Because of Winn-Dixie? SDNY Bankruptcy Court Looks Beyond Literal Compliance with Venue Statute and Transfers Patriot Coal Cases to Eastern District of Missouri

by Cadwalader, Wickersham & Taft LLP

[authors: Sharon J. Richardson, David E. Kronenberg, Thomas Curtin]

On November 27, 2012, in a ruling that undoubtedly will impact the choice of venue for many large corporate bankruptcies in the future, Judge Shelley C. Chapman of the United States Bankruptcy Court for the Southern District of New York transferred venue of the chapter 11 cases of Patriot Coal Corporation and ninety-eight of its affiliates to the Eastern District of Missouri. Drawing on an array of jurisprudence regarding venue, Judge Chapman found that notwithstanding literal compliance with the applicable statute, the New York domicile of two of the debtors was insufficient to establish venue for all ninety-nine cases in the Southern District of New York when the two debtors were formed on the eve of the commencement of the chapter 11 cases admittedly for the sole purpose of establishing venue. In re Patriot Coal Corp., 12-12900-SCC (Bankr. S.D.N.Y. Nov. 27, 2012) [docket no. 1629]. The Patriot decision is the latest in a line of recent decisions by courts in the Southern District of New York and the District of Delaware granting motions to transfer venue to other districts. The decision is notable in that it strongly discourages the practice of “bootstrapping” a corporate bankruptcy case to the case of a recently formed affiliate in New York when the debtor has no meaningful presence in the jurisdiction, change of venue is requested by economic parties in interest, and moving the case is unlikely to inflict demonstrable economic harm to the estate.

Transfer of Venue of Bankruptcy Cases

Venue of bankruptcy cases is governed by 28 U.S.C. § 1408, which provides that venue may lie in the district where: (1) the debtor has a domicile, (2) the debtor has a residence, (3) the debtor has a principal place of business, (4) the debtor has principal assets, or (5) there is a pending bankruptcy case concerning the debtor’s affiliate, general partner, or partnership. Often, debtors seeking to file their cases in New York or Delaware, despite no meaningful contacts with these states, would form a subsidiary in the jurisdiction and then rely upon section 1408(5) to “bootstrap” their case to the pending case of the newly-formed affiliate.

Although such bootstrapping permits a debtor seeking to file for bankruptcy protection to technically comply with the requirements of 1408, the debtor’s choice of venue may nevertheless be challenged under 28 U.S.C. § 1412, which provides that a court may transfer a case or proceeding for the “convenience of the parties” or in the “interest of justice.”

Though a debtor’s choice of venue is given considerable deference, it appears that courts may be becoming more receptive to challenges. For example, the U.S. Trustee successfully moved to transfer venue in the Houghton Mifflin case (covered here). Although the debtor’s prepackaged plan had been confirmed with unanimous support from its creditors, the cases were projected to conclude within 30 days of filing, and the debtors’ primary creditor constituencies supported venue in New York, the court transferred venue because none of the debtors were incorporated in New York and their principal assets were located elsewhere. See In re Houghton Mifflin Harcourt Publ’g Co., 474 B.R. 122 (Bankr. S.D.N.Y. 2012). Likewise, in In re Cordillera Golf Club, the Delaware bankruptcy court transferred the case to Colorado pursuant to section 1412 and held that, even though the debtor was incorporated in Delaware, Colorado was a more appropriate venue because the debtor’s ability to reorganize would depend on the involvement of the golf club’s members, all of whom spent time in Colorado.  In re Cordillera Golf Club, LLC, No. 12-11893 (CSS) (Bankr. D. Del. July 16, 2012).


Patriot Coal Corporation (“PCC”) and its affiliates (collectively with PCC, “Patriot”), which are among the nation’s largest coal companies, were formed in 2007 as part of spin-off from Peabody Energy Corporation. PCC and the majority of its subsidiaries are incorporated in Delaware, West Virginia, Virginia, and Kentucky. Patriot operates in various states, including Missouri (where the company is headquartered), West Virginia (where nine of Patriot’s mines are located) and Kentucky (where three of Patriot’s mines are located). Patriot also owns and leases coal reserves located in Illinois, Indiana, Kentucky, Missouri, Ohio, Pennsylvania, and West Virginia. New York law governs much of Patriot’s major contracts, including its debt instruments, spin-off agreements, coal supply agreements, master leases, and surety indemnity agreements.

