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Friday, December 28, 2012
OMTRON USA CHAPTER 11 CASE TRANSFERRED FROM DELAWARE TO NORTH CAROLINA
In the latest of a string of large chapter 11 bankruptcy cases that have been transferred out of the venue chosen by the debtors, Bankruptcy Judge Brendan L. Shannon entered an order on December 21, 2012 ordering the transfer of the bankruptcy case of Omtron USA, LLC from the District of Delaware to the Middle District of North Carolina. The venue transfer was requested by creditors John Benton, Suzanne Benton, and B&B Poultry Farm, Inc. Their motion received support from the Official Committee of Unsecured Creditors and the town of Mocksville, North Carolina. The motion was challenged by the debtor. While the court’s order provides few details, Judge Shannon provided an explanation for his ruling on the record at a hearing held on December 20th:
THE COURT: I understand. Okay. I don’t believe that I need evidence or testimony. And I appreciate receiving the affidavit. I’m going to grant the motion to transfer venue. And I will give you my reasons.
First, again, I have the benefit of the witness’ testimony and I also have at least the thrust of an opposition to that testimony. So again, I believe that I have a sufficient record before me and I don’t think that the record is a material dispute.
As a threshold matter, I note that venue is proper in this jurisdiction and debtor’s choice of venue is entitled to substantial deference. Nevertheless, I believe that that has been overcome and I place significant weight on the position of the official committee of unsecured creditors in supporting the motion to transfer venue. And the record here reflects that ninety-seven percent of the debtor’s real assets are in North Carolina; ninety-four percent of the creditors are in North Carolina. And I also note, and I think it is a fair consideration, that those claims are the subject of litigation or otherwise disputed. And so this presents a somewhat different posture than many cases I have where the expectation is the creditors will not be actively involved in the proceedings or in the exercise of liquidating their claims because most claims are unopposed.
With respect to the interest of justice and the convenience of the parties, I don’t think that there’s any material dispute that that’s the applicable standard. And I do find both that the convenience of the parties will be fairly served by a transfer of the case and that the interests of justice are similarly served.
This is a sale case that is in its earliest stages, so I don’t believe that there is a risk of material disruption to the administration of these proceedings. We have not scheduled a sale hearing. We don’t have a stalking horse that is presently before the Court and the Court has not approved bidding procedures or otherwise moved the ball forward so I expect that there can be a, hopefully, seamless transition of these proceedings down to the appropriate court in North Carolina.
With respect to the primary argument that’s articulated by the debtor in opposition, I appreciate the colloquy. It’s an interesting point but I don’t accept it. I don’t believe that — and I will quote Judge Carey here — I think that this does fall into this category, whether it’s because of the actuality of this Court’s proceedings or market perceptions of this court as an attractive venue. I reject categorically that that can be a legitimate consideration for this Court in sending off or opposing a motion to transfer venue.
It may be a legitimate consideration in a debtor’s choice of where to commence a case and that’s fine. But my analysis is and must be different. And I start again from the proposition that this has been properly filed here. So I have no issue with that. But I don’t believe that I can rely upon either this Court’s established practice or experience in a particular area or what the possibility is of market perceptions of this Court’s practice to the extent that it could be deemed to increase bidder interest in a sale process in this jurisdiction. I don’t accept that. And I think that I would, to the contrary, both endorse Judge Carey’s observations in the Qualteq case and I think that I would say that from my view, there is an irrebuttable presumption of the equal competence and ability to administer bankruptcy proceedings in this court and in all of our sister courts.
So I don’t accept the proposition that proceedings — that our experience is a legitimate consideration because I think to head down that path would require, I think, a flawed and simply wrong implication or conclusion that somehow this Court is better at doing these things. And that’s not been my experience and I don’t think that there’s any legal or factual basis for so concluding. We have done sales. Other courts do sales. The Code applies in all fifty states. And there’ll be a sale proceeding in North Carolina and it will play itself out. And based upon the record before me, therefore, I’m satisfied that the motion to transfer venue is well founded and will be granted and will be granted promptly to ensure the transition of the case — I think that that’s become much easier now that everything’s electronic. I remember the exercise of trying to mail stuff out to other courts. So I expect that that should occur.
