2

Consider a corporate firm that is operating in Miami (e.g., leases office space, meet clients, do the actual work).

Suppose this firm's headquarter is in New York City.

But, it is incorporated in the state of Delaware.

If this firm files for bankruptcy, which state would it be?

1 Answer 1

3

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.

28 U.S.C. § 1408 (section 1410 referenced in Section 1408 pertains to ancillary U.S. proceedings related to foreign bankruptcy cases).

Delaware is not a proper venue because the place of incorporation doesn't matter. One illustrative case is In re Suzanne de Lyon, Inc., 125 B.R. 863 (S.D.N.Y. Bkrtcy 1991). In that case (I am quoting a Westlaw headnote from that case):

Corporate debtor's principal place of business was in New York, and therefore venue of debtor's Chapter 11 case was proper in New York, where undisputed evidence revealed that corporate management and control were exclusive domain of debtor's president, and that president exercised her control during venue period principally while in New York, even though debtor was Texas corporation and was qualified to do business only in Texas.

The question of whether Florida or New York is the proper venue would be decided based upon where most significant management decisions of debtor are made, because in the event of a split between this location and the location where the business operations of the company are carried out, the locations of the decision making in the company is the controlling factor. In re 1606 New Hampshire Ave. Associates, 85 B.R. 298 (Bkrtcy. E.D.Pa. 1988).

In this case, the headquarters, in New York City, in the Southern District of New York, and not the principal place of the corporation's operations in Miami, in the Southern District of Florida, is the correct district. This is because the headquarters would be where all substantial management decisions are made by the company.

Filing a bankruptcy in the wrong district is an error that can be waived and is not jurisdictional. So the place of filing by the debtor prevails unless a creditor files a motion to transfer venue to another district and shows by a preponderance of the evidence that the alternative venue is the correct one. In re Industrial Pollution Control, Inc., 137 B.R. 176 (W.D.Pa. Bkrtcy. 1992). If a change of venue motion is successful, the case is transferred to the correct district, it is not dismissed.

Also, for what it is worth, while this statute expressly applies by its terms only to Chapter 11 cases, since there is no statute stating where Chapter 7 and Chapter 13 cases should be filed, federal common law has applied this statute to Chapter 7 bankruptcies and Chapter 13 bankruptcies as well. See, e.g., In re Segno Communications, Inc., 264 B.R. 501 (N.D.Ill. Bkrtcy. 2001) (Chapter 7) and In re McDonald, 219 B.R. 804 (W.D.Tenn. Bkrtcy. 1998) (Chapter 13).

The case law also uses the definition of "affiliate", for purposes of 28 U.S.C. § 1408(2), that is found in the bankruptcy code (i.e. in Title 11 of the United State Code).

N.B. This answer refers mostly to trial court precedents, which strictly speaking are not binding precedents on other courts. This is because decisions on venue are interlocutory (i.e. pre-trial) orders that are rarely appealable from the trial court's ruling as a practical matter, even though it would theoretically be possible to bring such an appeal. Also, often an appellate court considering an appeal based upon improper venue, if it finds that the case was conducted entirely in the wrong venue, would conclude that this was "harmless error" and decline to grant any substantive relief to the party bringing the appeal.

2
  • Thanks for an excellent response! really helpful! Commented Sep 11, 2023 at 14:08
  • Is it possible "forum shopping" can be at a play if the size of a borrower is sufficiently large? Commented Sep 11, 2023 at 19:04

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .