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The Insider’s Scoop: Caesars Moving from Delaware to the Northern District of Illinois
In re Caesars Entm’t Operating Co., Case No. 15-10047 (KG) (Bankr. D. Del. Jan. 28, 2015) [Transcript Ruling]
[Update – Judge Gross issued his formal written Opinion on February 2, 2015. The Opinion, which lays out his transcript ruling in further detail, can be found here.]
On January 28, 2015, in a bench ruling and Order to be followed by a written Opinion, the Honorable Kevin Gross ruled that the voluntary chapter 11 bankruptcy proceeding of Caesars Entertainment Operating Company, Inc. (“CEOC”), that was currently pending but stayed in the United States Bankruptcy Court for the Northern District of Illinois (the “Illinois Court”), may proceed in the Illinois Court. Additionally, the Court held that the involuntary bankruptcy proceeding against CEOC (the “Involuntary Proceeding”) simultaneously pending in the Delaware Bankruptcy Court shall be transferred to and proceed before the Illinois Court.
On January 12, 2015, certain creditors of CEOC (the “Petitioning Creditors”) commenced the Involuntary Proceeding in the Delaware Bankruptcy Court. Three days later, CEOC and approximately 180 affiliates initiated voluntary chapter 11 proceedings in the Illinois Court. Shortly thereafter, pursuant to section 105(a) of the Bankruptcy Code and Bankruptcy Rule 1014(b), Judge Gross issued an order staying CEOC from prosecuting its voluntary proceeding in the Illinois Court except for obtaining certain limited first-day relief. An expedited two-day trial was then scheduled so that Judge Gross, as the court presiding in the district in which the first-filed petition was pending, could determine where the dueling proceedings would proceed.
At the outset of His Honor’s ruling, the Court noted that venue of the CEOC proceedings was proper pursuant to 28 U.S.C. § 1408 in either Delaware (the place of CEOC’s incorporation) or Illinois (the place of incorporation for at least one of CEOC’s debtor-affiliates). And although a debtor’s choice of forum is usually given deference, the analysis did not stop there for the Court, which noted that the Involuntary Proceeding was filed first and a substantial majority of CEOC’s creditors preferred a Delaware venue. Accordingly, the Court decided it must consider the interest of justice and the convenience of the parties, two factors set forth in 28 U.S.C. § 1412 and Bankruptcy Rule 1014(b).
Ultimately, the Court determined that the issue did not turn on the convenience of the parties given the realities of the accessible world in which we live and the wide-spread distribution of CEOC’s businesses. Rather, His Honor held that it was the interests of justice that narrowly supported the transfer of the Involuntary Proceeding and the continuance of the voluntary proceeding in the Illinois Court. In sum, the Court did not look favorably on the Petitioning Creditors’ “anticipatory filing” in Delaware and viewed the action as a race to the courthouse not to be rewarded. Although serious allegations of fraud and breaches of fiduciary duties have been alleged against CEOC and its insiders, Judge Gross made it clear that the Illinois Court is equally capable of policing CEOC, controlling the proceedings, and granting any necessary and appropriate relief to aggrieved parties. These factors, coupled with CEOC’s judgment and justification that Illinois would serve as the best venue to reorganize, convinced the Court to provide “just enough deference” to move the proceedings to Illinois.