I'm Being Sued Where? Venue of Small Preference Actions Revisited
This post involves a little bit of my creditor's counsel hat, and a little bit of my trustee's hat. Stated otherwise, I've done it to others, and, I've had it done to me.
Prior to the BAPCPA amendments in 2005, a trustee could file a complaint to recover a preference in the district in which the bankruptcy case was filed, notwithstanding the residence of the defendant. As a trustee in Chapter 7 cases, I can assure you that a perpetual home court advantage was an enormously powerful tool. Most creditors simply could not afford to come to Alabama Middle to litigate a small preference action.
Well, Congress in its infinite wisdom, and no doubt with the influence of a few lobbying dollars, changed all that in 2005. The law now reads as follows:
(b) Except as provided in subsection (d) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case to recover a money judgment of or property worth less than $ 1,100 or a consumer debt of less than $ 16,425, or a debt (excluding a consumer debt) against a noninsider of less than $ 10,950, only in the district court for the district in which the defendant resides.
In a nutshell, if a trustee wants to seek recovery of a preference involving a consumer debt of less than $16,425, or, a non-consumer debt of less than $10,950, the action must be filed in the district where the defendant resides. Or, must it?
Back in 2008, in the case of In re Rosenberger, 400 B.R. 569 (Bankr. W.D. Mich. 2008), the court held that the venue limitations of 28 U.S.C. Section 1409(b) did not apply to preference actions. Here is the problem.
Section 1409(a) provides as follows: (a) Except as otherwise provided in [**3] subsections (b) and (d), a proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending.
Section 1409(b) provides as follows: (b) Except as provided in subsection (d) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case to recover a money judgment of or property worth less than $ 1,100 or a consumer debt of less than $ 16,425, or a debt (excluding a consumer debt) against a noninsider of less than $ 10,950, only in the district court for the district in which the defendant resides.
Note that in (a), the statute employs the terms "arising under" and "arising in or related to." But, subsection (b) uses only the terms "arising in or related to." Since a preference action is an action "arising under" the Bankruptcy Code, and since subsection (b)'s limitations apply to cases "arising in or related to", Congress must not have intended the limitations to apply to venue actions.
The Rosenberger decision is certainly not a new development. It was not appealed, however, nor has it been cited negatively by other courts. As of this writing, I haven't had occasion to raise the argument, nor has it been raised against me. I mention it only for the purpose of pointing out that the venue limitations of 28 U.S.C. Section 1409(b), believed by many to be a protection against small preference actions, may not be much protection.
