Decision in NWL Holdings, Inc., Limits the Ability of Defendants to Transfer Preference Actions

Summary

In a 17 page decision signed on February 24, 2011, Judge Walrath of the Delaware Bankruptcy Court applied a twelve factor test in determining if a preference action against an out-of-state defendant could be transferred by that defendant to another jurisdiction more convenient to it. In her opinion issued in response to a motion by Harko, Inc., Judge Walrath held that because the twelve factors favored keeping the action in Delaware or were neutral, that the preference action would not be transferred. Judge Walrath’s opinion is available here.

Background

NWL Holdings, Inc. and several of its affiliates entered Chapter 11 bankruptcy protection in November of 2008. In February of 2009, the Debtors’ cases were converted to Chapter 7 liquidations and a Chapter 7 Trustee was appointed by the Court. Later in 2007, the Chapter 7 Trustee began filing preference actions against a number of parties, including Harko, Inc. (adversary proceeding 10-52768). In response to the preference action, Harko filed a motion to dismiss for lack of personal jurisdiction or to transfer venue of the adversary proceeding.

Judge Walrath’s Opinion

In a detailed, step by step process, Judge Walrath explained that a bankruptcy court’s forum is the entire nation, and bankruptcy courts have personal jurisdiction throughout the United States. Following this reasoning, Judge Walrath denied Harko’s motion to dismiss for lack of personal jurisdiction.

Judge Walrath then moved to a discussion of a twelve factor test that bankruptcy courts apply when determining if an action should be moved to another venue. The twelve factors come from a decision by the Third Circuit, Jumara v. State Farm Ins. Co., 55 F.3d 873 (3d Cir. 1995). Any defendant interested in attempting to transfer a case out of a court in the Third Circuit should attempt to frame their arguments according to the following twelve factors:

1. plaintiff’s choice of forum;
2. defendant’s forum preference;
3. whether the claim arose elsewhere;
4. the location of books and records and/or the possibility of viewing premises if applicable;
5. the convenience of the parties as indicated by their relative physical and financial condition;
6. the convenience of the witnesses, but only to the extent that the witnesses may actually be unavailable for trial in one of the fora;
7. the enforceability of the judgment;
8. practical considerations that would make the trial easy, expeditious, or inexpensive;
9. the relative administrative difficulty in the two fora resulting from congestion of the courts’ dockets;
10. the public policies of the fora;
11. the familiarity of the judge with applicable state law; and
12. the local interest in deciding local controversies at home.