In Re Dhp Holdings Ii Corp. . Dhp Holdings Ii Corp. v. The Home Depot Inc.

• Decision Date: 09 September 2010
• Docket Number: Adversary No. 09-51529 (MFW).,Bankruptcy No. 08-13422 (MFW).
• Citation: 435 B.R. 264
• Parties: In re DHP HOLDINGS II CORP., et al., Debtors. DHP Holdings II Corp., et al., Plaintiffs, v. The Home Depot, Inc., Defendant.
• Court: U.S. Bankruptcy Court — District of Delaware

435 B.R. 264

In re DHP HOLDINGS II CORP., et al., Debtors.DHP Holdings II Corp., et al., Plaintiffs,

v.The Home Depot, Inc., Defendant.

Bankruptcy No. 08-13422 (MFW).

Adversary No. 09-51529 (MFW).

United States Bankruptcy Court,D. Delaware.

Sept. 9, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

James S. Green, Jr., Rebecca L. Butcher, Landis, Rath & Cobb LLP, Wilmington, DE, for Plaintiffs.

Elizabeth C. Freeman, Porter & Hedges, L.L.P., Houston, TX, Sherry Ruggiero Fallon, Tybout, Redfearn & Pell, Wilmington, DE, for Defendant.

MEMORANDUM OPINION ¹

MARY F. WALRATH, Bankruptcy Judge.

Before the Court is the Motion of Home Depot, Inc. (“Home Depot”) to transfer venue of this adversary proceeding to the United States District Court for the Northern District of Georgia. DHP Holdings II Corp., DESA LLC, DESA Heating LLC, DESA Specialty LLC, and DESA IP LLC (collectively, the “Debtors”) oppose the motion. The Court will grant the motion for the reasons discussed below.

I. BACKGROUND

On December 29, 2008 (the “Petition Date”), the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Debtors are manufacturers and distributors of several products including heating appliances and lawn and garden electrical products.

Prior to the Petition Date, the Debtors and Home Depot entered into a Supplier Buying Agreement (the “SBA”) under which the Debtors supplied certain products to Home Depot. The SBA sets forth the terms and conditions of the parties' transactions, and it contains, among other things, a choice of law provision and a forum selection clause providing for resolution of disputes in Georgia. ²

Post-petition, the Debtors filed a Complaint to recover an account receivable allegedly owed by Home Depot. According to the Complaint, the Debtors supplied products to Home Depot from as early as 2007 through February 2009. The Debtors claim that Home Depot owes an outstanding balance in the amount of approximately $5.5 million. In the Complaint, the Debtors assert three causes of action: (1) turnover of property under section 542(b) of the Bankruptcy Code, (2) breach of contract for failure to pay the account receivable balance, and (3) disallowance of any claim of Home Depot under section 502(d) of the Bankruptcy Code until it pays the account receivable balance.

Home Depot filed an answer in which it admits that it received certain products for which it has not paid the Debtors. Home Depot generally denies that it is obligated to pay the asserted amount, however, and contends that it has setoff and recoupment rights under the SBA and common law. Home Depot also asserts improper venue pursuant to the forum selection clause, raises defenses under section 542(c), and demands a jury trial.

On January 25, 2010, Home Depot filed the instant motion to transfer venue to the United States District Court for the Northern District of Georgia, pursuant to the forum selection clause. The Debtors oppose the motion. Briefing was completed on March 22, 2010, and the matter is now ripe for decision.

II. JURISDICTION

The Court has jurisdiction over this Motion to transfer venue, which is a core proceeding. Brizzolara v. Fisher Pen Co., 158 B.R. 761, 767 (Bankr.N.D.Ill.1993) (holding that “motions for change of venue, abstention, and remand are core proceedings under 28 U.S.C. § 157(b)(2)(A)”); Lipshie v. AM Cable TV Indus., Inc. (In re Geauga Trenching Corp.), 110 B.R. 638, 653 (Bankr.E.D.N.Y.1990) (concluding that motion to change venue did not involve adjudication of a right that may be heard only by an Article III Judge and, therefore, was a core matter despite the omission of the Bankruptcy Court from § 1412.).

III. DISCUSSION

The Court's analysis begins with the statutory provisions that govern transfer of venue. Section 1412 ³ is the provision dealing with change of venue in a case or proceeding under title 11, while section 1404(a) ⁴ is the general change of venue statute applicable to all civil cases. The analysis under either section is essentially the same, turning on the same issues of “the interest of justice” and “the convenience of the parties,” except that section 1412 does not require that the action could have been brought in the transferee district. See, e.g., In re Manville Forest Prods. Corp., 896 F.2d 1384, 1390-91 (2d Cir.1990); Thomson McKinnon Sec., Inc. v. White (In re Thomson McKinnon Sec., Inc.), 126 B.R. 833, 834-35 (Bankr.S.D.N.Y.1991).

