Vol. 37, Number 3 —March 2005

For Delaware Bankruptcy Court, Appeal is a Mixed Blessing

Over the years, the U.S. Bankruptcy Court for the District of Delaware has been a magnet for business bankruptcies. A combination of experienced bankruptcy judges, proximity to major financial centers, and state tax structures and incorporation laws friendly to corporations, has made Delaware attractive to corporations who might file for bankruptcy. In fact, the court's appeal has nearly redefined the meaning of a "mega" bankruptcy case.

"Around the country, said Delaware Bankruptcy Clerk of Court David Bird, "if you get one chapter 11 business bankruptcy with $1 million in assets, that's pretty big. Ours start at $100 million in assets." Most of Delaware's bankruptcy cases are mega cases, which by definition also means over 1,000 creditors per case.

Everything bankruptcy-related seems to be bigger in Delaware. The number of adversary proceedings filed annually, averaging 1,700 nationally, is over 10,000 in Delaware. In the daily docketing of bankruptcy cases, nationally there is an average of 400 entries for a small business chapter 11 case. Delaware averages 5,000 docket entries in the same types of cases. "And we will go up to 7,000, or 9,000 docket entries," said Bird.

There's only one thing lower than expected in Delaware—and that's the number of authorized bankruptcy judgeships.

The Judiciary requests bankruptcy judgeships in a complicated formula of criteria and standards that take into account a court's weighted caseload per judgeship, and factors in a caseload that make the situation unique. In calendar year 2004, the per judgeship weighted filings in Delaware were over 11,789, and have been above 10,000 each quarter since June 2001. The national average is 1,763. According to the judgeship formula, Delaware should currently field a team of 13 bankruptcy judges.

They have two.

"Under the formula, Delaware may be entitled to 13 new bankruptcy judgeships," said Chief Bankruptcy Judge Mary F. Walrath. "But so many aren't necessary because we have instituted many efficiencies in court procedures in our district along with electronic filing." Instead, the Judicial Conference has asked Congress for four new bankruptcy judges for Delaware.

Congress hasn't created any new bankruptcy judgeships in any district since 1992. Bankruptcy reform legislation introduced in previous Congresses has often included a number of bankruptcy judgeships, but none of the bills became law. In the 109 th Congress, the Judicial Conference has recommended the creation of 47 bankruptcy judgeships for 31 districts. Bankruptcy reform bills now being considered by Congress would create a total of 28 new bankruptcy judges, with four temporary bankruptcy judgeships for Delaware.

With a staggering number of per judgeship weighted filings, just two authorized judgeships, and no new judgeships on the horizon, how is Delaware coping?

"We use visiting judges," said Walrath. "And they're effective. One visiting judge is handling all our preference litigation. Of 15,000 preference litigation actions pending in January 2004, he's brought them down to under 10,500, and has instituted procedures to make the remaining cases move more quickly." Preference litigation involves disputes over recovery of prepetition payments made to creditors by the debtor.

Like its other bankruptcy statistics, even Delaware's number of visiting judges is atypical. "Other districts may have one or two visiting judges who help," said Bird. " Delaware currently has 13 visiting judges. Some come, on average, for one week per month for a year. Others retain the cases assigned to them to finish out in their home districts."

Attracting enough visiting judges is not a problem. "We're really a national court," said Bird. "In other districts, a bankruptcy judge may get one or two mega cases in his or her entire term. Here, they'll deal with 6 or more mega cases, assigned to them immediately. They come because they want experience with mega cases. Every judge who has come here has been excited about and thankful for that opportunity."

Nationwide, bankruptcy filings have totaled over 1.5 million since 2002. Bankruptcy judgeships are needed across the nation, but probably no where more so than in Delaware.

"We're using every ounce of ingenuity to deal with this caseload," said Bird. In the late 1990s, Delaware's district court judges surprised everyone by announcing they would start hearing bankruptcy cases in an all-out effort to help.

"They were a tremendous help for a time," said Bird, "but they had their own large caseloads to deal with, the largest per judge patent caseload in the country—and still there was no relief from Congress."

Aggressively automating processes also has helped. Delaware went live on the Case Management/Electronic Case Files System in 2001. Today, the volume of bankruptcy e-files accessed by the public is so high, the district generates more PACER fees than any other district.

The efficiencies, however, are not enough. Delaware may have two authorized judgeships, but only one of those judgeships is permanent. The other is a temporary judgeship created in 1992. Now, by statute, if a vacancy occurs on the bankruptcy court, it cannot be filled. If either Chief Judge Walrath or Judge Peter Walsh retires, or either of their terms expires, their positions cannot be filled. And Judge Walsh only has three years left in his term.

"Delaware's bankruptcy judges are dealing as best they can," said Bird, "but Congress needs to act."

For a complete list of the bankruptcy judgeships recommended by the Judicial Conference and their judicial districts, visit our website at www.uscourts.gov.