In a preference suit within the Petland Discounts Inc. chapter 7 case pending in the Bankruptcy Court for the Eastern District of New York, Judge Robert E. Grossman held the plain language of 28 U.S.C. § 1409(a) is unambiguous and allows a trustee to bring a small-dollar preference suit in the debtor’s home court.
The adversary proceeding, Allan B. Mendelsohn v. Central Garden & Pet Co. dealt with a payment allegedly made by the debtor to a supplier (the “Creditor”) within 90 days of the petition date. Following the bankruptcy filing, the trustee sued the Creditor to avoid and recover the payment made under Sections 547 and 550 of title 11 of the United States Code (the “Bankruptcy Code”). The Creditor filed a motion to dismiss the adversary proceeding citing improper venue pursuant to 28 U.S.C. § 1409(b). The Creditor had no connections with New York other than doing business with the debtor in New York and had filed a proof of claim in the debtor’s case for $190,000.
28 U.S.C. § 1409 is the venue statute for proceedings taking place in a bankruptcy case. Under 28 U.S.C. § 1409(a), 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 where such a case is pending. Congress granted broad venue to ensure that bankruptcy estates are handled efficiently for the benefit of creditors and the estate.
The grant of venue in the bankruptcy court is restricted only by certain limited exceptions specified in 28 U.S.C. § 1409(b) and (d) which set forth situations where actions must be brought in a non-debtor’s home court. Subsection (b) applies only to proceedings brought by the trustee that “arise in” or “relate to” the Bankruptcy Code, when recovering a non-consumer debt of less than $25,000. Notably, subsection (b) omits the terms “arising under.” Judge Grossman noted that “arising in” and “arising under” are not interchangeable. In examining these distinctions with respect to venue, Judge Grossman held that a preference action arises under the Bankruptcy Code and is therefore within the parameters of 28 U.S.C. §1409(a).
The majority of courts that have decided the issue hold that § 1409(b) does not apply to a proceeding “arising under” the Bankruptcy Code[1], but a few Courts have concluded that § 1409(b) does apply to proceedings “arising under” the Bankruptcy Code, which include preference actions.[2] Judge Grossman acknowledged these other courts and their reasoning for interchanging the terms “arising under” and “arising in” but concluded that, “[r]eferring to legislative history, outside sources or commentary to infer that Congress meant to exclude more from § 1409(a) has no place in this analysis.” The Court concluded that it not be at liberty to add language that Congress did not intend into the statute, even where other courts apply subsection (b) to small dollar preference actions and take into consideration the location of a creditor’s incorporation and primary place of business.
On this basis, Judge Grossman denied the Creditor’s motion to dismiss for improper venue stating, “the specific language of subsection (b) clearly and unambiguously applies only to proceedings brought by the trustee that “arise in” or “relate to” Bankruptcy Code, subject to certain monetary limits.” He reiterated that the exception in 28 U.S.C. § 1409(b) clearly omits the terms “arising under,” which leaves actions that “arise under” the Bankruptcy Code to be governed entirely by § 1409(a).
This case emphasizes the importance of statutory interpretation and how courts apply relevant statutory authority, which ultimately impacts case strategies within the bankruptcy process. It is a very old and basic rule, but a crucial one to remember: the plain meaning rule dictates that statutes are to be interpreted using the ordinary meaning of the language of the statute.
[1] Webster v. Republic Nat’l Distrib. Co. (In re Tadich Grill of Washington, D.C., LLC), 598 B.R. 65 (Bankr. D.D.C. 2019); Straffi v. Gilco World Wide Mkts. (In re Bamboo Abbott Inc.), 458 B.R. 701 (Bankr. D.N.J. 2011); Schwab v. Peddinghaus Corp. (In re Excel Storage Prods. LP), 458 B.R. 175 (Bankr. M.D. Pa. 2011); Redmond v. Gulf City Body & Trailer Works Inc. (In re Sunbridge Cap. Inc.), 454 B.R. 166 (Bankr. D. Kan. 2011); Rosenberger, 400 B.R. 569; Ehrlich v. Am. Express Travel Related Servs. Co. (In re Guilmette), 202 B.R. 9 (Bankr. N.D.N.Y. 1996); Van Huffel Tube Corp. v. A & G Indus. (In re Van Huffel Tube Corp.), 71 B.R. 155 (Bankr. N.D. Ohio 1987).
[2] Muskin Inc. v. Strippit Inc. (In re Little Lake Indus. Inc.), 158 B.R. 478 (B.A.P. 9th Cir. 1993); N1 Creditors’ Tr. v. Crown Packaging Corp. (In re Nukote Int’l Inc.), 457 B.R. 668 (Bankr. M.D. Tenn. 2011); Dynamerica Mfg. LLC v. Johnson Oil Co., LLC, 2010 WL 1930269 (Bkrtcy.D.Del.,2010); In re Raymond, 2009 WL 6498170 (Bkrtcy.N.D.Ga.,2009).