Cross-Holder Group Challenges Multi-Color Venue Ruling at 3rd Circuit; Plan Supporters Oppose Mandamus Petition; Amicus Brief From Georgetown Law Prof Suggests ‘Judge Shopping’

On March 18, the Multi-Color ad hoc cross-holder group petitioned the Third Circuit to invalidate Bankruptcy Judge Michael Kaplan’s March 16 decision denying the cross-holders’ and the U.S. Trustee’s motions to dismiss or transfer the chapter 11 cases out of New Jersey. In a mandamus petition, the cross-holder group urges the circuit court to vacate all orders entered in the Multi-Color cases – including the interim order approving the label maker’s $675.5 million DIP financing – and direct the bankruptcy court to immediately transfer the bankruptcy to a “proper venue selected by this court,” or dismiss them.

Judge Kaplan’s decision to keep the cases in New Jersey 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 found 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.

Yesterday, March 23, the debtors, the secured ad hoc group and equity sponsor Clayton Dubilier & Rice filed briefs opposing the mandamus petition and defending the venue ruling. The debtors argue the petition is just the cross-holders’ bid for more “negotiating leverage” in the key parties’ mediation of case disputes, where “settlement discussions [] have progressed significantly.”

If the parties do not settle, the cross-holder group will be able to object to plan confirmation and other aspects of the bankruptcy. “Nothing about switching venue will change any of that,” according to Multi-Color.

The plan supporters add that even if the Third Circuit orders the cases transferred to another district, nothing supports the “extraordinary remedy” of vacating all orders Judge Kaplan has already entered. The plan supporters argue that the cross-holders are contesting venue in New Jersey to challenge the interim order approving the DIP, which the debtors chose over the cross-holders’ competing DIP proposal.

In support of the mandamus petition, Adam Levitin of Georgetown Law filed an amicus brief, highlighting “an issue petitioners are too polite to mention” – “judge shopping” in the district of New Jersey. According to Levitin, half of large cases filed since 2018 have been assigned to Judge Kaplan. He insists venue shopping has a “corrosive effect on chapter 11 practice.”

Judge Kaplan will hold a plan confirmation hearing on March 31 at 10 a.m. ET. The final DIP hearing, previously scheduled to resume today, has been adjourned to tomorrow, March 25, at 1:30 p.m. ET at the request of the parties.

Cross-Holder Mandamus Petition and Levitin Amicus Brief

The ad hoc cross-holder group’s mandamus petition attacks Judge Kaplan’s decision to keep the Multi-Color cases in New Jersey. The cross-holders insist the court misinterpreted the venue statute in 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).

In the opinion, Judge Kaplan took what he called the “Asset-Based Approach,” identifying the debtor’s principal assets on the petition date and then assessing where those principal assets were located for the most time during the 180-day period. The judge agreed with the plan supporters that venue in New Jersey is proper because on the petition date, MCC-Norwood’s principal assets were bank accounts in Englewood Cliffs, N.J., holding about $1 million.

The cross-holder group and UST had endorsed what Judge Kaplan called the “Time-Based Approach,” which would identify the debtor’s principal assets for each day of the 180-window; the asset with the most amount of time would be deemed the principal asset for venue purposes. The cross-holders asserted MCC-Norwood’s New Jersey bank accounts had only been opened 16 days before the bankruptcy, so its assets in other states must have been the principal assets for a larger part of the 180 days.

In the mandamus petition the cross-holders maintain that the bankruptcy court “committed a clear error of law in holding that venue was proper in New Jersey because for nearly all of the venue period, Norwood’s assets were all elsewhere.”

The cross-holder group insists that for most of the 180-day period, MCC-Norwood’s only assets, “thus its principal ones,” were patents, intercompany receivables and D&O insurance located outside of New Jersey. Although the debtors had told the court the patents were “valueless” and should not serve as a venue hook, the cross-holders assert the patents were collateral on the debtors’ prepetition debt, “so they had value unless pledging them was fraudulent.”

MCC-Norwood also had receivables on its books for most of the 180-day window, according to the cross-holders, although the intercompany balances were reclassified and eliminated in November 2025 ahead of the bankruptcy. The cross-holder group says the receivables “reflect concrete transactions,” such as the $4.9 million sale of Norwood’s Ohio plant in 2023.

Although Norwood did not receive the cash, the $4.9 million was recorded in Norwood’s books as a receivable owed to Norwood by affiliates that did, for at least 102 days of the 180-period, according to the cross-holders. The group also points to MCC-Norwood’s D&O insurance that covered itself, its directors and officers for the “entire 180-day period.”

The cross-holder group argues that the Third Circuit should invalidate the venue ruling now because the bankruptcy court’s orders may be “effectively impossible to unwind after confirmation,” and the confirmation hearing is scheduled for March 31. An “ordinary appeal of the venue issue would likely take months,” the group says, especially because Judge Kaplan’s ruling is interlocutory and not final.

The Third Circuit should vacate all orders entered by Judge Kaplan because improper venue infects the whole case, according to the petition.

