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In re PRD

August 22, 2006

IN RE: PRD, LP, AN ILLINOIS LIMITED PARTNERSHIP, DEBTOR.
PRD, LP, AN ILLINOIS LIMITED PARTNERSHIP, DEBTOR-APPELLANT,
v.
FRANKLIN DELANO LÓPEZ; JARDIN EL AIBONITENO; TSI TONY SANTIAGO, INC. D/B/A JAS CONSTRUCCIONES; ARGRIMENSORES ASOCIADOES; ALVARADO ASSOCIATES; JLD ELECTRICAL SERVICES, INC.; ESTATE OF MILTON M. RUIZ D/B/A MILTON M. RUIZ & ASSOCIATES; LUGO-CARRERAS Y ASOCIADOS, CSP; PEDRO CORTES & ASSOCIATES; VALCARCEL ) CONSTRUCTION, INC.; ASOCIACION DE RESIDENTES DE SAVANNAH REAL; ALVARADO ASSOCIATES; JLD ELECTRICAL SERVICES, INC., APPELLEES.



The opinion of the court was delivered by: Charles P. Kocoras, District Judge

MEMORANDUM OPINION

This matter comes before the court on appeal from the Bankruptcy Court. For the reasons set forth below, the February 2, 2006, order transferring venue of the proceeding to the District of Puerto Rico is affirmed.

BACKGROUND

Appellant PRD LP ("PRD") is a limited partnership with its principal offices located in Skokie, Illinois. PRD is comprised of a general partner and two limited partners. The general partner is an Illinois corporation, PRD, Inc.; the two limited partners are Century Development Group, another limited partnership, and Franklin Lopez, a natural person who lives in Puerto Rico.

PRD was formed to build single-family homes on a parcel of real estate in San Lorenzo, Puerto Rico. In addition to being a limited partner, Lopez supervised PRD's activities in Puerto Rico. Construction was to take place in two phases. The first phase was completed, but at a much higher cost than anticipated. The second phase of building never took place. On August 6, 2004, PRD entered into a contract to sell the land on which the second-phase homes were to have been located.

About one month later, Lopez and other Puerto Rican residents who had been involved with the project sued PRD and other related entities for breach of contract, breach of fiduciary duty, and other causes of action in Puerto Rico. Proceedings in that lawsuit eventually yielded an order commanding that any proceeds from the sale of the real estate be deposited with the clerk of the Puerto Rican court pending the outcome of a preliminary injunction hearing in that case. Three days before a hearing scheduled to consider the entry of the injunction, PRD filed for bankruptcy in the Northern District of Illinois. Shortly thereafter, the land was sold to liquidate the assets of the bankruptcy estate.

About a month after the bankruptcy proceeding began, several Puerto Rican creditors including Lopez moved to transfer the bankruptcy proceeding to the District of Puerto Rico. The motion was once amended to include additional movants. On January 26, 2006, after full briefing and oral argument, the bankruptcy judge granted the motion and ordered the proceeding transferred. PRD timely sought an interlocutory appeal of the order.

JURISDICTION

District courts have jurisdiction to hear appeals from interlocutory orders and decrees of bankruptcy judges pursuant to 28 U.S.C. § 158(a).

STANDARD OF REVIEW

The parties have not provided, nor has our research revealed, any Seventh Circuit precedent definitively establishing the standard of review to be applied in a case involving a transfer effectuated pursuant to 28 U.S.C. § 1412 when both potential jurisdictions are proper venues for the bankruptcy proceeding. However, the controlling factors under § 1412, namely the convenience of the parties and the interests of justice, are identical to those considered under 28 U.S.C. § 1404(a), which pertains to motions to transfer venue in non-bankruptcy cases. It is well-settled that the grant or denial of a motion under § 1404(a) is reviewed for abuse of discretion. North Shore Gas Co. v. Salomon, Inc., 152 F.3d 642, 648 n.3 (7th Cir. 1998). In light of the highly fact-specific nature of both types of considerations and the absence of any convincing argument from the parties why the same standard should not apply to § 1412, we will employ the abuse of discretion standard. Under this deferential standard, the bankruptcy court's order will stand unless the record contains no evidence on which the court could rationally rely or if no reasonable person could agree with the decision. See In re KMart Corp., 381 F.3d 709, 713 (7th Cir. 2004); In re Morris, 223 F.3d 548, 554 (7th Cir. 2000). The latter situation generally occurs only when the decision rests on an incorrect legal principle or a factual finding that is clearly erroneous. See KMart, 381 F.3d at 713.

DISCUSSION

The transcript of the motion hearing reflects that the bankruptcy judge considered both of the considerations enumerated in § 1412. Mtn. Hr'g Tr. 29-33, Jan. 26, 2006. In deciding which jurisdiction best suited the convenience of the parties, he employed the six-factor test set forth in Kotlicky v. Belford, 64 B.R. 679, 682 (Bankr. N.D. Ill. 1986). As between the two potential venues, the test looks to the proximity of the creditors, the debtor, the witnesses who will be necessary to the estate's administration, and the assets of the estate. See id. The fifth factor considers which of the two venues would allow the estate to be administered more economically, and the sixth examines the impact of any ancillary administration if bankruptcy should result. See id. Because bankruptcy had already occurred in this case, the sixth factor was not at issue.

With respect to the first factor, the bankruptcy judge noted that the number of creditors from Illinois was about the same as the number from Puerto Rico. While recognizing that the amounts of the Illinois creditors' claims exceeded those of the Puerto Rican creditors, the judge juxtaposed that fact against the reality that the Illinois creditors would have known that all of the project's activity was to take place in Puerto Rico. Clearly the latter goes to the fairness aspect of the interest of justice consideration rather than the proximity of the creditors. However, as the decision whether to transfer rests on the interrelationship of all the specific ...


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