Patriot employs over 4,000 people. Forty-two percent of Patriot’s employees are unionized and are members of the United Mine Workers of America (“UMWA”). Patriot also provides insurance and health benefits to 11,860 retirees, 10,388 of whom are UMWA members. The retirees mostly reside in West Virginia and the Illinois Basin (which includes Illinois, Indiana, and Kentucky).

On July 9, 2012, PCC and 98 of its subsidiaries commenced chapter 11 cases in the Bankruptcy Court for the Southern District of New York The filings were precipitated by a number of factors, including a reduced demand for coal, increased regulation, substantial legacy labor costs, and Patriot’s inability to refinance its capital structure.

According to the debtors’ petitions, 54 of the entities are domiciled in West Virginia; 40 entities are domiciled in Missouri; 3 entities are domiciled in Kentucky; and 2 entities are domiciled in New York. The New York entities – PCX Enterprises, Inc. and Patriot Beaver Dam Holdings LLC – were formed in New York one month prior to the commencement of Patriot’s cases. The debtors stipulated to the fact that they were formed for the sole purpose of establishing New York as the venue of their chapter 11 cases. Neither subsidiary had any employees, any offices, or any business operations in New York. In addition, neither subsidiary had any substantial assets in New York, other than a bank account with $97,985 and a certificate evidencing an equity interest in one of Patriot’s other subsidiaries. The remaining 97 debtors also had no meaningful contacts with New York, as none were incorporated in the state, nor did they have principal assets, offices, or employees in the state. In addition, the remaining 97 debtors conducted their business operations and generated their revenues from their mining activities in West Virginia and the Illinois Basin. Despite these de minimis contacts with the state, the debtors commenced their cases in the Southern District of New York, bootstrapping 97 of the cases to the cases filed by the newly-formed New York entities.

Shortly after the debtors commenced their cases, the UMWA and several surety insurance companies filed motions pursuant to section 1412 seeking to transfer Patriot’s chapter 11 cases to the Southern District of West Virginia.  Several parties joined the UMWA and insurance company motions, including the West Virginia Attorney General. In addition, on August 22, 2012, the U.S. Trustee filed a separate motion seeking to transfer venue to a district where venue is proper in the interest of justice. Unlike the UMWA’s motion, the U.S. Trustee’s motion did not seek to transfer the case to any specific district. Certain UMWA health and pension funds and an ad hoc group of holders of Patriot’s common stock joined the U.S. Trustee’s motion.

The debtors objected to the motions to transfer venue, arguing that the convenience of parties and administrative efficiency warranted retaining venue of the cases in the Southern District of New York. Among other things, the debtors contended that the benefits of remaining in the district (namely the access to capital markets and chapter 11 professionals, as well as its function as a “global transportation hub”) demonstrated that the district was the most convenient for all parties. Moreover, the debtors argued that upholding their choice of venue would preserve costs and maximize the value of the estate. Their objection was joined by thirty-five of the debtors’ unsecured creditors, including the unsecured creditors’ committee.

The Court’s Analysis

The Bankruptcy Court ultimately granted the U.S. Trustee’s motion and transferred the cases to the Eastern District of Missouri, notwithstanding the debtors’ technical compliance with the venue requirements of section 1408.

As a preliminary matter, the Court found that the debtors’ cases were not filed in bad faith. To the contrary, the Court found that filing the cases in New York was consistent with the debtors’ fiduciary duties to preserve the value of their estates for the benefit of their stakeholders. At trial, the UMWA alleged that the debtors chose New York because the district would be empathetic to the debtors’ needs and demands. The UMWA also alleged that New York was chosen by the debtors due to the perceived ease of rejecting collective bargaining agreements in New York as compared to other districts. However, the Court rejected those arguments.

