In Re Enron Corp.
MEMORANDUM DECISION AND ORDER DENYING BANCO BILBAO VIZCAYA ARGENTARIA PUERTO RICO’S MOTION TO CHANGE VENUE OF SAN JUAN GAS COMPANY, INC.
Upon consideration of the: (i) Motion for Change of Venue brought by Banco Bilbao Vizcaya Argentaría Puerto Rico (“BBV” or “Movant”) dated July 11, 2002 (the “Motion” or “Change of Venue Motion”) (Docket Entry # 5352); (ii) Debtors’ Memorandum of Law in Opposition (“Respondent”) to Banco Bilbao Vizcaya Argentaría Puerto Rico Motion for Transfer of Venue of San Juan Gas Company Inc. Chapter 11 Case to the District of Puerto Rico dated August 26, 2002 (the “Memorandum in Opposition”) (Docket Entry # 6081); and (iii) Affidavit of Stephen Dowd in Opposition to Banco Bilbao Vizcaya Argentaría Puerto Rico Motion for Transfer of Venue of San Juan Gas Company Inc. Chapter 11 Case to the District of Puerto Rico entered on August 26, 2002 (the “Dowd Affidavit”) (Docket Entry # 6084); and the record of the hearing held on August 29, 2002;
1
and for the reasons set forth below, this Court denies
I. Background 2
A. Enron Corp. Debtors
On December 2, 2001, Enron Corp. and certain of its affiliated entities (“Enron Corp. Debtors”) commenced cases under Chapter 11 of the United States Bankruptcy Code (“Bankruptcy Code” or “Code”).
As of the petition date, Enron Corp. was a large, multifaceted national and international corporation with operations, financial interests, creditors and stockholders across the United States and around the world.
In re Enron Corp.,
B. San Juan Gas Company, Inc.
San Juan Gas Company, Inc. (“SJG” and, together with the Enron Debtors, the “Debtors”), a wholly-owned direct subsidiary of Enron Corp., commenced a case under Chapter 11 of the Bankruptcy Code on June 12, 2002 (Case Number 02-12902). 1007-2 Affidavit ¶ 8 (hereinafter “1007-2 Aff.” 3 ). SJG has no publicly held shares of stock, debentures, or other securities. 1007-2 Affidavit ¶ 8.
SJG conducts operations on the island of Puerto Rico where it is the sole distributor of propane gas for San Juan. 1007-2 Aff. ¶ 18. Pursuant to local statute, SJG has a monopoly on gas distribution to the San Juan area.
4
However, SJG cannot alter its
SJG states that “[w]ith almost no cash reserves and a mandatory service obligation, SJG found itself in a situation where commencing its chapter 11 case was the only alternative.” Motion for SJG Operating Funds ¶ 6 (see infra, p. 382). The causes underlying this condition are both external and internal to SJG. 5 First, SJG cites internal cutbacks that have lead to a decrease in its customer base. Second, SJG notes that it took on a debt burden due to an unsuccessful attempt at developing a fiber optic network in conjunction with another Enron affiliate, Enron Broadband Services. Third, due to regulatory and market restrictions, SJG has been unable to raise its customer’s rates. Fourth, outstanding receivables are unlikely to be collected in the near future. Fifth, SJG has had to incur substantial expenses due to regulatory compliance issues.
Although not cited by SJG, this Court notes that SJG and certain Enron Debtors are defendants in a lawsuit pending before the United States District Court for the District of Puerto Rico concerning a gas pipeline explosion that took the lives of thirty (30) people; injured scores of others; and resulted in extensive damage to property.
See
Motion Requesting Partial Relief from the Automatic Stay ¶ 1 filed December 27, 2001 (Docket Entry # 481); Transcript of August 29, 2002 Change of Venue Motion Hearing at 252 line 20 to line 24; 263 line 10 to line 17; 264 line 19 to 265 line 6; (hereinafter “Tr.”). In fact, six (6) months prior to SJG’s Chapter 11 filing, plaintiffs in the case pending before the District Court of Puerto Rico filed a motion before this Court seeking relief from the automatic stay in order to pursue the litigation in the District Court of Puerto Rico. Pursuant to an Agreed Order of this Court dated April 11, 2002 (Docket Entry #2933), relief from stay was denied, and Debtors were permitted to settle
Approximately one (1) month after SJG filed for Chapter 11, and approximately eight (8) months after Enron Corp. filed for Chapter 11, on July 11, 2002, Banco Bilbao Vizcaya Argentaría Puerto Rico (“BBV”), a general unsecured creditor of SJG (and Enron Corp.), brought the instant motion pursuant to 28 U.S.C. § 1412 seeking a change of venue for SJG’s bankruptcy case from the Southern District of New York to the District of Puerto Rico.
At about the same time, due to an ongoing negative cash flow, and its obligations to provide uninterrupted service of gas, SJG sought approval from this Court to borrow operating funds in the amount $495,000 from Enron Corp. On July 15, 2002, Enron Corp. and SJG brought a Motion for (A) An Order Approving Enron Corp.’s Use of Property Outside the Ordinary Course of Business and Use of Cash Collateral Pursuant to 11 U.S.C. §§ 105, 361 and 363 and Fed. R. Bankr.P. 4001(b) and 6004 and (B) Entry of Order, Pursuant to 11 U.S.C. §§ 105, 361, 362, 363, and 364, Authorizing San Juan Gas Company, Inc. to Enter Into Post-petition Financing Agreement With Enron Corp. and Granting Liens and Super-Priority Claims (the “Motion for SJG Operating Funds”) (Docket Entry # 5135). By Order of this Court dated August 12, 2002, Debtors’ Motion for SJG Operating Funds was granted (the “Final Order”) (Docket Entry # 5744). The cash infusion appears to have been calculated to stem the cash flow problems and to temporarily ameliorate the underlying causes of SJG’s faltering business plan.
On August 29, 2002, this Court held a hearing on the instant Change of Venue Motion. In support of its opposition, Debtors submitted the affidavit of Stephen Dowd, Director of Enron Global Assets and Services (“Dowd”). Dowd was available for cross-examination at the hearing; however, Movant did not examine the affiant, and thus his testimony stands uncontroverted. This Court has considered Movant’s arguments in favor of transferring the venue of SJG’s bankruptcy case, and the opposition thereto, and concludes that transfer is not warranted.
