It has been a common practice for residents of northeast Georgia to file bankruptcy petitions in Chattanooga, Tennessee rather than Rome, Georgia, in spite of the Bankruptcy Code’s requirement that cases be filed in the district in which the debtor resides.
According to an article from the Chattanooga Times …
Georgia may not yet be successful in its border battle for water from the Tennessee River. But the Peach State could lay claim to more bankruptcy cases — and millions of dollars in legal and court fees — that now end up in U.S. bankruptcy courts in Tennessee.
Although no policy change has been made yet in Chattanooga about cross-state filings, one of the 21 U.S. trustees who represent the government in bankruptcy courts has objected to border crossings from Mississippi residents into the Memphis bankruptcy court, and a Memphis bankruptcy judge has moved to enforce the border. …
Last year, 1,049 North Georgia residents filed for bankruptcy relief in Chattanooga, representing more than one of every six cases filed here, according to the Eastern Tennessee district of the U.S. Bankruptcy Court….
U.S. Bankruptcy Court Judge Thomas Stinnett, one of two bankruptcy court judges in Chattanooga, said the local court "has always maintained close connections" with the North Georgia bankruptcy courts in Rome and Atlanta.
"This is something that we’ve known about for a considerable period, and we would certainly accommodate them on whatever may be needed," he said. …
But whether a policy change is made for Chattanooga may end up being decided by either U.S. Trustee Richard Clippard in Memphis or U.S. Trustee Donald Walton in Atlanta, either of whom might object to bankruptcy filings from Georgia residents in Chattanooga. Jane Limprecht, public affairs officer for the U.S. trustee’s executive office in Washington, D.C., declined to discuss any plans to object to cross-state filings.
The practice might come to an end after a recent 6th Circuit opinion –
But a 4-year-old case along the Tennessee-Mississippi border near Memphis threatens to create a new border fence there against people crossing state lines or federal districts to file bankruptcies.
In 2004, the U.S. trustee’s office in northern Mississippi moved to transfer out of the Memphis court two bankruptcy cases from Mississippi debtors.
After conflicting rulings in bankruptcy and federal district courts, a three-judge panel of the U.S. Court of Appeals for the 6th Circuit in Cincinnati ruled that bankruptcy cases should be filed in the same judicial district in which the debtor lives. Previously, many bankruptcy courts have accepted filings outside their district as a matter of convenience unless a creditor or debtor objected.
In a seven-page opinion, Chief Judge Danny Boggs said venue requirements of the bankruptcy code "are mandatory and not optional" and therefore debtors from Mississippi should not cross the state line to file their bankruptcy case in Memphis.
The case is Thompson v. Greenwood, 507 F.3d 416, (6th Cir. 2007) (click here for .pdf opinion). The facts are the following:
Debtors Reuben and Patricia Thompson and Leonard Jordan (“the debtors”), all of whom reside in the Northern Mississippi suburbs of Memphis, filed voluntary petitions for bankruptcy in the United States Bankruptcy Court for the Western District of Tennessee in June 2004. In both cases, the United States Trustee in the Northern District of Mississippi filed motions to dismiss or transfer on the ground that venue was lacking because the debtors did not reside in the district, as required by 28 U.S.C. § 1408. Although the debtors conceded, both then and now, that venue in Tennessee was “technically improper,” Appellants’ Br. at 9, they maintained that, both as a matter of statutory construction and for equitable reasons, the bankruptcy judges had inherent authority to retain the cases in the interest of justice or for the convenience of the parties. The Trustee argued that a proper interpretation of the applicable venue statutes left the judge with no discretion to retain the cases, and that the court was required either to dismiss or transfer the cases under the plain language of 28 U.S.C. § 1406.
The decisions of the bankruptcy judges in the two cases were contradictory. In the case of Mr. Jordan, Chief Bankruptcy Judge David S. Kennedy agreed with the debtor’s position, holding that “the court, in its discretion, pursuant to its inherent or implicit authority, … may retain ‘cases’ filed in an improper district ‘for the convenience of the parties’ or ‘in the interest of justice’ even if a timely motion is filed to contest venue….” In contrast, in the case of the Thompsons, Bankruptcy Judge Jennie D. Latta… found that venue was not proper in the Western District of Tennessee and ordered the case transferred to Mississippi. Both cases were appealed to the District Court for the Western District of Tennessee, which thoroughly analyzed the applicable venue statutes and determined that the Trustee’s position was “the most coherent reading of the statute as a whole in conformity with accepted norms of statutory construction.”… The court therefore affirmed Judge Latta’s ruling in In re Thompson and reversed Chief Judge Kennedy’s ruling in In re Jordan.
