate law.
I’ll go ahead today: In bankruptcy, the parties choose the forum ex post, at the time of the proceeding. In corporations and other contractual choice-of-law settings, the parties choose the law and, possibly, also the forum, at the time of contracting, e.g., in the charter. It makes a difference because everybody knows their rights in advance and can work out any problem in the contract to their mutual satisfaction. In bankruptcy, the choice is the result of gamesmanship. I explain this from a choice of law standpoint in From Efficiency to Politics in Contractual Choice of Law, 37 Ga. L. Rev. 363 (2003).
Would bankruptcy forum competition be bad if the parties chose the forum at the time of extending credit? Probably not. What if the parties know at the time of extending credit that the case will end up in Delaware if it goes into bankruptcy, and that Delaware follows a particular approach in bankruptcy? May also be ok, but the expectations and therefore appropriate result here are significantly hazier. I'll be giving these issues some more thought this summer.
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