In re Silicon Valley Innovation Co.

• Decision Date: 30 August 2012
• Docket Number: Case No. 12-52706-ASW
• Parties: In re SILICON VALLEY INNOVATION COMPANY, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of California

In re SILICON VALLEY INNOVATION COMPANY, Debtor.

Case No. 12-52706-ASW

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA

Dated: August 30, 2012

Chapter 11

MEMORANDUM DECISION GRANTING CREDITOR

CHRISTIAN JAGODZINSKI'S MOTION TO TRANSFER VENUE

Creditor Christian Jagodzinski (hereafter "Creditor") moves to dismiss the bankruptcy case of debtor Silicon Valley Innovation Company, LLC (hereafter "Debtor") pursuant to 11 U.S.C. § 1112(b) and 11 U.S.C. § 305(a) or, alternatively, to dismiss or transfer the case due to improper venue. Debtor also moves to convert its Chapter 11 case to a Chapter 7 case. Attorney Mike C. Buckley represents Creditor, and attorney Stephen Benda represents Debtor. For the reasons explained below, the Court grants Creditor's motion to transfer the case to the United States Bankruptcy Court for District of Delaware due to improper venue in the Northern District of California. The Court defers ruling on Creditor's motion to dismiss pursuant to § 1112(b) and § 305(a) and on Debtor's motionto convert to a Chapter 7 case so that a properly venued court may hear and decide those motions.

I. Facts

Based on declarations, deposition testimony, Debtor's Schedules and Statement of Financial Affairs, the admissions in pleadings, and the statements made at the July 12, 2012 hearing on these motions, the following facts relating to venue are undisputed.

Debtor is a limited liability company formed in Delaware. Although the Statement of Financial Affairs lists Debtor's prior address as 9781 Blue Larkspur Lane, Monterey, CA 93940, Debtor admits in the May 16, 2012 Declaration of its sole manager and employee, Riverson Leonard, that Debtor has not maintained any offices in any location for approximately a year. Debtor currently receives mail through Debtor's corporate counsel, Robert Lott, at an address in Palo Alto, California.

Debtor's primary asset is stock in Agiliance Inc., a Delaware corporation with headquarters in Sunnyvale, California. Debtor values the stock at $1,666,667.00. Although Debtor's Schedule B lists a number of other items of personal property, the only other Schedule B item with a listed value is a note from Peder Jungck, who resides in San Mateo County, California. The note is payable to Debtor for $551,000.00. Debtor's Schedule B states that the note is "in debtor's possession," but does not explain where "debtor," or the note itself, are located.

Debtor's only employee, Mr. Leonard, lives in Florida. Debtor's Statement of Financial Affairs lists a Sarasota, Floridaaddress for Debtor's accountant, Stephen Musco, who has prepared, financial statements and tax returns for Debtor since 2004. Additionally, ten of the creditors holding the twenty largest unsecured claims have Florida addresses. The claims of the Florida creditors total approximately $2.7 million. Only four of the top twenty creditors have addresses within the Northern District of California. The claims of the Northern District of California creditors total approximately $1.4 million. Mr. Jagodzinski, the creditor who now moves for dismissal, has a Florida address.

II. Discussion

The party moving to change venue bears the burden of proving by a preponderance of the evidence that venue is improper. In re Dunmore Homes, Inc., 380 B.R. 663, 671 (Bankr. S.D.N.Y. 2008). In Chapter 11 cases, 28 U.S.C. § 1408 determines venue. Section 1408 provides:

Except as provided in section 1410 of this title, a case under title 11 may be commenced in the district court for the district —

(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; or

(2) in which there is pending a case under title 11 concerning such person's affiliate, general partner, or partnership.

28 U.S.C. § 1408.

Section 1408(1) applies to the case at hand (and § 1408(2) is inapplicable) because there are no other related bankruptcy casespending. Under § 1408(1), Debtor's bankruptcy case is only properly venued in the Northern District of California if Debtor's domicile, residence, principal place of business in the United States, or principal assets in the United States have been located in this district within the one-hundred-eighty-day period prior to filing for bankruptcy. Venue is appropriate in this district if any one of the listed bases for venue exists. See In re Dunmore, 380 B.R. at 670 ("The statute is written in the disjunctive making venue proper in any of the listed locations.").

