Delaware: A Venue Of Choice For Major Chapter 11 Cases

Sunday, June 1, 2008 - 01:00

Editor: Ms. Daluz, would you tell our readers something about your professional experience?

Daluz: After graduating from Georgetown University Law Center in 1990, I spent the next ten years practicing with two large Philadelphia law firms. I became a partner in the second of those firms in 1998. In 2000, I moved my practice to Wilmington, Delaware and in November 2002, I became a partner with Ballard and opened its Wilmington office. In addition to serving as the office's Managing Partner, I co-chair the firm's Bankruptcy, Reorganization and Capital Recovery Practice Group and Diversity Committee.

Editor: Please tell us about your practice. How has it evolved over the course of your career?

Daluz: I have always been a bankruptcy lawyer, but my professional experience goes beyond litigation in federal bankruptcy courts. Early on in my career I handled all types of commercial and collection matters, including Uniform Commercial Code secured creditor sales, state court foreclosure proceedings, and confessions of judgment. Additionally, while practicing in Philadelphia, I was trained to represent both borrowers and banks alike in front-end loan transactions and workouts. There was plenty of corporate Chapter 11 bankruptcy work in Philadelphia until the late 90s when jurisdictions like Delaware and the Southern District of New York began to emerge as the venues of choice. Additionally, as the banking industry began to consolidate, established Philadelphia institutions merged and some moved their headquarters, and legal relationships, to other cities. As a result, in 2000, I jumped at the opportunity to spearhead a Delaware bankruptcy practice. The move to Delaware also reflected a shift in my practice more toward litigation in the bankruptcy court. Currently, I represent primarily unsecured creditors, including indenture trustees and bondholders, and unsecured creditors' committees in Chapter 11 cases, although I have also represented debtors and purchasers of assets out of bankruptcy cases. I continue to advise clients, primarily officers and boards of troubled companies, on corporate governance issues as well.

Editor: Can you share with us the reasons behind Ballard Spahr establishing a presence in Delaware? What markets was the firm trying to serve in taking this step?

Daluz: It is my understanding that Ballard had been looking to establish a presence in Wilmington for a long time. The location made sense from a strategic standpoint in that the firm already had several offices along the "Acela corridor" in the Mid-Atlantic region, including Philadelphia, Voorhees, New Jersey, Baltimore, Maryland, and Washington, DC. The additional presence in Wilmington, and subsequently Bethesda, Maryland, has only solidified that presence and allowed the firm to better serve its clients throughout the region. A Wilmington office also presents opportunities to plug into the many practice areas that thrive here, including corporate litigation in the Delaware Chancery Court, intellectual property litigation in the federal district court and, of course, bankruptcy. This list is not exhaustive, and these are not the only practice areas that exist in our Wilmington office.

Editor: Please give us an overview of the Wilmington office.

Daluz: There are six lawyers at our Wilmington site. It is still a small office, but I think it is safe to say it is the only Delaware office of a major firm that is spearheaded by three woman partners, two of whom are members of racial or ethnic minority groups. I am proud to have Emilie Ninan and Beth Moskow-Schnoll as my partners. They are both terrific lawyers and good personal friends.

The practice groups represented include bankruptcy commercial litigation, municipal finance, white collar and Delaware corporate opinion. There is no focus on a particular industry or industry sector, but a wide range of clients are served by the lawyers in the Wilmington office.

Editor: The firm also enjoys a strong relationship with DuPont. Can you tell us something about that?

Daluz: Ballard was a DuPont Primary Law Firm (PLF) long before the Wilmington office was opened and, frankly, we did not open the office because of DuPont. Having an office that is literally next door to DuPont's in-house legal department is terrific, however, and contributes to our ability to better serve the client. Most of our Delaware lawyers work on DuPont matters as well as participate in and help organize PLF networking activities.

Editor: In your particular area of practice, Delaware has lost some ground in recent years to the Southern District of New York and other jurisdictions - I am thinking of Enron, WorldCom, United Airlines and K-Mart - after having been the venue of choice for Chapter 11 filings. Can you bring us up to date on how this development is proceeding?

