Tag Archives: Judge Walrath

Judge Walrath (Bankr. D. Del.) Denies Motion to Transfer Venue of Preference Action Notwithstanding Defendant’s Forum Selection Clause

In Judge Walrath’s RCS Creditor Trust v. Schulte Roth & Zabel LLP (In re RCS Capital Corp.) opinion, the Court found that the presence of a forum selection clause (“FSC”) was not enough to trump the bankruptcy court’s ability to maintain venue for an avoidance action.  In so finding, the judge agreed with the Trustee-Plaintiff’s argument that the Debtors’ creditors were the ultimate parties-in-interest in the action, and thus were not bound by any FSC between the Debtors and Defendant (the Debtors and Defendant hereafter the “Parties”).  On that and other bases, the Court denied Defendant’s motion to transfer venue (the “Motion”) to the Southern District of New York (“SDNY,” the venue required by the FSC) under 28 U.S.C. § 1412 and Fed. R. Bankr. P. 7087.

Background and the Twelve Factor Jumara Test

Plaintiff sought to recover approximately $580,000 pursuant to 11 U.S.C. §§ 547 and 548(a)(1)(B).  Defendant, a law firm, responded by filing the Motion.

Courts in the Third Circuit consider a variety of factors in deciding whether to grant a motion to transfer venue, including:

(1) plaintiff’s choice of forum,

(2) defendant’s forum preference;

(3) whether the claim arose elsewhere,

(4) location of books and records,

(5) convenience of the parties based upon their relative physical and financial condition,

(6) convenience of the witnesses

(7) enforceability of the judgment,

(8) practical considerations that would make the trial easy, expeditious, or inexpensive,

(9) congestion of the courts’ dockets,

(10) public policies of the fora,

(11) familiarity of the judge with the applicable state law, and

(12) local interest in deciding local controversies at home.

 

See Jumara v. State Farm Ins. Co., 55 F.3d 873 (3d Cir. 1995) (the “Jumara Factors”).  The Court found only three Jumara Factors (2, 3, and 6) weighed in Defendant’s favor here, as briefly summarized in the chart below.

 

Factor Arguments Ruling
1

(P)

D: deference to a plaintiff’s choice of forum is lessened when suing in a representative capacity. The rationale for less deference to a representative plaintiff is inapplicable to a bankruptcy trustee.
2

(D)

D: prefers SDNY. True, but D’s preference given less weight than P’s.
3

(D/P)

D: all facts occurred in the SDNY.  Also, the Parties’ engagement letter (the “Agreement”) included the FSC, requiring resolution in the SDNY.

 

P: avoidance actions arise by statute and are separate from an underlying contract. Also, the Debtors’ creditors are the parties-in-interest in an avoidance action, and thus are not bound by the Parties’ FSC.

Performance of the legal services is not at issue, although payments made in SDNY militates towards transfer.

 

Regarding the FSC, the Court agreed with Plaintiff’s argument (derived from AstroPower Liquidating Trust v. Xantrex Tech. Inc. (In re AstroPower Liquidating Trust), 335 B.R. 309 (Bankr. D. Del. 2005) and Charys Liquidating Trust v. McMahan Sec. Co., L.P., (Charys Holding Co., Inc.), 443 B.R. 628 (Bankr. D. Del. 2010)).

4

(N)

D: Books and records are all in SDNY. Discovery in this case will be largely electronic.
5

(P)

D: D is based in NYC, plus P’s counsel has a NYC office as well.

 

P: D often travels to Delaware for other cases.

While transfer would be more convenient for D, pursuing actions in multiple fora creates temporal and financial burdens on P.  Also, Delaware is nearby, D often appears in Delaware, and Delaware counsel has already been retained by P.
6

(P)

D: all witnesses are in the SDNY, beyond the Court’s subpoena power.

 

P: avoidance actions rarely go to trial, are typically short.

No indication that any witness won’t voluntarily appear.
7

(N)

Judgments in either court are entitled to full faith and credit.
8

(P)

P: keeping the avoidance action in the same venue as the main case is more economical due to the Court’s familiarity with the case and the other, similar actions taking place. Agreed with P.
9

(P)

This case does not overburden the Court.
10

(P)

P: transferring this case creates a slippery slope. Agreed with P, as P is pursuing multiple avoidance actions, and transfer of one could result in transferring hundreds of others.
11

(N)

No state law issues.
12

(P)

Purely federal bankruptcy issues predominate here, offsetting any potential interest the SDNY may have.

 

In sum, the Court found Defendant had not carried its burden to show that transfer was appropriate by a preponderance of the evidence.

Conclusion

The presence of the FSC in this case provides an interesting wrinkle, especially since the Jumara case itself instructs a court to “place considerable weight on the parties’ original choice of forum, as expressed in a contractual forum selection clause.” Jumara, 55 F.3d at 882.  The Jumara case, however, was a non-bankruptcy case brought under state law by insureds against an insurer.  Given that the instant case was (i) rooted in federal bankruptcy law, not the performance of the Agreement, and (ii) brought for the benefit of parties-in-interest who were not parties to the Agreement, the Court distinguished the FSC’s relevance here.  The extent to which this rationale could be used in the context of other types of clauses or agreements remains to be seen.  In addition, one wonders if the Court would find the “slippery slope” concerns of Factor 10 to be mitigated were the instant case the only one filed, and not one of “multiple actions” filed instead.

A copy of the Opinion can be found here.

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Defining Ordinary: Judge Walrath (Bankr. D. Del.) Surveys Ordinary Course of Business Methodologies in In re Powerwave Technologies

By Evan T. Miller, Esq.

Determining the proper bookends when establishing a Historical Period for an ordinary course of business defense (“OCOB”) can be highly contentious in preference litigation.  The same can be said for determining which methodology is most appropriate for analyzing preference period transfers and even when to apply a given defense. Continue reading

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By Evan T. Miller, Esq.

Addressing an issue of first impression, Judge Kevin Carey (Bankr. D. Del.) ruled that a preference action defendant could use their allowed administrative expense claim as a setoff against any preferential transfer exposure. Continue reading

Revised on Remand: Judge Walrath Reduces Defendant’s New Value Defense and Awards the Trustee Prejudgment Interest in Remanded Proceeding

By Gregory J. Flasser, Esq.

On March 29, 2016, Judge Mary F. Walrath of the United States Bankruptcy Court for the District of Delaware (the “Court”) issued an opinion reducing the new value defense of Prudential Real Estate and Relocation Services, Inc., and Prudential Relocation, Inc. (collectively, “Prudential”) and awarding the chapter 7 trustee (the “Trustee”) prejudgment interest in Prudential Real Estate v. Burtch (In re AE Liquidation, Inc.), Adv. Proc. No. 10-55543 (MFW), 2016 WL 1238848 (Bankr. D. Del. Mar. 29, 2016). Continue reading