II. Facts of SJG’s Bankruptcy Case
A. SJG’s Business and Assets
As explained above, SJG is a direct subsidiary of Enron Corp. and is a provider of propane gas to customers in and around the San Juan, Puerto Rico area. SJG is,
the local gas distribution company serving the San Juan metropolitan and Old San Juan area through an underground gas (propane air mixture) distribution system. Established in 1911 and acquired in 1985 the company is the only one of its type authorized by the government of Puerto Rico’s Public Service Commission to install pipeline systems in the Island. The current active system includes approximately 23.5 miles of pipeline, which sells Propane to 408 commercial customers (primarily Puerto Rico’s tourism industry). A project including a fiber optic network ring and an expansion of the pipeline system to 37 miles is 90% complete but has been suspended. The company also owns storage facilities that include 60,000 gallons of LPG (liquid) storage and 500,000 cubic feet of Propane/Air mix storage capacity.
1007-2 Aff. ¶ 18.
B. SJG’s Financial Relationship With BBV
On August 10, 2001, BBV and SJG entered into a 364-Day Revolving Credit Agreement dated August 10, 2001 (the “Credit Agreement”), and a Guaranty
C.Enron as “DIP Lender”
Pursuant to the Final Order granting the Motion for SJG Operating Funds, SJG received a debtor-in-possession loan (“DIP Loan”) from Enron Corp. for $495,000. The funds were requested because there was an “immediate and critical need ... for SJG to obtain funds in order to continue the operation of its business and prepare for a sale of its assets. Without such funds, SJG [would not] be able to maintain its mandatory service obligations, meet payroll, pay its direct operating expenses, and obtain goods and services needed to carry on its business ... in [order to] avoid irreperable harm to SJG’s estate.” Motion for SJG Operating Funds ¶11. Thus, Enron Corp. became DIP lender to its subsidiary SJG.
D.SJG’s Management
Enron Corp. representatives play a key role in the management of SJG. Dowd Aff. ¶ 5. All strategic decisions for SJG are made by a management team located in Houston, Texas. Dowd Aff. ¶ 5.
E.SJG’s Financial Books and Records
SJG’s financial books and records are maintained in duplicate, with copies kept in San Juan and Houston. Dowd Aff. ¶ 6. Despite having a controller employed in San Juan, the review and reconciliation of SJG’s financial books and records is conducted by a Houston based accounting staff. Dowd Aff. ¶ 6. Further, the Houston accounting staff has final review and sign-off on SJG’s financial statements and reports. Dowd Aff. ¶ 6. Houston management oversees and approves the development of annual budgets and business projections. Dowd Aff. ¶ 6.
In order to ensure compliance with the Cash Management Order, all expenditures are approved by the Enron Cash Committee, the members of which are located in Houston. Dowd Aff. ¶ 6. Most of SJG’s bank accounts are controlled by Houston personnel. Dowd Aff. ¶ 6. Local disbursements are made only after the Enron Cash Committee releases funds into local accounts from the Houston-controlled accounts. Dowd Aff. ¶ 6.
SJG’s business insurance requirements are met through Enron corporate policies and supplemented by policies procured through a San Juan insurance agency that is supervised by Houston risk management professionals. Dowd Aff. ¶ 6.
F.SJG’s Human Resources
Enron management in Houston makes all major human resource decisions. Dowd Aff. ¶ 7. This includes benefit programs, key employment decisions and retention and bonus programs. Dowd Aff. ¶ 7. Annual performance reviews for senior SJG employees are conducted by Enron management in Houston, and the size of the annual bonus pool, if any, and its disbursement are determined in Houston. Dowd Aff. ¶ 7. Labor contract negotiations with local labor unions are conducted by Houston-based human resource personnel. Dowd Aff. ¶ 7.
G.Professionals
In light of the pending case involving SJG’s parent company, Enron Corp., the professionals who will participate in SJG’s Chapter 11 case are also located in New York. Dowd Aff. ¶ 8, 9. The majority of
H. Creditors’ Committee
Debtors’ statutory creditors’ committee (the “Committee”) is comprised of fourteen (14) members, six (6) of whom are located in New York, three (3) are located in Texas. Dowd Aff. ¶ 8. The Creditors’ Committee opposes the transfer of venue motion. Dowd Aff. ¶ 8.
I. Sale of SJG’s Assets
The Houston management team of SJG has primary responsibility for conducting the sale of SJG’s assets. Dowd Aff. ¶ 5. SJG intends to sell its assets in an auction. Dowd Aff. ¶ 10. During that process, the vast majority of negotiations concerning financing and sale of the assets will take place among the legal and financial advisors retained in SJG’s Chapter 11 case, most of whom are located in New York. Dowd Aff. ¶ 10. As of August 23, 2002, SJG has signed confidentiality agreements with nineteen parties. Dowd Aff. ¶ 10. Of those parties identified as interested in possibly purchasing SJG’s assets ten (10) are located or have offices in New York or have easy access to New York and nine (9) are located in Puerto Rico. Dowd Aff. ¶ 10.
J. BBV
BBV, an unsecured creditor of SJG, has offices in New York, and representatives of BBV in New York have participated in discussions with the Debtors regarding the status of SJG’s pre-petition unsecured loan and provided contacts to Enron potentially interested in buying SJG’s assets. Dowd Aff. ¶ 11. On February 5, 2002, BBV filed a proof of claim in this Court claiming Enron Corp. owes it $14,400,000 pursuant to the Credit Agreement. Dowd Aff. ¶ 11.
K. Accessibility of New York
New York City is a world financial center.
In re Enron Corp.,
III. Discussion
Movant’s Change of Venue Motion is the second time this Court has been called upon to consider the appropriateness of venue as it relates to one or more of Debtors’ cases. This Court’s Memorandum Decision dated January 11, 2002 (hereinafter “Decision Denying Change of Venue”) (Docket Entry # 870) (reported at
In re Enron Corp.,
The First Change of Venue Motion dealt with a different set of considerations from the ones posed by BBV. The main difference highlighted by BBV is that the First Change of Venue Motion sought to transfer the entire Enron Corp. bankruptcy case to another district, while the instant motion seeks to transfer the bankruptcy case of only one (1) debtor subsidiary of Enron Corp.
