Should a litigious debtor be able to hale defendants to a distant venue for adversary proceedings that have no relationship to that forum other than the location of the main bankruptcy case itself? Perhaps not, but longstanding practice has established a “home court presumption” favoring venue in the district where a bankruptcy is pending, however attenuated a connection it may have to the subject of the dispute.

As a Texas court counseled in the early 1990s, in bankruptcy, the tactic of forum shopping too often “is masked by pious pronouncements about the debtor’s ‘right’ to select the most advantageous of several possible forums, in order to advance the prospects for reorganization. That rationale, however, should in the usual instance be taken with several grains of salt.”1

The debtor’s-choice stronghold in core adversary proceedings can pose hardships to defendants haled to a faraway forum and hamstrung by the “home court presumption.”2 However, a recent watershed case from the Fifth Circuit, In re Volkswagen of America, Inc.,3 could provide ammunition to defendants attempting to evade a remote venue that houses the underlying bankruptcy case.

Statutory Guidance
A Chapter 11 case, other than a case ancillary to foreign proceedings, can be initiated in the district in which the debtor’s domicile, residence, principal place of business, or principal assets are located or where there is a pending bankruptcy case of an affiliate, general partner, or partnership.4 An adversary proceeding then “may be” brought in the court in which the bankruptcy is pending, notwithstanding the absence of any other connection of the suit to the venue.5

In addition, a federal court is authorized under section 1412 of title 28 to transfer a bankruptcy case or core adversary proceeding “to a district court for another district, in the interest of justice or for the convenience of the parties.”6 Despite the permissive language of the transfer statute, courts often give dispositive weight to the debtor’s chosen venue for the main bankruptcy case. Under the “home court presumption,” a court in which the underlying bankruptcy case is pending is presumed to be the appropriate district for hearing and determination of an adversary proceeding.7 This “strong presumption” has resulted in the litigation of most adversary proceedings in the home bankruptcy court.8

Changing Landscape under Volkswagen
The Fifth Circuit’s en banc ruling in Volkswagen held that a plaintiff’s choice of venue does not control. Although decided under section 1404 of title 28, the general federal venue transfer statute, Volkswagen could have substantial implications for defendants attempting to transfer venue in a bankruptcy case.

The case involved a car accident in Dallas, where the plaintiffs lived, witnesses to the accident resided, the car was bought, and the wreckage and other evidence were located. The plaintiffs sued Volkswagen in Marshall, and Volkswagen unsuccessfully moved to transfer venue to Dallas. On mandamus review, the Fifth Circuit held that the district court “clearly abused its discretion” by “misconstruing the weight of the plaintiffs’ choice of venue” and “glossing over the fact” that the allegations concerned a different venue.9

Observing that large corporations “often have sufficient contacts” to warrant venue in “most, if not all, federal venues,” the Court of Appeals explained that Congress “tempered the effects of this general venue statute by enacting the venue transfer statute.”10 It found that the district court gave “inordinate weight” to the plaintiff’s venue selection by requiring the movant to show that the balance of convenience and justice “substantially” weighed in favor of transfer, a standard imported from the forum non conveniens analysis.11 Instead, it held, the proper standard is that the party seeking transfer must show “good cause.”12 When “the movant demonstrates that the transferee venue is clearly more convenient” than the venue chosen by the plaintiff, “it has shown good cause and the district court should therefore grant the transfer.”13

Noting that lower courts have applied the various venue transfer tests “with too little regard for consistency of outcomes,” the Volkswagen court set out four controlling “private interest” and “public interest” factors.14 The factors that the Fifth Circuit emphasized—ease of access to sources of proof; availability of compulsory process to ensure attendance of third-party witnesses; cost of attendance for willing witnesses; and local interest in having local issues decided at home—can be magnified exponentially in bankruptcy. Adversary proceedings may be filed hundreds or thousands of miles away from the locus of the dispute—substantially farther than the 150 miles that separated the Marshall and Dallas venues in Volkswagen. And, as the Court of Appeals counseled, once a case has been tried and appealed, “the prejudice suffered” by parties and witnesses “cannot be put back in the bottle.”15

