Fort Worth judge irked by RadioShack’s faraway bankruptcy filing

A clearly perturbed Fort Worth bankruptcy judge criticized RadioShack and other troubled local companies for choosing to file Chapter 11 cases in places like Delaware or New York rather than in hometown courts.

U.S. Bankruptcy Judge Russell F. Nelms was irked that RadioShack and Quicksilver Resources decided to file their reorganization petitions in Delaware courts when both are based less than a mile from his courtroom on West 10th Street.

“Although one of the goals of bankruptcy is to facilitate creditor participation, many debtors now file for bankruptcy in locations that are certain to minimize it,” Nelms wrote in an Aug. 3 opinion. “Various excuses are given for these remote filings. Few are convincing.”

Nelms vented his “frustration” about this practice in a decision in the Chapter 11 case filed by the Crosby National Golf Club in San Diego. The club filed its case in Fort Worth, where its upper-level management is located, but a debtor asked that it be moved to Southern California. Nelms agreed.

But the judge, after providing legal rationale in a 12-page opinion, didn’t stop there.

Instead, in the opinion’s final three pages, Nelms admits that he is breaking the “axiom of good legal writing” and — “out of frustration” — is criticizing the practice of companies that file cases in locales with almost no connection to the debtor or its creditors.

RadioShack filed for bankruptcy in February in Delaware, where it was incorporated. About half of the company’s 4,000-plus stores were quickly shuttered and more than 1,700 were sold to the Standard General hedge fund. The rest of the company’s estate remains in Bankruptcy Court.

Quicksilver Resources, a local oil and gas firm incorporated in Delaware, also sought bankruptcy protection there in March. Many corporations have chosen to be incorporated in Delaware because of its friendly tax and court structure. Fort Worth-based American Airlines filed its bankruptcy case in New York.

Some say it’s best to file big cases that involve the restructuring of large debt in states like Delaware, Nelms wrote, because the lenders and their lawyers are nearby and the judges have expertise.

“Perhaps it is a measure of my lack of sophistication that I don’t consider the day-one dismantling of an electronics retailer an inordinately complex case that can only be overseen by the most expert judge,” Nelms wrote.

“Still, ignoring the slight to the local judiciary, this argument has gossamer transparency.”

Because so much of the work is done by phone or with texts and emails by attorneys, Nelms wrote, to say that it’s more convenient for a Fort Worth-based company to deal with its New York-based lender in Delaware is “laughable.”

More convenient for whom, the judge asked.

“I doubt, for example, that the president of Quicksilver, whose offices are a two-minute walk from this court, was the one who made the compelling argument that it would be much more convenient for the company if its bankruptcy case was filed 1,400 miles away,” he wrote.

Instead, there are likely other reasons for being in a courthouse oh-so-far-away.

“Some are filed with a goal of precluding easy access to the court by small creditors, especially if those creditors are soon-to-be former employees,” Nelms wrote.

“Individual citizens of this country interact with our judicial system primarily in two venues, the family courts and the bankruptcy courts. It is here where they see justice done or not done. And it is important that they have the opportunity to see it,” the judge said.

“No employee at RadioShack’s corporate headquarters took off from work early and walked the few short blocks to this court to observe any proceedings in that bankruptcy case. And that’s a shame, not necessarily because the result would have been different, but because that employee might have felt a little better about the result and the system after seeing the sausage being made.”

This report includes material from Bloomberg News.

This story was originally published August 6, 2015 at 6:31 PM with the headline "Fort Worth judge irked by RadioShack’s faraway bankruptcy filing."