See
Change of Venue Motion
A. Standard for Granting the Requested Relief
Section 1408 of title 28 of the United States Code governs venue in Chapter 11 cases. Section 1408 provides that a case under title 11 may be commenced in the district court for the district—
(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; or
(2) in which there is pending a case under title 11 concerning such person’s affiliate, general partner, or partnership.
28 U.S.C. § 1408.
Under § 1408(1), a prospective debtor may select the venue for its Chapter 11 reorganization.
In re Enron Corp.,
Movant does not dispute that the Enron Debtors and SJG are properly venued in the Southern District of New York pursuant to 28 U.S.C. § 1408. See Change of Venue Motion at 2. Rather, Movant’s argument is that although venue is proper in the Southern District of New York, SJG’s case may nevertheless be transferred pursuant to 28 U.S.C. § 1412 which provides that: .
A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties.
See also Fed. R. Bankr.P. 1014(a)(1). 7
Section 1412 authorizes the transfer of cases from one district to another
The bankruptcy court’s authority to exercise the district court’s power to transfer a case under 28 U.S.C. § 1412 stems from the district court’s referral of the case to the bankruptcy court pursuant to 28 U.S.C. § 157(a).
Enron,
The burden is on the movant to show by a preponderance of the evidence that the transfer of venue is warranted.
Enron,
Transferring venue of a bankruptcy case is not to be taken lightly.
Enron,
A debtor’s choice of forum is entitled to great weight if, as in SJG’s case, venue is proper.
Enron,
Pursuant to 28 U.S.C. § 1412, the Court must grant relief if it is established that a transfer of venue would be proper if it is in (1) the interest of justice or (2) the convenience of the parties.
Enron,
1. The proximity of creditors of every kind to the Court;
2. The proximity of the debtor to the Court;
3. The proximity of the witnesses necessary to the administration of the estate;
4. The location of the assets;
5. The economic administration of the estate; 8 and
6. The necessity for ancillary administration if liquidation should result. 9
Enron,
The factor given the most weight is the promotion of the economic and efficient administration of the estate.
Enron,
When considering the “interest of justice,” the court applies a broad and flexible standard.
Enron,
This Court is guided by numerous cases examining whether to transfer venue pursuant to 28 U.S.C. § 1412. 10
The seminal circuit court case on the issue of whether to transfer venue of a bankruptcy case under 28 U.S.C. § 1412 and Federal Rule of Bankruptcy Procedure 1014 is
CORCO.
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In
CORCO,
the Fifth Circuit examined whether to transfer venue to Puerto Rico of an oil refining company debtor and eleven subsidiaries that filed a Chapter XI petition for reorganization in San Antonio, Texas.
Enron,
In examining the factors delineated by the bankruptcy court, the Fifth Circuit determined that the proximity of creditors (and stockholders) favored San Antonio; that the location of management and witnesses weighed in favor of San Antonio, but that the Debtor’s assets and original books and records were in Puerto Rico. Id. The court placed little emphasis on the location of the assets and discounted the consideration concerning ancillary administration. Id.
The Fifth Circuit also addressed the “interest of justice” prong of § 1412.
Id.
In so considering, the court retained venue in the location best suited to solve the financial problems of the debtor and to be the least disruptive to the operations of the debtor.
Enron,
The Fifth Circuit’s decision in CORCO is cited in virtually every opinion this Court reviewed concerning the transfer of a bankruptcy case under § 1412. Id. There appears to be no dispute that the factors set forth in the CORCO decision are to be considered by this Court. Id.
ii. Fairfield Puerto Rico Examined
The factors set forth in
CORCO
are persuasive. Before the Bankruptcy Code of 1978 was passed, the factors set forth in
CORCO
were used by courts in this circuit and others to determine venue issues.
See In re Hudik-Ross Co., Inc.,
In its decision, the
CORCO
court cited
In re Fairfield Puerto Rico, Inc.,
In weighing the parties’ positions on the transfer of venue motions, the court evaluated the arguments utilizing the factors that were subsequently set forth in COR-CO. Id. The court determined that “the overwhelming number of all creditors are from San Juan, Puerto Rico, while the amount owed creditors is by a similar overwhelming percentage from the Northern District of Ohio.” Fairfield at 1191. The court observed that the “principal office, payroll, accounts receivable and accounts payable ledgers are in San Juan while all other books, principal records and officers are in the Northern District of Ohio with the exception of one.” Id. The court stated that “[m]ost, if not all, of the physical assets of the debtor-in-possession, valued at over Two Million Dollars, are located in San Juan.” Id. Further, the court reasoned that the elusive regulatory approval for the plant’s operation was essential to the bankruptcy proceeding’s success and could only be dealt with outside of San Juan. Id. Finally, the court addressed the issue of whether the reorganization proceeding might fail and stated that “[a]nticipation of the failure of the ... proceeding is an illogical basis upon which to predicate a transfer.” Id.
After weighing the above factors, and concluding that the transfer of venue motions should be denied, the court concluded that, aside from the plant’s operational status, the other key consideration in denying the motions was that the debtor’s success depended “primarily on efforts and activities which are centered in the eastern part of the United States.” Id. The Fairfield court was confronted with a debtor that had virtually all of its assets, creditors, and operations based in San Juan but nonetheless denied transfer of venue to that district. Fairfield at 1191. The Fairfield court’s reasoning can be best characterized as a practical approach. This Court finds the Fairfield court’s reasoning applicable here, and thus analyzes Movant’s § 1412 motion in the context of the practical realities of Respondent’s case.
B. Movant’s Argument Does Not Persuade This Court
In support of its motion, Movant urges an analysis of the CORCO factors that this Court finds unpersuasive.
First, as to the issue of “convenience of the parties,” Movant states that the motion should be granted because Puerto Rico is the situs of SJG’s nerve center; creditors; witnesses; assets; and projects. Further, in the event of liquidation, such liquidation would occur in Puerto Rico.
Second, as for the “interest of justice,” Movant argues that because SJG’s assets will likely be sold, the case should be transferred because Puerto Rico is the situs of SJG’s assets; creditors; operations; and where “more than likely the potential and eventual purchaser” is located.