Volkswagen’s Applicability to Adversary Proceedings
Volkswagen’s rationale should apply to adversary proceedings brought in bankruptcy. The statutory analysis is nearly identical, and the same practical considerations regarding the interest of justice and convenience of parties are at issue.16 As one court noted in applying the Volkswagen factors to a motion to transfer a Chapter 11 case, “there is nothing inherent about a bankruptcy case and nothing within § 1412 that suggests a different framework should be used to consider motions to transfer venue filed in civil cases versus bankruptcy cases.”17 Both sections 1404 and 1412 require a court asked to transfer an action to determine whether a transfer would be “for the convenience of the parties” and witnesses and “in the interest of justice.”18

Despite the near-uniformity of the transfer statutes, the parameters for a plaintiff’s initial choice of forum differ. While the federal venue provisions predicate venue on the location of the defendant and the site of the actions giving rise to the claim, the Bankruptcy Code omits any acknowledgment of the defendant from the choice of venue analysis.19 The broad latitude afforded to companies to file for bankruptcy relief in any district in which they or even a newly-formed subsidiary has a presence effectively allows debtors to choose jurisdictions likely to favor their interests. Given the ability to file a suit in a preferred district, notwithstanding the complete absence of connection between the transactions or disputed assets and the jurisdiction, forum shopping becomes a real concern (and inescapable conclusion). Indeed, forum shopping by debtors has been “rampant for decades.”20

When a debtor sues an out-of-state defendant regarding out-of-state conduct or out-of-state assets and the case’s only connection to the home bankruptcy venue is the main bankruptcy itself, the defendant has a strong argument for transfer under Volkswagen. A debtor may emphasize the ability to efficiently administer the estate, the time and effort already expended by the bankruptcy court, and the multiplicity of adversary cases, but retaining a case on such bases alone could preclude the transfer of any proceeding and effectively negate the venue transfer statute. An adversary proceeding at times can have little impact on the overall administration of the bankruptcy estate. Particularly since venue transfer motions are typically filed near the commencement of a case, a bankruptcy judge usually will have expended few resources on consideration of the case. Filing numerous lawsuits should not exempt a debtor from the rigorous venue rules or compel adversaries to defend themselves in remote forums unconnected to the disputes.

Commonwealth Oil
In rebutting the significance of Volkswagen, debtors may characterize In re Commonwealth Oil Refining Co.21 as the leading Fifth Circuit case on bankruptcy venue. The Commonwealth court reasoned that the “heart of a Chapter XI proceeding is working up a financial plan of arrangement” and decided that the case should remain where the debtor was based.22 Courts often cite the factors enumerated by Commonwealth, with its emphasis on the economic and efficient administration of the bankruptcy estate, as the controlling considerations in a venue transfer analysis.23

The flaw in that approach is that Commonwealth was decided under a different rule and resolved a different issue—whether to transfer venue of an entire Chapter 11 proceeding, not a single adversary suit. The Court of Appeals did not even purport to craft a venue transfer inquiry. Instead, it reiterated the convenience factors that the bankruptcy court had considered and refused to disturb the analysis, since “[n]one of the parties ha[d] questioned the propriety of these considerations, nor ha[d] they suggested any additional ones.”24

Commonwealth involved the interpretation of former Bankruptcy Rule 116, which has since been replaced by Rule 1014. Former Rule 116(b)(1) stated that “the court may after hearing on notice to the petitioner or petitioners and such other persons as it may direct in the interest of justice and for the convenience of the parties, transfer the case to another district.”25 Section 1412—enacted in 1984, five years after Commonwealth—provides that a court “may transfer a case or proceeding” to another district “in the interest of justice or for the convenience of the parties.”26 These changes expanded the transfer powers of the bankruptcy court. Several observers have reasoned that the “change in language” under section 1412 “should result in a greater willingness to transfer cases,”27 and that the “helpfulness [of Commonwealth]”—and other like cases— “is limited.”28

Extension of Volkswagen
Although no court has expressly applied Volkswagen to transfer an adversary proceeding under section 1412, one bankruptcy court recently applied it to a debtor’s section 1404 motion to transfer a non-core adversary proceeding to the home court of its later-filed bankruptcy. While declining to “address whether core matters can be more efficiently resolved in the court administering the bankruptcy case,” the court stated that it could see “no reason why” the Volkswagen analysis does not “undercut the home court presumption, particularly for non-core matters.”29 In denying the debtor’s motion, the court reasoned that “forcing a creditor into a distant and inconvenient venue to defend claims asserted by the debtor in a distant and inconvenient venue raises Volkswagen concerns.”30

