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Giuliano v. CDSI I Holding Co., Inc.

United States District Court, E.D. Pennsylvania

March 17, 2014

ALFRED T. GIULIANO, as Chapter 7 Trustee for the jointly administered Chapter 7 estates of Debtors,
CDSI I HOLDING COMPANY, INC., et al. Defendants. DSI Renal Holdings LLC, DSI Hospitals, Inc. and DSI Facility Development, LLC Plaintiffs,


CYNTHIA M. RUFE, District Judge.


Plaintiff is the Chapter 7 Trustee for the jointly administered estates of DSI Renal Holdings LLC, DSI Hospitals, Inc., and DSI Facility Development, LLC ("the Debtors").[1] The Debtors' bankruptcy case is pending in the United States Bankruptcy Court for the District of Delaware.[2] Plaintiff has filed suit here against numerous Defendants, seeking "(a) to avoid as fraudulent transfers various transactions, transfers and agreements... and (b) to recover in excess of $425 million from the Defendants who include transferees of the fraudulent transfers, officers, directors and/or controlling shareholders who orchestrated, implemented and profited from" the alleged wrongdoing.[3] The Complaint alleges a complex scheme to strip the Debtors' assets and to shield those assets from the claims of creditors and asserts the following claims:

First Claim: Avoidance of Transfers Pursuant to 11 U.S.C. § 548(a)(1)(A)
Second Claim: Avoidance of Transfers Pursuant to 11 U.S.C. § 548(a)(1)(B)
Third Claim: Avoidance of Transfers Pursuant to 6 Del. C. §§ 1304 & 1305, and 11 U.S.C. § 544
Fourth Claim: Recovery of Transfers under 11 U.S.C. § 550
Fifth Claim: Breach of Fiduciary Duty
Sixth Claim: Aiding and Abetting Breach of Fiduciary Duty
Seventh Claim: Corporate Waste
Eighth Claim: Declaratory Judgment
Ninth Claim: Equitable Subordination under 11 U.S.C. § 510[4]

Defendants, none of whom are incorporated in, or residents of, Pennsylvania, [5] have filed motions seeking to dismiss the case for improper venue or to transfer it to the United States District Court for the District of Delaware, as well as motions to dismiss the claims on substantive grounds. Because the Court concludes that the case is properly litigated in Delaware, not in this Court, only the venue motions will be addressed here.


In seeking dismissal pursuant to Federal Rule of Civil Procedure 12(b)(3), Defendants bear the burden of showing improper venue.[6] "In considering a motion to dismiss for improper venue... the court must generally accept as true the allegations in the Complaint, although the parties may submit affidavits in support of their positions."[7] But the Court must "draw all reasonable inferences and resolve all factual conflicts in the plaintiff[']s favor."[8]

Venue in bankruptcy cases is governed by statute, which provides in relevant part:

(a) Except as otherwise provided in 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.
(c) Except as provided in subsection (b) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case as statutory successor to the debtor or creditors under section 541 or 544(b) of title 11 in the district court for the district where the State or Federal court sits in which, under applicable nonbankruptcy venue provisions, the debtor or creditors, as the case may be, may have commenced an action on which such proceeding is based if the case under title 11 had not been commenced.[9]

Some clarification of these terms may prove helpful. A "case under title 11" is the bankruptcy petition itself.[10] A proceeding "arising under" a title 11 case "refers to the steps within the [bankruptcy petition] case and to any sub-action within the case that may raise a disputed legal matter."[11] A proceeding "arising in" a title 11 case refers "to proceedings that are not based on any right expressly created by title 11, but nevertheless would have no existence outside the bankruptcy case."[12] A proceeding is "related to" a title 11 case if its outcome "could conceivably have any effect on the estate being administered in bankruptcy."[13] The bankruptcy petition and proceedings "arising under" it and "arising in" it are referred to as "core" proceedings, and "related to" proceedings are referred to as "non-core" proceedings.[14] A non-core proceeding "does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy."[15]


