In the Matter of Peachtree Lane Associates, Limited, Debtor-Appellee
The primary issue in this appeal, one that we encounter infrequently, concerns the proper venue for a reorganization proceeding under Chapter 11 of the Bankruptcy Code. Harry, Alan, and Daniel Granader (the “Granaders”) believe that venue for the Chapter 11 bankruptcy filed by Peachtree Lane Associates, Ltd. (“Peachtree”) was improper in the Northern District of Illinois because Peachtree did not maintain its principal place of business or its principal assets in that district. In asking us to find venue improper, the Granaders are indirectly challenging a judgment the bankruptcy court entered against them on an adversary complaint Peachtree filed. Because venue for the underlying bankruptcy was improper, the Gra-naders assert, the judgment entered against them in the adversary proceeding cannot stand. For the reasons that follow, we conclude that the bankruptcy court did not clearly err in finding venue proper in the Northern District of Illinois. We also cannot accept the Granaders’ contention that they were entitled to a jury trial on the issues raised in the adversary complaint and in their own counterclaims. We therefore affirm the judgment entered below.
I.
At the time of the events at issue in this case, Peachtree was a Texas limited partnership that owned and operated a 400-unit apartment complex in Webster, Texas. It filed this Chapter 11 bankruptcy in July 1994 after its largest secured creditor took steps to foreclose on the property. The bankruptcy itself was relatively straightforward. Pursuant to its plan of reorganization, Peach-tree sold the property and paid its secured
The bankruptcy court conducted an extensive evidentiary hearing on the venue question and issued detailed findings of fact and conclusions of law.
In re Peachtree Lane Assoc., Ltd.,
During the venue period, Peachtree was a limited partnership whose sole asset was an apartment complex in Webster, Texas. Peachtree ultimately was controlled by what the bankruptcy court referred to as the “Kemper Group,” a series of limited partnerships and corporate entities that eventually linked Peachtree to the Kemper Corporation. The link between the two followed this trail: Kemper/Cymrot Partners PT, Ltd., Peach-tree’s sole general partner; Kilico Realty Corporation, Kemper/Cymrot’s sole general partner; KFC Portfolio Corp., Kilieo’s parent company; Kemper Financial Companies, Inc., KFC Portfolio’s parent company; and Kemper Corporation, Kemper Financial’s parent company. All of these Kemper entities were headquartered in Chicago or Long Grove, Illinois.
Peachtree’s day-to-day operations during the venue period were managed by Western National Securities (“Western National”), an entity based in Orange County, California. Kemper executives in Illinois made the decision to hire Western National approximately one month before the start of the venue period. The relationship between Peachtree and Western National was governed by a series of three agreements, which were negotiated and executed on Peachtree’s behalf by a Kemper executive in Chicago. Under the agreements, Western National was charged with leasing the apartments, collecting rent, paying suppliers, property taxes, and other authorized expenses, and with submitting various weekly, monthly, quarterly, and an
Kemper also took several steps to sell the Peachtree property during the venue period. Two Kemper employees prepared a packet of information about the property that Kemper then distributed to prospective purchasers during the venue period. The packet indicated that further inquiries should be addressed to a Kemper executive in Chicago. All negotiations relating to the proposed sale of the property were handled by Kemper executives or Kemper’s outside legal counsel in Chicago. Kemper’s Real Estate Investment Committee was required to approve any sale of the property, and all four of the Committee’s members were located either in Chicago or Long Grove, Illinois. During the venue period, the Investment Committee approved the pursuit of a proposed sale to Equity Residential. At a later meeting, the Investment Committee approved the proposed sale itself and set a minimum price Kemper would accept for the property. The proposed sale to Equity Residential was never consummated, however, and Kemper eventually sold the property to another purchaser in connection with Peachtree’s bankruptcy.
