In Re Fairfield Puerto Rico, Inc.
OPINION AND ORDER
The matters before the Court are two motions to transfer a proceeding for an arrangement filed under the Bankruptcy Act. The Municipality of San Juan, Puerto Rico, (“Municipality”), with whom Fairfield Puerto Rico, Inc., (“the debtor-in-possession”) has a lease contract for the construction and operation of a composting plant for processing of
On May 17, 1971, Fairfield Puerto Rico, Inc., a Delaware corporation and a wholly owned subsidiary of Fairfield filed a petition for composition and arrangement under Chapter XI of the Bankruptcy Act. The Referee in Bankruptcy permitted the petitioning debtor to become a debtor-in-possession.
From the Statement of Affairs, Schedules, Affidavits and Monthly Reports filed, it appears that the debtor-in-possession undertook by assignment a lease contract with the Municipality containing obligations to construct and operate a composting plant for the processing of refuse capable of processing daily up to 300 tons of refuse of the Municipality. After several set backs, the composting facilities became operational but the end-product could not be marketed because the United States Food and Drug Administration (“FDA”) refused to approve the compost for use on edible crops either as a pesticide or herbicide adjuvant or as a fertilizer. After stockpiling compost on all available space at the plant facility and faced with mounting financial losses of approximately $6.66 per ton of refuse processed, the debtor-in-possession, curtailed operations on February 19, 1971, and ultimately filed its Chapter XI Petition in this District. The debtor-in-possession then received a formal notice of default from the Municipality. Shortly thereafter, and possibly before it knew that the Petition had been filed, the Municipality demanded the physical delivery of the compost plant under the default and termination provisions of the lease contract.
The debtor-in-possession’s present management consists primarily of maintaining a security force to protect the San Juan plant and paying for insurance and utility services.
Jurisdiction and venue are conceded to be in the Delaware District. The motions to transfer are brought under § 32(c) of the Bankruptcy Act (the “Act”), 11 U.S.C. § 55(c), which provides :
“c. The judge may transfer any case under this title to a court of bankruptcy in any other district, regardless of the location of the principal assets of the bankrupt, or his principal place of business, or his residence, if the interests of the parties will be best served by such transfer.”
This Court should not freely abandon to any other district its duty to determine a matter clearly within its jurisdiction. In re United Button Co.,
Under § 32(a) of. the Act “parties in interest” include not only unsecured creditors, but also secured creditors and the bankrupt or, as in this case, the debtor-in-possession. In re Statewide Theatres Corporation,
The test for transfer under § 32(c) is whether “the interests of the parties will be best served by such transfer.” The statute does not set forth an all inclusive list of factors to be considered in applying the test. However, § 32(c) is clear that the location of principal assets and the location of principal place of business or residence does not necessarily control whether transfer should be ordered. Determinative factors will vary with each case.
The parties here are in substantial agreement in delineating the controlling considerations for transfer, but are not in accord in applying those factors to the instant case.
Factors considered are (1) proximity of creditors to the Court whether they be priority, secured, or unsecured, (2) proximity to the Court and choice of forum of the debtor-in-possession, (3) location of books, records and witnesses essential to the administration of the estate, (4) location of assets, (5) economic and efficient administration of the Chapter XI proceedings, and, (6) the necessity for ancillary administration if bankruptcy should result. See: In re Triton Chemical Corporation, supra,
According to the Amended Schedules there is a secured creditor located in Puerto Rico whose claim is $75,000. plus interest. There is approximately $13,-476.41 in potential priority claims. The priority claimants, all treated as originating in San Juan, include five wage claimants aggregating less than $250. in wages, the Municipality ($3,000. for rent), the Commonwealth of Puerto Rico and the United States. There are twenty-three non-priority, unsecured claimants, twenty-one of whom are located in San Juan. Of the remaining two unsecured creditors, one is from Massachusetts in a nominal amount of $382.16 while the other is Fairfield of the Northern District of Ohio representing $2,284,630.58 of the total unsecured indebtedness, including priority claimants, of $2,320.054.58. In summary, 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, but the Ohio creditor does not oppose retention of jurisdiction in Delaware.
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 officer who lives in Pennsylvania. Presumably, the officers and Puerto Rican officials would be necessary witnesses for the administration of the estate.
Most, if not all, of the physical assets of the debtor-in-possession, valued at over Two Million Dollars, are located in San Juan.
The plant is not operating in San Juan except for the maintenance of a security force, utilities and insurance. Therefore, supervision by the Court of an operating business with a possible “emergency” situation requiring Court
Because of the circumstances outlined above, a creditors’ committee would be of little or no aid. Therefore, while an election of a creditors’ committee might cause problems without transfer, the issue of the eligibility of Fairfield to vote its claim in electing either a creditors’ committee or nominating a stand-by trustee may never arise and need not be determined at this time. The Municipality’s argument of possible domination of the proceeding by the debtor-in-possession and Fairfield fails when viewed in the context of the facts and the overriding duty of the Court to impartially consider all interests.
A factor which the Court cannot ignore is the necessity for ancillary administration in the event there is an adjudication. Anticipation of the failure of the Chapter XI proceeding is an illogical basis upon which to predicate a transfer. On the other hand, avoidance by this Court of ancillary administration may be desirable where no assets, except bank accounts, are located in this District.
Weighing all of the foregoing factors and being especially impressed with the fact that the plant is non-operating, and that the formulation of a plan of arrangement depends primarily on efforts and activities which are centered in the eastern part of the United States, the Court concludes that the movants have failed to carry their burden of proof in support of transfer. Both transfer motions, therefore, will be denied but with leave granted to the Municipality of San Juan to renew its motion in the event there is an adjudication under the Bankruptcy Act.