Respondent concedes that it intends to sell SJG’s assets in an auction. Memorandum in Opposition ¶ 36. However, for the reasons set forth herein, Movant has failed to establish by a preponderance of' evidence that transfer of venue is in the
In the context of SJG’s case, the factors considered cannot be viewed in an insular manner.
See Enron,
C. Analysis
As set forth above, it is this Court’s view that an analysis of a motion for the transfer of venue under 28 U.S.C. § 1412 should employ the factors set forth in CORCO.
i. Convenience of the Parties
The first consideration pursuant to § 1412 involves an analysis of the “convenience of the parties.”
a. The Location of the Assets
The asset at issue is SJG’s gas pipeline in and around San Juan covering approximately thirty-seven (37) miles, and appurtenant gas storage facilities. The operation of the pipeline is subject to a regulatory contract under which SJG is purportedly unprofitable. The pipeline is expected to be sold in order to fund SJG’s Chapter 11 liquidating plan.
The location of the assets is not as important when the ultimate goal of the bankruptcy case is rehabilitation rather than liquidation.
CORCO,
First, the sale of SJG’s assets entails a sophisticated transaction requiring professionals experienced in this type of sale. Transactional lawyers, bankers, experts in utility regulations, are all key to a successful sale of SJG’s assets and are all readily available in New York and may already be involved in the Debtors’ cases. (The Court does not doubt that such transactional professionals also would be available in Puerto Rico. But the issue is reviewed in the context of whether cause exists to change venue from New York to Puerto Rico, not whether the sale could be accomplished in the District of Puerto Rico.) To the extent that a San Juan based professional may have to be retained for certain purposes (i.e. to facilitate the consummation of the sale), such is not unusual, nor would it necessarily increase costs.
In contrast however, if SJG’s bankruptcy case was transferred to Puerto Rico merely because local professionals are available to consummate the sale of SJG’s assets, SJG would probably need to retain local debtor’s counsel and creditors’ committee counsel, if a committee were to be formed. Enron Debtors’ professionals, and to a certain extent the Committee and its professionals, would remain involved in SJG’s case. Thus, a transfer to Puerto Rico would not result in a decrease in SJG’s professional expenses, instead another layer of professional fees would be added.
There is no evidence that supports the view that a transfer to the District of Puerto Rico would increase the possibilities that a § 363(b)(1) sale would result in a greater sale price. Rather, New York, offers access to the capital markets, a broad range of potentially interested purchasers, and professionals that make these types of transactions successful (see infra.). In this case, the asset itself defines the degree of sophistication attendant to its sale, and the extent to which venue plays a role. The Court believes that currently retained professionals with assistance of local special counsel, if necessary, can achieve the sale of SJG’s pipeline in an efficient manner that will yield a maximum return to its creditors.
Second, although SJG has announced its intention to sell its assets to facilitate its liquidating Chapter 11 plan, this is not a Chapter 7 liquidation.
14
The post-petition efforts in SJG’s case center around a sale of SJG’s assets within the context of Chapter 11. Unlike a Chapter 7 trustee sale, a sale of SJG’s assets will be subject to the requirements of § 363(b)(1).
15
When eon
Thus, when there is a sale of assets, firsthand familiarity with a debtor’s locale is often unnecessary because the § 363(b)(1) sale process ensures that evidence will be offered to demonstrate the adequacy of a sale outside the ordinary course of business. Ultimately, if SJG’s pipeline is sold, the value of SJG’s pipeline will be an issue for this Court to consider at the sale hearing. Neither the location of the property nor the type of property poses any difficulty for this Court in conducting a valuation hearing.
See In re Bell Tower
Assocs.,
Ltd.,
Third, where debtors assets consist solely of real property, cases have held that transfer of venue is proper because “Matters concerning real property have always been of local concern and traditionally are decided at the situs of the property.”
Baltimore Food,
Fourth, “the location of the debtor’s assets is a factor that is outweighed by the need for administration of the case in this forum, where the debtor’s,”
Boca Dev. Assocs.,
In conclusion, Movant has failed to carry its burden on this factor.
b. Proximity of Witnesses and the Debtor to the Court
The proximity of the debtor and the availability of witnesses is a consideration which focuses
on
the debtor’s “employees who must appear in court, not with the employees who are on the production line.”
CORCO,
1. Proximity of Witnesses
Movant has not made a clear showing of the extent to which live witnesses will be necessary.
See generally Hawaiian Investors v. H.L. Thorndal,
In conclusion, Movant has failed to carry its burden on this factor.
2. Proximity of Debtor
As for the proximity of the debtor to the court, this factor leans in favor of SJG as well. SJG’s principal place of business is Puerto Rico. SJG’s sole shareholder is based out of Houston, Texas. SJG’s books and records, finance staff, managerial staff, human resources staff, and accountants are located in Houston, Texas. Key managerial and financial decisions are made in Houston, Texas, while much of the § 363(b)(1) sale and other reorganization efforts are focused in New York. However, BBV emphasizes the fact that the day-today operation of SJG’s business takes place in Puerto Rico.
The court in
CORCO
was also asked to weigh the fact that operations and substantial assets of the Debtor were located in Puerto Rico against the fact that the financial management was in San Antonio. The court found in favor of retaining venue in San Antonio because the debtor’s problems were financial and those who could solve these issues were in San Antonio, and therefore,
inter alia,
the case was not transferred to Puerto Rico.
CORCO; see also In re One-Eighty Investments, Ltd.,
First, the primary issue here is the sale of a business that is part of a multinational conglomerate of energy concerns. The locale of a business’ operation, either financial or business is not essential to the goal of a § 363(b)(1) sale.
Second, Movant argues that SJG’s “nerve center” must be San Juan because
Third, in light of the fact that SJG is being actively marketed for sale, the proximity of SJG’s operations to this Court is only relevant to the extent that it relates to the factor that considers the “location of the assets” to this Court, and as concluded above, the location of a debtor’s assets is not dispositive in this case.
Fourth, SJG’s business involves the operation of a gas pipeline. Presumably, the operation of SJG’s business must continue uninterrupted until the sale of the assets in order to maintain its value for purposes of the § 363(b)(1) sale and there is no particular need for the case to be pending in Puerto Rico to achieve that goal.
