The U.S. Bankruptcy Court for the District of New Jersey is an active jurisdiction, but it’s only grown more so as Am Law 50 firm Kirkland & Ellis has recently begun filing large-scale Chapter 11 bankruptcies in the district. Many view the firm as a market leader in the space and a possible precursor for other Big Law firms filing restructurings in the venue on behalf of their large debtor clients.
Litigators around the state say the enthusiasm for the venue stems from the bench being efficient and effective, and known for offering practitioners much-needed consistency that can help ensure the litigations move smoothly.
The New Jersey Law Journal spoke with Chief Judge Michael Kaplan of the U.S. Bankruptcy Court for the District of New Jersey about how the venue got to where it is, how it is able to stay on top of its active docket and whether the attention some pay to fee petitions and disqualification motions is warranted.
Editor’s note: The following was conducted over email and has only been slightly edited for format.
Do you agree with the premise that the New Jersey Bankruptcy Court is becoming one of the established venues where Big Law wants to file?
I disagree to the extent the premise assumes that New Jersey was not already an established venue for significant cases prior to a more recent influx of larger Chapter 11 filings. In point of fact, during my 18 years on the bench (and before the more notable cases such as LTL Management LLC and BlockFi in late 2022 and early 2023), our court handled a wide array of large national Chapter 11 cases, including retail chains (Sur La Table, Modell’s, L’Occitane, Dots, Ashley Stewart, Crumbs Bakeshop, Kids Brands, Big M), as well as significant casino cases (Revel, Trump) and asbestos/pharmaceutical Chapter 11s (Congoleum, G-I Holdings, Duro Dyne and Aceto) and of course the Camden Diocese case, just to name a handful.
The more recent filing activity by national law firms simply adds to what I view as a strong foundation. Much of the increased activity is due in large part to the maturing of our bench in recent years. Starting in late 2013, our court has experienced a “changing of the guard,” so to speak, with seven out of our nine judges leaving the bench and being replaced. Our judges now have developed a track record in how such larger, complex cases are being handled, on both substantive and procedural bases.
Before Mark Hall [of Fox Rothschild] was designated by the circuit to replace Judge Kathryn Ferguson, our court had gone over eight years without any changes. This experience and stability offers law firms and their respective clients a measure of predictability, which is always critical in substantial reorganization efforts. Recent filings confirm the confidence that certain national firms have in our court’s ability to handle these cases in a manner which is both fair and efficient for all stakeholders.
I can’t overemphasize the importance of having an experienced and enthusiastic clerk’s office and chambers staff, willing to put in the time necessary whether it be after hours or on weekends. By way of example, with the WeWork Chapter 11 filing, there were over 200 separately filed Chapter 11 petitions filed electronically on a Sunday evening after 10 p.m. It requires at least six minutes each to docket and schedule these cases. You can do the math—it required several clerk’s office staff to work into the wee hours of the morning to address in these filings, for emergent hearings the next day. Lawyers and clients for all parties appreciate these efforts and consider a court’s abilities and experience in this regard.
From your interview with Bloomberg and some additional comments I’ve seen, especially related to the special master issue, it seems you’ve been vocal about promoting the bench’s reputation. I’m curious as to why? Were you hoping to have more large, complex Chapter 11 cases filed here?
No, my hopes and expectations were to have our court handle the large and complex cases which belong in New Jersey and/or impact New Jersey stakeholders.
It has always been a concern for me and my judicial colleagues (as well as the bar) that there have been Chapter 11 cases in which a company’s headquarters or significant facilities and operations were in New Jersey, but the filings were elsewhere. This necessarily required New Jersey-based stakeholders, such as employees, landlords, vendors, utility companies, insurers, unions, etc., to travel and retain local counsel to participate in the proceedings. I need to point only to such cases as Toys R Us, Party City, Avaya Corp., Fedders AC, Celsius Networks Lending, just to name a few. There is no reason why our court could not oversee these cases.
Admittedly, there are large cases which can be filed in multiple jurisdictions under the applicable venue statute. If they are filed in New Jersey, great, but that has never been our emphasis.
I would also be less than candid if I did not admit as well that many of us on the bench are bankruptcy nerds and we enjoy addressing the challenging legal issues in these cases.