Courts have begun to recognize Volkswagen’s applicability in other contexts as well. In a patent case, the Federal Circuit emphasized that the Volkswagen “precedent clearly forbids treating the plaintiff’s choice of venue as a distinct factor” in the venue transfer analysis.31 Temporarily undermining the Eastern District of Texas’s status as the “IP Rocket Docket,” the court concluded that the denial of a motion to transfer the case from Texas to Ohio was a “patently erroneous result.”32 Volkswagen could be used to similarly disrupt large debtors’ apparent preference for resolving bankruptcy matters in the District of Delaware or the Southern District of New York, without regard to the inconvenience of defendants or the public interest in local resolution of claims.33

Conclusion
Volkswagen provides promising new ground for defendants attempting to transfer adversary proceedings to a different district. The prevailing presumption that the debtor’s choice controls rewards litigation tactics that lessen or foreclose the ability of an adversary to defend itself, its major assets, and its stakeholders and employees. That a large corporation can file for bankruptcy relief in virtually any federal forum should not compel the conclusion that defendants must be forced to an unfamiliar and inconvenient forum to defend themselves against a debtor’s charges.

A meaningful consideration of the multi-factor analysis in Volkswagen, coupled by recognition that the plaintiff’s selection of venue does not control, could thwart the debtor-choice stronghold. A case and defendant’s connection to the plaintiff’s chosen venue may be even more attenuated in bankruptcy than in traditional civil suits, rendering section 1412—rehabilitated by the Volkswagen analysis—a crucial tool for an effective defense.

Dori Kornfeld Goldman, a 2003 graduate of Harvard Law School, is a partner practicing in the Houston office of Yetter, Warden & Coleman, L.L.P., with a focus on litigation and appeals in a variety of complex commercial matters.

