By: Scott B Riddle, Esq.

Thompson v. Greenwood, 2007 Fed. App. 0445P,  2007 WL 3286743 (6th Cir. Nov. 8, 2007).  "This case presents a single issue on appeal: whether a bankruptcy court may retain a case filed in an improper venue under 28 U.S.C. § 1408 over a timely objection by an interested party, if it determines that retention is in the interests of justice or for the convenience of the parties."  The Court of Appeals held that it cannot.

Venue in a Title 11 case is governed by 28 U.S.C. § 1408, which reads, in pertinent part:

[A] case under title 11 may be commenced in the district court for the district … 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….

28 U.S.C. § 1408 (2006). Under this standard, the debtors concede that venue is not proper in the Western District of Tennessee, or, at least, not “technically” proper. Appellants’ Br. at 9. Improperly venued cases are governed by 28 U.S.C. § 1406, which is headed “Cure or waiver of defects” and instructs:

(a) The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.

(b) Nothing in this chapter shall impair the jurisdiction of a district court of any matter involving a party who does not interpose timely and sufficient objection to venue.

…  Although this section does not specifically mention Title 11 bankruptcy cases, its broad language plainly encompasses all improperly venued cases of whatever variety. Presumably, since bankruptcy judges “constitute a unit of the district court,” 28 U.S.C. § 151 (2006), this includes Title 11 cases.  Therefore, under § 1406, if a case is brought in an improper venue and an interested party FN3 timely objects, a district court has only two options: (1) dismiss the case, or (2) transfer the case to a jurisdiction of proper venue, if it be in the interest of justice.

The Court cited Judge Drake’s opinion in In re Sporting Club of Illinois Center, 132 B.R. 792 (Bankr. N.D. Ga. 1991), in support of the majority position. 

The statute which governs change of venue for bankruptcy proceedings is 28 U.S.C. § 1412. FN11 As is evident, this statute does not expressly address cases in which venue is improper. Pick, 95 B.R. at 715. However, when Rule 1014, which does address improperly venued cases, was amended in 1987, the advisory committee added an explanation:

FN11. 28 U.S.C. § 1412 states:
A district court may 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.

Both paragraphs 1 and 2 of subdivision (a) are amended to conform to the standard for transfer in 28 U.S.C. § 1412. Formerly, 28 U.S.C. § 1477 authorized a court either to transfer or retain a case which had been commenced in a district where venue was improper. However, 28 U.S.C. § 1412, which supersedes 28 U.S.C. § 1477, authorizes only the transfer of a case. The rule is amended to delete the reference to retention of a case commenced in the improper district. Dismissal of a case commenced in the improper district as authorized by 28 U.S.C. § 1406 has been added to the rule. If a timely motion to dismiss for improper venue is not filed, the right to object to venue is waived.

Fed.R.Bankr.P. 1014 (Advisory Committee Note 1987). Section 1477(a),  which was superceded by § 1412, was similar to the current § 1412, except that it expressly applied to improperly venued cases. Thus, when § 1477 was not enacted, there was no statute which dealt specifically with improperly venued cases. Pick, 95 B.R. at 715. This Court agrees with the court in Pick that when Congress failed to enact § 1477, they intended that improperly venued cases be treated the same as all other federal civil actions under § 1406, and that upon the motion of a party in interest, the case must either be dismissed or transferred. Id. This view is consistent with both Rule 1014(a) and the advisory committee notes….. Thus, the only situation in which the Court may retain an improperly venued case is where no party in interest files a timely objection. 

FN12. 28 U.S.C. § 1477, enacted in 1978, but later superseded, stated in pertinent part:   (a) The bankruptcy court of a district in which is filed a case or proceeding laying venue in the wrong division or district may, in the interest of justice and for the convenience of the parties, retain such case or proceeding, or may transfer, under section 1475 of this title, such case or proceeding to any other district or division.

The Court is aware that other courts have reached the opposite conclusion. Lazaro, 128 B.R. at 175; In re Leonard, 55 B.R. 106 (Bankr.D.D.C.1985); In re Boeckman, 54 B.R. 110 (Bankr.D.S.D.1985). However, this Court respectfully disagrees with the holdings of these cases. Accordingly, since venue in this case is improper, the only alternatives are to dismiss the proceedings or transfer them to the proper district.

Two interesting points about the Sporting Club case, which was before the Court during my clerkship with Judge Drake.  Debtor and the secured lender moving for transfer were represented by future Bankruptcy Judges.  Second, the case was one of clear venue shopping –

The only connection that either of the Clubs has in this district is a lease for office space in Peachtree City, Georgia, the address stated on the petitions of both the Illinois and Boca Raton Clubs. However, the evidence strongly indicates that this space was leased by the Illinois and Boca Raton Clubs, along with the Atlanta Club, for the sole purpose of obtaining venue in this district. The office space was jointly leased, on a month-to-month basis, on May 6, 1991, or shortly before the bankruptcy petitions were filed. No records of any value were kept in the office, and little, if any, business was conducted from the office. Additionally, the only mail received at the office was bank statements for accounts set up concurrently with the lease.