Forum Selection: Substantive Grounds for
Choosing Venue Among the Circuits
Brought to you by Winston & Strawn’s Restructuring and Insolvency practice group.
Today’s eLunch Presenters
John Fredericks
Restructuring and Insolvency San Francisco [email protected]
Rich Lapping
Restructuring and Insolvency San Francisco
Chapter 11 Bankruptcy Venue Reform Act of
2011, H.R. 2533, 112
th
Cong. (2011)
Bill Introduced in July 2011
Bipartisan Judiciary Committee Support
Co-sponsors:
Representative Lamar Smith, R-Texas (Chairman of the
House Committee on the Judiciary)
Co-sponsored by Representative John Conyers, D-Mich.
Current Venue Statute
28 U.S.C. § 1408. Venue of cases under title 11
Except as provided in section 1410 of this title, a case under title 11
may be commenced in the district court for the district—
(1) in which the domicile, residence, principal place of business in the
United States, or principal assets in the United States, of the
person or entity that is the subject of such case, have been located
for the one hundred and eighty days immediately preceding such
commencement, or for a longer portion of such
one-hundred-and-eighty-day period than the domicile, residence, or principal place
of business, in the United States, or principal assets in the United
States, of such person were located in any other district; or
(2) in which there is pending a case under title 11 concerning such
person's affiliate, general partner, or partnership.
Proposed Change to Venue Statute
Under Current Statute, Venue Is Appropriate in District
Where Debtor is Domiciled or Resides, Which Includes State
of Incorporation
Under Current Statute, Venue Is Appropriate Where Affiliate
Case Is Already Pending
Bill Would Add Special Venue Provision Applicable to Chapter
11 Cases, Limiting Venue to District Where Principal Place of
Business or Principal Assets Are Located
Bill Would Add Special Venue Provisions to Limit Venue Based
on Affiliate Filings (More than 50% Ownership; Concentration
of Value or Revenues; Nerve Center Test)
Status of Venue Reform Act
Venue Based on State of Incorporation Subject of
Vigorous Debate for 80 Years
Introduced in July of 2011
House Judiciary Committee Hearings in September
of 2011
Hon. Frank J. Bailey, Chief Judge, Bankr. Mass.
David A. Skeel, Jr., Prof. Univ. of Pennsylvania Law School
Peter C. Califano, Chair, Bankruptcy Section, Comm. Law
League of America
Melissa B. Jacoby, Professor, Univ. of North Carolina at
Venue Reform: Pros
Venue May Have Little or No Connection to Operation of
Business
Geographically, Dislocation May Preclude Participation of
Creditors, Vendors, Local Government, Employees, Retirees
Directly Affected
Local Media May Find It Difficult to Report on Case
Diminished Perception of Fairness of Proceedings
In Other Contexts, Venue Is Generally Determined With
Reference Not to Party Bringing Proceeding, But Parties
Involuntarily Subjected to Jurisdiction
Motion to Transfer Venue Ineffective
Ample Supply of Competent Judges Outside of Delaware and
Venue Reform: Cons
Delaware and New York Courts Have Particular Expertise
In Handling Large or Complex Cases
Delaware and New York Have Necessary Infrastructure
to Handle Large Cases
Delaware and New York are Convenient for Most of the
Stakeholders Who Are Most Active
Venue Based on Other Criteria Is Not Necessarily Better
See, “Venue Options for Corporate Bankruptcy Cases: Should the Current Statute Be Amended,” National Bankruptcy Conference 2011 Annual Meeting, Committee on Courts and the Administrative System, November 3, 2011
Status of Venue Reform Act
Status: Introduced
July 14, 2011
Reported by Committee
(not yet occurred)
Passed House
(not yet occurred)
Passed Senate
(not yet occurred)
Signed by the President
(not yet occurred)
This bill or resolution was assigned to a congressional
committee on July 14, 2011, which will consider it before
possibly sending it on to the House or Senate as a whole.
The majority of bills never make it past this point.