Levitin filed an amicus brief supporting the mandamus petition, arguing that the venue decision “provides the game plan for future forum shopping.” Any other debtor that wishes to file in New Jersey can do what Multi-Color did, he suggests:

“[H]ave an inactive, assetless subsidiary open a bank account in New Jersey two weeks before filing, get the court to approve various first day motions before venue is challenged, including a financing agreement with ‘suicide pact’ terms that provide that failure to meet certain case ‘milestones’ is an event of default, and then claim that a venue transfer would be too disruptive and costly because it would result in a milestone being missed.”

Levitin asserts that forum shopping “harms the entire chapter 11 bankruptcy system” by undermining parties’ confidence in the neutrality of the court, changing litigants’ behavior and “tilting the playing field to favor the debtor and its allies.”

Levitin also suggests that the “situation in the District of New Jersey” may involve “not just forum shopping, but also judge-shopping” among the nine bankruptcy judges.

He says the New Jersey bankruptcy court’s local rules provide that a petition commencing a case “must be filed in the vicinage in which the debtor is domiciled or in which the debtor maintains its residence, principal place of business, or principal assets.” The rules also divide the court among “vicinages” based on the location of the three courthouses in Newark, Trenton and Camden, Levitin adds.

“The unstated implication is that cases will be randomly assigned to judges within each vicinage, subject to conflicts,” Levitin writes, with the Newark vicinage defined to include Bergen County, where MCC-Norwood’s Englewood Cliffs bank accounts are located. He reasons that Multi-Color should have filed in the Newark vicinage, so its cases should have been assigned to one of the four Newark bankruptcy judges, not Trenton-based Judge Kaplan – an argument also made by the cross-holder group.

Levitin says, “[i]t is not possible from public sources to know why this case was assigned to Judge Kaplan, and I impute no impropriety,” but the assignment “fits the pattern of large New Jersey bankruptcy cases being assigned to Judge Kaplan at a much higher rate” than to other judges.

Levitin cites data from BankruptcyData.com, saying it shows 78 chapter 11 cases with at least $10 million in liabilities filed in or transferred to the district of New Jersey since 2018. Levitin says that among the cases with at least $10 million in liabilities assigned to Trenton-based judges, 65% went to Judge Kaplan, and for cases filed in New Jersey with at least $100 million in liabilities, 50% went to Judge Kaplan:

Levitin also argues that mandamus petitions are “often the only chance for any sort of appellate review of bankruptcy court decisions” in light of a “trio of doctrinal obstacles” – appeals generally being permitted only for final orders, the doctrine of equitable mootness and the Bankruptcy Code’s limits on appeals of financing and asset sale transactions in sections 363(m) and 364(e).

Plan Supporters

The Multi-Color debtors, ad hoc secured group and equity sponsor CD&R defend the venue ruling and oppose the mandamus petition. The plan supporters argue that even if the Third Circuit transfers the case, the interim DIP order and all other orders entered by Judge Kaplan should travel to the transferee court under the “law of the case” doctrine.

The debtors argue that the cross-holder group is not entitled to a writ of mandamus when they have not exhausted other remedies. Multi-Color says the cross-holders already raised their venue arguments in their appeal of the interim DIP order; not only “can Petitioners obtain their requested relief through an ordinary appeal – that is exactly what they are doing,” the debtors assert.

The debtors also say the cross-holders failed to appeal the venue ruling to the district court, seek a stay pending appeal or reconsideration from the bankruptcy court, or ask the Third Circuit for a direct appeal. In light of the cross-holders’ own inaction, the Third Circuit should not grant them emergency relief ahead of the March 31 confirmation hearing, Multi-Color argues.

Multi-Color suggests it is the cross-holder group that is trying to forum shop, pointing to Judge Kaplan’s remark that the cross-holders’ request to move the cases to Delaware “appears to be bottomed on the Cross-Holders’ belief that it would receive more favorable treatment in that district.” This also undercuts the forum shopping concerns raised by Levitin, according to the debtors.

Multi-Color rejects Levitin’s “insinuation that large Chapter 11 cases are improperly steered to particular judges in the District of New Jersey.” The debtors say Levitin’s own data “refutes his thesis” since the case assignments he highlights are “distributed across multiple judges on the district’s bench.” Nor has Levitin explained how any party could “engineer a particular judge assignment” or offered any evidence that any party has done so, according to Multi-Color.

The debtors again emphasize that the cross-holder group’s commitment letter for its alternative DIP financing proposal “expressly stipulated that venue properly lies in the United States Bankruptcy Court for the District of New Jersey.” The cross-holders have responded that their agreement to filing in New Jersey is not binding since their DIP offer was not accepted.

The secured ad hoc group echoes the debtors’ arguments, saying the cross-holders “do not really object to venue in New Jersey” but to the bankruptcy court’s approval of DIP financing “different from the one they championed.” The secured group also asserts that section 364(e) of the Bankruptcy Code prohibits an appeal from affecting the validity of an approved DIP financing unless the objecting party obtains a stay pending appeal – which the cross-holder group has not done.

Sponsor CD&R adds that even if the cross-holders were “right about venue,” there is no basis to vacate all orders entered in the Multi-Color cases to date. The cases cited in the petition “simply do not support a categorical rule of vacatur, and certainly not with respect to interim, emergency orders entered by a bankruptcy court to allow a debtor to continue to function during its bankruptcy,” the sponsor says.