A Friendly Judge

Lawyers appointed by the government to oversee an estate left from a fraud case go to a certain court. From Ponzi Regulation:

“The Chapter 11 filing brought Manhattan Capital and its fund – and related lawsuits – to the court of Burton Lifland, a long-time bankruptcy judge….

(The judge) was famous in a certain field of study. Nobody pointed this out at the time the Manhattan estate was moved to his court….

In a sense one could say the judge was infamous. He made an appearance in a line of research about venue shopping in bankruptcy cases. In the 1980s, major corporate litigants with weak links to New York chose to file for bankruptcy in the city, in the court of Burton Lifland—him in particular, not other judges in the district. The remarkable pattern called for an explanation.

The leading researcher in this area, Lynn LoPucki, argued that competition for big cases corrupted bankruptcy courts. The courts that transferred wealth from creditors to corporate managers and bankruptcy professionals were naturally preferred by managers and bankruptcy professionals. So it became common practice for them to shop for the right venue (from their point of view). In time Delaware displaced New York as the venue of choice for major bankruptcies. In both court districts, it looked like certain judges helped those who filed for bankruptcy and as a result the filers sought those judges.

Lifland favored debtors and reorganizers, among whom lawyers are the prominent group. The judge’s decisions were seen as opposed to the interests of creditors. That made his court a surprising place – to say the least – for protecting fraud victims, that is, the investors in Manhattan Fund. Turned into creditors in the bankruptcy procedure, they were forbidden to interfere with the disposition of their property and the judge to whom they brought their claims was renowned for not being friendly to creditors. “

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Tags: Bankruptcy, Estate, Lawyers