Kemper executives in Chicago also made a series of decisions with respect to Peach-tree’s largest secured creditor — Smith Barney Mortgage Capital Group. Smith Barney held a secured note on the property that was scheduled to mature on April 1, 1994, and two Kemper executives decided that Peach-tree would not pay the note when -due. Smith Barney sent Peachtree a proposed forbearance agreement, and Kemper and its outside counsel then attempted to renegotiate certain terms of that agreement. A Kemper executive, in consultation -with counsel, ultimately decided that Peachtree would not execute the forbearance agreement. When Smith Barney then threatened to foreclose on the property, Kemper executives in Chicago decided that Peachtree should file a petition in bankruptcy. Neither Peachtree’s on-site employees nor anyone at Western National was consulted on that decision.
At the same time that Kemper employees were engaged in these activities in Chicago and Long Grove, Illinois, Western National was managing Peachtree’s day-to-day operations in Texas. Billi Crowley served as the resident manager of the apartment complex during the venue period, and she supervised several other on-site employees. Crowley was responsible for marketing the apartment complex to prospective tenants, leasing the apartments, collecting rents, and preparing Peachtree’s monthly operating reports. In conjunction with Western National’s regional manager, who was based in Atlanta, Crowley made the decision to increase rents at the complex. She also approved the payment of bills to Peachtree’s suppliers, most of whom were located in Texas. Peachtree’s bills were paid out of bank accounts maintained either in Texas or California. On the larger financial issues, however, Crowley had no involvement. 1 In fact, she was unaware of whether Peachtree made or lost money in any given period. She merely attempted to operate the property within the budget provided to her.
Given all of these facts, the bankruptcy court found that Peachtree’s principal place of business was located in the Northern District of Illinois because it was there that the debtor’s significant business decisions during
II.
Our analysis of the venue issue begins, naturally, with the language of the statute at issue. Section 1408 provides that a case under Chapter 11 of the Bankruptcy Code may be commenced in 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. Subsection (2) of the venue statute is inapplicable here, as there is no pending Chapter 11 proceeding involving an entity or individual affiliated with Peachtree. All parties agree, therefore, that venue in this case must be determined solely by reference to subsection (1). Neither Peachtree nor the Granaders have ever suggested that as a limited partnership, Peachtree has a domicile or a residence for purposes of § 1408(1).
See
1
Collier on Bankruptcy
¶ 4.01[2][d], at 4-7 (15th ed. 1998) (“[I]t is difficult to see how a partnership can be said to have a residence or domicile.”);
see also In re Vienna Park Properties,
Because Peachtree filed its Chapter 11 bankruptcy in the Northern District of Illinois, venue in that district is presumed to be proper, and the party challenging venue bears the burden of establishing by a preponderance of the evidence that the ease was incorrectly venued.
See In re Manville Forest Prod. Corp.,
Considerable portions of the parties’ briefs are devoted to whether the principal place of business of a limited partnership like Peachtree is the place where its management or supervisory decisions are made, or the place where the entity conducts its business on a day-to-day basis. The parties view that question as central because the bankruptcy court found in this case that Peachtree’s day-to-day operations during the venue period were conducted in Texas but that its management decisions were made in the Chicago area. In light of those findings, it appears that Peachtree has at least two important places of business, but § 1408(1) requires a choice as to which is the
principal
place of business. In analyzing the use of the same phrase in the Internal Revenue Code, the Supreme Court looked to the ordinary dictionary definition of the word “principal.” The Court found that a taxpayer’s “principal” place of business is the “ ‘most important, consequential, or influential’ ” place where he conducts business.
Soliman,
We begin with the Granader’s contention that the Supreme Court already resolved this issue in their favor in
Royal Indemnity Co. v. American Bond & Mortgage Co.,
To begin with, the Supreme Court’s own description of the issue to be resolved in Royal Indemnity demonstrates that the question presented there was not the same as the one we face here:
Has the location where a corporation maintained its main office and transacted most of its business ceased to be the principal place of business for the purposes of jurisdiction in bankruptcy if, during the greater portion of six months preceding the filing of the petition, the company’s assets and affairs were in [the] custody and control of equity receivers?
