Many readers of this blog will be well aware that “venue shopping” – usually to a known, “debtor-friendly” jurisdiction such as Delaware or the Southern District of New York – is a common feature of Chapter 11 practice. For those who may not be, the primary idea is that the debtor’s management, looking to increase the likelihood of a successful reorganization, often identifies a “debtor-friendly” jurisdiction and seeks to fit within the venue provisions for commencing a reorganization case there.
But though the federal venue provisions (at least as interpreted by these courts) generally make it easy to obtain access to file a Chapter 11 case, not every such case filed in New York or Delaware stays there without a fight from one or more creditors who disagree with the debtor’s choice of forum.
Last week, another example of creditors disagreeing with the debtor’s choice of forum - in the strongest possible terms – presented itself in the recently-filed Chapter 11 bankruptcies of Rock & Republic Enterprises, Inc. and Triple R, Inc.
The purveyors of high-end jeans sought Chapter 11 protection on April 1 in Manhattan. Though the bulk of their management and facilities – and their creditors – are located in the Los Angeles metropolitan area, the companies opted for an East Coast venue, each citing a single office – and a showroom – as the basis for their request to reorganize in New York’s Southern District.
The companies’ primary secured creditor, RKF, LLC, wasn’t pleased. It immediately filed an “Emergency Motion to Transfer Venue” to the Central District of California, alleging:
- The companies’ status as California corporations;
- The companies’ management offices, books and records, and address for service of process are in the Los Angeles area;
- All but 2 of 10 of the companies’ leased premises are in the Los Angeles area;
- 16 of the companies’ top 25 creditors are based in Los Angeles (only 2 are in New York); and
- 9 of 14 litigation matters involving the companies are being heard in California.
On Friday, RKF was joined by Zabin Industries, Inc. Zabin is one of the companies’ self-described “larger unsecured creditors” and is also based in Southern California.
No word yet on a date for the hearing on RKF’s “Emergency Motion” – as of this writing, presiding Judge Arthur Gonzales hadn’t set one. Meanwhile, the Judge has set an accelerated hearing date on the companies’ request to reject an exclusive distribution agreement with Richard I Koral, Inc. (dba “Jessica’s”), the companies’ present off-price distributor.