Summary
In Bayou Steel the court addressed a situation in which the plaintiff, Bayou Steel, filed for bankruptcy relief two months before an action was commenced in Louisiana state court against Boltex. Finding there was a "strong presumption" in favor of placing venue in the Northern District of Texas where the bankruptcy proceedings were already pending, the court transferred the case to the Northern District of Texas for referral to the bankruptcy court.
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CIVIL ACTION NO. 03-1045, SECTION "N".
May 30, 2003.
ORDER AND REASONS
Before the Court are: (1) a Motion to Transfer Venue, filed by defendant; and (2) a Motion for Abstention/Remand, filed by plaintiff. For the reasons that follow, defendant's motion is GRANTED. The Court will leave to the bankruptcy court the issues presented by plaintiff's motion.
I. BACKGROUND
On January 22, 2003, plaintiff Bayou Steel Corporation ("Bayou Steel"), filed in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court") a voluntary petition for relief under chapter 11 of the bankruptcy code. That case is pending as Case No. 03-30816 (BJH). Two months later, plaintiff commenced this action by filing a Louisiana state court petition against Boltex Manufacturing Co., L.P. ("Boltex") in the Parish of Saint John the Baptist. Boltex timely removed the case to this Court on grounds that it is "arising in or related to" plaintiffs' bankruptcy case. See 28 U.S.C. § 1334(b), 1452(a). Plaintiff seeks $69,488.76 for steel allegedly purchased by Boltex in 2002. Boltex contends that it is entitled to a "setoff" and/or "recoupment" of $53,000 it paid to Bayou Steel for steel ultimately found to be defective. Bayou Steel apparently delivered the steel in Houston, Texas, where Boltex is located.
II. LAW AND ANALYSIS
Section 1412 of Title 28 allows a district court to "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." 28 U.S.C. § 1412. Likewise, section 1404(a) allows a district court "for the convenience of the parties and witnesses, in the interest of justice" to "transfer any civil action to any other district . . . where it might have been brought." 28 U.S.C. § 1404(a). Courts disagree as to whether section 1412 applies only to "core" proceedings or whether it also applies to non-core proceedings that are "related to" the bankruptcy case. However, the analysis is essentially the same under each, with a "case-by-case consideration of convenience and fairness." Weisman v. Southeast Hotel Properties Ltd Partnership, No. 91-6232, 1992 WL 131080 at *6 (S.D.N.Y. Jun. 1, 1992). Thus, while it is unclear whether the Bankruptcy Court will find this to be a core proceeding, this Court need not make that determination in order to determine whether transfer is appropriate.
Compare Weisman v. Southeast Hotel Properties Ltd Partnership, 1992 WL 131080 at *6 (S.D.N.Y. Jun. 1, 1992) ("Section 1412 applies to . . . civil proceedings related to cases under Title 11.") (citing 1 COLLIER ON BANKRUPTCY ¶ 3.02[4][a] (1992)) with Rumore v. Wamstad, No. 01-2997, 2001 WL 1426680 at *2 (E.D. La. Nov. 13, 2001) ("`related to' . . . cases should be governed by section 1404").
The threshold step under section 1404 (i.e., determining that the transferee forum "is one in which the action could have been commenced originally") is easily met in cases such as this one, which are removed under 28 U.S.C. § 1452. See 28 U.S.C. § 1409(a). The remaining analysis parallels that under section 1412 — namely, a discretionary determination of whether the transfer "will serve the convenience of the parties and the interests of justice." Rumore, 2001 WL 1426680 at *3.
This determination hinges on how Boltex's counterclaim is classified. If it is found to be a claim for setoff, then this likely is a core proceeding. See Interconnect Telephone Services, Inc. v. Farren, 59 B.R. 397, 401 (S.D.N.Y. 1986) ("where the estate brings an action against a creditor and the creditor counterclaims asserting a set-off, it is entirely appropriate for the action to be classified as a core proceeding"). If it qualifies as recoupment, then it is exempt from the automatic stay and is non-core. See Matter of Kosadnar, 157 F.3d 1011, 1014 (5th Cir. 1998).