The argument ignores the practical purpose of the statute as applied to such a situation. The decree in equity and its execution by officers of the court did not change the ownership of the assets or of the business. The corporation continued to have the only business owned before the appointment of receivers, though the actual conduct of its operations was for the time being vested in the court’s appointees. Its corporate existence and functions as a corporation continued. Whether its affairs were in the course of winding up or were being managed in the hope of restoration of full control to the corporate agencies is immaterial. Until a winding up had been effected the business formerly conducted by the company in Chicago continued to be the respondent’s business and not that of another, and the place where that business was conducted, whether by receivers or by the corporate officers, still remained the “principal place of business,” in the common acceptation of the phrase. In these days of corporate activity it is not unusual for a company chartered in one of the states to conduct most, if not all of its business in another state far removed from that of incorporation. Considerations of convenience no doubt prompted the Congress to permit the initiation of a bankruptcy in the state where the business is in fact transacted rather than that of the domicile, where often none is done.
Id.
at 168-69,
It is evident, then, that the
Royal Indemnity
decision has little if anything to do with the issue presented here. The Court in that case assumed that the debtor corporation had its principal place of business in the Northern District of Illinois, presumably because its main office was in that district and the corporation transacted most of its business there as well, and proceeded to consider whether that remained the case after a receiver was appointed to operate the business.
See Hamilton Gas Co. v. Watters,
The most comprehensive treatment we have found of the issue presented here is the Fifth Circuit’s discussion in
In re Commonwealth Oil Ref. Co.,
Prior to the adoption of the current Chapter XI venue provision in 1973, Section 2(a)(1) of the Bankruptcy Act, 11 U.S.C. § 11(a)(1), limited venue for Chapter XI cases to the corporation’s principal place of business. Chapter X of the Bankruptcy Act, on the other hand allowed for venue in both the district where the corporation maintains its principal place of business or its principal assets. Rule 116(a)(2) changed the Chapter XI venue provision to conform to Chapter X’s standards. The change is significant for at least two reasons. First, it sheds some doubt on the validity of old case law construing Chapter XI’s prior venue statute. Second, the change indicates an intent to expand the districts where a Chapter XI debtor may file by appreciating the fact that a debtor’s principal place of business is not necessarily at the same location as its principal assets.
Id. at 1244-45 (footnotes omitted). The court observed that given these expanded venue options, “it is no longer necessary to choose between the places of production and management.” Id. at 1245. Although the location of a debtor’s production facilities is still relevant to the principal place of business inquiry, it is less significant than before “because the location of the debtor’s principal assets is now an independent basis of venue.” Id. In the end, although the principal place of business inquiry is primarily a factual one on which the bankruptcy court must be given considerable latitude, the Fifth Circuit found that it is likely the place where general operations are supervised. Id. at 1246-47. As such, the Fifth Circuit concluded that the bankruptcy court did not clearly err in finding that Commonwealth Oil’s principal place of business was in San Antonio, not Puerto Rico. Id. at 1247.
Like a number of bankruptcy and district courts, we find
Commonwealth Oil’s
discussion of the issue persuasive.
See Peachtree,
When a single asset real estate entity files a petition under chapter 11, the case is not likely to be about renegotiating the individual lease or deciding to increase rent $25.00 a month. The typical chapter 11 case for a single asset real estate entity is about raising new capital, renegotiating loan terms, or, if that cannot be done, attempting to “cram down” a plan on the secured creditors, or selling the asset. In determining where venue is proper in such a case, courts therefore look to where those persons who will make those key decisions are located.
In re Peachtree Lane Assoc.,
The Granaders nonetheless contend that
Commonwealth Oil’s
rationale is flawed because the Fifth Circuit there suggests that the phrase “principal place of business” in the more recent versions of the Chapter 11 venue provision, where it is accompanied by “principal assets,” has a different meaning than the identical phrase in the 1898 version. According to the Granaders, nothing in the legislative history or in the amended venue provisions themselves suggests that “principal place of business” was intended to mean, in the presence of “principal assets,” anything other than what it meant when the phrase stood alone. The Granaders’ argument is premised, of course, on the assumption that the phrase had a clearly established meaning in the venue provision’s earlier incarnation — that is, that it was consistently interpreted by the courts to mean the location of the debtor’s production facilities or its day-to-day operations, rather than the location of its executive offices. The Granaders recognize that this assumption underlies their argument, but they point to the Supreme Court’s
Royal Indemnity
decision as proof that the assumption is a valid one. But as we explained previously, the Supreme Court was not required to choose between two such competing locales in
Royal Indemnity.
