MPA's motion to change venue - equitatus

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WILLIAM McGRANE [057761]
WILLIAM WALRAVEN [262586]
McGRANE LLP
Four Embarcadero Center, Suite 1400
San Francisco, California 94111
Telephone: (415) 766-3590
Attorneys for Moving/Interested Party Development Specialists, Inc.
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
OAKLAND DIVISION
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In re:
WALTER J. NG and MARIBEL NG,
Debtors.
Case No. 11-45175
Chapter 7
MEMORANDUM OF POINTS AND
AUTHORITIES IN SUPPORT OF
DEVELOPMENT SPECIALISTS,
INC.’S MOTION TO CHANGE
VENUE
[FRBP 1014(b)(4)]
Date:
Time:
Place:
Judge:
Wednesday, January 25, 2011
2:00 PM
1300 Clay Street, Room 201
Oakland, CA 94612
Hon. Roger L. Efremsky
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Memorandum of Points and Authorities in Support of Development Specialists, Inc.’s
Motion to Change Venue
Case: 11-45175 Doc# 401 Filed: 12/19/11 Entered: 12/19/11 15:22:05 Page 1 of
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Quick Review
This is a motion for change of venue brought pursuant to Rule 1014(b)(4),
Federal Rules of Bankruptcy Procedure. The moving party is Development
Specialists, Inc. (DSI). DSI is an interested party herein based on its very recently
acquired status as an administrative creditor of an affiliate debtor entity of the
debtors herein which affiliate debtor entity named R.E. Loans, LLC. 1
DSI seeks to have this bankruptcy court change the venue of In re R.E.
Loans, LLC, United States Bankruptcy Court for the Northern District of Texas,
Case No. 11-35865 and certain related cases (collectively, the REL Bankruptcy
Case)—which REL Bankruptcy Case was first filed on September 13, 2011—
away from Northern District of Texas (TXND [where it is now before the Hon.
Barbara J. Houser]) and over to the Northern District of California (CAND [there
to be put before the Hon. Roger L. Efremsky]) who already has the BLUE cases:
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1 See Declaration of William McGrane etc. (McGrane Decl.) filed herewith at 2.
On its face, Rule 1014(b)(4), Fed. R. of Bankr. Pro. requires only “interested
party” standing as that latter term “interested party” is defined at 11 U.S.C. §1109
in order to convey sufficient standing on an entity to bring on a motion of this
kind. (See In re Lakeside Utilities, 18 B.R. 115, at 116 (Bankr. D. Neb. 1982).)
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Memorandum of Points and Authorities in Support of Development Specialists, Inc.’s
Motion to Change Venue
Case: 11-45175 Doc# 401 Filed: 12/19/11 Entered: 12/19/11 15:22:05 Page 2 of
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As the bankruptcy court in which the first filed case, to wit, the bankruptcy
court in which In re Walter J. Ng and Maribel Ng, CANB Case No. 11-45175 (the
Walter Bankruptcy Case)—which Walter Bankruptcy Case was first filed on May
12, 2011—this bankruptcy court is the appropriate bankruptcy court to hear and
decide this motion to change the venue of the REL Bankruptcy Case. This is
because the bankruptcy estate in the Walter Bankruptcy Case (the California
Debtor’s Estate or the CDE) indirectly owns 25% of the equity security interests in
the bankruptcy estate in the REL Bankruptcy Case (the Texas Debtor’s Estate or
the TDE). (See Exhibit 1 to McGrane Decl.)
This undisputed and indisputable fact makes the TDE an affiliate of the
CDE, thus making the REL Bankruptcy Case, in turn, subject to Rule 1014(b)(4)
of the Federal Rules of Bankruptcy Procedure [which rule gives the bankruptcy
judge in the first filed bankruptcy case the obligation to determine the appropriate
venue for any later filed bankruptcy case involving another entity which is an
affiliate of a debtor in the first filed bankruptcy case]. (See, e.g., Near v. Great
American etc. (In re Reddington Investments Limited Partnership), 90 B.R. 429
(9th Cir. B.A.P. 1988); see also 11 U.S.C. §101(2) and (15) [specifying the
definitions of the terms “affiliate” and “entity”].)
