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
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
"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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