Fifth, the presence of the books and records in Houston and or San Juan is not a
major concern
because with modern technology that information, which is ordinarily computerized, can be readily transported via electronic mail.
Enron,
In conclusion, Movant has failed to carry its burden on this factor.
It is clear that the most important of these considerations is the economic and efficient administration of the estate.
See e.g., CORCO,
The central consideration to the “economic and efficient administration of the estate” inquiry is one that ultimately implicates the outcome of debtor’s case, that is whether the debtor-in-possession will be able to formulate a plan that is acceptable to all relevant parties.
CORCO,
1. Southern District of New York Affords Greater Access to Capital
SJG’s liquidating Chapter 11 is dependent upon the ability of SJG to sell its assets to thereby maximize a return for creditors. This effort requires SJG, the Enron Debtors, the professionals retained in this case, and the Creditors Committee to structure a transaction that takes advantage of New York’s capital markets and the relationships that Debtors have with the New York financial community.
See generally In re HME Records, Inc.,
New York is a world financial center and, as such, has the resources that will be required to address the Debtors’ financial issues.
Enron,
2.Sale of Assets Can Be Effectively Accomplished in the Southern District of New York
The Court recognizes that central to the post-petition efforts of SJG, is the sale of the debtor-in-possession’s assets.
In re Louis Marx & Co., Inc.,
No. 80B10150, 1980 Bankr.LEXIS 5204, at *11 (Bankr.S.D.N.Y. May 1, 1980) (explaining that New York was the focal point of the efforts to obtain debtor financing and to find a prospective purchaser of assets). Movant argues that if SJG attempts to sell its San Juan pipeline assets, SJG will nonetheless be required to retain local professionals in order to consummate the sale. (Tr. 271 line 13 to 272 line 18.) In support of this position, Movant states that under the laws of the Commonwealth of Puerto Rico a notary public must be retained to complete a real property transaction. (Tr. 271 line 13 to 272 line 18.) In Puerto Rico, notaries public have heightened duties, as compared to notaries public in other parts of the United States, and are required to attest to the accuracy of the contents of a document. (Tr. 271 line 13 to 272 line 18.) However, the exact contours of the sale transaction are not yet known. Debtors’ counsel states that a sale of the assets might not need to occur and it could be a stock sale, and therefore would not require the services of a notary public from Puerto Rico. Regardless, this (retention of a local professional) by itself is an insufficient reason to transfer the case.
CORCO,
What is highly probative however is the fact that there are people familiar with the management and the sale of SJG in New York, Houston and Puerto Rico.
See In re Garden Manor Assocs., L.P.,
3.Southern District of New York Offers Economical Case Administration
In CORCO, the persons charged with financial responsibility were all located in San Antonio, and thus venue was properly retained in Texas. The same situation exists in the instant case, Enron Corp. staff in Houston, and the Enron Debtors’ professionals in New York, will be working on the liquidating Chapter 11 plan of SJG. In re Louis Marx & Co., Inc., No. 80B10150, 1980 Bankr.LEXIS 5204, at *11 (Bankr.S.D.N.Y. May 1, 1980) (explaining that New York was more convenient for debtor’s parent company). As a result, SJG can be administered much more economically in New York than in Puerto Rico since the professionals, financial markets and expertise are already in place and have made progress towards the sale of SJG.
4.“Intertwined Relationships” of SJG and Enron Corp.
Under this category, a significant factor to be considered is the “intertwined rela
The close relationship between Enron Corp. and SJG is characterized by three (3) important facts tending in favor of retaining venue in the Southern District of New York: (i) SJG is a wholly-owned subsidiary of Enron Corp. engaged in the same industry; (ii) Enron Corp. is guarantor on obligations owed by SJG to BBV; and (iii) Enron Corp. has provided a post-petition DIP facility to SJG.
First, SJG is a wholly-owned subsidiary of Enron Corp. engaged in the same industry. As a rule, parent and subsidiary corporations are separate entities, having separate assets and liabilities.
See, e.g., In re Regency Holdings,
Although the
Pope Vineyards
decision is instructive, to the extent it is viewed as presenting a uniform principal to be observed in all parent and subsidiary reorganizations, this Court would not agree. However, even if the Court were to adopt
Second, Enron Corp. is the guarantor of the obligations owed by SJG to BBY. BBV has recognized that to obtain complete relief it needs to pursue its claims in this Court and in fact it has filed a proof of claim against Enron Corp. In
In re Ridgely Communications, Inc.,
the court found that debtor Ridgely was a closely-held corporation of which two-thirds of the stock was owned by Anne and David Kramer, affiliated debtors. The court opined that because the Kramers were guarantors of obligations to Ridgely’s two (2) largest secured creditors there were common questions of law and fact that would materially affect the reorganization of both debtors. Thus, in denying a creditor’s motion to transfer venue, the court concluded that the “administration of ... closely-related cases will be rendered more difficult and expensive if ... separated.”
In re Ridgely Communications, Inc.,
. Third, Enron Corp. is the DIP Lender of SJG, and thus a superpriority lienholder of SJG’s estate. As set forth in the Motion for SJG Operating Funds, SJG received the best available lending terms from Enron Corp. Motion for SJG Operating Funds ¶ 20. The borrower-lender relationship here is compelling. Enron Corp. as the DIP lender therefore has a significant stake, not only as SJG’s parent corporation, but as post-petition creditor. This post-petition relationship between Enron Corp. and SJG is important to both and should continue under the supervision of this Court.
See generally In re Walston AirBusiness, Inc.,
Thus, it appears to this Court that the “intertwined relationships” of SJG and the Enron Debtors leads to the conclusion that a transfer of venue is not warranted.
5. Local Considerations
Although neither party raised this issue, another consideration under this category is, whether SJG’s case is of such local concern that it should proceed in Puerto Rico.
In re Newport Creamery,
The Court recognizes that this may be a relevant consideration in light of two (2) circumstances: (i) SJG has been the subject of regulatory action in Puerto Rico; and (ii) SJG has a monopoly, in accordance with local statute, to furnish propane gas to San Juan. However, Movant has failed
However, it is highly probative that the Change of Venue Motion was not joined or supported by any governmental entity, or by any other creditor. Further, SJG has represented that the DIP credit facility provided by Enron Corp. would be applied, inter alia, to meet any outstanding regulatory obligations to OSHA, DOT and EPA. Motion for SJG Operating Funds ¶ 6. The agencies that might be concerned with either the regulatory action against SJG or the regulatory contract under which SJG operates have not voiced dissatisfaction over SJG’s choice of venue. Thus, this Court finds that it has not been established that this factor supports a transfer of venue.
