Ryan v. Wolter

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	THOMAS JAMES NASHMY, 	No. 7-06-11823 ML
Debtor.
_____________________________________________________________________________
KIERAN F. RYAN, 	Trustee,
Plaintiff,
v. 	Adversary No. 07-1068 M
GARY R. WOLTER,
Defendant.
ORDER DENYING MOTION TO DISMISS FOR IMPROPER VENUE
THIS MATTER is before the Court on the Motion to Dismiss for Improper Venue
(“Motion”) filed by Defendant Gary R. Wolter, by and through his attorney of record, Brett J.
Berlin. 	The Complaint To Avoid Preferential Transfer (“Complaint”) filed by the Chapter 7
Trustee seeks to avoid an alleged preferential transfer of payments totaling $4,383.00 made by
the Debtor to the Defendant on account of antecedent debt during the ninety-day period
preceding the filing of the Debtor’s bankruptcy proceeding. Defendant Gary Wolter, a resident
of Naples, Florida, seeks to dismiss this adversary proceeding for improper venue based on 28
U.S.C. § 1409(b) which restricts venue to the district in which the defendant resides for certain
proceedings commenced by the trustee to recover money or property of less than $1,000, a
consumer debt of less than $15,000, or a non-consumer debt against a non-insider of less than
$10,000. See 28 U.S.C. § 1409(b).
Plaintiff conceded that 28 U.S.C. § 1409(b) is the proper venue statute governing this
adversary proceeding, but denied that the proceeding should be dismissed based on improper
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venue. See Plaintiff’s Answers to Defendant’s Motion to Dismiss for Improper Venue, ¶¶ 3. and
4 (denying that Plaintiff’s allegation concerning venue is incorrect (¶3), but admitting that the
governing venue statute is 28 U.S.C. § 1409(b)). 	Upon review of the applicable venue statutes
in light of the nature of this adversary proceeding, the Court finds that the Motion to Dismiss
should be denied.
DISCUSSION
Generally, venue for adversary proceedings filed in connection with a bankruptcy case is
governed by 28 U.S.C. § 1409(a). See Ehrlich v. American Express Travel Related Services Co.,
Inc. (In re Guilmette), 202 B.R. 9, 11 (Bankr.N.D.N.Y. 1996) (noting that “[t]he general venue
statute for bankruptcy proceedings is 28 U.S.C. § 1409(a).”). 	That section provides:
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.
28 U.S.C. § 1409(a).
The exception to the general venue statute that Defendant asserts applies here is found in 28
U.S.C. § 1409(b), which provides:
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 $1000 or a consumer debt of less than $15,000, or a debt
(excluding a consumer debt) against a noninsider of less than $10,000, only in the district
court for the district in which the defendant resides.
28 U.S.C. § 1409(b).
The purpose of this § 1409(b) is to protect a small claim defendant who does not reside in the
district where the bankruptcy case was filed from having to defend an adversary proceeding in
the “home court.” See Muskin, Inc. v. Strippit Inc. (In re Little Lake Industries, Inc.), 158 B.R.
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478, 480 (9th Cir. BAP 1993) (framing the issue presented by referencing 28 U.S.C. § 1409(b) as
the section “which protects the small claim defendant from the home court advantage granted to
a bankruptcy trustee by § 1409(a)”).
Courts construing this section correctly observe that 28 U.S.C. § 1409(a) applies to cases
“arising under” title 11, while 28 U.S.C. § 1409(b) applies to proceedings initiated by the case
trustee that either “arise in” or are “related to” to the bankruptcy case. See In re Van Huffel
Tube Corp. v. A & G Indus. (In re Van Huffel Tube Corp.), 71 B.R. 155, 156 (Bankr.N.D.Ohio
1987); Little Lake Indus., 158 B.R. at 481; Guilmette, 202 B.R. at 12. A case “arises under” title
11 "if it asserts a cause of action created by the Code[.]" Personette v. Kennedy (In re Midgard
Corp.), 204 B.R. 764, 771 (10th Cir. BAP 1997). See also, Van Huffel, 71 B.R. at 156 ("A
proceeding 'arising under' Title 11 is any proceeding that would not occur but for a Bankruptcy
Code provision.")(citing In re S.E. Hornsby & Sons Sand & Gravel Co., Inc., 45 B.R. 988, 995
(Bankr.M.D.La. 1985)); Guilmette, 202 B.R. at 12 ("a proceeding 'arising under' title 11 must
involve a substantial right or cause of action found in the Bankruptcy Code itself and not a
nonbankrutpcy-created right incorporated into the Bankruptcy Code by reference."). Cases
“arise in” a case under title 11 when they exist only within the bankruptcy, “but are based on
rights not expressly created by title 11.” Guilmette, 202 B.R. at 12 (citing In re Wood, 825 F.2d
90, 97 (5th Cir. 1997) (remaining citation omitted)). 	See also, In re Telluride Income Growth,
LP, 364 B.R. 390, 397-398 (10th Cir. BAP 2007) ("The term '‘arising in’ refers to administrative
matters that are not based on any right expressly created by [T]itle 11 but would nevertheless
have no existence outside of the bankruptcy case.'”)(quoting In re ACI-HDT Supply Co., 205
B.R. 231, 234-35 (9th Cir. BAP 1997)).