As to the colloquy referenced by Judge Shannon on the issue of whether conducting a section 363 asset sale in the Delaware court rather than in the Middle District of North Carolina would be likely to generate greater proceeds, it is as follows:
MR. TEMIN: Thank you, Your Honor. Michael Temin, Fox Rothschild, for the debtor. So everything’s in North Carolina. Why do we want to be in Delaware? As we see it, there are three major pieces of this case. The first is the maximization of the value of the assets and the opportunity to attract someone who will reopen these plants and reemploy the farmers who were previously employed. The second thing is the liquidation of the claims. And the third is distribution. The creditors have focused on the second. That is, that it’ll be more efficient, expeditious to liquidate the claims in North Carolina. We think the focus, at least initially in this case, ought to be where is the best opportunity to realize the most dollars for these assets. Because if we don’t do that, the liquidation of the claims is going to be an academic exercise. The object of the case is to try and maximize value. We think that Delaware maximizes value.
THE COURT: How do I embrace that proposition without at least implicitly suggesting that I’m better at this sort of thing or this Court is better –
MR. TEMIN: That –
THE COURT: — at this sort of thing –
MR. TEMIN: That is not the –
THE COURT: — than a North Carolina court?
MR. TEMIN: That is not our argument. It has nothing to do with whether you are better at it than the judge –
THE COURT: Well, it does refer to practices, procedures and standards developed in this jurisdiction.
MR. TEMIN: And the point that we will have Mr. Williams testify to is that there is a perception in the world, which perception is likely to make it more likely, that bidders will appear and be willing to sign up and participate in an auction sale here. It has nothing to do with reality. It has to — nor does it have to do with the courts except for the experience. There have been, as far as we know, in the last five or six years, two 363 sales in the Middle District of North Carolina. I don’t know what the number is here but it is vastly more. We believe, and Mr. Williams will testify to, that a 363 sale venued in Delaware is more likely to attract bidders and we need, in order to have a sale that was going to be productive, we need to have somebody who is willing to become a stalking horse bidder, which means that somebody needs to be comfortable that the protections that this Court universally gives to stalking horse bidders and universally follows through on are available. Therefore, a stalking horse bidder is going to be willing to make the investment that is necessary to become the bidder.
THE COURT: So if your argument is that the issue is one of market perception –
MR. TEMIN: Yes.
THE COURT: — then we need not get into a discussion about whether or not, frankly, the similar procedures, protections and steps may be available in North Carolina. Your point would be the market knows they can get them here and we’d have more enthusiastic and robust –
MR. TEMIN: Exac –
THE COURT: — bidder interest.
MR. TEMIN: Exactly. It’s moot. What we are trying to do is attract people to come to the table. And we’ll never know why people don’t come to the table. But it’s the debtor’s opinion, supported by Mr. Williams, that because of the knowledge here, the potential bidders are more likely to come here.
THE COURT: Let me ask you a question, because I’ve been thinking about this. Let’s start with the proposition I still remember from my first year civil procedure course, another procedure ethic, something like that, where the professor said is anyone familiar with the concept of forum shopping. And the answer is yes, we read the cases. And that’s a bad thing, right? And everybody said yes. It sounds like a bad thing. They tell us it’s a bad thing. And his answer is that’s — you’re mistaken. Forum shopping is the affirmative responsibility of counsel to a litigant to place him in a posture where he is most likely to achieve a legitimate goal. So let’s start with that proposition which I don’t think is, frankly, remarkable. And we go through it — you know, as a Delaware lawyer, you go through it any time something comes in. And the question is, is my client commencing a state court proceeding. Is he seeking legal or equitable relief? Should we proceed in the chancery court or in the superior court? Those are all entirely legitimate considerations. But even if I accept your proposition that your client chose to commence the case here for these considerations, that may be fine. Right? That’s their prerogative to decide to file here for whatever reasons. And it may be that they want to be here for whatever reason. But I think what we understood from Judge Carey is that those are not — while it may be legitimate considerations for why a debtor would want to be in a place is not one of the considerations that I’m entitled to evaluate for purposes of determining a motion to transfer venue. Why you’re here is different from whether you should be here. Am I making that — do you understand that kind of distinction –
MR. TEMIN: Yes. But I –
THE COURT: — I’m drawing? Is that a fair distinction?