Daluz: Delaware is very much a venue of choice for many potential Chapter 11 debtors. In my opinion, the downturn in the number of Chapter 11 filings in Delaware reflects the decrease in overall Chapter 11 bankruptcy filings during the past two or three years.

Certainly cases will continue to be filed in the Southern District of New York and other appropriate jurisdictions, as determined by potential Chapter 11 debtors and their counsel on a case-by-case basis. Some might argue the airline cases are not filing in Delaware, but I can identify at least two that have been brought in the last two years. For every perceived trend, there is more than one exception. I think too much emphasis is placed on perceived trends. For example, many subprime bankruptcy cases were filed in Delaware, but they were also filed in jurisdictions like California and Arizona. Recently, several retail cases were filed in Delaware, but there have been retail filings in the Southern District too.

Editor: Is the adoption of specialized business courts by a number of neighboring states having an impact on this particular discussion?

Daluz: Year after year, Delaware courts, including the Supreme Court and the Chancery Court, are consistently voted among the best courts in the country by judges and practitioners alike, so I suppose my answer to the question is no. Generally speaking, however, I think the establishment of specialized business courts is a good thing regardless of the jurisdiction. Litigants and lawyers both benefit from courts that are accustomed to addressing sophisticated business disputes in an efficient and timely manner.

Editor: As the economy moves closer to recession, the question of insolvency exposure for directors is coming to the fore. Can you share with us your thoughts about Delaware - traditionally a business- and director-friendly jurisdiction - as the venue of choice for such litigation?

Daluz: As long as corporations continue to incorporate in Delaware, the fiduciary obligations of officers and directors will be examined under Delaware law and in the Delaware courts. In an opinion later affirmed by the Delaware Supreme Court, the Chancery Court was the first to hold that Delaware law does not recognize a cause of action for "deepening insolvency." See Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del. Ch. 2006), aff'd sub nom . Trenwick Am. Litig. Trust v. Billett , 931 A.2d 438 (Del. Supr. 2007). As such, officers and directors of corporations that are struggling with decisions in the wake of the "zone of insolvency" cases brought by creditors and their litigation trusts can breathe easier. Delaware courts are known for taking on tough issues of first impression, and I expect that trend to continue.

Editor: As you know, most of our readership consists of general counsel and the members of corporate legal departments. What should we be calling to the attention of our readers concerning bankruptcy practice in Delaware?

Daluz: General counsel and all other in-house lawyers should know that this jurisdiction has six of the finest bankruptcy judges in the country, which, coupled with the expertise and professionalism of the Delaware bankruptcy bar, provides a predictability that cannot be achieved in most other venues. You cannot predict the outcome of every matter, but a long established track record for excellence provides a tremendous amount of precedential value.

Editor: How has the rotation of bankruptcy judges from outside the Third Circuit affected your practice?

Daluz: I don't think visiting bankruptcy judges have affected either my practice or, more generally, the Delaware bankruptcy practice, especially not in a negative way. Instead, we have been tremendously lucky to have so many judges willing to volunteer their time to assist Judge Walrath and Judge Walsh during a time when they have been overburdened by the number of active Chapter 11 cases in this jurisdiction.

Editor: How do you see your bankruptcy/restructuring practice developing over the next five years?

Daluz: I think we are only at the beginning of an insolvency cycle that will take some time before it ends. Of course, that prediction bodes well for all insolvency professionals, and I would hope my practice will continue to grow and thrive during the next five years.

Editor: And the practice of the Wilmington office?

Daluz: I would like to see an office of at least 15 lawyers and the addition of real estate and general corporate expertise.

Editor: Is there anything you would like to add?

Daluz: After growing up in Providence, Rhode Island, I ran away from the smallest U.S. state never expecting to find my way to the second smallest state. However, the best thing I have done for my practice and career is to move here to Delaware.

Please email the interviewee at daluzt@ballardspahr.com with questions about this interview.