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Late last week, Judge Shelley C. Chapman of the Bankruptcy Court
for the Southern District of New York heard arguments from a number
of parties regarding whether the New York bankruptcy court is the
proper venue for Patriot Coal Corporation's bankruptcy
cases. In re Patriot Coal Corp., Case No.
1:12-bk-12900. Judge Chapman did not rule on the venue
question from the bench. Instead, the parties will wait for a
ruling while proceeding with the bankruptcy case.
Section 1408 of the United States Code permits a debtor to
commence a bankruptcy case in any judicial district in which it has
a "domicile, residence, principal place of business . . . or
principal assets," or in which the bankruptcy case of an
affiliate is pending. 28 U.S.C. § 1408(1) and (2).
Patriot Coal Corporation filed for chapter 11 in the Bankruptcy
Court for the Southern District of New York on July 9, 2012.
The Debtors' headquarters are located in St. Louis, Missouri,
and the majority of their mining activities take place in West
Virginia. However, the Debtors secured venue in the New York
bankruptcy court by creating two New York-domiciled non-operating
subsidiaries in early June 2012, just weeks before their bankruptcy
filings.
Although the Debtors' actions were likely proper under the
plain language of the section 1408, a debtor's venue choice is
not absolute. Section 1412 of the United States Code provides
that a court may transfer a bankruptcy case to another district if
the transfer is "in the interest of justice or the convenience
of the parties." 28 U.S.C. § 1412. Both the
United Mine Workers of America and the United States Trustee filed
motions to transfer venue pursuant to section 1412, in which a
number of interested parties joined.
During the first day of the hearing, the UMWA argued that Judge
Chapman should transfer the cases to the Bankruptcy Court for the
Southern District of West Virginia in the interests of
justice. The UMWA argued that the West Virginia court has
extensive experience with the mining industry, and the
environmental issues that are unique to the mining industry.
The UMWA argued that the New York court would have a "learning
curve" with respect to these issues. In addition, the
UMWA argued that the cases should be transferred to West Virginia
for the convenience of the parties because the employees, certain
major creditors and other key constituents were located in West
Virginia. Not surprisingly, Judge Chapman did not receive
well the UMWA's "learning curve" argument. She
questioned whether a mining case would have a different learning
curve than a case involving a large scale chemical company, power
company, or airline.
The Office of the U.S. Trustee argued that the cases should be
transferred in the interest of justice to a district with a more
substantial connection to the case. The Office of the U.S.
Trustee focused solely on the propriety of the Debtors'
creation of venue just weeks before filing their case, arguing that
such abuse of the venue statute should not stand.
In questioning both the UMWA and the Office of the U.S. Trustee,
Judge Chapman focused on the reasoning behind the Debtors'
filing in New York. Judge Chapman noted that a debtor in
bankruptcy is a "honest broker" that has a fiduciary duty
to act in the best interest of its stakeholders, and to maximize
the value of the bankruptcy estate for the benefit of all of the
stakeholders. Thus, a debtor's management should analyze
applicable venue options and make a determination that it is in the
best interest of the stakeholders to choose one venue over
another.
The Debtors presented their arguments during the second day of
the hearing. While the Debtors' pleadings focused on the
convenience of filing in the Southern District, the Debtors may
have adjusted their oral argument based on the Judge's
sstatements the prior day. As a result, the Debtors focused
their oral appeal on their exercise of business judgment in filing
in the Southern District of New York. They were joined by the
Creditors Committee and senior lenders.
Judge Chapman refrained from ruling from the bench at the close
of the hearings, and did not announce when she will rule.
However, by delaying a ruling, Judge Chapman could allow the cases
to proceed toward substantive resolution. Ultimately, without
evidence from the movants that the Debtors made their venue choice
in bad faith or for untoward reasons, it appears that the
Debtors' business judgment to file in the Southern District of
New York may hold – at least long enough to advance the
cases.
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