6. Unsecured Creditors’ Committee is Already in Place in the Southern District of New York
The Court finds it relevant to weigh the position of the Committee in its statutory role as a fiduciary to and representative body of the unsecured creditors of all the estates, including SJG. The Committee consists of representatives of all of the creditor constituencies. As such, the position of the Committee, while not dispositive, is something that should be considered by the Court.
See Huntington Nat’l Bank v. Industrial Pollution Control (In re Industrial Pollution Control, Inc.),
However, the factors involving the proximity of this Court to “most of the creditors are not significant here, since the creditors’ committee ... [has] voiced [its] support in favor of the debtor’s choice of venue.”
Boca Dev. Assocs.,
Moreover, as noted previously, Movant advises this Court that it is unlikely that a statutory creditors’ committee would be appointed if SJG’s case was transferred to Puerto Rico. (Tr. 258 line 16 to line 22.) Instead, Movant envisions the United States Trustee as taking an active role in SJG’s case. (Tr. 259 line 2 to line 22.) This Court does not know the reliability of Movant’s assertion. Nonetheless, for purposes of this analysis, the Court accepts Movant’s argument and weighs the value of having the existing creditors’ committee with its fiduciary obligations to all the creditors of all the estates and available transactional professionals to advise it with the prospect of no committee at all.
20
In
d. The Proximity of Creditors (and Stockholders)
In considering the proximity of creditors (and stockholders), this Court must examine both the number of creditors as well as the amount of claims held by such creditors.
See CORCO,
1. Proximity of Creditors
Initially, the Court notes that the Change of Venue Motion did not include a complete analysis of this factor. The Court has examined SJG’s schedules and statement of financial affairs filed on September 30, 2002. This examination revealed that all but one (1) of the top twenty (20) largest unsecured creditors is based in Puerto Rico, and that the majority of claims in dollar amount are located in Puerto Rico.
Movant argues that due to the distance of this Court from creditors in Puerto Rico that there is probably a reduced level of creditor participation in SJG’s case. And that if SJG’s case was transferred to the District of Puerto Rico there would be greater creditor participation. As a general proposition this is an accurate statement. However, at the hearing on the Change of Venue Motion, Counsel for BBV stated that if the case were transferred to the District of Puerto Rico, the United States Trustee would become very active in this case because it is unlikely that a creditors’ committee would be formed (see supra.). Thus, in spite of Movant’s argument, Movant presents a contrary outcome, that is, transferring venue to the District of Puerto Rico would not increase creditor participation; rather, it would probably have little or no effect on creditor participation.
At least with respect to the Movant, the argument that the location of this case in the Southern District of New York is chilling the creditors’ efforts is further undermined by the fact that BBV has an office in New York and Movant has counsel actively involved in SJG’s case and the Enron Debtors’ case. Specifically, Enron Corp. is the guarantor of the obligations owed by SJG to BBV pursuant to a credit agreement. BBV has recognized that to obtain complete relief it needs to pursue its claims in this Court and in fact it has filed a proof of claim against Enron Corp. The Court anticipates Movant’s continued participation in this case, as well as participation by any other interested creditor wherever located.
See In re HME Records, Inc.,
With respect to accessibility of this Court to all parties-in-interest, the dockets of all of the cases pending before the Southern District of New York are cur-: rently available on the internet at the Court’s web-site by obtaining a PACER password.
Enron,
2. Proximity of Stockholders
The Court in
CORCO
stated that when evaluating the proximity of creditors to the court, it is appropriate to consider the debtor’s stockholders.
CORCO,
In
CORCO,
the court concluded that, as part of the proximity of creditors factor, the proximity of stockholders to the court needed to be considered. The court con-eluded that the proximity of the creditors and stockholders did not warrant a change of venue from San Antonio to Puerto Rico.
21
In many cases, stockholders are usually so far “out of the money,” that their location would usually not be relevant to this consideration.
See generally In re Bell Tower Assocs., Ltd.,
SJG’s schedules disclose total liabilities of $22,325,041. According to Movant, the sale of SJG’s assets may result in a price
First, Enron Corp., as an affiliated debt- or-in-possession and controlling stockholder of SJG, selected the Southern District of New York for venue. Pursuant to this Court’s Decision Denying Change of Venue, Enron Corp. Debtors were allowed to maintain venue in this district. In Enron Corp.’s dual capacity as affiliated debtor-in-possession and controlling stockholder of SJG, it has executive decision-making in terms of SJG’s Chapter 11 case. Enron Corp. personnel in Houston and Debtors’ professionals in New York: (i) make all strategic decisions for SJG; (ii) have the primary responsibility for conducting the sale of assets of SJG; and (iii) are responsible for all of SJG’s reorganization efforts. In SJG’s case, venue, executive decision-making, and post-petition professional services are inextricably linked to its controlling stockholder, one of the largest Chapter 11 cases ever filed. Aside from the benefits that SJG will derive from the economies of scale offered by maintaining venue in the Southern District of New York, the controlling stockholder has availed itself of this district and therefore SJG is in close proximity to its controlling stockholder. The choice of venue of SJG and its controlling stockholder ought not be disturbed.
Second, as DIP lender, Enron Corp. provided necessary funds to SJG. These funds are being used so that SJG can continue operating. This is significant because absent this funding, SJG ran the risk of violating the regulatory contract with the Puerto Rico Public Service Commission. Such a violation could have resulted in civil and criminal sanctions against SJG and Enron Corp. Because Enron Corp., as debtor-in-possession, is venued in the Southern District of New York its capacity as DIP lender is relevant. The DIP funds were provided to a debtor in the Southern District of New York from another debtor venued in this district. The primary reason for Enron Corp.’s decision to step in and provide the DIP facility was because it was the controlling stockholder of SJG and preserving SJG’s value was clearly in its (Enron Corp.’s) interests. This transaction took place in New York, not Houston, and not Puerto Rico.