The Court there addressed only whether the appointment of a receiver to operate a failing business meant that the debtor ceased to conduct any business in the place that previously had qualified as its principal place of business.
See Royal Indemnity,
the courts were divided on the question whether a debtor’s principal place of business is located in the district where the debtor maintains its general executive offices or in the district where the debtor operates its production facilities. Although all courts agreed that the location of a debtor’s principal place of business is a question of fact, either production or management facts were emphasized, depending on the circuit’s preference.
[TJhe corporate headquarters and offices are not necessarily the principal place of business of a corporation. The determination to be made is one of fact as to where, in the main, the corporation does its business. The factors set forth herein were before the Oklahoma court, and that court determined [the debtor’s] principal place of business was not in Oklahoma. We are not persuaded the court’s determination was clearly erroneous.
Id.
at 452 (citations omitted);
see also In re Great Lakes Hotel Assoc.,
For all of these reasons, then, we find that Peachtree’s Chapter 11 proceeding was properly filed in the Northern District of Illinois.
III.
The other issue raised by the Granaders, although garnering less attention in their brief than the venue question, is also an important one — whether the lower courts properly found that the Granaders lost their right to a jury trial under the Seventh Amendment when they filed counterclaims which stood as a proof of claim in Peachtree’s bankruptcy. Peachtree filed its adversary complaint on August 31, 1994, and Peachtree sought in that complaint a declaration of the parties’ rights under the easement agreement as well as injunctive relief. On September 12,1994, the Granaders answered the adversary complaint and submitted a jury demand, twenty-six affirmative defenses, a six-count “conditional” counterclaim, and a motion to dismiss the adversary complaint or to transfer venue.
5
The following day, the Granaders filed a motion to withdraw the reference, arguing that due to their jury demand, the district court rather than the bankruptcy court should preside over the adversary proceedings. While the Granad-ers’ motions to dismiss or to transfer and for withdrawal of the reference were pending, Peachtree moved to dismiss the counterclaims because the Granaders had not filed a claim in the bankruptcy proceedings prior to .the September 6, 1994 bar date. The Gra-naders responded that they had never received notice of the bar date, and they therefore asked the bankruptcy judge to extend the date to enable them to maintain their counterclaims. The Granaders’ motion asked in the alternative that the bar date be extended to encompass their previously-filed counterclaims, or that they be given seven additional days in which to file a proof of claim. By its order of October 25, 1994, the bankruptcy court denied Peachtree’s motion to dismiss the counterclaims while granting the Granaders’ motion to enlarge the bar date to encompass those claims. The court subsequently explained at an October 31, 1994 hearing that the Granaders’ counterclaims would stand as a proof of claim against the estate in Peachtree’s bankruptcy. In light of that claim, the bankruptcy court then struck the Granaders’ jury demand. Shortly thereafter, the district court denied the Granaders’ motion for withdrawal of the reference, finding that the Granaders were not entitled to a jury trial because they had
Like the district court, we find this aspect of the Granaders’ appeal controlled by
Langenkamp v. Culp,
In Granfinanciera [S.A. v. Nordberg,492 U.S. 33 ,109 S.Ct. 2782 ,106 L.Ed.2d 26 (1989)], we recognized that by filing a claim against a bankruptcy estate the creditor triggers the process of “allowance and disallowance of claims,” thereby subjecting himself to the bankruptcy court’s equitable power.492 U.S., at 58-59 , and n. 14,109 S.Ct., at 2799-2800 , and n. 14 (citing Katchen [v. Landy,382 U.S. 323 , 336,86 S.Ct. 467 , 476,15 L.Ed.2d 391 (1966)]). If the creditor is met, in turn, with a preference action from the trustee, that action becomes part of the claims-allowance process which is triable only in equity. In other words, the creditor’s claim and the ensuing preference action by the trustee become integral to the restructuring of the debtor-creditor relationship through the bankruptcy court’s equity jurisdiction. As such, there is no Seventh Amendment right to a jury trial. If a party does not submit a claim against the bankruptcy estate, however, the trustee can recover allegedly preferential transfers only by filing what amounts to a legal action to recover a monetary transfer. In those circumstances the preference defendant is entitled to a jury trial. [ ] Accordingly, “a creditor’s right to a jury trial on a bankruptcy trustee’s preference claim depends upon whether the creditor has submitted a claim against the estate.”
