Judge Kaplan Keeps Multi-Color Cases in New Jersey Despite ‘Gut Check’ Feeling That Debtors’ Venue Planning Does Not ‘Sit Right’

Today Judge Michael Kaplan issued a letter opinion denying the U.S. Trustee and the Multi-Color ad hoc cross-holder group’s motions to dismiss or transfer the chapter 11 cases out of New Jersey. The ruling bolsters Multi-Color’s campaign to confirm its chapter 11 plan, which is supported by the secured ad hoc group and opposed by the cross-holder group.

The judge finds that the principal assets of the first-filed debtor MCC-Norwood are its New Jersey bank accounts, rejecting the cross-holders’ view that MCC-Norwood lacks connections to the state. The cross-holder group had urged the court to find that MCC-Norwood’s principal assets during the 180-day lookback period under the venue statute were patents, intercompany balances and directors and officers, or D&O, liability insurance policies located outside New Jersey.

The judge also rebuffs the UST’s position that MCC-Norwood’s case was filed in bad faith and must be dismissed under the Third Circuit’s LTL Management decision.

Although the UST insists MCC-Norwood has no operations and “no business outside of its role as a venue hook in this case,” Judge Kaplan says the entity is in “genuine financial distress” as a guarantor of $5.5 billion of funded debt. Nor is MCC-Norwood a “synthetic litigation entity” born by divisional merger and immediately placed in chapter 11, as was the case with LTL, the judge observes.

Despite finding that MCC-Norwood’s case was filed in good faith, Judge Kaplan also gives the parties his “gut check” on the movants’ allegations of venue-shopping. He writes that “no party can deny that the Norwood [bank] Accounts were opened so that MCC-Norwood could file in this district,” and “[t]o the extent this does not ‘sit right’ with the parties in interest, the Court shares that sentiment” (emphasis added).

However, Judge Kaplan also says that “this is the situation intentionally created by Congress when it elected to broadly draft – and decline to tailor – the venue statute. It is not this Court’s place to ‘close loopholes in legislation’” (emphasis added). He rejects the cross-holder group’s request to transfer the cases to Delaware.

Multi-Color returns to court tomorrow, Tuesday, March 17, at 9:30 a.m. ET for a hearing on final approval of the debtors’ $657.5 million DIP financing, opposed by the cross-holder ad hoc group and excluded first lien lenders. Judge Kaplan is also slated to hold a plan confirmation hearing on March 31.

In today’s decision, Judge Kaplan explains that bankruptcy venue is governed by 28 U.S.C. section 1408, which permits a debtor to file in any district where its domicile, residence, principal place of business or principal assets were located during the 180 days preceding the petition date (or for a longer portion of that period than in any other district). The statute is “deliberately broad,” and Congress has repeatedly rejected proposals to impose stricter requirements, the judge says.

Judge Kaplan says he must answer the following questions to determine the proper venue for Multi-Color’s cases: (1) what are the debtor’s principal assets? and (2) where were those principal assets located for the most time during the 180-day period?

The movants emphasized that MCC-Norwood’s initial petition lists Atlanta as its principal place of business, leaving blank the field for the “[l]ocation of principal assets, if different from the principal place of business.” However, Judge Kaplan notes Multi-Color later filed an amended petition for MCC-Norwood listing New Jersey as the principal place of business.

The judge rejects the cross-holders’ assertion that MCC-Norwood must be held to the representations in the initial petition, saying that debtors are free to amend and that “[t]he absence of a separate entry does not constitute a sworn factual representation that principal assets were located in Georgia.”

Judge Kaplan also explains that MCC-Norwood’s bank accounts were opened on Dec. 19, 2025, and funded on Jan. 13, and as of the petition date the balances in the adequate assurance account and DIP account were $1.05 million and $1,000, respectively.

The judge notes that because Multi-Color filed on Jan. 29, the Norwood accounts could serve as the “principal asset” for only 16 days during the venue period and not the preceding 164 days. The cross-holder group argued that MCC-Norwood must therefore have had another principal asset during the 164 days that should be given greater weight in the venue analysis.

However, Judge Kaplan declines to follow what he calls the “Time-Based Approach,” under which a debtor’s principal assets are identified for each day of the 180-window and the asset with the most amount of time would be deemed the principal asset. Instead, he finds that an “Asset-Based Approach,” which “evaluates the assets that a debtor possesses at the time the petition is filed and where such assets were located for the longer portion of the Venue Period,” is the proper approach for determining venue based on principal assets (emphasis added).

Judge Kaplan says that he has not found any case law directly on point and that Congress “has – seemingly intentionally – left the venue statute broad and has not provided explicit guidance for its application.” He concludes that under an asset-based approach, from “both a quantitative and qualitative perspective,” MCC-Norwood’s assets were located longer in New Jersey than in any other state during the 180 days.

On this point, the judge finds that MCC-Norwood’s bank accounts are located at ConnectOne Bank in Englewood Cliffs, N.J., ruling against the UST’s position that the bank accounts are intangible and that their domicile is simply the location of the bank account holder.

Judge Kaplan also rejects the UST’s argument that the bank accounts “should not count for venue” because they were opened shortly before filing. The statute “does not require assets to exist for the entire 180 days,” he emphasizes, but only requires that “the principal assets were located in the district for a longer portion than in any other district” during the 180-day period (emphasis added).

Similarly, the judge disagrees with the movants’ position that “permitting venue to rest on recently opened bank accounts would render §1408 meaningless and allow debtors to file ‘anywhere.’” The statute “does not require longevity of ownership, historical nexus, operational activity, or a qualitative business purpose,” Judge Kaplan writes.

