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Judge Gross Denies Motion to Transfer Venue of Adversary Proceeding Involving Fraudulent Schemes Committed in New Jersey

By Evan T. Miller

On September 16, 2015, Judge Kevin Gross, of the United States Bankruptcy Court for the District of Delaware, issued an opinion in Barry v. Santander Bank, N.A. (In re Liberty State Benefits of Delaware, Inc.), No. 14-50020, in which the Court denied Santander Bank, N.A.’s (“Defendant”) motion to transfer venue (the “Motion”) of an adversary proceeding to the United States District Court for the District of New Jersey (“DNJ”).  In so finding, the judge rejected Defendant’s argument that because certain transactions took place in New Jersey, the adversary proceeding should be heard before the DNJ.

On July 29, 2011 (the “Petition Date”), Liberty State Benefits, et al. (the “Debtors”), filed voluntary chapter 11 petitions for relief.  Richard A. Barry was appointed as Chapter 11 Trustee (the “Trustee” or “Plaintiff”) shortly thereafter.  On January 10, 2014, the Trustee filed  a complaint (the “Complaint”) asserting eleven causes of action stemming from a series of transactions allegedly designed to convey various assets of the Debtors to various non-Debtor entities (the “Non-Party Conspirators”) for minimal to no value.  The bases for these counts are as follows:

  • Prior to the Petition Date, the Debtors acquired the beneficial interest in a trust (the “Trust”) holding a life insurance policy with a face value of $11.5 million. The Trustee alleges that Defendant aided and abetted the Non-Party Conspirators in conspiring to steal the Trust, then laundering the sale of the policy through their personal Santander accounts.  Notably, the implicated Santander employees notarized various relevant documents at the bank’s Westmont, New Jersey branch (the “Westmont Branch”), where the Non-Party Conspirators maintained their accounts as well;
  • Defendant was also allegedly involved in a fraudulent mortgage scheme (the “Mortgage Scheme”), in which the conspirators stole money from the Debtors’ trust accounts and deposited it in their Westmont Branch bank accounts. The Trustee alleges that Defendant missed red flags indicative of fraudulent activity, including that the Federal Trade Commission had commenced proceedings against the conspirators years prior.  The alleged conspirators in the Mortgage Scheme were also based out of southern New Jersey;
  • One of the Mortgage Scheme conspirators further defrauded the Debtors by misappropriating at least $13 million in proceeds from the Debtors’ debt offerings as part of a Ponzi scheme. As with the prior schemes, the conspirator laundered the proceeds of the offerings through Westmont Branch accounts;
  • Lastly, Defendant also allegedly assisted the Non-Party Conspirators in the theft of real property owned by one of the Debtors in Lacey, New Jersey. Santander purportedly facilitated the sale when two Westmont Branch employees fraudulent notarized the deed and other documents necessary to complete the transfer.

In response to Defendant’s motion to transfer venue, the Court analyzed twelve factors referred to inJumara v. State Farm Ins. Co., 55 F.3d 873 (3d Cir. 1995), as  supplemented for bankruptcy cases by  considering the interests of the estate and its creditors.  Through this analytical framework, the Court found that:

(1) the Trustee’s choice of Delaware for the adversary proceeding was the most logical choice in light of the underlying bankruptcy cases, and does not evidence “forum-shopping”;

(2) Defendant’s choice of forum in New Jersey is entitled to less deference than Plaintiff’s choice of forum in Delaware;

(3) the relevant events in the Complaint occurred in New Jersey, thus favoring Defendant;

(4) the location of books and records, to the extent necessary, are only 33 miles from the Courthouse, favoring  the Trustee;

(5) there is little inconvenience for Defendant to travel to Wilmington given New Jersey’s proximity and the fact that Defendant’s attorneys are Philadelphia-based and licensed in Delaware;

(6) for proximity reasons and due to the subpoena power of the court,  requiring  witnesses travel to Wilmington from southern New Jersey is not inconvenient;

(7) a judgment would be enforceable in either jurisdiction, thus weighing against transfer;

(8) the Court’s familiarity with the underlying cases and related adversary proceedings would make the trial more expeditious in Delaware;

(9) the congestion of the courts’ dockets and administrative burdens may or may not weigh in favor of Defendant, but the Court again found that its familiarity with the cases and the DNJ’s lack thereof weighs in favor of the Trustee;

(10) in considering the public policy of the forum state, the DNJ is a federal court and not a state court, so a District of Delaware ruling is no more binding on the state of New Jersey than a DNJ one;

(11) the familiarity of the judge with applicable state law weighs in favor of Defendant;

(12) the local interest in deciding controversies at home favors the Trustee, as there are no novel or unique New Jersey legal issues pertinent to the adversary proceeding.

The Court concluded by saying that had this case been an ordinary civil claim filed in the district court, the Court would agree with Defendant’s position that the DNJ has a stronger local interest in hearing the claims.  The Court, however found in this proceeding a stronger local interest in resolving this matter in the forum where the Debtors’ estate is being administered.

A copy of the opinion can be found here.

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