Third, as guarantor of the Movant’s loan to SJG, Enron Corp. and its creditors have a mutuality of interests with all the creditors of SJG, in that each dollar of proceeds received from the sale of SJG or its stock reduces the Movant’s guaranty claim against Enron Corp. estate.
3. Summary of Analysis of the Proximity of Creditors (and Stockholders) Factor
Although as mentioned previously, a transfer of venue to the District of Puerto Rico would provide the twenty (20) largest creditors easier direct access to the bankruptcy court presiding over the case. Taking into the consideration the issues discussed herein, specifically the purpose and anticipated results of the SJG filing, the
e. The Necessity for Ancillary Administration if Liquidation Should Result
This Court finds it unnecessary to contemplate the failure of this case at this early stage. As the court in
CORCO
explained, “[a]nticipation of the failure of the Chapter XI proceeding is an illogical basis upon which to predicate a transfer.”
CORCO,
In conclusion, Movant has failed to carry its burden on this factor.
f Summary of Analysis of the Convenience of the Parties
Since the purpose of considering these various factors with respect to the convenience of the parties is not meant to shift the inconvenience, and where after balancing all of the factors, the equities do not lean heavily in favor of the Movant, SJG’s choice of forum should not be disturbed.
In re Garden Manor Assocs., L.P.,
ii. Interest of Justice
The second consideration pursuant to § 1412 involves an analysis of the “interest of justice.”
a. It is in the Interest of Justice to Deny Transfer of Venue
The interest of justice prong is a broad and flexible standard that is applied based on the facts and circumstances of each case.
Enron,
First, this Court is confident that there will be a delay in the administration of the SJG case if it were transferred to Puerto Rico from the Southern District of New York, because new professionals would need to be retained and be required to immediately become familiar with the case.
In re Louis Marx & Co., Inc.,
No.
Second, in considering both the efficient administration of the estates and judicial economy, it is also necessary to take account of the “learning curve.”
See Enron,
In
Manville,
the Second Circuit found that although the convenience of the parties and witnesses weighed in favor of transfer (which this Court has not found), the efficient administration of the case, such as the fact that the bankruptcy court had developed a substantial learning curve, weighed in favor of retention of the case.
See Enron,
SJG’s case bears upon the overall reorganization efforts of the Enron Debtors. The synergy between Debtors’ cases is highly relevant to this consideration (just one example is the Final Order approving the DIP loan involves both Enron Corp. and SJG).
Third, consistent with the above stated conclusion that, for purposes of this venue analysis, there is an “intertwined relationship” between SJG and Enron Corp. that tends in favor of retaining venue in the Southern District of New York, this Court recognizes that historically courts observed a general policy of allowing a parent and subsidiary to reorganize in the same court.
See generally Duggan v. Sansberry,
A central objective of bankruptcy is to allow debtors to bring order to their affairs.
See generally In re Coleman American Cos.,
Centralizing the cases of parent and subsidiary debtors furthers the objectives of the Code by preventing an unsystematic scramble for a debtor’s assets. Centralization of parent and subsidiary cases insures that debtors’ cases will be administered in a single court in order to: (i) avert contradictory decisions of different courts; and (ii) synchronize all the creditors interests with one another. This view is in accord with § 1412. Holding otherwise would cause parent debtors to expend considerable resources to travel to other jurisdictions. Parent debtor corporations that could not afford the costs attendant to administration of subsidiary cases in a multiplicity of jurisdictions would be confronted with a patchwork of decisions that would ultimately prejudice the interests of creditors.
b. Summary of Analysis of the Interest of Justice
The goal of SJG’s Chapter 11 case is to pay its creditors through a liquidating
The Court finds that in considering matters of judicial economy, timeliness and fairness as well as the efficient administration of the estate, the interest of justice is served by retaining venue in the Southern District of New York.
In conclusion, Movant has failed to carry its burden on this factor.
IV. Conclusion
Underlying Movant’s request for a change of venue of SJG, is the concern that — because, as the parties have stated, SJG is a “small” part of the Enron bankruptcy case — SJG’s assets will be sold at fire sale prices at the expense of local creditors and interests. Further, Movant stresses the costs attendant to New York professionals. This Court adheres to the view that one of the principal aims of the Bankruptcy Code is to maximize value for creditors. Any sale conducted in this Court must meet the standards under § 363(b)(1), and the fees, and any allocation of such fees, of all professionals are subject to approval by this Court.
Fragmenting this case by giving way to parochial interests will merely serve to undermine an efficient and successful § 363(b)(1) sale and the overall reorganization of the Debtors. The outcome of starting down a path of fragmentation will surely lead to disparate court decisions, and potentially, courts working at opposing ends.
See generally In re Blumeyer,
In light of the foregoing factors, particularly the importance of the economic and efficient administration of the estate, venue of this case shall be retained by the Southern District of New York. It is in the Southern District of New York — where SJG actually administers the estate — that the convenience of the parties will best be satisfied and the interest of justice will best be served. The Court finds that the Movants have not shown by a preponderance of the evidence that transfer of venue is in the interest of justice or for the convenience of the parties. For the reasons stated herein, this Court will retain venue of SJG’s bankruptcy case.
Based on the foregoing, it is
ORDERED, that the Motion for Change of Venue brought by Banco Bilbao Vizcaya Argentaría Puerto Rico is hereby denied.
Notes
. The Creditors' Committee appeared at the August 29, 2002 hearing and entered oral opposition to the Change of Venue Motion. (Transcript of August 29, 2002 Change of Venue Motion Hearing at 264 line 7 to line 10.)
. Additional relevant history of the Enron Corp. Debtors is more fully set forth in this Court’s Memorandum Decision dated January 11, 2002 (Docket Entry #870), wherein the Court denied several motions to transfer venue. That decision is reported at
In re Enron Corp.,
. Pursuant to local bankruptcy rule 1007-2, Chapter 11 debtors must file an affidavit setting forth, inter alia, the nature of debtor's business and a concise statement of the circumstances leading to the debtor's filing. The affidavit pursuant to 1007-2 must accompany a voluntary Chapter 11 petition. LBR 1007-2(c).