This motion is made pursuant to the authority contained in Rule 1014(a)(1),
Federal Rules of Bankruptcy Procedure. DSI will demonstrate, infra, that both the
interests of justice and the convenience of the parties are each best served by the
transfer of venue prayed for in this motion.
/ / /
/ / /
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Memorandum of Points and Authorities in Support of Development Specialists, Inc.’s
Motion to Change Venue
Case: 11-45175 Doc# 401 Filed: 12/19/11 Entered: 12/19/11 15:22:05 Page 3 of
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Argument
1. All Relevant Factors Require that the REL Bankruptcy Case be
Transferred from Dallas to Oakland as Requested by this
Motion.
Relying on Commonwealth etc., et. al. v. Commonwealth etc., et.al. (In re
Commonwealth etc., et al.), 596 F.2d 1239 (5th Cir. 1979), the Chief Bankruptcy
Judge of the United States Bankruptcy Court for the Southern District of New
York, the Hon. Arthur J. Gonzales—writing in In re Enron Corp., 284 B.R. 376 at
387 (Bkrptcy. S.D. NY. 2002)—outlined the various factors any bankruptcy court
should consider in determining whether to grant a change of venue in derogation
of a debtor’s initial choice of venue. These are as follows:
1. The proximity of creditors of every kind to the Court;
2. The proximity of the debtor to the Court;
3. The proximity of the witnesses necessary to the administration of the
estate;
4. The location of the assets; 2
5. The economic administration of the estate …
2 The only explanation which the TDE has ever given DSI for its initial choice of
the remote Dallas venue it chose in this case is the TDE’s hyper-technical claim
that the presence of certain promissory notes present somewhere deep in the heart
of Texas means that the TDE’s “principal assets in the United States” are located
in Dallas. (McGrane Decl. at 4.) Other than to note the scarce-to-the-point-ofnon-existent-precedent
for the TDE’s having been so bold as to file the REL
Bankruptcy Case in a jurisdiction that never had any meaningful contacts with the
TDE’s pre-petition business activities (see, generally, William McGrane, A
Creditor Strategy to Pre-Empt S.D.N.Y. Venue, ABI Journal, (June 2011 Ed.) at
FN. 5 [Exhibit 2 to McGrane Decl.]), this brief does not purport to rely on the
grounds set forth in Rule 1014(a)(2), Fed. R. Bankr. Pro. in order to obtain an
order transferring venue.
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Memorandum of Points and Authorities in Support of Development Specialists, Inc.’s
Motion to Change Venue
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A. Location of Creditors.
As the below chart (itself drawn from the TDE’s Amended Schedule D
[Exhibit 3 to McGrane Decl.]) shows, the creditors of the TDE’s are located as
follows:
Location of Scheduled
Creditors
Number of Scheduled
Creditors per Location
Scheduled Amounts
Owed to Scheduled
Creditors
California 2,644 782,219,267.72
Texas 8 68,295,892.23
Other States and
foreign countries
152 33,921,964.60
B. Location of the TDE.
The TDE was located, pre-petition, in Lafayette, California. (See Exhibit 4
to McGrane Decl.) The TDE is presently administered by Mackinac Partners from
a location in Michigan. (See Exhibit 5 to McGrane Decl.) The TDE’s lead
bankruptcy counsel, Stutman, Treister & Glatt P.C. (Stutman), is located in
California. (Id.)
C. Location of the TDE’s Witnesses.
The witnesses in the REL Bankruptcy Case are mainly the same persons
and entities as make up the creditor body in the REL Bankruptcy Case. This is
particularly so in light of the various pending allegations/criminal investigations
arising from the fact that the REL Bankruptcy Case has many elements of a
massive Ponzi that has now entirely devastated the financial lives of literally
thousands of California citizens. (See, e.g., Exhibit 6 to McGrane Decl.)
/ / /
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Memorandum of Points and Authorities in Support of Development Specialists, Inc.’s
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D. Location of the TDE’s Assets.