Creditor argues that venue is improper in the Northern District of California and should be transferred to the District of Delaware because Debtor is domiciled in Delaware; Debtor maintains no offices in California; Debtor's sole manager and employee lives in Florida and not California; and Debtor's primary asset is stock in a Delaware company. In response, Debtor argues that venue is proper here because Debtor's mail is sent to and processed in Palo Alto, California and because Debtor's primary asset is stock in a company that is headquartered in Sunnyvale, California. Palo Alto and Sunnyvale are within this district. Although Debtor apparently has ties to Florida, neither party has argued that venue should be transferred to Florida. For the reasons set forth below, the Court is persuaded that Debtor does not have the type of contacts in this district that are required by § 1408(1) for venue to be proper here.

A corporation's domicile is generally held to be the state of incorporation. See In re Dunmore, 380 B.R. at 670, 675-77 (holding that a corporation's state of incorporation is generally its domicile but transferring the case to the district where thedebtor's assets, management and creditors were located); In re Innovative Communication Co., 358 B.R. 120, 125, 129 (Bankr. D. Del. 2006) (holding that venue was appropriate in Delaware, as two of the debtors were Delaware entities, but the interests of justice warranted a transfer); but see In re J & L Plumbing & Heating, Inc., 186 B.R. 388, 390-91 (Bankr. E.D. Pa. 1995) (noting that there is split of authority and that some courts hold that "domicile" and "residence" only apply to individuals or have equated these terms with the debtor's "principal place of business," even though § 1408(1) expressly lists "principal place of business" as an alternative basis for venue). Debtor admits that Debtor was formed in Delaware; therefore, Debtor is domiciled in Delaware and domicile cannot serve as a basis for venue here.

The next statutory basis for venue is the location of a debtor's principal place of business. An entity's principal place of business is its "nerve center" or the place were significant business decisions are made. See In re Peachtree Lane Associates, Ltd., 198 B.R. 272, 280-81 (Bankr. N.D. 111. 1996) (deciding venue for a Chapter 11 debtor); see also Hertz Corp. v. Friend, — U.S. --, -- , 130 S.Ct. 1181, 1192 (2010) (holding in the diversity jurisdiction context that the "''principal place of business' is best read as referring to the place where a corporation's officers direct, control, and coordinate the corporation's activities. It is the place that Courts of Appeals have called the corporation's 'nerve center.'").

In the May 16, 2012, Leonard Declaration, Debtor admits it has not maintained offices for a year, and Debtor does not argue that Debtor maintained offices in the Northern District of Californiaany time in the one-hundred-eighty days prior to filing its bankruptcy petition on April 10, 2012. Instead, Debtor argues that Palo. Alto, California is where Debtor's mail is processed, so that is Debtor's principal place of business. Debtor's argument is not persuasive because a mail processing location, alone, is not Debtor's "nerve center" or the place where Debtor makes significant business decisions. Debtor's principal place of business might be in Florida, where Debtor, through its sole manager and employee Leonard, makes significant business decisions. Regardless, Debtor's principal place of business is not located in the Northern District of California.

Nonetheless, Debtor's case may still be properly venued in the Northern District of California if Debtor's principal asset is located here. Debtor's principal asset is stock in Agiliance, which was incorporated in Delaware and which is headquartered in Sunnyvale, California. Debtor contends that the controlling authority on this issue is In re J & L Plumbing, 186 B.R. at 392, which holds that venue is proper in the district where a debtor's principal asset consisting of an account receivable was located. Debtor analogizes the Agiliance stock to an account receivable and says the stock is located in the Northern District of California because Agiliance has its headquarters here; however, the account receivable in In re J & L Plumbing was litigation in the district in which the debtor filed its Chapter 11 bankruptcy petition. Id. at 391. Debtor's analogy is tenuous, at best, because Agiliance stock is not a debt that Debtor is attempting to collect through litigation, but is an ownership interest in Agiliance that was created by the laws of the state of its incorporation, Delaware.

In contrast to Debtor's account receivable argument, courts have historically held that stock is located in the state that ' created the corporation. See Jellenik v. Huron Copper-Mining Co., 177 U.S. 1, 13 (1900); Rhode Island Hosp. Trust Co. v. Doughton, 270 U.S. 69, 82 (1926). Stock can also be located where the owner of the stock is domiciled. See 18A Am. Jur. 2d Corporations § 358 (2012). Moreover, Delaware...