Venue Transfers in Bankruptcy Court - Kennedy Law, P.C.

Venue Transfers in Bankruptcy Court

Author: Stephen Kennedy

A defendant sued in federal court believing venue should be in a different district or division has a remedy:  Move to transfer venue under title 28 section 1404.  Section 1404(a) provides: “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought…”

Quite often, a bankruptcy case is commenced in one district, and its subsidiaries, the parent, or affiliated companies file bankruptcy in that same district.  Remember Enron? Much discussion was made of forum shopping by the subsidiary filing in New York allowing the parent and numerous other subsidiaries and affiliates to file there.  You or your company may be sued by a chapter 11 debtor in an adversary proceeding in a remote district (or division)—one you never dreamed possible.  Does the federal standard above allow you to transfer the adversary proceeding to another district or division?

Perhaps, with some caveats.  Venue in bankruptcy cases is governed by sections 1408 through 1412 of title 28.   Section 1409 provides as follows:  “a proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending.”  Thus, an adversary proceeding may be commenced in the bankruptcy court where the bankruptcy case is administered.  Section 1412 provides that a “district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties.”  But what is a “case or proceeding under title 11?”  Had Congress included the word “arising” in front of “under,” the answer would be clear.  As a result, the interpretation of this language can set the stage for argument regarding venue transfer.

In a recent case, Ries v. Ardinger (In re Adkins Supply, Inc.), 2015 WL 1498856, Adversary No. 14–01000, (Bankr. N.D. Tex. March 27, 2015), Judge Jones, citing the reasoning in Dunlap v. Friedman’s, Inc., 331 B.R. 674, 677–80 (S.D.W.Va.2005), analyzed the venue statutes and found that the language in section 1412—”a case or proceeding under title 11″—to be synonymous with “a proceeding arising under title 11 or arising in or related to a case under title 11.”   Part of his reasoning was based on Rule 7087 of the Federal Rules of Bankruptcy Procedure, which provides that “the court may transfer an adversary proceeding or any part thereof to another district pursuant to 28 U.S.C. § 1412 ….”

Thus, precedent allows for an adversary proceeding to be transferred like a civil action, but there are some differences.  Judge Jones recognized that forum shopping is a critical factor, but not present in the Adkins Supply case.  Adkins Supply at *6.  Otherwise, Judge Jones found the standards the court would review as to the interests of justice are:

(a) [e]fficiency and economics of estate administration; (b) [p]resumption in favor of the “home court”; (c) [j]udicial economy and efficiency; (d) [f]airness and the ability to receive a fair trial; (e) [t]he state’s interest in having local controversies decided within its borders; and (f) [p]laintiff’s original choice of forum.

Id. at *5.

As to what is convenient for the parties, the following standards apply:

(a) location and proximity of the parties; (b) ease of access to necessary proof; (c) convenience of witnesses, including their location and proximity; (d) location of the assets, including books and records; (e) availability of subpoena power for the unwilling witness; and (f) expenses related to obtaining witnesses.

Id. at *5-*6.

Thus, as long as forum shopping is not present, the factors cited above will often show that it is more convenient and in the interests of justice for the adversary proceeding to go forward in the court where the debtor’s bankruptcy case is pending, which is the venue in which most adversary proceedings are filed by the debtor.  However, there may be distinctions that can tip the scales one way or another and provide for a transfer.

For instance, in small dollar adversary proceedings, currently the maximum threshold of $12,850, the defendant is given some respite in that section 1409(b) of Title 28 provides that a proceeding “arising in or related to” a bankruptcy must be filed in the “district where the defendant resides.”  Unfortunately, Congress’ choice of language frustrates defendants in actions that “arise under” title 11, which may include the dreaded preference actions.  See Straffi v. Gilco World Wide Markets (In re Bamboo Abbott, Inc.), 458 B.R. 701 (Bankr. D. N.J. 2011).  Perhaps, however, another court may be inclined to transfer the venue of such a small dollar preference action in the interests of justice or for convenience.

Judge Jones also recognized that the bankruptcy venue statutes do not provide for intra-division transfer, which is provided for in civil actions in the district court.  Adkins Supply at *4.  In a state like Texas, the distances between courts in the same district are quite far.  A Houston defendant may be sued in the Laredo Division, a Waco defendant in the El Paso Division, a Beaumont defendant in the Sherman Division, or an Amarillo defendant in the Dallas Division.  Local rules would provide for intra-division transfers.  Id. at *4.  As of this time, however, there is no local rule within the Northern District of Texas providing for intra-division transfer of venue, although the issue comes up from time to time.

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