While, as previously noted, the multiple promissory notes which evidence
the obligations of the TDE’s own debtors to pay the TDE money have now, very
designedly, come to rest deep in the heart of Texas, the real property security for
those multiple promissory notes lies within the geographical boundaries of many
different places. Very, very few of which are either in or anywhere near Texas.
See the TDE’s Schedule A and Amended Schedule B (Exhibits 7-8 to McGrane
Decl.).
E. The Economic Administration of the TDE.
Given the entirely California-centric nature of the REL Bankruptcy Case,
administration of that case in conjunction with the other six related bankruptcy
cases either now or shortly to be before this bankruptcy court is what is most
“economic” for all parties and the bankruptcy courts.
But that is not all. In fact that is not nearly all. Rather, and absent a
change of venue, the REL Bankruptcy Case will very likely wind up being
dismissed as having been filed without authority in the first instance, a situation
that would be the very antithesis of the economic administration of the TDE. 3
3 There is one critical exception to the absolute rule, described, infra, which
normally requires immediate dismissal of all ultra vires filings, and that exception
may well wind up as a saving grace that is applicable here. Thus, many cases hold
that an ultra vires filing may still be saved, post-petition, by means of a ratification
by the person or entity holding the needful but not given pre-petition authority—in
the case of the REL Bankruptcy Case filing, this would be the CDE, which CDE is
here represented by a Chapter 7 trustee. (See In re Avalon Hotel Partners, LLC,
302 B.R. 377, at 381 (Bankr. D. Ore. 2003.) As is set forth in the McGrane Decl.
at 12, DSI was told prior to filing this motion by lead counsel for the CDE that
the CDE will not ratify the ultra vires filing of the REL Bankruptcy Case postpetition
pending receipt of (i) further input from the various constituencies in the
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Memorandum of Points and Authorities in Support of Development Specialists, Inc.’s
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Thus, while the REL Bankruptcy Case was allegedly authorized by the
TDE’s sole member and manager, B-4 Partners LLC (B4) by and through a B4
manager named Kelly Ng (Kelly) (see Exhibit 9 to McGrane Decl.), according to
both the B4 Operating Agreement and an “Application etc.” filed by Stutman to
employ the present REL manager, Mackinac Partners—and as of September 12,
2011 (the REL Bankruptcy Case Petition Date)—Kelly was then (on the REL
Bankruptcy Case Petition Date) only one of what were in fact two then serving
B4 Partners. (See Exhibit 5 to McGrane Decl. at 19 at page 9; see also Exhibit 1
to McGrane Decl. at Exhibit A to First Amendment etc.) The CDE was the other
manager of B4 as of the REL Bankruptcy Case Petition Date. 4
Exhibit 1 to McGrane Decl. at Article 4, section 4.2(a)(iv) reads, in
Walter Bankruptcy Case as well as (ii) a final determination of this motion on its
merits by this bankruptcy court. The CDE, in the interim, intends to ask for an
extension of time within which to assume or reject Exhibit 1 to the extent said
Exhibit 1 may be subject to being properly characterized as an executory contract.
4 While Article 9 at page 26 of Exhibit 1 to the McGrane Decl. specifies the “…
Bankruptcy … of the sole remaining [B4] Manager … [is] a Dissolution Event
[that] shall dissolve [B4] …” the mere filing of Walter’s Bankruptcy Case was not
a Dissolution Event because the CDE was not then sole remaining manager of B4.
(See In re Deluca, 194 B.R. 65 (Bankr. E.D. Va. 1996), a case involving the
bankruptcy of such a sole remaining manager of a limited liability company.)
There is nothing in Exhibit 1 to the McGrane Decl. which in any manner states
that a B4 manager automatically loses his, her or its status as a B4 manager simply
by virtue of his filing for personal bankruptcy. Rather, and as is demonstrated by
Exhibit 1 at First Amendment etc., a B4 manager could be removed (and a new
manager substituted in the old manager’s place) only by means of a written
resignation or a vote of a majority in interest. (See Cal. Corporations Code §
17152 [requiring a written resignation or vote to effectuate removal of a
manager].) NOTE: despite repeated inquiries from DSI’s lead counsel to the
TDE’s lead counsel, DSI has not been made aware of any evidence that either of
these two things have ever occurred. (See Group Exhibit 10 to McGrane Decl.)