MR. TEMIN: Yes. It is a fair distinction. The question is no longer whether or not we were entitled to file here.
THE COURT: Yeah. I think –
MR. TEMIN: I agree completely with that. The question is whether the case should remain here. I mean, the real reason I think they filed here is they bought here from Townsends. If we really go back to why the initial decision was made, it was probably made that way rather than thinking ahead to the next steps. And I am not –
THE COURT: Let me ask you a question.
MR. TEMIN: Sure.
THE COURT: Oh, well, actually no. Go finish your thought.
MR. TEMIN: I am not suggesting that you controvert what Judge Carey said. And indeed, I am not suggesting that the judges in North Carolina are not capable of doing everything that you are capable of doing. It has nothing to do with the capacity of the court. It has to do with the perception in the world, which perception is going to be evidenced by what potential buyers do. And of course, we’ll never know the people who won’t show up. We’ll only know about people who do. So we’ve got to make a judgment based upon the experience of people who are in this business.
THE COURT: Let me ask a different question because much of — it’s an interesting argument. But let’s change it a little bit. A debtor — or not a debtor — any litigant will, I think, properly, and, if they’re well counseled, will make a decision on where to commence a case, be it a bankruptcy case or anything, based on the applicable law. I mean, that’s why we have conflicts of laws and that whole body of law. And we’re going to file a lawsuit in — or we’re going to file a lawsuit in New York. We can go to New York or Nevada. We’re going to file it in New York because Nevada’s got a two-year statute and New York’s got a six-year statute of limitations, something like that. So what if I were faced with a different scenario where it’s not about the particular skill set or procedures of the court or even perceptions of what the court may do or be prepared to do. But if I had a different situation — suppose that you filed this case for purposes of obtaining the benefit of a Third Circuit standard that differs from the — North Carolina is the Fourth –
MR. TEMIN: Fourth.
THE COURT: — Circuit? Fourth Circuit? So an example — and the Supreme Court ruined this for everybody — but we used to waive transfer taxes on any sale on the theory that someday maybe a plan will happen. So –
MR. TEMIN: Um-hmm. Well, that there was a question of what did those words mean –
THE COURT: Yeah.
MR. TEMIN: — in accordance with the plan.
THE COURT: Right. And so, it was well established at least, I think, in the Third Circuit –
MR. TEMIN: In the Second, too.
THE COURT: Yeah. And so let’s say that you had a substantial sale and we’re going to file it and the transfer taxes are going to be eight million dollars. And so you file it here. And then I’ve got a venue transfer motion. They want to send it to North Carolina on similar facts.
MR. TEMIN: Um-hmm.
THE COURT: Is that one of the considerations I could take into account –
MR. TEMIN: I think the an –
THE COURT: — that the estate recoveries would be superior?
MR. TEMIN: I think the answer is yes because especially in a liquidating case, the objective is to realize a return for creditors. And to the extent that there is a demonstrable benefit, and that would — eight million dollars sounds demonstrable to me. I think that is a good reason for saying that since what we’re about is maximizing value and if this will maximize value, that –
THE COURT: And that would then be in the interest of creditors.
MR. TEMIN: Well, yes. And if we don’t produce a significant recovery here, the liquidation process is going to be, as I said earlier, an academic exercise. We need to produce a major amount of dollars. This property has some problems. It has been sold in bankruptcy within two years. And then it failed six months after. So we need — we don’t have the benefit of having an attractive property. And we have therefore, made it tougher for Duff & Phelps to do its job. This would essentially — staying here makes it easier and, in their opinion, more likely to return a greater amount for the creditors.