Motion to Transfer Denied, Bankruptcy Court Stresses Adverse Impact of Transfer and Relative Ease of Appearing in Delaware

In re Restaurants Acquisition I, LLC, Case No. 15-12406 (KG), 2016 WL 855089 (Bankr. D. Del. Mar. 4, 2016)

In this Memorandum Opinion, Judge Gross denied a motion to transfer venue to the Bankruptcy Court for the Northern District of Texas brought by the Texas Comptroller of Public Accounts and the Texas Workforce Commission (the “Movants”).  The Court recognized the strong interest in resolving state tax disputes in a local forum, but explained that the analysis must be viewed from the lens of all interested parties, with the primary focus concerning the economic administration of the estate and the impact on a debtor’s efforts to reorganize if transferred.

Restaurants Acquisition I, LLC (the “Debtor”) is a Delaware LLC that operated thirty restaurants throughout Texas, and has its books and records located in Tennessee.  All but four of its 530 employees live in Texas.  A majority of the unsecured creditors and about one-third of the landlords are located in Texas.  As relevant here, the Movants wish to transfer the Debtor’s case to Texas so that a tax dispute between the Debtor and Movants can be resolved.  The parties note that the tax dispute was one of the events that led to the bankruptcy filing.

The Court first determined that Delaware is a proper forum because the Debtor is organized under the laws of Delaware.  The Court then analyzed whether it should transfer venue in the interest of justice or for convenience of the parties.  See 28 U.S.C. § 1412.  For convenience of the parties, courts generally consider six factors (dubbed the CORCO test): (1) proximity of creditors of every kind to the Court; (2) proximity of the debtor to the Court; (3) proximity of the witnesses necessary to the administration of the estate; (4) location of the assets; (5) economic administration of the estate; and (6) necessity for ancillary administration if liquidation should result.  Op. at *5.  Of particular note, the Court found significant that the Debtor’s prepetition lenders and largest unsecured creditor opposed the transfer motion, but stated that the Court will be amenable to the participation of approximately 160 former employees in hearings by telephone, as the Court has done in numerous other cases.  Op. at *7.  Focusing on the economic administration, which is considered the most important factor, the Court held that having the Debtor and its largest creditors retain new or additional counsel would create an added financial burden that could potentially derail the Debtor’s efforts to reorganize.  Op. at *10.  Again, the Court stressed that out-of-town parties routinely make telephonic court appearances.  Finally, the Court made clear that His Honor’s ruling does not preclude the Movants from seeking relief from the automatic stay to litigate its claims in Texas.  With a majority of the factors leaning in favor of denying the transfer motion, the Court held that transfer would not serve the convenience of the parties.

The Court briefly touched upon transferring a case “in the interest of justice.”  The Court observed there is learning curve associated with transfer of cases both for the Court and also the parties involved, and that the related delay could have an adverse impact on the Debtor’s restructuring efforts.  The Court also gave some weight to the Debtor’s right to select a proper forum of its choosing, and it found no evidence that the filing was the product of bad faith or poor business judgment.  Op. at *12-13.  Therefore, the Court concluded that transfer would not serve the interests of justice, and denied the Movants’ transfer motion.