600 B.R. 714
Bankr. N.D. Ga.2019Background
- Debtor Asanda Air II LLC operated spa and retail services under a Spa Services Agreement with Delta Sky Club locations (JFK, SEA, ATL); the Agreement contained a nonassignable trademark license and an ipso facto bankruptcy termination clause.
- Debtor's only material asset and sole revenue source was the Agreement; it had few unsecured creditors and relied heavily on Delta Sky Miles payments.
- Delta served termination notices in late 2018/early 2019; Delta filed a declaratory-judgment action in state court. One day before the state-court response deadline, Debtor filed Chapter 11, staying the state action.
- Delta moved to dismiss or for relief from stay and obtained a 2004 document-production order; Debtor produced documents piecemeal and failed to comply fully with the 2004 Order.
- The Court found material nondisclosures (omitted executory contracts, undisclosed transfers to affiliate RelateLOOP, and wage payments routed through an entity) and evidence suggesting the bankruptcy was filed to delay Delta.
- The Court concluded venue was improper: Debtor’s operational ‘‘nerve center’’ and records centered in New York, and Debtor later amended its principal place of business to a location in Fulton County outside the division where it filed.
Issues
| Issue | Plaintiff's Argument (Delta) | Defendant's Argument (Asanda) | Held |
|---|---|---|---|
| Whether Debtor's case should be dismissed for cause under 11 U.S.C. § 1112(b) | Debtor filed in bad faith to stall Delta, failed to comply with court orders, and case is essentially a two‑party dispute with few creditors | Filing was legitimate Chapter 11; Debtor substantially complied with 2004 Order and can reorganize | Granted. Court found cause: failure to comply with 2004 Order and bad faith; dismissal appropriate. |
| Whether Debtor's noncompliance with a Rule 2004/order warrants dismissal | Debtor failed to produce thousands of emails and other documents despite prior compilation for litigation | Delay was logistical; documents were being produced as available | Held as cause. Failure to comply evidenced intent to delay and justified dismissal under § 1112(b)(4)(E). |
| Whether venue was proper under 28 U.S.C. § 1408 (principal place of business) | Venue in N.D. Ga. was improper because Debtor’s nerve center, records, management, and operations were in New York | Debtor said ‘‘nerve center’’ was in Atlanta (PTC Address initially claimed) | Held improper. Court found New York was nerve center; later amendment to Fulton County reinforced improper venue; dismissal (not transfer) given bad faith. |
| Whether Debtor could assume or retain the Agreement (§ 365) or obtain stay relief (§ 362) | Delta argued ipso facto clause and § 365(c)(1)/(e)(2) prevent assumption and permit termination | Debtor argued severability clause and ability to perform would allow assumption | Not addressed on merits. Court dismissed case and therefore did not rule on § 362/§ 365 arguments. |
Key Cases Cited
- In re Bal Harbour Club, Inc., 316 F.3d 1192 (11th Cir.) (movant bears preponderance to show cause for dismissal)
- In re Babayoff, 445 B.R. 64 (Bankr. E.D.N.Y.) (failure to comply with court orders can constitute cause for dismissal)
- In re Phoenix Piccadilly, Ltd., 849 F.2d 1393 (11th Cir.) (bad‑faith filings to delay creditors justify dismissal)
- In re Albany Partners, 749 F.2d 670 (11th Cir.) (factors evidencing abuse of reorganization provisions)
- Hertz Corp. v. Friend, 559 U.S. 77 (U.S.) (‘‘nerve center’’ test for principal place of business)
- In re Houghton Mifflin Harcourt Publ’g Co., 474 B.R. 122 (Bankr. S.D.N.Y.) (improper bankruptcy venue requires transfer or dismissal)