Which Venue Transfer Statute Applies to Non-Core Suits in District Court?

If a lawsuit in federal district court may relate to a pending bankruptcy in another district, which change-of-venue statute should the district court employ in deciding whether to send the suit elsewhere?

And, should the district court decide whether the bankruptcy court would have jurisdiction?

These are among the questions answered in a November 6 opinion by District Judge Ed Kinkead of Dallas.

A bankruptcy in another district included an adversary proceeding dealing with ownership of an internet domain name. Later, one non-debtor third party sued another non-debtor third party in district court in another district, also related to ownership of the domain name. The defendant in district court sought a change of venue, intending to lodge the suit in the bankruptcy court in the other district.

Judge Kinkead concluded that the suit in his court at least could have “conceivable effect” on the bankruptcy case and therefore could fall within the bankruptcy court’s “related-to” jurisdiction under 28 U.S.C. § 1334(b).

Judge Kinkead began by laying out the differences in the two potentially applicable statutes.

The general transfer-of-venue statute, 28 U.S.C. § 1404(a), allows a district court to “transfer any civil action to another district where it might have been brought,” for “the convenience of parties and witnesses, in the interest of justice.”

The bankruptcy change-of-venue statute, 28 U.S.C. § 1412, permits the court to “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.”

Judge Kinkead pointed out the differences in the two venue statutes: (1) The general statute allows the court to transfer “any civil action,” while the bankruptcy statute only pertains to “a case or proceeding under title 11”; (2) the general statute authorizes a change only to a “district or division where it might have been brought,” while the bankruptcy statute has no similar limitation; and (3) the general statute requires a showing of convenience of the parties and the interest of justice, while the bankruptcy statute requires a showing of one, not both.

Under the bankruptcy statute, there is another threshold question: Does the reference to “a case or proceeding under title 11” only permit transferring venue of “core” proceedings, or does it permit transfer when the suit in bankruptcy court would be “non-core”?

Although the Fifth Circuit has not spoken, Judge Kinkead followed decisions in his district to conclude that the bankruptcy venue statute permits changes of venue in non-core suits.

Under the bankruptcy transfer statute, the defendant wanted the district court suit sent to the bankruptcy court in the other district. Judge Kinkead decided that he only had power to transfer suit to the other district court, where the local rules would refer the suit to the bankruptcy court. Because he would only transfer the suit to another district court, Judge Kinkead said there was no question about the subject matter jurisdiction of the transferee district court.

However, the plaintiff argued that the suit would not be within the jurisdiction of the bankruptcy court once there was a reference to the bankruptcy court under the local rules. Judge Kinkead therefore confronted the question of which court should decide whether the bankruptcy court has jurisdiction.

Although the apparent “related-to” jurisdiction was enough for Judge Kinkead to invoke the bankruptcy transfer statute, he ruled that the bankruptcy judge was “better suited to determine the related issue of the scope of [the bankruptcy court’s] jurisdiction.” He therefore allowed the transferee bankruptcy court to “make the ultimate decision regarding whether it has jurisdiction over this dispute.”

Applying the standards under Section 1412, the bankruptcy transfer statute, Judge Kinkead easily decided that transfer was appropriate to prevent one court from stepping on the toes of the other, and to promote the “economic and efficient” resolution of the disputes over ownership of the domain name.

For belt and suspenders, Judge Kinkead also applied the standards under the general statute. In the process, he determined that the suit could have been brought in the other district because it was related to the bankruptcy and because the defendant resided in that district. 

Applying the standards under Section 1404(a), Judge Kinkead also concluded that a transfer was permissible under the general statute, especially because the bankruptcy court was already “more familiar with the underlying facts.”