By Nick Brown 

When U.S. Bankruptcy Judge Shelley Chapman relinquished the reins on Patriot Coal's bankruptcy on Tuesday, transferring the case from her Manhattan courtroom to St. Louis, she invoked something rarely seen in technical rulings on jurisdiction: the messy quest for justice.

Chapman began her written treatise by asking "What is justice?" She devoted the next 55 pages to crafting an answer that looked beyond the literal language of the case law -- an unusual tack in bankruptcy court.

As Chapman recounted in her ruling, Patriot is a St. Louis-based coal mining company with no New York operations. Early this summer, the company incorporated two minor subsidiaries in New York. About a month later, in July, Patriot filed for bankruptcy in Manhattan federal court, citing those two New York subsidiaries.

Why would Patriot opt for bankruptcy court in the Southern District of New York? Because Manhattan is perceived as having the nation's most sophisticated judges and case law, as well as most of the high-profile lawyers, bankers and advisors who work on major cases. Debtors and financial creditors often see Manhattan as providing them with the highest and most efficient recoveries.

But Patriot's primary union, the United Mine Workers of America, quickly sought a transfer, accusing the company of manufacturing a venue. The union wanted the case moved to West Virginia, where about half of its members live and many of the company's operations are based. The Justice Department, via the U.S. Trustee, also accused Patriot of forum shopping and asked Chapman to transfer the case out of Manhattan, although no alternative court was suggested.

The rules of venue in bankruptcy are fairly simple: A company can file in any jurisdiction in which it has a place of business or in which an affiliate has filed for bankruptcy. Patriot was within the letter of the law when it filed in Manhattan, as its lawyers at Davis Polk & Wardwell pointed out in responses to the union and the U.S. Trustee. But after an extraordinary two-day, 16-hour hearing that was broadcast by live video feed to courtrooms in West Virginia and St. Louis, Chapman sided with the U.S. Trustee. Patriot's choice of venue, she concluded, didn't pass the smell test. The company's 11Th-hour formation of two nominal units did not serve "the interest of justice," the judge wrote in Tuesday's ruling.

Chapman's beef seemed to be not with Patriot but with the venue rule itself. Finagling a way to file in New York's Southern District might have been "entirely consistent with, or even required by, the debtors' fiduciary duty," Chapman said. Nevertheless, she added, it was "simply not fair" and "not the thing which the statute intended."

Waxing philosophical, Chapman quoted the legendary 2nd Circuit Court of Appeals jurist Learned Hand who, in a 1934 case, wrote that "the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes." Interpreting the venue statute literally, Chapman said, "would allow potential large corporate debtors to choose what they view as the optimal venue for their bankruptcy cases," a scenario she characterized as "an affront" to the statute's purpose.

(For the record, a bill to heighten venue standards was presented to Congress in 2011 but was not enacted. The American Bankruptcy Institute, an industry trade group, has established a commission to consider major overhauls of Chapter 11, part of which could include changes to the venue rules.)

Chapman's ruling was arguably more critical of the UMWA -- which is gearing up for a bitter fight to salvage pension and healthcare benefits that Patriot has said it may have to cut -- than of Patriot. She lambasted the union's bid to move the case to West Virginia, which she viewed as an attempt to steal "home field advantage."

"It is not in the interest of justice merely to swap one party's perceived home field advantage for another," the judge said, citing court hearings in which union lawyers expressed a desire for judges who "understand" coal miners, who "worship with them and break bread with them." (A spokesman for the union, which is represented by Kennedy Jennik & Murray, declined to comment on the judge's criticism.)

Despite her disregard for the union's home-court arguments, the judge seems to have been swayed by the mine workers themselves. Chapman said that she might have ruled differently if only the U.S. Trustee, which is not an economic stakeholder in the case, had sought a transfer. She cited 386 letters sent to the court from current and former union members, calling them "respectful and compelling," and noting that it's important to take into account union workers' desires to participate in a case that "will fundamentally affect their lives." She said her decision on venue involved finding "a just and balanced solution" to the question of which court would be the custodian of the workers' letters.

Chapman ended the opinion on a bittersweet note. "As it would have been a great privilege to preside over these cases, it is with considerable regret that the court concludes that the Patriot chapter 11 cases shall be transferred," she said.

Privilege? Regret? Justice?

And you thought bankruptcy was all dollars and cents.

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