Without a motion by a creditor or party in interest, the bankruptcy court with the first bankruptcy case has the right, sua sponte, to transfer venue of a subsequently filed case by the same debtor or an affiliate to the district where the first case was filed.

That’s among the features of Bankruptcy Rule 1014(b) that Bankruptcy Judge Christopher M. Klein of Sacramento, Calif., discussed in his February 6 opinion. He stressed the role that Rule 1014(b) can play in “preventing abusive litigation practices.”

In late 2023, a corporate debtor filed a chapter 11 petition in Judge Klein’s court in the Eastern District of California. An individual was the debtor’s 25% owner and lived in an expensive home that was the debtor’s principal asset. After appointing a chapter 11 trustee, Judge Klein modified the automatic stay to permit foreclosure by the secured lender.

After obtaining a judgment of foreclosure, the lender filed an unlawful detainer action calculated to evict the 25% owner. The day before the sheriff was scheduled to evict the 25% owner, she filed a chapter 13 petition in the Southern District of California. The chapter 13 filing prevented the sheriff from evicting the 25% owner.

One week into the chapter 13 case, the 25% owner filed a lawsuit against the lender in district court in the Southern District of California, alleging a violation of her due process rights under the Fourteenth Amendment. Denying the 25% owner’s motion to vacate the eviction, the district court noted how Bankruptcy Judge Klein had referred to the 25% owner’s “unclean hands” in trying to live “rent-free” in the property for “as long as possible.”

One day after the district court’s decision came down, Judge Klein issued an order, sua sponte, directing the 25% owner to show cause under Bankruptcy Rule 1014(b) why the chapter 13 case should not be transferred to his court. Pending a decision on the venue motion, he directed the parties not to proceed in the chapter 13 court.

Rule 1014(b) provides as follows:

If petitions commencing cases under the Code . . . are filed in different districts by, regarding, or against (1) the same debtor, (2) a partnership and one or more of its general partners, (3) two or more general partners, or (4) a debtor and an affiliate, the court in the district in which the first-filed petition is pending may determine, in the interest of justice or for the convenience of the parties, the district or districts in which any of the cases should proceed. The court may so determine on motion and after a hearing, with notice to the following entities in the affected cases: the United States trustee, entities entitled to notice under Rule 2002(a), and other entities as the court directs. The court may order the parties to the later-filed cases not to proceed further until it makes the determination.

The rule implements the bankruptcy venue transfer statute, 28 U.S.C. § 1412. “Unlike the general venue transfer statutes,” Judge Klein pointed to Section 1412 and said that bankruptcy “has its own venue transfer statute” that permits “transfer . . . to any district under the interest of justice or convenience of parties’ criteria.”

Although Section 1412 “speaks of transfer by and to district courts,” Judge Klein said that “decisional law recognizes that bankruptcy courts ordinarily do the transferring, subject to the district court’s power to withdraw the reference.” He added that the section is “unusual in that a court may order transfer to itself of a case or proceeding pending in another district.”

Citing Section 105(a), Judge Klein explained why he was not obliged to await the filing of a venue motion by a creditor, party in interest or the U.S. Trustee. In part, the subsection says:

No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.

Judge Klein therefore said that the “timely motion” requirement in Rule 1014(b) “includes the court’s own motion.” He went on to say that the “primacy of the first-filed case is a ‘bright line’ rule designating the court that will make the venue decision . . . so courts do not disrupt each other.”

The decision to transfer venue, Judge Klein said, is made in the court’s discretion and is reviewed for abuse of discretion.

Judge Klein said that decisions under Section 1412 are “more numerous” regarding “convenience of the parties” and that transfers in the “interest of justice . . . [have] attracted little explication in reported decisions.”

Turning to the case before him, Judge Klein said that the chapter 13 case fit under Rule 1014(b) because the 25% owner was an “affiliate” as defined in Section 101(2)(A). He noted that the chapter 11 case had been pending for more than a year and that there were almost 300 docket entries.

Focusing on the “interest of justice,” Judge Klein said there is “a strong interest in preventing abusive litigation practices” and noted that the district court had cautioned the 25% owner about Rule 11 sanctions.

Judge Klein held that transferring venue was “warranted in this case on account of the ‘interest of justice’ in preventing abusive litigation without reference to the ‘convenience of the parties.’” However, he went on to say that “convenience of the parties” was an “independent basis” for transferring venue since no one had argued that the Eastern District of California was an “inconvenient forum.”

Given that he permits “liberal remote access,” Judge Klein held that the “convenience of the parties” favors transfer of venue.

Judge Klein ordered the transfer of venue of the chapter 13 case to his court and that it be “related to” the chapter 11 case.