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Memorandum of Points and Authorities in Support of Development Specialists, Inc.’s
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pertinent part, as follows:
Major Decisions. Without limiting the generality of Section 4.1
hereof and except as otherwise expressly provided by this
Agreement, upon the unanimous agreement of the Managers, a
Manager shall have the power and authority, on behalf of the
Company:
. . .
To … dispose of any Company Properties, including selling or
otherwise disposing of all or substantially all of the assets of the
Company as part of a single transaction or plan. [Emphasis added.]
Exhibit 1 to McGrane Decl. at Article 4, section 4.3(c)(ii) reads, in
pertinent part, as follows:
Necessary Powers. Upon due authorization pursuant to paragraphs
4.2(a) … either Manager, acting alone, has the authority to do any of
the following … (ii) To exercise all rights, powers, privileges and
other incidents of ownership or possession with respect to any
property … owned by the Company. [Emphasis added.]
The upshot of the above is perfectly clear.
Under the B4 Operating Agreement (Exhibit 1 to the McGrane Decl.) any
and all major decisions required unanimity among Kelly and Walter prior to their
implementation. Therefore Stutman was mistaken in relying on unilateral action
by Kelly as sufficient authorization for it to file the REL Bankruptcy Case as such
unilateral action by Kelly was simply not enough, especially when the major
decision in question was whether to cynically file a bankruptcy case in a distant
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Memorandum of Points and Authorities in Support of Development Specialists, Inc.’s
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jurisdiction in order to deprive victims of what was a nearly billion dollar Ponzi
scheme of a forum conveniens.
Many persuasive bankruptcy cases address a situation where, as here, an
LLC operating agreement requires a manager authorizing a filing for bankruptcy
on behalf of a limited liability company (here a manager of one limited liability
company authorizing the bankruptcy of its wholly owned subsidiary limited
liability company, to wit REL as a wholly owned subsidiary of B4) to obtain
certain consents before filing for bankruptcy on behalf of a limited liability
company. (See, e.g., In re Avalon Hotel Partners, LLC, supra; In re Ice Oasis,
LLC, 2008 WL 5753355 (Bankr N. D. Cal. 2008); In re Orchards Vill. Invs., LLC,
405 B.R. 341 (Bankr. D. Or. 2009).)
The above cited cases each hold, inter alia, that any decision to file for
bankruptcy is tantamount to an out of the ordinary course or ‘major’ decision and
thus that any on-the-spot-LLC agent actually signing off on a filing for bankruptcy
(here Kelly acting as a single manager for B4) must strictly comply with the
requirements of the LLC operating agreement for purposes of obtaining due
authorization to make such a filing. This is on pain of having any unauthorized
filing for bankruptcy later construed as an ultra vires act and any bankruptcy case
so filed being later dismissed by the bankruptcy court in which it was filed.
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Memorandum of Points and Authorities in Support of Development Specialists, Inc.’s
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Conclusion
The REL Bankruptcy Case was filed without any proper authorization, in a
very wrong place, and for all the worst possible reasons. Sadly—and as a direct
result of this cynical filing of the REL Bankruptcy Case in a remote jurisdiction by
the TDE’s current management—thousands of local persons and entities who have
already been victimized by pre-petition criminal behavior have now also had their
faith in the administration of the federal bankruptcy system badly shaken.
This Oakland bankruptcy court now has the opportunity to show these
almost entirely local persons and entities that the federal bankruptcy system does
work and that help is on the way to them from this Oakland bankruptcy court.
Accordingly, this motion should be immediately granted and the REL Bankruptcy
Case ordered transferred from Dallas to Oakland forthwith.
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Dated: December 19, 2011
McGRANE LLP
By: /s/William McGrane
William McGrane
Attorneys for Moving Party/Interested Party
Development Specialists, Inc.
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Memorandum of Points and Authorities in Support of Development Specialists, Inc.’s
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