What does it take to become a venue where Big Law wants to file their complex bankruptcy cases?
I think I have already answered this by pointing out the importance of a clerk’s office staff and chambers staff being available at all reasonable times to ensure that emergent matters are addressed, necessary orders entered, and hearings scheduled and resolved timely. Our judges make a point of moving cases forward and not letting matters languish.
New Jersey also benefits from having professional, experienced and accommodating staff at the Office of the U.S. Trustee for Region 3, who also must throw their time and energy at hundreds of pages of document filings with relatively short notice. National and local lawyers go into a Chapter 11 case with sound expectations of positions to be taken by the U.S. Trustee and his office’s willingness to work on compromises in language and procedures.
Finally, our Lawyers Advisory Committee and clerk’s office have put together clear and practical local rules and guidelines for complex Chapter 11 cases (where assets or liabilities exceed $50 million), which again offers guidance and predictability to professionals.
Litigators say your bench is very efficient and effective. What is the court’s process for assigning cases, staying on top of an active docket, and making sure that motions move quickly?
Generally, cases are assigned randomly to judges in one of the three vicinages (Camden, Newark or Trenton) based upon the county in which the principal office or assets are located. I have indicated in the past that on relatively rare occasions, the chief judge will reassign or initially assign a case to another judge based upon caseload, health issues or vacation schedules, staffing concerns, or prior experience with the legal or factual issues relevant in the case (i.e., asbestos or other mass tort issues, retail issues, Ponzi schemes or where a judge has knowledge based upon prior affiliated cases or related parties).
Our clerk’s office keeps all our judges apprised of monthly caseload changes, new and closed cases, including adversary proceedings and the length of time cases have been pending. All our judges have chambers staff, which track calendars and reserve lists to ensure that matters are resolved promptly.
Most importantly, my colleagues use each other through “coverage exchanges” to make sure that some judge will be available to hear and resolve matters in the case of vacations, illness, or scheduling conflicts. Simply put, we (judges, chambers staff and clerk’s office) are a team.
Some observers say rulings on issues such as fees and disqualifications also play into a firm’s venue selection. I’m curious to get your thoughts on that, and whether you think it’s a fair consideration?
Honestly, I think the attention given these issues in social media outlets and academic circles is unwarranted.
Judges in many if not most of the larger Chapter 11 cases employ independent fee examiners to weigh in on the merits of requested fees. Moreover, from my experience, the fees sought and awarded in these larger cases are pretty much consistent in most jurisdictions and do not always reflect accurately the sums received by professionals, who often must and do take significant reductions to ensure an effective restructuring.
As to disputed retention issues, I think I have had two in 18 years which required litigation and resolution by written decision. These are almost always very fact-specific and hardly outweigh other important issues and considerations such as sale/bidding procedures, approval of break-up fees, use of cash collateral, third-party releases, appointment of examiners, availability of combined disclosure and confirmation hearings, again just to identify a few.
Some observers say there’s interplay between the various established venues, where one venue—such as the Southern District of Texas, for example—may lose favor with certain firms, which then means those firms are increasingly going to other venues. Do you see that interplay from the bench (i.e., does it seem like your dockets can get busier or slower depending on what’s happening in other venues)?
Certainly, any case that could be filed in multiple jurisdictions but ends up in New Jersey of course increases our workloads and such large cases demand a substantial amount of court time, with extensive motion practice and litigation. This is why the Administrative Office of the Courts accords these “mega cases” larger case-weights in evaluating judicial workloads across the country.
That being said, the truth is that we are a busy and active court, due mostly to consumer and small-business caseloads. The most recent statistics released by the Administrative Office of the Courts reflect that New Jersey ranks sixth in overall cases as of June 30, 2024, with consumer filings (Chapters 7 and 13) each ranking in the top 10 of all districts. Likewise, with respect to Chapter 11 filings, while we currently have the highest overall Chapter 11 case filings of the districts (and that changes every quarter), much of that is attributable to the increased volume in Subchapter V cases (small-business Chapter 11s), where we are ranked second. Needless to say, Big Law firms do not ordinarily file these Subchapter V cases.
Shifting caseloads in other jurisdictions may add to our work, but our day-to-day calendars remain filled notwithstanding.