Plaintiff asserts that venue is proper in this District pursuant to § 1409(c), because the fraudulent transfer and other state-law claims have been brought in Plaintiff's capacity as "statutory successor to the... creditors" and non-bankruptcy venue law supports the choice of this forum. As Defendants do not reside in Pennsylvania, the general venue statute requires that a "substantial part of the events or omissions giving rise to the claim [have] occurred" in this District.[16] To determine substantiality, the Court must evaluate the nature of the claims, the events that gave rise to them, and where those events or omissions occurred.[17] The events or omissions must "bear a close nexus" to the claim.[18]

This case unquestionably could have been filed in Delaware, [19] but Plaintiff argues that venue is appropriate in this District because numerous creditors of the Debtors are located here, [20] because Defendants' alleged actions delayed claims of creditors of Bucks County Hospital, located within this District, and because one of the Defendants, Northwestern Mutual Life, regularly conducts business in this District.[21] Defendants argue that almost none of the events at issue occurred in Pennsylvania, but the Court is limited to the present record, which includes only the Complaint. The Complaint does not identify where many of the events at issue occurred, but does allege fraud in connection with the obligations of facilities located in this District.[22] Because venue may be laid in more than one district and because Defendants have not shown that the claims have the closest nexus to a particular forum other than this one, [23] the Court cannot conclude that Defendants have carried their burden of establishing improper venue as to the statutory successor claims.

Even though the statutory successor claims may be brought in this District, that does not settle the matter of the core bankruptcy claims, for which independent venue exists only in the District of Delaware. Plaintiff seeks to bring these claims along under the doctrine of pendent venue, under which "a federal court may in its discretion hear pendent claims which arise out of the same nucleus of operative fact as a properly venued federal claim, even if venue of the pendent claim otherwise would not lie."[24] However, pendent venue, which is an exception to the general rule that venue must be proper as to each claim, [25] does not support bringing all claims in a forum because venue is proper as to some claims, as Plaintiff urges.[26] Instead, when

a party advocates exercise of pendent venue over an additional federal claim which is subject to its own specific venue provisions, courts have generally taken one of two approaches. First, some courts have found that the more specific venue provisions control, and have required that the case be brought in a venue which satisfies the more specific statute. Second, ... some courts determine which of the two federal claims is the "primary" claim, and apply the venue statute applicable to that claim.[27]

Under either of these approaches, the Court finds that it would not be a proper exercise of discretion to allow the claims arising under the bankruptcy case to be brought in this District. The "more specific statute" applicable here is § 1409(a), which limits the venue for these claims to the home of the bankruptcy.[28] Under the second approach, although it is not immediately apparent from the Complaint whether the core or non-core proceedings should be considered "primary" for purposes of establishing federal court venue, the Court concludes that just as courts generally do not apply the doctrine of pendent venue in cases brought pursuant to the Court's diversity jurisdiction, [29] under the circumstances of this case it would not be proper to allow the state-law claims to predominate over the bankruptcy-based claims.[30] It would not serve the administration of justice to exercise jurisdiction over the core proceedings when those proceedings lack an independent basis for venue.

That leaves the question of how to proceed. The Court could dismiss the core proceedings (which presumably would then be filed where venue is proper) or transfer them to the District of Delaware and proceed with the statutory successor claims in this Court.[31] The Court determines instead that both the interest of justice and the convenience of the parties will be served by the transfer of all claims to the District of Delaware.[32] To do otherwise would force all parties to litigate the claims in two different courts, requiring a duplication of effort both by the parties and the courts involved that would provide no appreciable benefit whatsoever, and many drawbacks.[33]


Plaintiff does not dispute that the action could have been filed in the District of Delaware, and that venue as to all claims would be proper in that court. Because venue as to all claims is proper in Delaware and not in this Court, and because consideration of the merits of the case will require the adjudication of claims that are closely related to the bankruptcy and the administration of that case, the case will be transferred. An order will be entered.

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