The judge says he is unpersuaded by the movants’ argument that he is opening the door to limitless venue-shopping. He reasons that if a debtor truly has other significant assets in another district for a longer portion of the 180-day period, then venue would properly lie there – or could be transferred to that other district as the case demands.

Transfer

The ad hoc cross-holder group had argued that if Judge Kaplan does not dismiss the chapter 11 cases outright for improper venue, he should transfer them to Delaware. In today’s opinion, Judge Kaplan notes that even when venue is proper, a case may still be transferred to another district “in the interest of justice or for the convenience of the parties.” However, the judge says nothing in the record shows that a different district would “greater proximity to [MCC-Norwood’s] creditors, assets, or witnesses – or would otherwise be more convenient for those involved.”

Judge Kaplan writes that he “appreciates that the manner in which the Debtors have employed the venue statute strikes many as being inconsistent with the ‘interest of justice’” (emphasis added). However, the judge says courts consistently hold that a key factor in the interest-of-justice analysis is whether transfer would promote the economic and efficient administration of the bankruptcy estate.

For Multi-Color, transferring the cases would only increase costs and delay, according to the ruling. Judge Kaplan points out that he has granted first day relief and scheduled key hearings, including Tuesday’s final DIP hearing and a March 31 confirmation ruling. Those hearings would have to be delayed if the cases were transferred to a new court that had to familiarize itself with the case, the judge continues, and that would increase administrative costs and could upset RSA milestones.

Moving the cases to another district could also “give rise to uncertainty among lenders, vendors, the market and thousands of employees,” according to the ruling. Judge Kaplan says he is “confident that any bankruptcy court in any []other district could fairly and effectively administer these estates,” but the interest of justice “favors continuity, not disruption.”

Judge Kaplan also remarks that the debtors’ choice of forum is entitled to deference, although not “absolute deference.” However, he says the movants presented no evidence suggesting the debtors filed in New Jersey to hinder another party or to take advantage of favorable case law.

The judge also points out that holders of more than 83% of the debtors’ prepetition funded debt support venue in New Jersey because they have signed the RSA. Moreover, the ad hoc cross-holder group’s documents for their alternative DIP financing proposal “expressed that they were prepared to stipulate to proper venue in this forum, and to waive all venue-related objections.”

Other Assets

Applying what he calls the asset-based approach, Judge Kaplan finds that the Norwood accounts were the debtors’ principal assets quantitatively and qualitatively on the petition date – not MCC-Norwood’s patents, intercompany balances or D&O insurance policies, as the cross-holder group contended.

On the patents, the opinion notes that MCC-Norwood owned five U.S. patents and seven foreign reciprocal patents throughout the entire 180-day period, in contrast to the 16 days the debtor held the Norwood accounts. Although MCC-Norwood held the patents for a longer time, Judge Kaplan still finds that the bank accounts are the principal assets on the basis of their “quantitative and qualitative value.”

The parties dispute the value of the patents, the judge points out, with the debtors asserting they are “valueless historical artifacts.” However, Judge Kaplan says that in the absence of valuation evidence, he would be “hard-pressed to find that the Patents have no economic or monetary value.”

Still, the judge says the record does not show that the patents are “more important, consequential, or influential than the more-than-$1 million in the Norwood Accounts.”

Next, Judge Kaplan turns to MCC-Norwood’s intercompany balances. The cross-holders argued that entries in MCC-Norwood’s books show gross and net “intercompany receivables” over $158 million and $102 million, respectively, which they said the court should view as assets located outside of New Jersey.

Judge Kaplan disagrees, emphasizing that these intercompany obligations were reclassified and eliminated prior to the bankruptcy. He also credits the testimony of the debtors’ expert Matthew Jacques of AlixPartners, who concluded that MCC-Norwood’s “legacy intercompany receivables balance, reflected as an asset in its financial records in the 180 days preceding its Chapter 11 bankruptcy filing,” should have been “eliminated” contemporaneously with the closure and sale of MCC-Norwood’s manufacturing facility in December 2023.

Jacques found that the intercompany balances did not represent assets of economic value to MCC-Norwood in the 180-day period before the chapter 11 filing, and Judge Kaplan finds his opinion to be “credible, well-supported, and unrebutted.” The judge adds that the balances were internal accounting allocations rather than third-party receivables, never settled in cash, “eliminated in consolidation under GAAP” and “removed from MCC-Norwood’s books without economic consequence.”

Additionally, the judge rejects the cross-holder group’s argument that MCC-Norwood’s D&O liability insurance policies were principal assets for venue purposes. Judge Kaplan says the movants have not shown that the D&O policies are “so important and so valuable” to MCC-Norwood that they would be principal assets. He also points out the D&O policies are shared, subject to a “substantial $250,000 retention, untriggered during the relevant period, and contingent.”

UST’s Bad-Faith Filing Argument

The UST asserted that MCC-Norwood ceased operations in 2023 and has no business to reorganize, so its case should be dismissed as a bad-faith filing under the Third Circuit’s 2023 LTL Management decision. Judge Kaplan rejects this argument, saying MCC-Norwood is “not a newly created bankruptcy vehicle” formed for the purpose of a so-called Texas two-step filing as LTL was.

The judge also finds that MCC-Norwood is in genuine financial distress because it is “(1) a guarantor of $5.5 billion in funded debt; (2) jointly and severally liable with all other related entities; (3) balance-sheet insolvent; (4) has no independent cash flow; and (5) faces matured and accelerated obligations.” The “mere absence of operations does not negate distress,” according to the decision.

Judge Kaplan concludes MCC-Norwood’s chapter 11 filing serves a valid bankruptcy purpose since the restructuring aims to modify funded debt across the Multi-Color enterprise. “Even under LTL Management, distress plus valid reorganizational purpose equals good faith,” the judge writes.