The Court did take issue with the debtors’ formation of the New York subsidiaries on the eve of filing for the purpose of manufacturing venue, which it viewed as the exploitation of “loopholes” in section 1408. The Court held that although Patriot complied literally with section 1408, Patriot’s conduct nevertheless conflicted with the plain intent of the venue statute, which is to ensure fairness and convenience to all of the parties and witnesses involved in a case. The Court noted that Patriot’s course of conduct was factually analogous to the debtors’ actions in Winn-Dixie, in which the debtors incorporated an entity in New York shortly before commencing their chapter 11 cases and admittedly did so to establish venue. See In re Winn-Dixie Stores, Inc., Case No. 05-11063 (RDD) (Bankr. S.D.N.Y. Apr. 12, 2005). In Winn-Dixie, the Bankruptcy Court determined that a transfer of the debtors’ cases to another district would be in the interests of justice given that the debtors’ formed the entities to solely “exploit a loophole in the statute to obtain venue.” Winn Dixie, Hr’g Tr. at 167.

Similar to the debtors in Winn-Dixie, Patriot created the two New York subsidiaries solely to comply with section 1408. The Court held that permitting the debtors’ cases to remain in the district under these circumstances would not serve the interests of justice because it would “all but render the venue statute meaningless.” The Court found that allowing the debtors’ venue choice to stand solely on the creation of the New York subsidiaries “would elevate form over substance in [a] way that would be an affront to the purpose of the bankruptcy venue statute and the integrity of the bankruptcy system.” In re Patriot Coal Corp., 12-12900-SCC, at 38.  Such a ruling, according to the Court, would encourage and permit a debtor to forum shop.

The Court found that the efficient administration of the case could not be given the most weight in every case because doing so would unfairly allow a forum, such as the Southern District of New York, to trump other venues by virtue of the district’s access to capital markets and its concentration of leading chapter 11 practitioners.

The Court cautioned that its decision to transfer venue should not be viewed as a categorical rule for venue transfers and that the result might well have been different if the U.S. Trustee was the only party requesting a change of venue. In such a scenario, the Court noted, it would be difficult to square the interests of justice with the “purposeful infliction of economic harm on a debtor’s creditors.” Id. at 51. Here, however, the debtors’ choice of venue lacked the unanimous support of Patriot’s creditors, and thus, the Court found that it would be in the interests of justice to transfer the case to another district.

Finally, the Court addressed which district would best handle the debtors’ cases. The Court rejected the UMWA and surety insurers’ arguments that the Southern District of West Virginia was an appropriate venue, finding that it would not be “in the interest of justice to merely swap one party’s perceived home field advantage for another.” Id. at 53. Noting that the case was not a two-party dispute between the UMWA and the debtors, the Court found that transferring the case to a forum more empathetic to the concerns of the UMWA (which represents only 40% of the debtors’ employees) would amount to “forum-shopping that is just as inappropriate as the forum selection strategy employed by the debtors.” Id. at 56.

The Court ultimately found that the Eastern District of Missouri would be the most appropriate forum because the debtors’ headquarters, books and records, and key employees are all located in that district.


The Patriot Coal decision joins other recent decisions, including the Cordillera Golf Club and Houghton Mifflin decisions, in which bankruptcy courts have granted motions to transfer venue to districts from New York or Delaware. The administrative efficiency of a particular jurisdiction and its access to capital markets and leading chapter 11 professionals likely will not, without more, suffice to overcome a motion to transfer venue by economic parties of interest.

The Patriot Coal decision demonstrates that for the purposes of a section 1412 analysis, the interests of justice includes upholding the letter of the law and the integrity of the bankruptcy system. Technical compliance with the venue requirements of section 1408 is not dispositive to a court’s analysis regarding choice of venue. Where, as here, a debtor forms subsidiaries in a district in which there are no meaningful contacts, solely for the purpose of satisfying the statutory predicates, a court could transfer the case to another district.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Cadwalader, Wickersham & Taft LLP | Attorney Advertising

Written by:

Cadwalader, Wickersham & Taft LLP

Cadwalader, Wickersham & Taft LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.