Forum Selection: Practical Considerations
Predictability
Familiarity with Court and Procedures
First-Hand Experience
Well-Defined Procedures for Common Transactions
Prepackaged Bankruptcies 363 Sales
Local Rules, General Orders, and Protocols Claims agent protocols
Accessibility
First-Day Motions
Forum Selection: Practical Considerations
Retention of Professionals
Fees
Conflicts
Alix Protocol
Indemnification of Financial Advisors
In re United Artists Theatre Co., 315 F.3d 217 (3d Cir. 2003)
(permitting indemnification for common negligence)
In re Metricom, Inc., 275 B.R. 364 (Bankr. N.D. Cal. 2002) (no
Ability of Courts Outside Delaware and
Manhattan to Handle Mega Cases Efficiently
Many Examples, but Delaware and S.D.N.Y. Possess Superior Learning
Curve
Example: Pre-Packaged Bankruptcy Plan General Orders or Protocols
S.D.N.Y. –
Federal Judicial Center – A Guide to the Judicial Management of
Bankruptcy Mega-Cases (Second Edition) Available at:
Recommendations and Guidelines with Exhibits (Sample Orders and
DIP Financing and Cash Collateral
Growing Uniformity in Procedures Narrow Variations – Examples:
S.D.N.Y. General Order
Judge Walsh's Open Letter in Delaware
Guidelines for Cash Collateral & Financing Motions in Northern District of
California
Common Concerns:
Cross-Collateralization
Roll-Ups and Creeping Roll-Ups
Waivers and Releases/Challenge Rights Liens on Avoidance Actions
506(c) Waivers
Expedited Relief from Stay Adequate Protection
Prepetition Claims – Critical Vendors and
Doctrine of Necessity
Legal framework:
Miltenberger v.Logansport,
106 U.S. 286 (1882) – Railroads
In re Ionosphere Clubs
, 98 B.R. 174 (Bankr. S.D.N.Y. 1989)
In re Just for Feet
, 242 B.R. 821 (D. Del. 1999)
In re Kmart,
359 F.3d 866 (7th Cir. 2004) – No on § 105; no
on doctrine of necessity, but qualified yes on § 363(b).
Burden of proof problem
In re Zenus Is Jewelry, Inc
., 378 B.R. 432 (Bankr. D.N.H. 2007)
No. COD
Prepetition Claims – Critical Vendors and
Doctrine of Necessity (cont'd)
Employees
Priority Wage Claims
2005 Bankruptcy Code Amendments increased amount and
look-back from 90 to 180 days
Federal Judicial Center – Judicial Guide – recommendation
PG&E case in N.D. Cal. –Despite
In re B&W Enterprises, Inc.
Prepetition Claims – Critical Vendors and
Doctrine of Necessity (cont'd)
Trade Creditors
2005 Bankruptcy Code Amendments
Section 503(b)(9) – Admin Claim for prepetition deliveries up
to 20 days
Section 547(c)(2) – Ordinary course defense broadened (“or”
instead of “and”) in exempting transfers otherwise
preferential if “made in the ordinary course of business . . .
or made according to ordinary business terms”
Section 546(c) – Reclamation extended to 45 days’
IP Transfers: Catapult
Applicable Non-Bankruptcy Law Requires Consent to Assignment of IP License; Hypothetical Test vs. Actual Test Cases in the 3d, 4th, 9th, and 11th Circuits have adopted “hypothetical test,” holding that debtor cannot assume
an IP license, let alone assign it, e.g.:
Catapult Entm't, Inc. v. Perlman (In re Catapult Entm't, Inc.), 165 F.3d 747 (9th Cir. 1999); RCI Tech Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257 (4th Cir. 2004)
In re West Electronics, 852 F.2d 79 (3d Cir. 1988); In re Access Beyond Techs., 237 B.R. 32 (Bankr. D. Del.
1999)
City of James Cable Partners, L.P. (In re James Cable Partners, L.P.), 27 F.3d 534 (11th Cir. 1994) In re
Wellington Vision, Inc. v. Pearle Vision, Inc. (In re Wellington Vision, Inc.), 364 B.R. 129 S.D. Fla. 2007)
Cases in the 1st, 2d, 5th and 8th Circuits have adopted the “actual test,” holding that debtor may
assume an IP license as long as no actual assignment is intended, e.g.:
Institut Pasteur v. Cambridge Biotech Corp., 104 F.3d 489 (1st Cir. 1997); Summit Inv. & Dev. Corp. v. Leroux,
69 F.3d 608 (1st Cir. 1995)
In re Footstar, 323 B.R. 566 (Bankr. S.D.N.Y. 2005); In re Adelphia Communications Corp., 359 B.R. 65, 72
(Bankr. S.D.N.Y. 2007)
Bonneville Power Admin. v. Mirant Corp. (In re Mirant Corp.), 440 F.3d 238, 248-49 (5th Cir. 2006)
Supreme Court has expressed interest in resolving issue:
In re: N.C.P. Marketing Group, Inc., 337 B.R. 230 (D.Nev. 2005) (trademark license unassumable), cert.