Endnotes
1. In re Abacus Broad. Corp., 154 B.R. 682, 686-87 (W.D. Tex. 1993). 2. 28 U.S.C. § 157(b)(2) provides a nonexhaustive list of core proceedings, including determinations as to fraudulent conveyances and dischargeability of debts 3. 545 F.3d 304 (5th Cir. 2008). 4. 28 U.S.C. § 1408. 5. With the exception of certain suits to recover relatively small debts and claims arising after the commencement of the bankruptcy case, “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.” 28 U.S.C. § 1409(a), (b), (d). 6. 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.”); see also Fed. R. Bankr. P. 7087 (“On motion and after a hearing, the court may transfer an adversary proceeding or any part thereof to another district pursuant to 28 U.S.C. § 1412.”). Claims that “arise under” the Bankruptcy Code or “arise in” a bankruptcy case are “core” matters; claims that “relate to” a bankruptcy case are “non-core.” WRT Creditors Liquidation Trust v. C.I.B.C. Oppenheimer Corp., 75 F.Supp.2d 596, 606 (S.D. Tex. 1999). Noncore proceedings may be transferred pursuant to 28 U.S.C. § 1404. 7. See, e.g., Orthodontic Ctrs. of Tex., Inc. v. Corwin, 2007 WL 173220, at *1 (S.D. Tex. 2007); Edge Petroleum Operating Co. v. Duke Energy Trading & Mktg., 311 B.R. 740, 745 (S.D. Tex. 2003); In re Continental Air Lines, Inc., 61 B.R. 758, 770 & n. 25 (S.D.Tex.1986). 8. See id. Likewise, a survey of cases from January 2000 to December 2007 found that motions to transfer venue of non-core proceedings from the home court to another venue were denied at a ratio of nearly two-to-one. See J. Gardina, “The Bankruptcy of Due Process: Nationwide Service of Process, Personal Jurisdiction and the Bankruptcy Code,” 16 Am. Bankr. Inst. L. Rev. 37, 59 (2008). 9. 545 F.3d at 309, 318. 10. Id. at 313. 11. Id. at 308, 314; see also id. at 308-09 (“a plaintiff’s choice of forum under the forum non conveniens doctrine is weightier than a plaintiff’s choice of venue under § 1404(a) because the former involves the outright dismissal of a case, and the latter involves only a transfer of venue within the same federal forum”); see also Norwood v. Kirkpatrick, 349 U.S. 29, 32 (1955) (“When Congress adopted s 1404(a), it intended to do more than just codify the existing law on forum non conveniens.”). 12. 545 F.3d at 315. 13. Id. 14. Id. at 319. The private interest factors are the relative ease of access to sources of proof; the availability of compulsory process to secure the attendance of witnesses; the cost of attendance for willing witnesses; and all other practical problems that make trial of a case easy, expeditious, and inexpensive. Id. at 315. The public interest factors are the administrative difficulties flowing from court congestion; the local interest in having localized interests decided at home; the familiarity of the forum with the law that will govern the case; and the avoidance of unnecessary problems of conflict of laws or in the application of foreign law. Id. 15. Id. at 319. 16. Compare 28 U.S.C. § 1404(a) (“For the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district court or division where it might have been brought.”) with 28 U.S.C. § 1412, supra n. 6; see also Edge Petro., 311 B.R. at 743 n.1 (“the inquiry is the same under either statute so the Court’s [section 1404] analysis would not be any different if it relied on § 1412”). 17. In re Victorville Aerospace, LLC, 2008 WL 5482785, at *3 n.4 (Bankr. S.D.Tex. 2008). 18. Supra note xvi. 19. Compare 28 U.S.C. § 1391 (setting jurisdiction in diversity cases where any defendant resides, if all defendants are from the same state; where a substantial part of the events took place or the property in dispute is located; or, if all else fails, where any defendant is subject to personal jurisdiction at the time the suit is commenced; and, where diversity is not present, vesting jurisdiction where any defendant resides, if all defendants are from the same state; where the events occurred or disputed property is located; or where any defendant “may be found”), with 28 U.S.C. § 1409(a), supra n. 5. 20. Lynn LoPucki, “Bankruptcy Forum Shopping,” 30 NAT’L L. J. 26 (Feb. 11, 2008). The “national trend” is for large corporations to file bankruptcy petitions in New York or Delaware. Longhorn Partners Pipeline L.P. v. KM Liquids Terminals, L.L.C., 408 B.R. 90, 102 (Bankr. S.D.Tex. 2009). From 2000 to 2004, 65 percent of the billion-dollar-plus bankruptcies were filed in two jurisdictions (out of the 160 federal bankruptcy courts)—Delaware (35 percent) and New York (30 percent). Lynn LoPucki, “Courting the Big Bankrupts,” 28 LEGAL TIMES 29 (Jul. 18, 2005). 21. 596 F.2d 1239 (5th Cir. 1979). 22. Id. at 1247. 23. See, e.g., In re Cole, 2008 WL 2857118, at *3-4 (Bankr. N.D.Tex. 2008); In re Teal, 297 B.R. 922, 924 (Bankr. S.D.Ga. 2003); In re Harnischfeger Industries, Inc., 246 B.R. 421, 435 (Bankr. N.D.Ala. 2000); In re Bruno’s, Inc., 227 B.R. 311, 328 n.67 (N.D. Ala. 1998); Haworth, Inc. v. Sunarhauserman, Ltd./Sunarhauserman Ltee, 131 B.R. 359, 362 (Bankr. W.D.Mich. 1991); In re Portjeff Dev. Corp., 118 B.R. 184, 193 (Bankr. E.D.N.Y. 1990). 24. 596 F.2d at 1247. Commonwealth noted the following factors under the heading of convenience to parties: the proximity of creditors of every kind to the Court; the proximity of the debtor to the Court; the proximity of the witnesses necessary to the administration of the estate; the location of the assets; the economic administration of the estate; and the necessity for ancillary administration if liquidation should result. Id. 25. Fed. R. Bankr. P. 116(b)(1) (repealed) (emphases added). 26. 28 U.S.C. § 1412 (emphases added). 27. 3W. Norton, Norton Bankr. Law & Prac. § 140:2 at 140-8. 28. In re Shorts Auto Parts of Warren, Inc., 136 B.R. 30, 35 (Bankr. N.D.N.Y. 1991). 29. Longhorn Partners Pipeline, 408 B.R. at 102. 30. Id. at 103 (emphasis in original). 31. In re TS Tech USA Corp., 551 F.3d 1315, 1320 (Fed. Cir. 2008). 32. Id. at 1321-22. Nevertheless, parties have managed to reignite the Eastern District of Texas as the hub of patent cases by creating exceptions to Volkswagen for cases where evidence and witnesses are dispersed throughout the country. See, e.g., Novartis Vaccines and Diagnostics, Inc. v. Hoffman-La Roche Inc., 597 F.Supp.2d 706, 711, 713 (E.D.Tex. 2009) (refusing to transfer venue, noting that physical evidence was not “confined to a limited region” and that “the witnesses are decentralized”). 33. See supra n. 20.