Florida Court Sides With 777 Partners in Venue Fight Despite Forum-Shopping Concerns, Allowing Transfer of Florida Involuntary Chapter 7 Case to NDTX Where Chapter 11 Cases Are Pending

Relevant Document:
Opinion

Southern District of Florida Bankruptcy Judge Peter D. Russin issued a written opinion today, granting 777 Partners’ motion to transfer the involuntary chapter 7 bankruptcy case against it to the Northern District of Texas where it and its affiliates filed voluntary chapter 11 cases. The ruling rejects petitioning creditors’ requests to keep the involuntary case in Florida.

“Forum shopping,” according to Judge Russin, “plainly” exists. The opinion recounts how three weeks after 777 Partners found itself as an involuntary debtor in Florida, it and 22 affiliates voluntarily filed for chapter 11 cases in the Northern District of Texas. 777 Partners “deliberately created” a Texas company to serve as the “venue anchor” for the Texas cases, the judge writes.

But Judge Russin finds that the court’s task “is not to decide whether forum shopping exists.” Rather, the task is to decide which venue makes the most sense to “promote economic and efficient administration,” writes the judge.

According to Judge Russin, 777 “spent almost its entire corporate existence in Miami” and even though it no longer operates, many of its former employees and executives, substantial litigation and several judgment creditors still “remain connected to South Florida.”

By contrast, Judge Russin finds that GlassRatner “now manages 777 and its affiliates” with the enterprise operating “principally from Texas” for “many months.” The judge notes that 777 Partners is winding up and the “people charged with that work are centered in Texas.”

The company’s remaining principal assets do not impact the analysis, Judge Russin says, as they are “principally financial and intangible” and are “not concentrated in either Florida or Texas.”

To resolve the motion, Judge Russin employs both a multi-factor “convenience” analysis under the Fifth Circuit CORCO case and an “interest of justice” analysis. The interest of justice analysis concerns a “case-by-case analysis of fairness,” according to the judge.

Under the CORCO analysis, Judge Russin examines a number of factors, including creditor preference, the location of the debtor, the location of witnesses and “estate administration,” among other factors.

The judge finds that creditor preference “weighs modestly toward Texas by dollar amount” because Advantage Capital, or A-CAP, the debtors’ largest lender, favors Texas. However, A-CAP’s preference is “tempered by the more concrete, jurisdictional character of the Florida creditors’ ties.” The judge notes many of the Florida creditors are judgment creditors.

The debtors’ interest in Texas and GlassRatner’s proximity to Texas outweigh competing interests, according to Judge Russin. The judge finds that Texas “has the more proximate connection to the Debtor as it exists today.” Judge Russin adds that GlassRatner’s interim COO Mark Shapiro “has lived and worked in Texas throughout his tenure,” which outweighs the fact that “Florida is home” to witnesses that may be called in “particular contested matters or litigation.”

According to Judge Russin, the “economic and efficient administration” of the debtors’ estates is “the most important factor.” “Here, it favors Texas,” rules the judge, because “GlassRatner … has been conducting the financial winddown principally from Texas for many months.” Judge Russin notes that “[t]his is not a case in which management moved to Texas on the eve of bankruptcy to create venue.”

Under the interest of justice analysis, Judge Russin considers that 777 Partners created a subsidiary in Texas – Signal National – and opened certain payment accounts about six months before filing the Texas restructuring cases.

Judge Russin additionally recounts that 777 Partners negotiated a DIP facility with A-CAP “whose default provisions required a Florida transfer within thirty days.” 777 Partners also moved to transfer its involuntary case “three weeks after the involuntary petition” was filed, the opinion states.

“Viewed in isolation,” the sequence is “troubling,” Judge Russin observes. Nonetheless, Judge Russin ultimately finds that because there are strong independent and countervailing factors that support the Texas venue, the debtors did not act “deceptively or in violation of any duty.”

The opinion distinguishes 777’s case from Patriot Coal. In that case, a Southern District of New York bankruptcy court ordered a bankruptcy case to proceed in Missouri. The Patriot Coal opinion turned on the fact that the debtors filed in New York only after creating two New York entities shortly before the bankruptcy.

“This case differs from Patriot Coal in two critical respects,” the judge finds: first, “Texas venue does not depend on Signal National alone”; and second, “777’s historical business center and its present administrative center no longer coincide.”

Judge Russin reiterates that while Miami was at one time the center of the investment enterprise, the center is now located in Texas where GlassRatner and interim COO Shapiro are located.