Collective Bargaining Agreements
Standards for rejection or modification
Only the 3d Circuit invokes highest standards
Wheeling-Pittsburgh v. United Steelworkers, 791 F.2d 1074 (3d Cir. 1986)
Priority of CBA claims
In re Unimet Corp., 842 F.2d 879 (6th Cir. 1988) – First impression – held
prepetition claims entitled to administrative priority under Section 1113
Eagle, Inc. v. Local 537, 198 B.R. 637 (D. Mass. 1996) – superpriority In re Roth American, 975 F.2d 949 (3d Cir. 1992) – No Admin Priority for
prepetition
In re Ionosphere Clubs, 22 F.3d 403 (2d Cir. 1994) No priority
Sales
Successor Liability:
GM and Chrysler
Scope of Order: Distinctions Among Districts Regarding Scope of Sale Order:
e.g., Free and Clear of Liens; Successor Liability
Credit Bidding and Chapter 11 Sales:
River Road Hotel Partners v. Amalgamated Bank, 651 F.3d 642 (7th Cir. 2011)
(requiring right of credit bid), cert. granted
In re Philadelphia Newspapers, 599 F.3d 298 (3d Cir. 2010) (denying right to
credit bid)
In re Pacific Lumber, 584 F.3d 299 (5th Cir. 2009) (denying right to credit bid)
Ability to Sell Free and Clear of Junior Liens under § 363(f)
Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. BAP
2008)
In re Jolan, Inc., 403 B.R. 866 (Bankr. W.D. Wash. 2009) (distinguishing Clear
Channel with reference to legal and equitable proceedings under non-bankruptcy law that allowed sale free and clear of junior interest)
Sales – The Clear Channel Problem
Section 363(f) – Sales free and clear of liens
Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC)
,
391 B.R. 25 (9th Cir. BAP 2008) – sale proponent relied
on bankruptcy cramdown under Section 1129
In re Jolan, Inc.
, 403 B.R. 866 (Bankr. W.D. Wash. 2009) –
distinguished Clear Channel because party defending
sale on appeal failed to advance qualifying legal or
equitable proceedings beyond cramdown that would
satisfy Section 363(f)(5).
In re East Airport Development LLC
, 443 B.R. 823 (9th Cir.
Third Party Releases
Differing views among the Circuits as to whether a plan of reorganization
release a non-debtor third party of liability to a creditor
9th and 10th Circuits hold § 524(e) bars releasing non-debtors from
liability to a creditor. In re Lowenschuss, 67 F.3d 1394, 1401 (9th Cir.
1995); In re Western Real Estate, 922 F.2d 592, 600 (10th cir. 1990)
Section 524(e): “discharge of a debt of the debtor does not affect the liability of
another entity on, or the property of any other entity for, such debt.” 11 U.S.C. § 524(e)
Other Circuits May Permit Third-Party Releases Under Unusual
Circumstances, e.g.:
Deutsche Bank AG v. Metromedia Fiber Network, Inc., 416 F.3d 136, 142 (2d Cir. 2005) (permitting release if it is “important” to reorganization)
Gillman v. Continental Airlines (In re Continental Airlines), 203 F.3d 203, 214 (3d Cir. 2000)
In re A.H. Robins, Co., 880 F.2d 694, 701-02 (4th Cir. 1989)
In re Dow Corning Corp., 280 F.3d 648, 658 (6th Cir. 2002) (setting out a seven-factor balancing test)
Debt Recharacterization
Recognizing Recharacterization:
Bayer Corp. v. Mascotech, Inc. (In re Autostyle Plastics, Inc.)
, 269
F.3d 726, 748 (6th Cir. 2001)
Cohen v. KB Mezzanine Fund II, LP (In re SubMicron Sys. Corp.)
, 432
F.3d 448, 456 (3d Cir. 2006)
Grossman v. Lothian Oil Inc. (In re Lothian Oil, Inc.)
, 650 F.3d 539
(5th Cir. 2011)
Denying Recharacterization:
In re Pacific Express, Inc.
, 69 B.R. 112 (BAP 9th Cir 1986)
Practical Differences?
In re Radnor Holdings Corporation
, 353 B.R. 820, 838-839 (Bankr.
Motions to Change Venue
28 U.S.C. § 1412
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.
Bankruptcy Rule 1014 (a)
(1) Cases Filed in Proper District. If a petition is filed in the proper
district, the court, on the timely motion of a party in interest or on its own motion, and after hearing on notice to the petitioners, the
United States trustee, and other entities as directed by the court, may transfer the case to any other district if the court determines that the transfer is in the interest of justice or for the convenience of the
parties.
In re Dunmore Homes, Inc., 380 B.R. 663 (S.D.N.Y. 2008) (venue based on