A very liberal cut & paste of the Court’s analysis, and authority from the Northern District of Georgia, after the jump:
As this court has recognized, a fundamental canon of statutory construction is that “when interpreting statutes, the language of the statute is the starting point for interpretation, and it should also be the ending point if the plain meaning of that language is clear.” United States v. Boucha, 236 F.3d 768, 774 (6th Cir. 2001) (internal quotation omitted). 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.28 U.S.C. § 1406(a)-(b) (2006). Although this section does not specifically mention Title 11
bankruptcy cases, its broad language plainly encompasses all improperly venued cases of whatever variety…. Therefore, under § 1406, if a case is brought in an improper venue and an interested party3 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 debtors, however, argue that § 1406 is inapplicable to bankruptcy cases because another, more specific provision applies—§ 1412, which is headed “Change of venue”and reads: “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.” 28 U.S.C. § 1412 (2006). The debtors argue that the use of the term “may” implies that the court is not required to transfer a case, but may also retain it. See In re Jordan, 313 B.R. at 256 (quoting In re Lazaro, 128 B.R. at 168, 172-74, which in turn quotes In re Boeckman, 54 B.R. at 111: “[T]he permissive language used in Section 1412 . . . merely says that a district court ‘may’ transfer a case to another district; it does not say it must transfer the case . . . .”). While at first glance this might appear to be a plausible interpretation, it erroneously assumes that § 1412 applies to both properly and improperly venued cases. If this assumption were accurate, and the debtors’ interpretation adopted, it would render § 1408 a nullity, or at least significantly diminish its importance. Under such an interpretation, parties would be free to disregard the venue strictures of § 1408 and file their Title 11 cases in any court in the country, so long as the bankruptcy judge thought the choice of venue just or convenient—factors nowhere mentioned in § 1408. Because courts must “give effect, if possible, to every clause and word of a statute rather than . . . emasculate an entire section,” Bennett v. Spear, 520 U.S. 154, 173 (1997) (internal quotation omitted), the better interpretation is that § 1412 applies only to bankruptcy cases that are properly venued in the first instance; § 1406 applies to improperly venued cases. This makes sense given that § 1406 governs “[c]ure or waiver of [venue] defects,” whereas § 1412 merely governs “[c]hange of venue.” Thus, § 1412 is no “more specific” in application to this case than is § 1406.
Federal Rule of Bankruptcy Procedure 1014, though not carrying the weight of a statute, also supports this interpretation. The rule implements the provisions of both § 1406 and § 1412 under the heading “Dismissal and Change of Venue,” and divides cases into two groups:
(1) Cases filed in proper district
If a petition is filed in a proper district, on timely motion of a party in interest, and after hearing on notice to the petitioners, the United States trustee, and other entities as directed by the court, the case may be transferred to any other district if the court determines that the transfer is in the interest of justice or for the convenience of the parties.
(2) Cases filed in improper district
If a petition is filed in an improper district, on timely motion of a party in interest and after hearing on notice to the petitioners, the United States trustee, and other entities as directed by the court, the case may be dismissed or transferred to any other district if the court determines that transfer is in the interest of justice or for the convenience of the parties.
Fed. R. Bankr. P. 1014(a). Thus, part (a)(1) of the rule provides that if a case is properly venued, it may be transferred (in accord with § 1412). Part (a)(2) states that if, on the other hand, the case is improperly venued, it may be dismissed or transferred (in accord with § 1406). As in § 1412, the use of seemingly permissive language (“may be transferred,” rather than “must be transferred”) could be interpreted as granting the court authority to also retain the case. It could, that is, if such an interpretation were not explicitly foreclosed by the rule’s accompanying advisory note:
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.
Fed. R. Bankr. P. 1014 advisory committee’s note. The advisory note makes clear that, since the repeal of 28 U.S.C. § 1477,4 which explicitly permitted retention of an improperly venued case, there is no longer any authority for such retention, and only dismissal or transfer of the case is authorized. While we acknowledge that this note (and, indeed, the entire rule) must give way to conflicting statutory authority under some circumstances, see 28 U.S.C. § 2075 (2006) (stating that the “rules shall not abridge, enlarge, or modify any substantive right”), there is no conflict between the rule and any applicable statute on the specific question at issue in this case—whether a bankruptcy court has authority to retain an improperly venued case over the timely objection of an interested party. Both Rule 1014(a)(2) and § 1406 answer that question in the negative. To be sure, as the district court recognized, there is some conflict between Rule 1014(a)(2) and § 1406 vis-à-vis the transfer of an improperly venued case. See In re MacDonald, 356 B.R. at 427-28. Specifically, the statute permits transfer only to a district where venue would have been proper in the first instance, and only in the interest of justice. In contrast, Rule 1014(a)(2) appears to permit transfer to “any other district,” whether the case could have been brought there originally or not, and includes the “convenience of the parties” as an additional consideration. Compare 28 U.S.C. § 1406 with Fed. R. Bankr. P. 1014(a)(2). Although resolving these apparent discrepancies is not strictly necessary to render a decision in the case before us, in the interest of providing guidance to the lower courts in future bankruptcy cases, we note that the statute trumps the rule. See Fed. R. Bankr. P. 9030 (“These rules shall not be construed to extend or limit the jurisdiction of the courts or the venue of any matters therein.”). Thus, where a bankruptcy case is brought in an improper venue, and an interested party timely objects, the court must either dismiss it or transfer it to a jurisdiction of proper venue in accordance with § 1406, notwithstanding any differing language in Rule 1014(a)(2). Note, however, that no such conflict arises with regard to cases that are properly venued in the first instance. Compare 28 U.S.C. § 1412 with Fed. R. Bankr. P. 1014(a)(1) (both authorizing transfer to another district, without limitation, in the interest of justice or for the convenience of the parties). Thus, a case that is properly venued in the first instance could be transferred to another district (even one where the case could not originally have been brought) in accordance with § 1412 and Rule 1014(a)(1).
