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Judge Gross Denies Motion of Texas Comptroller to Transfer Case

By Charlene D. Davis

On March 4, 2015, Judge Kevin Gross of the Unites States Bankruptcy Court for the District of Delaware (the “Court”) issued an order and memorandum opinion in Restaurants Acquisition I, LLC Case No. 15-12406 denying a motion of the Texas Comptroller of Public Accounts and the Texas Workforce Commission (together the “Movants”) to transfer venue of the case to the Northern District of Texas (the “Venue Motion”). The Court concluded that the Movant’s primary concern was to resolve tax disputes with the Debtor in Texas and while respectful of the Movants’ position, determined that the Venue Motion was not the appropriate vehicle to address this concern. Rather in deciding the Venue Motion, the Court had to consider it from the lens of all interested parties.

On December 2, 2015, the Debtor filed a chapter 11 petition with the Court. Two weeks later, the Movants filed the Venue Motion. The Debtor subsequently filed its objection to the Venue Motion (the “Objection”) and the parties submitted a joint statement of undisputed facts to the Court. According to the stipulation, the Debtor is a Delaware limited liability company that previously operated a chain of thirty restaurants in Texas and now operates 12. The Debtor employs about 530 people, all but four of whom are Texas residents.  However, the Debtor’s books and records are maintained in Tennessee and its lenders are located in Orlando, Florida and Salt Lake City, Utah. Its largest trade creditor is headquartered in Illinois. Although 65% of the Debtors top 20 unsecured creditors and 85% of all general unsecured creditors are located in Texas, 65% of general unsecured claims by dollar amount are held by creditors outside of Texas.

In deciding the Venue Motion, the Court first noted that venue in Delaware is proper because the Debtor is domiciled in Delaware. Nonetheless, the Court noted a party may move to transfer venue in the interest of justice or for the convenience of the parties. In determining whether venue should be transferred for the convenience of the parties, courts examine six factors bearing in mind that the party seeking to transfer venue bears the burden of demonstrating that the factors strongly weigh in favor of transfer. The Court proceeded to apply the six factors to the circumstances in the case and concluded the following:

  1. The proximity of creditors of every kind to the court. The Court found that this factor weighed against transfer since (1) all of the Debtor’s secured creditors, holding $4 million in debt, were located outside of Texas, had retained Delaware counsel and supported the Objection; (2) the Debtor’s largest unsecured creditor, holding $1.42 million in claims, was located outside of Texas and supported the Objection; and (3) 65% of the Debtor’s unsecured debt by dollar amount was located outside of Texas.
  2. The proximity of the debtor to the court. The Court found that his factor weighed against transfer since courts have generally focused on the location of parties that must appear in court and Debtor’s management would be more likely to have to appear (and expressed a willingness to appear), than would employees.
  3. The proximity of witnesses. The Court found this factor was neutral because, while many parties involved in the estate administration were located outside of Texas, the vast majority of its employees were in that state.
  4. Location of assets. The Court found that the physical location of the assets weighed in favor of transfer to Texas but concluded that in a rehabilitation case, such as this one, the location of the Debtor’s assets is not crucial to the analysis.
  5. Economics of administration. The Court found that this factor weighed against transfer because (1) transfer would impose additional financial burden and delay or derail the Debtor’s reorganization efforts; (2) the Debtor’s creditors are geographically dispersed and (3) while the Movants may have a substantial tax claim against the debtors, nothing prevents them from seeking stay relief to resolve it in Texas.
  6. Ancillary administration. The Court found this factor has no weight in the context of a reorganization.

A copy of the Court’s opinion is available here.

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