There is a strong presumption in favor of placing venue in the district where the bankruptcy proceedings are pending. See Rumore v. Wamstad, No. 01-2997, 2001 WL 1426680 at *4 (E.D. La. Nov. 13, 2001) ("Presumptively, civil adversary proceedings should be venued with the underlying bankruptcy case."); In re Vital Link Lodi, Inc. 240 B.R. 15, 19 ((Bankr. W.D. Mo. 1999) ("The general rule is that the court where the bankruptcy case is pending is the proper venue for all related proceedings within the court's jurisdiction. . . . Accordingly, there is a strong presumption in favor of placing venue in the district where the bankruptcy case is pending."). The considerations behind this presumption are heightened here, because the determination under 28 U.S.C. § 157(b)(3) ( i.e., whether this proceeding is a "core" proceeding or is merely "related to" the bankruptcy case) is required in order to decide plaintiff's motion for abstention and/or remand. This determination is for the bankruptcy judge, who in this case, derives her jurisdiction from the United States District Court for the Northern District of Texas. See Consolidated Lewis Inv. Corp. v. First Nat'l Bank of Jefferson Parish, 74 B.R. 648, 651 (E.D. La. 1987) ("the question of whether the instant action is a core proceeding must be decided by the Bankruptcy Court for the Middle District of Louisiana"); Rumore, 2001 WL 1426680 at *3 ("The Court expresses no opinion on whether this case is a `core proceeding' for section 157 purposes. The Court recognizes that the bankruptcy judge [for the Southern District of Mississippi] has the authority to determine whether a proceeding is `core' or `related to' the bankruptcy case, under 28 U.S.C. § 157(b)(3)."). Thus, the interests of justice and the efficient administration of the bankruptcy estate strongly favor transfer, so that the Bankruptcy Court can decide inter alia whether abstention is either required or warranted. See Consolidated Lewis, 74 B.R. at 651 ("Although plaintiff's have asked this Court to remand this action or in the alternative, abstain, to do so would deprive the bankruptcy court of a § 157(b)(3) determination. Consequently, whether this matter should be remanded or abstention should be employed must be determined in the Middle District."); Nelson v. First Lenders Indem. Co., 1998 WL 378376 at *1 (N.D. Miss. 1998) (simultaneously confronted with a motion to transfer under § 1412 and a motion to remand, holding that removed claims should be "transferred for referral to the appropriate bankruptcy court to determine whether it should hear and determine these claims").
The convenience of the parties also favors transfer. Although Bayou Steel has manufacturing facilities in Louisiana and Tennessee, most of its significant management and strategic decisions are made at its corporate offices in Dallas, Texas. See Bankr. Rec. Doc. No. 4 at ¶¶ 3, 6. It hand-picked the Northern District of Texas as the forum for the administration of its chapter 11 case — the forum where claimants such as Boltex would be forced to file their claims. Bayou Steel argues that Dallas is inconvenient for its lawyers, who are located in New Orleans. However, the bankruptcy docket reflects that plaintiff's counsel in this case has filed a motion for admission pro hoc vice in that forum and is listed as one of Bayou Steel's counsel of record in the Dallas bankruptcy proceeding.
Moreover, it likely will be more convenient for the parties to litigate both plaintiff's claim and Boltex's counterclaim in the same forum — particularly if, as plaintiff suggests, both claims arise out of the same transaction. See Rumore, 2001 WL 1426680 at *4 ("it would be more convenient for [the parties] to litigate both cases in the same forum"). Although plaintiff argues that Bolex's claim does not qualify as one for set off, it does not concede that the claim qualifies as one for recoupment (which would be exempt from the automatic stay) or that the claim is otherwise exempt from the stay. Thus, whether Boltex's claim against plaintiff is ultimately classified as a setoff or not, Boltex is restricted to the Bankruptcy Court in its pursuit of that claim until the Bankruptcy Court determines otherwise.
Although Boltex theoretically would be free to assert a counterclaim for recoupment without seeking relief from the automatic stay, it would do so at serious risk of being found in violation of the stay. The determination of whether a claim qualifies as one for recoupment is not a simple one. See, e.g., In re Centergas, Inc., 172 B.R. 844, 848-52 (Bankr. N.D. Tex. 1994).
Considering all of these factors, the Court finds that the interests of justice and the convenience of the parties favor transfer to the Northern District of Texas for referral to the Bankruptcy Court.
III. CONCLUSION
Accordingly, IT IS ORDERED that defendant's Motion to Transfer Venue is GRANTED and this matter is transferred to the Northern District of Texas, for referral to the Bankruptcy Court administering In re: Bayou Steel Corporation, No. 03-30816 (Bankr. N.D. Tex. 2003).