In re Patriot Coal Corp., No. 12-12900, — B.R. — (Bankr. S.D.N.Y. Nov. 29, 2012)
Patriot Coal Corporation and its ninety-eight subsidiaries (collectively, "Patriot") is one of the largest coal companies in the nation. Patriot has its headquarters in Missouri, and most of its entities are domiciled in West Virginia and Missouri. Prior to its chapter 11 bankruptcy, Patriot had no contacts in New York. On the eve of bankruptcy, Patriot formed two entities in New York for the sole purpose of establishing venue—a fact that to which Patriot stipulated. These New York entities conducted no business operations, had no substantial assets in New York, and the other entities had no meaningful contacts with New York. Only one month after the formation of these entities, Patriot commenced chapter 11 proceedings in the Southern District of New York, bootstrapping ninety-seven of its related bankruptcy cases to those filed by the New York entities.
Two motions seeking transfer of venue were filed. The mine union sought to transfer venue of the cases to West Virginia, where many of its retirees resided, citing convenience of the parties. The U.S. Trustee sought to transfer the cases to wherever venue is proper "in the interest of justice". The court ultimately granted the U.S. Trustee’s motion, and transferred venue to the Eastern District of Missouri, the location of the debtor’s headquarters, key employees, and books and records.
In a bold policy-shaping opinion, the court asserted that Patriot’s formation of the two New York affiliates for the sole purpose of establishing venue was a subversion of the spirit of the bankruptcy venue statute and the integrity of the bankruptcy system. Citing In re Winn-Dixie Stores, Inc., Case No. 05-11063 (RDD) (Bankr. S.D.N.Y. April 12, 2005), the Patriot Coal court maintained that the debtor’s conduct of forming new entities to satisfy venue requirements, notwithstanding literal compliance with the black letter of the statute, constituted an exploitation of a loophole in the statute, which the court refused to condone.