Langenkamp,
Langenkamp
clearly means that the Granaders were not entitled to a jury trial in this case. By asking the bankruptcy court to extend the bar date either to encompass their counterclaims or to enable them to file a separate proof of claim, the Granaders signaled their intention to make a claim against Peachtree’s bankruptcy estate. And once the bankruptcy court granted the request, the court properly considered the Granaders’ counterclaims as representing a proof of claim. Having requested an enlargement of the bar date, the Granaders cannot now be heard to complain that they filed no proof of claim against the bankruptcy estate. In these circumstances, we agree with the bankruptcy and district courts that the Granaders made a claim against the bankruptcy estate, thereby bringing this case comfortably within the scope of
Langenkamp. Peachtree Lane Assoc.,
The Granaders attempt to avoid Langenkamp’s holding in two ways. First, they contend that they only made a claim against the bankruptcy estate once they were sued by Peachtree in the adversary complaint, not prior to the filing of that complaint, as in Langenkamp. Second, the Granaders emphasize that their counterclaims were expressly designated as “conditional” and that they did not forfeit their right to a jury trial by making such a conditional claim. Neither argument is persuasive. On the first, nothing in
Langenkamp
suggests that it makes any difference whether the filing of the adversary proceeding precedes or follows the submission of a claim against the bankruptcy estate. In either case, the submission of the claim still would “trigger! ] the process of ‘allowance and disallowance of claims,’ ” thereby subjecting the claimant to the bankruptcy court’s equitable jurisdiction.
Langenkamp, 498
U.S. at 44,
IV.
For the foregoing reasons, we find that venue for Peachtree’s Chapter 11 bankruptcy petition was proper in the Northern District of Illinois, as that was the location of Peach-tree’s principal place of business for the 180-day period preceding the filing of its bankruptcy. We- also conclude that by filing counterclaims that in the circumstances of this case served as a proof of claim against Peachtree’s bankruptcy estate, the Granad-ers submitted themselves to the equity jurisdiction of the bankruptcy court and thereby lost their right to a jury trial of the issues raised in the adversary proceeding and their own counterclaims. We commend Judges Barliant and Castillo for their adept handling of this hard-fought ease.
Affirmed.
Notes
. Western National personnel in California did most of the accounting and financial reporting work for the property.
. Having found venue proper in the Northern District of Illinois, Judge Bariiant then considered and denied the Granaders’ motion to transfer the adversary proceeding to the Southern District of Texas. See 28 U.S.C. § 1412. The Granaders have not pursued the transfer issue in this appeal.
. The statute at issue in
Royal Indemnity
provided jurisdiction to " 'adjudge persons bankrupt who have had their principal place of business, resided, or had their domicile’ within the court's territorial jurisdiction 'for the preceding six months, or the greater portion thereof.’ ’’
Id.
at 167-68,
. As Judge Barliant explained it:
It is unfortunately true that the simple adversary proceeding involving a few parking spaces and an easement has become the principal activity in this case. Nevertheless, the core of this bankruptcy case is not the Granaders’ fanatic defense of their right to trespass, but the sale of the property and payment of creditors. That was achieved through the vehicle of a chapter 11 plan. All the negotiations, judgments, and decisions leading to that plan were made, on the Debtor's side, by people whose offices are in this district.
Id.
. The Granaders styled the counterclaims as “conditional” because they intended to bring them only if their motion to dismiss or to transfer was denied. The Granaders stated that by filing the counterclaims, they did not intend to waive arguments advanced elsewhere relating to jurisdiction, venue, and their right to a jury trial.
. In light of our conclusion that the Granaders’ counterclaims were properly viewed as standing