Those courts adhering to the minority view take issue with this interpretation because of the seeming illogic of this rule—that a case that is filed in an improper venue must be dismissed or transferred to a proper venue, but one that is first filed in a proper venue can be transferred to a district where venue is improper. See, e.g., In re Lazaro, 128 B.R. at 172 (“It is an odd construction indeed to maintain that New Mexico would be free to transfer this case to the Western District of Texas . . . , but that the Western District of Texas is not free to retain the self-same case.”). We, however, are inclined to agree that “[t]he statutory scheme . . . merely recognizes that it is the role of the ‘home’ court to make [the] determination [whether to transfer a case to another district].” In re Petrie, 142 B.R. at 407. Whether this framework is the best way to manage venue in bankruptcy cases is not for us to decide; it is enough that the textual authority inescapably leads to our conclusion. Thus, we agree “that fixing any perceived problem is a job for Congress and not the courts.” Swinney, 309 B.R. at 641. …
Because we find that the plain text of § 1406 governs this case, it is not necessary—indeed, it would be inappropriate—to explore the legislative history surrounding the repeal of former § 1477. See Conn. Nat. Bank, 503 U.S. at 254. Suffice it to say, the legislative history (as is so often the case) is hardly definitive one way or the other. Compare In re Jordan, 313 B.R. at 257 (concluding that the legislative history supports the view that Congress did not intend to change bankruptcy venue by repealing § 1477) with In re MacDonald, 356 B.R. at 425 (concluding that the “statutory history simply does not support the proposition that Congress intended to maintain the status quo”). Similarly, the equitable considerations cited by the debtors and those courts adhering to their viewpoint cannot trump the plain meaning of the statutory authority, even if the consequences of requiring a debtor to file his case in a proper venue were as dire as the debtors make them out to be. See Reno v. Bossier Parish Sch. Bd., 520 U.S. 471, 485 (1997) (“[I]t is well established that courts of equity can no more disregard statutory and constitutional requirements and provisions than can courts of law.”) (internal quotation omitted).
For the reasons set forth above, we hold that (1) the venue requirements of 28 U.S.C. § 1408 are mandatory, not optional; (2) 28 U.S.C. § 1412 applies only to bankruptcy cases filed in a proper venue; (3) 28 U.S.C. § 1406 applies to cases, including bankruptcy cases, filed in an improper venue; and (4) Federal Rule of Bankruptcy Procedure 1014(a)(2) must be interpreted as authorizing the transfer of an improperly venued case only to a district in which the case could have originally been brought, and only in the interest of justice, in accordance with the plain language of § 1406. See In re MacDonald, 356 B.R. at 428. The decision of the district court is therefore AFFIRMED.
Notably, there is already authority in the Northern District of Georgia that reaches the same result as the 6th Circuit. In In re The Sporting Club at Illinois Center,* 132 B.R. 792 (Bankr. N.D. Ga. 1991), Judge Drake held the following:
The next issue for the Court to decide is whether an improperly venued case may be retained, or whether it must be transferred or dismissed pursuant to Federal Rule of Bankruptcy Procedure 1014(a)(2). The parties have correctly pointed out that there is a split of authority on whether a court may retain an improperly venued case. See In re Pick, 95 B.R. 712, 715 (Bankr.D.S.D.1989); In re Lazaro, 128 B.R. 168 (Bankr.W.D.Tex. 1991). This Court thinks that the better view, and one that is consistent with the wording of the Rule and the advisory committee notes, is that a court must either dismiss or transfer an improperly venued case.
The statute which governs change of venue for bankruptcy proceedings is 28 U.S.C. § 1412. 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:
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. Id.; see also In re Townsend, 84 B.R. 764, 767 (Bankr.N.D.Fla.1988); In re Frame, 120 B.R. 718, 722 (Bankr.S.D.N.Y.1990); ICMR, Inc. v. Tri-City Foods, Inc., 100 B.R. 51, 54 (D.Kan.1989); In re Greiner, 45 B.R. 715 (Bankr.D.N.D.1985). Thus, the only situation in which the Court may retain an improperly venued case is where no party in interest files a timely objection. ICMR, 100 B.R. at 54.
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.
* Interestingly, the two Bankruptcy Judges in the Rome Division, Judge Diehl and Judge Bonapfel, were counsel in the Sporting Club case.