Courts have considered several factors in analyzing motions to transfer venue. Jumara v. State Farm Ins. Co., 55 F.3d 873, 879 (3d Cir.1995) (stating that courts consider variants of the private and public interests ⁵ protected under section 1404(a)). The court should consider all relevant factors and has discretion to determine “on an individualized, case-by-case basis, whether convenience and fairness considerations weigh in favor of transfer.” Id. at 883 ( citing Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 30-31, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988)). See also Hechinger Liquidation Trust v. Fox (In re Hechinger Inv. Co. of Del., Inc.), 296 B.R. 323, 325 (Bankr.D.Del.2003).

In this case, the SBA contains a forum selection clause. The general rule is that a forum selection clause is prima facie valid and should be enforced absent a strong showing that it would be unreasonable under the circumstances. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). Courts have held that a forum selection clause is unenforceable where the clause was procured through “fraud or overreaching” or where enforcement of it is “so gravely difficult and inconvenient that [a party] will for all practical purposes be deprived of his day in court.” Id. at 18, 92 S.Ct. 1907. See also Foster v. Chesapeake Ins. Co., Ltd., 933 F.2d 1207, 1219 (3d Cir.1991). The Debtors do not allege fraud or overreaching, but they argue that a forum selection clause that is a part of a form contract not bargained-for should be given less weight. The Court disagrees. The lack of actual negotiations over the forum selection clause does not affect its validity. Id. (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991)).

Further, the Debtors' argument is unpersuasive in this case because the SBA was executed by two sophisticated commercial entities and a form contract is reasonable in this context. Home Depot, as one of the largest retailers in the United States, orders goods from hundreds of suppliers in virtually every state, and it has an interest in keeping transaction costs low, which also benefits its suppliers. It was reasonable for the parties to use Home Depot's form contract. See Carnival Cruise, 499 U.S. at 593, 111 S.Ct. 1522 (holding that a forum selection clause in a form contract may be permissible where it was reasonable for the parties to use a standard contract under the circumstances).

On a motion to transfer venue, however, the presence of a valid forum selection clause is not determinative, but is only a significant factor in the court's analysis. Stewart, 487 U.S. at 28-29, 108 S.Ct. 2239 (holding that the Bremen standard is merely instructive when considering a motion to transfer venue because the parties' expression of their venue preference is one factor courts consider). Ultimately, “whether the action should be transferred involves a multi-factored test incorporating the forum selection clause as one facet of the convenience-of-the-parties consideration.” Jumara, 55 F.3d at 880.

A. Core v. Non-Core Proceeding

Courts are more likely to enforce a forum selection clause in a non-core matter. See, e.g., Statutory Committee of Unsecured Creditors v. Motorola, Inc. (In re Iridium Operating LLC), 285 B.R. 822, 837 (S.D.N.Y.2002) (stating that the strong policy favoring the enforcement of a forum selection clause is not as strong in a core proceeding because enforcement would frustrate the bankruptcy policy of centralizing core matters). Cf. In re Exide Techs., 544 F.3d 196, 206 (3d Cir.2008) (stating that the core or non-core distinction dictates the enforcement of forum selection clauses in considering a motion for remand or abstention) ( citing Diaz Contracting, Inc. v. Nanco Contracting Corp. (In re Diaz Contracting, Inc.), 817 F.2d 1047, 1051-53 (3d Cir.1987)).

The Debtors have styled their claim as an action to collect an account receivable and argue that, as such, it is a core proceeding. See, e.g., Oglebay Norton Co. v. Port (In re Onco Inv. Co.), 320 B.R. 577, 581 n. 2 (Bankr.D.Del.2005) (stating that an adversary to collect an account receivable is core); Miller v. Printech Instant Ads, Inc. (In re Lila, Inc.), 133 B.R. 588, 590 (Bankr.E.D.Pa.1991) (stating that a “garden variety” action to collect a liquidated pre-petition account “may well be core”).

Home Depot, however, argues that the current action is really a pre-petition breach of contract claim and therefore is non-core. See, e.g., Eastern Elec. Sales Co., Inc. v. General Elec. Co., 94 B.R. 348, 349 (E.D.Pa.1989) (holding that an action to collect an account receivable in which the underlying transaction occurred pre-petition is non-core).

Courts determine whether a proceeding is core by consulting two sources. Halper v. Halper, 164 F.3d 830, 836 (3d Cir.1999). First, a court must consult section 157(b) of title 28 which “provides an illustrative list of proceedings that may be considered ‘core.’ ” Id. Second, the court must apply the Third Circuit's test to determine whether it is core: “a proceeding is core (1) if it invokes a substantive right provided by title 11 or (2) if it is a proceeding, that by its nature, could arise only in the context of a bankruptcy case.” Id. ( citing In re Guild & Gallery Plus, Inc., 72 F.3d 1171, 1178 (3d Cir.1996)). Each cause of action or claim must be analyzed separately to determine if it is core or non-core. Id. at 839. A...