Economic cycles, retail struggles drive bankruptcy case load
By Alex Vuocolo
Digital Editor/Senior Reporter
Delaware has long been a popular venue for bankruptcy litigation. Lately, though, the U.S. Bankruptcy Court District of Delaware appears to be getting even busier, and the causes are difficult to parse.
Between 2017 and 2018, bankruptcy cases filed in the district increased from 2,830 to 3,199. That is a 13% jump, even as many other courts saw a decrease in filings. At 20% the Eastern District of New York was the only court to see a larger increase.
Like other local firms, Potter Anderson & Corroon LLP has expanded its bankruptcy practice to meet the demand. In April, the firm hired two new partners — Christopher M. Samis and L. Katherine Good — who have an extensive background in bankruptcy litigation.
“The volume of cases has certainly picked up,” said Samis, who is known for representing creditors’ committees in complex Chapter 11 proceedings. “I’ve certainly been going out and pitching a lot more than I had been previously.”
Out-of-state firms have also set up local offices with a focus on bankruptcy law. McDermott Will & Emery opened a Wilmington office in April. Robinson+Cole opened an office in January.
The court itself has expanded to accommodate the increase. The Bankruptcy Judgeship Act of 2017 authorized the addition of two new seats to the bench, bringing the total from six to eight. John T. Dorsey and Karen B. Owens joined the court in June to fill those seats.
Looking out from behind the bench, the trend lines look the same.
“It’s hard to predict, and the flow of bankruptcy cases certainly ebbs and flows over the years,” Dorsey said. “But I think there is some anticipation that it will continue to grow over the years.”
Some attribute the ramping up to the economic cycle. The argument being that after a decade or so of steady growth, the other shoe is about to drop. Others pinpoint the causes of the uptick more narrowly.
“The interesting thing about bankruptcy is that it’s an alternative for all sectors and industries,’ Samis said. “You see different industries falling in at different times.”
Right now, a series of high-profile bankruptcies in the retail sector have contributed to the volume of cases. “Retail has been in a little bit of a spiral, because of things like Amazon and off-market leases,” Samis said.
In 2019 alone, retailers such as Payless, Diesel, Gymboree, Mattress Solutions and Charlotte Russe have declared bankruptcy. While some major companies have passed up Delaware for other venues, including Sears and Toys ‘R’ Us, the state remains a draw, with companies like Charlotte Russe choosing the district.
The energy sector has contributed as well. “There continues to be filings in the oil, gas, and coal arena,” said Good of Potter Anderson Corroon.
Another factor is what Samis calls “issues de jour.” These are cases that crop up due to political pressure or other external factors. One recent example is the legal impact of the opioid crisis.
Insys Therapeutics Inc. in June became the first major drugmaker to file for bankruptcy after getting hit with multiple lawsuits by states and municipalities for its role in the opioid epidemic. The company’s fate now rests in the hands of the Delaware Judge Kevin Gross, who will decide whether to halt the more than 160 active lawsuits against the company during the proceedings.
Another political issue that has translated into bankruptcies is the drop in gun sales following Trump’s election. The South Carolina-based gunmaker United Sports Companies Inc. recently filed for Chapter 11 bankruptcy in Delaware. The company, which had anticipated a presidential victory for Hillary Clinton, was not prepared for the so-called “Trump Slump.”
“It’s those micro and macro-level factors that can have impacts across industries,” Samis said. “You see
upticks, and you see downticks based on those trends.”