. As set forth in SJG’s July 15, 2002 Motion for Operating Funds V 5 (see infra, p. 382):
SJG is the only company authorized by the Puerto Rico Public Service Commission (the "PRPSC”) to install and operate a gas distribution pipeline systems on the island. As a jurisdictional monopoly governed by the PRPSC, SJG is obligated to provide gas service to its customers, and it cannot unilaterally modify its service obligation (i.e., it must obtain PRPSC approval prior to abandoning or diminishing services). The PRPSC has indicated it will not allow SJG to abandon service, and it is statutorily authorized to impose both civil and criminal sanctions to ensure continuity of service. In addition, the Puerto Rico statute provides that violation of the statute is a misdemeanor, and it gives the PRPSC a statutory right to fine SJG if it "violates any provision of the regulations governing the carrying of gas through pipelines” for a maximum amount of $1,000 per day that the violation persists, with a total maximum penalty of $200,000 for any series of violations. In sum, the service obligation requires SJG to continue performing, regardless of financial condition, or risk the imposition of severe sanctions.
. The reasons set forth in SJG's 1007-2 Aff. ¶ 20, are:
Its current cash flow situation is negative and is a result of many factors including: the continued decrease in customer base and volumes, the additional debt burden resulting from the aborted development of a fiber optic network with Enron Broadband Services in 2000, and the regulatory and market restrictions on customer rate increases. Without funding from Enron Corp., SJG’s parent, this entity has no ability to fund its business activities. SJG has filed a chapter 11 petition in order to protect the San Juan Gas assets.
SJG elaborates on these reasons in the Motion for SJG Operating Funds V 6 (see infra. p. 382):
SJG’s cash flow recently has been negative, and it is anticipated that it will continue to be so for the foreseeable future, SJG's rate structure, set by the PRPSC, has not been realigned since 1985, and it is uncertain when an application for a new rate case will be made or approved. In the interim, SJG has realigned its business to serve fewer larger commercial customers. As a result, the current rate structure is insufficient to cover expenses. Current cash flow projections show that SJG will run out of cash by the middle of September 2002. SJG believes that it can collect on certain receivables owed to it, but the timing of such collection could extend until after SJG's need for financing. These receivables, along with others, have been outstanding for a few years and an organized collection effort has been ongoing since the summer of 2001. In addition, SJG is currently expending amounts up to a budgeted $300,000 in connection with various OSHA, DOT and EPA regulations.
. Section 101(2) of title 11 of the United States Code defines affiliate to include:
(A) [an] entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor,... [or]
(B) [a] corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the debtor, or by an entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor....
11 U.S.C. § 101(2).
. Fed. R. Bankr.P. 1014 provides:
(a) Dismissal and Transfer of Cases.
(1) Cases Filed in Proper District. If a petition is filed in a proper district, on timely motion of a party in interest, and after hearing on notice to the petitioners, the United States trustee, and other entities as directed by the court, the case may be transferred to any other district if the court determines that the transfer is in the interest of justice or for the convenience of parties.
. Most courts address this factor in terms of both the "economic” and "efficient” administration of the estate.
Enron,
. As explained in this Court's decision,
Enron,
. As explained in this Court's decision,
Enron,
The Second Circuit in
Manville
did not specifically reference the decision by the Fifth Circuit in
CORCO. Enron,
. Although the CORCO opinion was decided in 1979 under the former Bankruptcy Act and Federal Rule of Bankruptcy Procedure 116(b)(1), courts continue to apply the same analysis pursuant to current 28 U.S.C.§ 1412 (effective July 10, 1984) and Federal Rule of Bankruptcy Procedure 1014. See Collier on Bankruptcy, ¶ 1014.02[2][a], 1014-4 (15th ed. rev.2001).
. Although Fahfield pre-dates CORCO, it applies the same factors as set forth in CORCO. Further, Fairfield was decided under the venue provisions of Bankruptcy Act § 32. Section 1412 traces its genesis to Bankruptcy Act §32. See explanation supra note 11.
. As the court in
In re Conroe Forge & Mfg.,
The policy behind Chapter 11 reorganization is successful rehabilitation . .. However, the concept of reorganization includes liquidation ... This Court, therefore, must determine whether the property ... is necessary for an effective reorganization ... In a liquidating Chapter 11 where Debtor has ceased operations and collateral value is not decreasing, ordinarily all property will be necessary for an effective reorganization. "Necessary” property has been defined as that which " 'will contribute’ to a plan of reorganization.” ... If, as in this case, circumstances require confirmation of a sale before a liquidating plan has been confirmed, the proceeds, which will be earning interest, are necessary to the plan which presumably will provide for the sale of the rest of Debtor’s assets and distribution of proceeds.
. A Chapter 7 case is readily distinguished from a Chapter 11 liquidating case. Specifically, in a Chapter 7 case, the "Debtor likely requires greater court supervision over liquidation of the assets and there is no need to obtain financing. In such cases requiring the appointment of a trustee, it makes no sense to separate the trustee from the assets he is to liquidate or from the books and records he should examine. Where adjudication is in the offing, fairness to the creditors and the need for supervision strongly support placement of venue where the assets are located.”
In re International Filter Corp.,
. Courts have required that a sale pursuant to § 363(b) be based upon the sound business judgment of the debtor.
See Licensing by Paolo v. Sinatra (In re Gucci),
. The professionals’ participation will be more fully addressed in the discussion concerning the economic and efficient administration of the estate.
Enron,
. On February 26, 2002, in the Enron Corp. case, this Court entered an Amended Case Management Order Establishing, Among Other Things, Noticing Electronic Procedures, Hearing Dates, Independent Website and Alternative Methods of Participation at Hearings ("Case Management Order”) (Docket Entry # 1698). The Case Management Order governs, inter alia, procedures for addressing telephonic and video participation in order to facilitate participation by distant parties.
. In considering the economic and efficient administration of the estate, the learning curve issue is an important factor. However, the learning curve also impacts considerations of the interest of justice which seeks to promote the efficient administration of the estate, judicial economy. To avoid duplication of issues, the Court will address the applicable learning curve with respect to the interest of justice prong of 28 U.S.C. § 1412.
. This factor is not determinative of whether all or some of these cases should be substanlively consolidated.
. It is important to note that the interests of all estates, including SJG, are clearly aligned.
. In
In re Island Club Marina, Ltd.,