Patriot Coal defended its decision to file its Chapter 11 case in bankruptcy court in Manhattan, saying that in light of the worldwide scope of its business, “the Southern District of New York provides an overwhelmingly more convenient and cost-effective forum.”
As reported, last month the United Mine Workers, a union representing some 40% of the company’s employees, filed a motion to transfer venue in the case to Charleston, West Virginia, arguing that most of the company’s business and employees are located there, and because West Virginia has a much more significant interest in the company’s reorganization than New York (see “Patriot Coal union says Ch. 11 should be moved to West Virginia,” LCD, July 19, 2012).
“No one mines coal in New York,” the union said in its motion.
The U.S. Trustee for the New York bankruptcy court also filed a motion late last week arguing that venue should be transferred from the jurisdiction, on the grounds that the company’s creation of two New York subsidiaries shortly before its filing, ostensibly for the sole purpose of establishing venue in the state, was improper. Unlike the UMW, however, the U.S. Trustee did not urge a transfer to any other specific court.
In its Aug. 27 response to both motions, the company conceded that the lion’s share of its mining operations and employees are located in West Virginia, but the company argued that those facts do not necessarily mean that West Virginia is a better forum in which to adjudicate its bankruptcy. Patriot Coal noted, for example, that its headquarters and administrative offices were located in St. Louis, and that 95% of the company’s coal is supplied to customers outside of West Virginia.
“The debtors’ creditors, like their businesses, are also spread out throughout the United States and abroad,” the company said. “A transfer to West Virginia would be more convenient for very few creditors, most of whom will play little or no active role in the court proceedings, and would impose enormous costs and administrative strains on these cases.”
The company argued that in a “complex case such as this, which involves operations, financial interests, and creditors across the United States and around the world, the tremendous efficiencies that are gained by proceeding in New York City, a global transportation hub, [would] be lost in favor of proceeding in West Virginia, where the transportation and other logistical options are vastly more restrictive and costly.”
The company also notes, “Notably, many of the debtors’ contracts are governed by New York and not West Virginia law, including virtually all of the debtors’ pre-petition debt instruments [and] almost two-thirds of their sales contracts.”
Indeed, the company argued, these factors made New York the location of choice for many large corporate bankruptcies, even when “their headquarters and assets are primarily located outside the jurisdiction,” specifically citing the Chapter 11 cases of Lyondell Chemical, Boston Generating, General Motors,Chrysler, and Northwest Airlines.
“A principal reason why venue in those cases was appropriate – and why it is appropriate here for the efficient administration of the estate,” the company argued, “is that experience has shown that the most frequent attendees at court hearings – by far – are the debtors’ professionals, the lenders’ professionals, and other material counterparties and their professionals, almost all of whom are located in New York in this case.”
The company acknowledges that there are other creditors and stakeholders in the case outside of New York, but even for these creditors New York would be a more convenient place for them to attend hearings than West Virginia, Patriot Coal argues.
As for the company’s employees and retirees in West Virginia, Patriot Coal said the union “overstates the importance of the location of employees and retirees,” arguing, “It is not expected that more than a handful of employees or retirees would ever need to be present in this court,” and, “To the extent that union members – or any interested individuals – wish to monitor the proceedings, well-established technology will allow them easily and conveniently to do so.”
In addition to the company and the creditors’ panel, objections to changing venue were filed by several of the company’s creditors, as well as the company’s DIP lenders.
A hearing on whether to transfer venue is scheduled for Sept. 11. – Alan Zimmerman