Webster v. Republic Nat'l Distrib. Co. (In re Tadich Grill of Wash. DC LLC)
Webster v. Republic Nat'l Distrib. Co. (In re Tadich Grill of Wash. DC LLC)
Opinion of the Court
The chapter 7 trustee, Wendell W. Webster, in the underlying bankruptcy case, Case No. 18-00079, has brought this adversary proceeding seeking, pursuant to
I
The principal issue is whether a preference action is "a proceeding arising in or related to" the bankruptcy case within the meaning of § 1409(b). This requires a consideration of the entirety of § 1409, which provides:
(a) Except as otherwise provided in subsections (b) and (d), a proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending.
(b) Except as provided in subsection (d) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case to recover a money judgment of or property worth less than $ 1,300 or a consumer debt of less than $ 19,250, or a debt (excluding a consumer debt) against a noninsider of less than $ 12,850, only in the district court for the district in which the defendant resides.
(c) Except as provided in subsection (b) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case as statutory successor to the debtor or creditors under section 541 or 544(b) of title 11 in the district court for the district where the State or Federal court sits in which, under applicable nonbankruptcy venue provisions, the debtor or creditors, as the case may be, may have commenced an action on which such proceeding is based if the case under title 11 had not been commenced.
*67(d) A trustee may commence a proceeding arising under title 11 or arising in or related to a case under title 11 based on a claim arising after the commencement of such case from the operation of the business of the debtor only in the district court for the district where a State or Federal court sits in which, under applicable nonbankruptcy venue provisions, an action on such claim may have been brought.
(e) A proceeding arising under title 11 or arising in or related to a case under title 11 , based on a claim arising after the commencement of such case from the operation of the business of the debtor, may be commenced against the representative of the estate in such case in the district court for the district where the State or Federal court sits in which the party commencing such proceeding may, under applicable nonbankruptcy venue provisions, have brought an action on such claim, or in the district court in which such case is pending.
[Emphasis added.]
An adversary proceeding to avoid a preference and to obtain a monetary judgment for the amount of the avoided preference is "a proceeding arising under title 11" as to which § 1409(a) applies unless the proceeding falls within an exception in § 1409(b). However, there is a split of authority on whether § 1409(b), only applicable to "a proceeding arising in or related to" a case under title 11, applies to a proceeding "arising under title 11."
I agree with those decisions that conclude that § 1409(b) does not apply to a proceeding "arising under title 11." See Klein v. ODS Tech., LP (In re J & J Chemical, Inc.) ,
There are decisions that conclude that § 1409(b) applies to proceedings to avoid a transfer and to recover a judgment for the amount of the avoided transfer. See N1 Creditors' Trust v. Crown Packaging Corp. (In re Nukote Int'l, Inc.) ,
A. The Issue of Whether the Omission of "Arising Under" Language in § 1409(b) Was Unintentional.
In Dynamerica Manufacturing ,
With respect to the issue of inadvertent omission, it is worth noting that
(a) Except as provided in subsections (b) and (d) of this section, a proceeding arising in or related to a case under title 11 may be commenced in the bankruptcy court in which such case is pending.
(b) Except as provided in subsection (d) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case to recover a money judgment of or property worth less than $ 1,000 or a consumer debt of less than $5,000 only in the bankruptcy court for the district in which a defendant resides.
[Emphasis added.] The grant of venue in § 1473(a) did not include proceedings "arising under title 11."
Significantly, when the venue provision was relocated to § 1409 in 1984 as part of the reaction to Northern Pipeline Constr. Co. v. Marathon Pipe Line Co. ,
*69As noted in In re Sunbridge Capital ,
B. The Issue of Whether "Arising In" Proceedings Include "Arising Under" Proceedings.
Nukote International and Little Lake Industries hold that the terms "arising under" and "arising in" in § 1409(b) were not meant to be mutually exclusive, with "arising in" proceedings being broad enough to include "arising under" proceedings. However, the omission of "arising under" in § 1409(b) must be viewed as intentional and purposeful. See In re Rosenberger ,
The terms "arising under" and "arising in" describe two different categories of proceedings. As explained in In re Wood ,
Congress used the phrase "arising under title 11" to describe those proceedings that involve a cause of action created or determined by a statutory provision of title 11.... The meaning of "arising in" proceedings is less clear, but seems to be a reference to those "administrative" matters that arise only in bankruptcy cases. In other words, "arising in" proceedings are those that are not based on any right expressly created by title 11, but nevertheless would have no existence outside of the bankruptcy.
(Footnotes omitted.)
The obvious purpose for including "arising under" proceedings in § 1409(a) but not in § 1409(b) was to provide for venue over such proceedings in § 1409(a) and not to have § 1409(b) except such proceedings from § 1409(a). For the exclusion of "arising under" proceedings from § 1409(b) to have purpose, the reference in § 1409(b) to proceedings "arising in" the case must be viewed, consistent with In re Wood ,
Even if, out of the context of § 1409(a) and (b), a broad interpretation of "arising in" as including "arising under" claims would arguably be possible (as discussed in In re Nukote International, Inc. ,
C. The Effect of the Failure of
Like paragraph (a) of § 1409, paragraphs (d) and (e) of § 1409 also include "a proceeding arising under title 11" as being a proceeding to which those paragraphs apply. Paragraph (c) of § 1409 does not. Section 1409(c) provides:
Except as provided in subsection (b) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case as statutory successor to the debtor or *70creditors under section 541 or 544(b) of title 11 in the district court for the district where the State or Federal court sits in which, under applicable nonbankruptcy venue provisions, the debtor or creditors, as the case may be, may have commenced an action on which such proceeding is based if the case under title 11 had not been commenced.
