Corruption in the Assignment of Bankruptcy Cases in Germany?

A commentary by Amitai Touval

In Germany, both small and large law firms are assigned small bankruptcy cases of individual and small business, while only large and very reputable law firms are assigned big lucrative cases, where the legal fees, calculated as a single digit percentage of the remaining assets, can be in the millions. Large lucrative cases are much sought after, and lawyers strive to develop good reputation and maintain a presence in several locations to qualify for cases. Nevertheless, when assigning a lucrative case, a judge typically has a choice among several reputable firms, which leads one to wonder whether, when choosing among several well-qualified firms, a judge’s decisions is always fair.

While, no doubt, many judges are fair, fairness is best sustained by transparency and scrutiny. Unfortunately, the situation in Germany is ripe for corruption. Competing law firms have no incentive to plead for transparency and scrutiny. Law firms that successfully win a good number of cases are satisfied with their lot, and law firms that are turned down, do not have an incentive to challenge judges’ decision and risk being further marginalized. Consequently, there is no incentive in the system for a probing and honest examination of how judges decide whom to award a lucrative case.

In the absence of scrutiny and transparency, fairness sometimes competes with other priorities. Although many judges are committed to fairness, one can imagine that a small minority are more concerned with their family members’ career advancement, fulfilling non-normative desires, or even personal gain (greed) than fairly assigning lucrative bankruptcy cases. When these priorities compete with fairness, the door for corruption is open. In collusion with lawyers, judges may seek:

  • 1. Career advancement for their family members: Lawyers can win a small minority of judges by farming off a portion of the newly-assigned case to a consulting firm in which the judge’s spouse or children are employed.
  • 2. Satisfaction of non-normative desires. While most judges are upstanding citizens, like in any profession a small percentage of judges are vulnerable to addiction or other compulsions which they may seek to hide from their families. Lawyers can win lucrative cases from judges in return for paying for their non-normative needs, keeping the paper trail hidden from their families.
  • 3. Personal gain (greed): In rare cases, individual judges may seek a percentage of the legal fees that lawyer’s secure from lucrative bankruptcy cases.
  • Corruption enables some judges, lawyers and their families to become wealthy, while making it difficult for other to compete for future rewards. More subtly, these forms of corruption affect the public, who is aware that something is amiss, and develops a cynical mindset. This, in turn, corrodes the legitimacy of the state, its agents and institutions.

    To repair the situation, the courts need to institute independent review panels staffed by volunteers, and charged with scrutinizing the assignment of up-and-coming lucrative bankruptcy cases. When more than one law firm qualifies for a case, the assignment should be randomized through a lottery.

    In the meantime, to create a momentum for change, concerned citizens should form a model review panel that will publicize the need for outside review, and generate public discussion to raise awareness of this issue, and show that cynicism can be checked by idealism and leadership.

    Amitai Touval, PhD, is a cultural anthropologist. A senior consultant at ITAP International, he teaches at Metropolitan College in New York City.