August 12, 2008

Petition for Certiorari Filed with Respect to Thompson v. Greenwood Wherein the Court of Appeals for the Sixth Circuit Became the First Circuit Court to Rule on the Issue of Whether a Bankruptcy Court has Authority to Retain a Case Filed in an Improper Venue

The Court of Appeals for the Sixth Circuit became the first circuit court to rule on the issue of whether a bankruptcy court has authority to retain a case filed in improper venue. The Court found that a bankruptcy court may not retain jurisdiction on a case that was filed in an improper venue. In Thompson v. Greenwood, 507 F.3d 416 (6th Cir. 2007), the Sixth Circuit follows strict statutory construction in holding that where there is improper venue a bankruptcy court must dismiss the case or transfer it to a district where it could have been brought originally. Full text of the Court's opinion.

In Thompson, the debtors agreed that venue was improper under the plain language of 28 U.S.C. § 1408. The court went on to state in its opinion that bankruptcy judges fall under 28 U.S.C. § 151 because title 11 cases are included within the scope of 28 U.S.C. § 1406 (which governs cases that are improperly venued). The debtors argued that § 1406 does not apply to bankruptcy proceedings and that 28 U.S.C. § 1412 (transfer of venue) should apply instead. They also argued that because § 1412 uses the word “may,” a court is not required to transfer a case and may retain the case. The court disagreed and found that the better interpretation is that § 1412 applies only to bankruptcy cases that are properly venued to begin with and section § 1406 applies to improperly venued cases. The court found that the plain text of § 1406 governs.

In affirming the decision of the district court, the court held that “(1) the venue requirements of 28 U.S.C. § 1408 are mandatory, not optional; (2) 28 U.S.C. § 1412 applies only to bankruptcy cases filed in a proper venue; (3) 28 U.S.C. § 1406 applies to cases, including bankruptcy cases, filed in an improper venue; and (4) Federal Rule of Bankruptcy Procedure 1014(a)(2) must be interpreted as authorizing the transfer of an improperly venued case only to a district in which the case could have originally been brought, and only in the interest of justice, in accordance with the plain language of § 1406.”

A petition for certiorari was filed June 26, 2008, questioning whether the court in Thompson improperly restricted the authority of the court, erroneously applied holdings in Connecticut National Bank v. Germain, 503 U.S. 249 (1992), and “elevated language and suggestion of advisory opinion to procedural rule . . . . ” The Supreme Court will meet in September to discuss whether the case will be heard. Bricker and Eckler will update the status of this case once a decision has been made

This E-alert was prepared by Laura M. Zaremski. Please contact any member of the Bricker & Eckler Creditor Rights & Bankruptcy group for more information.