Section 1409(c) provides an additional venue for pursuing proceedings specified therein, and is not a limitation on a trustee's authority to sue in the "home court" as provided by § 1409(a). Subsection (c) includes "a proceeding arising in or related to such case ... under section 541 or 544(b) of title 11 ...." A proceeding under
Nevertheless, the inclusion of "arising under" proceedings in § 1409(a) but not in the restrictions of § 1409(b) on venue under § 1409(a) requires treating "arising under" proceedings for which venue is proper under § 1409(a) as not subject to § 1409(b). That conclusion is not altered by the language of § 1409(c), which, unlike § 1409(b), is not an exception to § 1409(a). Moreover, § 1409(c) does not provide an exclusive venue for the claims it specifies, but instead was intended to provide an alternative venue for certain claims described in § 1409(a). The important focus for purposes of the issue this decision addresses is on a comparison of § 1409(a) and the exceptions thereto contained in § 1409(b).
My analysis is not altered by the possibility that the language "arising in" in § 1409(c) might be viewed as including the § 544(b) proceedings it specifies (proceedings that "arise under" title 11). Correcting the oversight of not including "arising under" proceedings in allowing an alternative venue choice for § 544(b) proceedings hardly shows that the deliberate inclusion of "arising under" proceedings in § 1409(a) but not in § 1409(b) was not meant to have consequences. Whatever is the proper interpretation of § 1409(c), which is not the issue before the court in this adversary proceeding, will not alter the conclusion that § 1409(b) does not apply to avoidance proceedings such as this adversary proceeding. See J & J Chemical, Inc. ,
II
Section 1409(b) would produce odd results if it includes proceedings "arising under title 11." Section 1409(b) only applies in three types of proceedings:
(1) "a proceeding ... to recover a money judgment of or property worth less than $ 1,300";
(2) "a proceeding ... to recover ... a consumer debt of less than $ 19,250"; and
(3) "a proceeding ... to recover ... a debt (excluding a consumer debt) against a noninsider of less than $ 12,850 ...."
Sometimes a trustee brings a proceeding only to avoid a transfer and not to recover a debt, money judgment, or property. For example, a trustee might bring a proceeding to avoid as preferential the prepetition grant of a security interest on tangible personal property that the trustee possesses. Once the lien is avoided, the trustee does not need to recover a monetary *71amount, nor does the trustee need to recover the property (which the trustee already possesses). An avoidance proceeding is not, within the meaning of § 1409(b), a proceeding to recover a debt, money judgment, or property. It follows that a trustee can always sue in the "home court" of the case under § 1409(a) to avoid a transfer without running afoul of § 1409(b). See Byron C. Starcher, Second Thoughts on "Home Court Advantage" for Small-Dollar Preference Defendants , 25-MAR Am. Bankr. Inst. J. 10, 52 (2006) (stating that "a court cannot plausibly extend § 1409(b) to avoidance actions under § 547(b).").
When a trustee is entitled to avoid a transfer and also is entitled to recover a judgment once the transfer is avoided, § 1409(b) does not bar the trustee's suing to avoid the transfer in the "home court" as the proper venue under § 1409(a). However, if the "arising in" language in § 1409(b) includes a proceeding "arising under" title 11 to recover a money judgment, then a trustee, upon avoiding a transfer in the "home court" as a proper venue under § 1409(a), could nevertheless be barred by § 1409(b) from using the "home court" as the proper venue for recovering a judgment for the amount of the avoided transfer. The avoidance of the transfer is usually the more difficult step a trustee must pursue in the two-step process of first avoiding a transfer and only then recovering a monetary judgment for the amount of the transfer. It would be odd if, as allowed by § 1409(a), a trustee is entitled to sue the transferee in the "home court" to avoid the transfer and put the transferee to the burden of defending in the "home court" against avoidance of the transfer, but § 1409(b) (if it is interpreted as being applicable to "arising under" proceedings) could require the trustee, upon avoiding the transfer, to sue the transferee elsewhere to recover a monetary judgment for the amount of the avoided transfer. That odd result makes it doubtful that Congress intended to have "arising in" proceedings to which § 1409(b) applies include "arising under" proceedings.
Another odd result is that if § 1409(b) is interpreted as applying to "arising under" proceedings, a trustee could be barred by § 1409(b) from suing in the "home court" to make a recovery, pursuant to the trustee's recovery powers , of an avoided transfer but § 1409(b) would not bar a debtor's suing in the "home court" under
*72III
For all of the foregoing reasons, it is
ORDERED that the motion to dismiss this adversary proceeding is DENIED.
In contrast,
In contrast, § 1473(a) and (e) had not included "arising under" proceedings.
Congress did not add "arising under" proceedings to § 1409(c) (which remained identical to repealed § 1473(c) ), but as discussed later, § 1409(c) does not place restrictions on venue under § 1409(a) and was intended to provide an alternate venue for certain proceedings, with the proper interpretation of § 1409(c) having no impact on the proper interpretation of § 1409(b) as a restriction on venue under § 1409(a).
Reference
- Full Case Name
- IN RE TADICH GRILL OF WASHINGTON DC LLC, Debtor. Wendell W. Webster, Chapter 7 Trustee for the Estate of Tadich Grill of Washington DC LLC v. Republic National Distributing Company, LLC
- Cited By
- 2 cases
- Status
- Published