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1"Core proceedings" are defined under 28 U.S.C. § 157(b)(2). Whether a proceeding is
"core" or "non-core" is relevant to the Bankruptcy Court's subject matter jurisdiction. See 28
U.S.C. §1334 (governing jurisdiction); Little Lake, 158 B.R. at 482 (discussing the impact of
core proceedings on jurisdiction and abstention matters).
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This adversary proceeding is a proceeding initiated by the case trustee to recover an
alleged preferential transfer under 11 U.S.C. § 547. 	Preference actions are cases that “arise
under” title 11, meaning that such actions are based on a section of the Bankruptcy Code. See
Midgard, 204 B.R. at 771 (listing avoidance actions under §§ 544, 547, 548, or 549 as examples
of proceedings that "arise under" the Bankruptcy Code); Guilmette, 202 B.R. at 12 (“the instant
preference action ‘arises under’ Code § 547(b).”); Little Lake, 158 B.R. at 480 (“it is also
undisputed that a preference action is one that arises under title 11.”)(emphasis in original).
In Little Lake, the Ninth Circuit Bankruptcy Appellate Panel ("BAP") reasoned that,
while there is a clear distinction between the terms “arising under” and "related to”, the
distinction between “arising under” and “arising in” is less clear. 158 B.R. at 482. 	The Ninth
Circuit BAP then noted that core proceedings1 include cases that “arise under” title 11 as well as
cases “arising in” a case under title 11 and concluded that “[a]ll proceedings arising under title
11 arise in the bankruptcy case for the purposes of § 1409(b).” 1d. at 484. 	Thus, in Little Lake,
an action filed by the case trustee in the “home court” to recover on a preference claim in the
amount of $547.88 against an out of state defendant was filed in the improper venue. Id.
Van Huffel and Guilmette reach the opposite result, reasoning that "although proceedings
'arising under ' and 'arising in a case under' title 11 are both 'core' proceedings under 28 U.S.C. §
157(b)(1), the Court cannot overlook the fact that 28 U.S.C. § 1409(b) specifically excludes
proceedings 'arising under' title 11." Guilmette, 202 B.R. at 12. As noted by the Van Huffel
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2Neither party to this adversary proceeding has advanced a position as to the nature of the
debts in this bankruptcy case.
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court,
The 'arising under' language is derived from the 'arising under' language of the
Constitution which is the basis of federal question jurisdiction. To ignore the 'arising
under' language found in Section 1409(a) and to refuse to make the distinction between
the 'arising under,' ‘arising in,’ and 'related to' language found in the various
jurisdictional and venue provisions would be to ignore Congressional intent as set forth
in the legislative history of those statutes.
Van Hoffel, 71 B.R. at 156-57 (citations omitted).
Moreover, in concluding that a preference action "arises under" title 11 and is, therefore, subject
to the general venue provision contained in 28 U.S.C. § 1409(a), the bankruptcy court in
Guilmette noted that the preference statute requires the trustee "to forego all preferences under
$600.00 as well as those that occurred more than 90 days before the filing of the bankruptcy
petition." Guilmette, 202 B.R. at 13 (citing 11 U.S.C. § 547(b)(4)(A) and (c)(8)). See also, 11
U.S.C. § 547(c)(9) (limiting preference actions in cases filed by individuals with primarily non-
consumer debts to transfers of at least $5,000).2
This Court agrees with the reasoning in Van Huffel and Guilmette, and finds that the
exception contained in 28 U.S.C. § 1409(b) does not apply to restrict venue for preference
actions under 11 U.S.C. § 547 initiated by the case trustee. Venue for this adversary proceeding
that “arises under” title 11 is proper in accordance with 28 U.S.C. §1409(a).
WHEREFORE, IT IS HEREBY ORDERED that the Motion to Dismiss is DENIED.
_________________________________________
MARK B. McFEELEY
United States Bankruptcy Court
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COPY TO:
Kieran F. Ryan, Chapter 7 Trustee 	Brett J. Berlin
Plaintiff 	Jones Day
PO Box 26 	Attorney for Defendant
Las Cruces, NM 88004-0026 	1420 Peachtree St NE
Atlanta, GA 30309
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