By Order, dated January 14, 2008, United States Bankruptcy Judge Martin Glenn for the United States Bankruptcy Court for the Southern District of New York, granted the motion (the "Motion") filed by a group of creditors seeking transfer of venue of the Dunmore Homes, Inc. (the "Debtor") bankruptcy case from the United States Bankruptcy Court for the Southern District of New York (the "Court") to the Eastern District of California, Sacramento Division. A number of other creditors and the Official Unsecured Creditors Committee joined in the Motion. The Motion was opposed by the Debtor, bondholders and two bank creditors.

Background

Dunmore California, a California corporation which was wholly owned by Sidney Dunmore, a California resident, and predecessor to the Debtor, was in the business of, among other things, land development and construction of single family homes throughout Northern and Central California. The financial condition of Dunmore California began to deteriorate in September 2005, and by August 1, 2007, Dunmore California and its subsidiaries had halted nearly all home construction, land development operations and sales. Shortly thereafter, Dunmore California sold all of its assets to the Debtor. As part of that transaction, the Debtor also assumed virtually all of the liabilities of Dunmore California. Fifty-nine days after the sale, on November 8, 2007, the newly formed Debtor, Dunmore Homes filed for bankruptcy relief under chapter 11 in the Southern District of New York.

The Debtor, a New York corporation, is wholly owned by Michael Kane, a California resident, and has no offices, employees or bank accounts in New York. All of its subsidiaries (none of which has filed for protection under the Bankruptcy Code) are located in California. The Debtor's only connection to New York was its incorporation in New York fifty-nine days before the bankruptcy filing.

Among other debts, the Debtor had significant indirect liabilities resulting from its assumed obligations as guarantor or co-borrower on the secured debt of its various California subsidiaries, which totaled approximately $195 million as of the date of filing. The security for this debt is California real property owned at the subsidiary level. Moreover, twenty-four of the Debtor's top thirty creditors are located in California, seven of whom joined the Motion and represent approximately $23,578,998.46 of the Debtor's debt. The two bank creditors who opposed the Motion represent about $56,700,000 of the Debtor's debt. It was undisputed that the vast majority of creditors below the top thirty are trade creditors located in California.

Motion for Change of Venue

The motion for change of venue sought transfer based on consideration of the interests of justice under 28 U.S.C. § 1412, and not that venue was improper under 28 U.S.C. § 1408, which entitles the Debtor to file its petition in the Southern District of New York because it is "domiciled" in New York. Since the issue of whether venue was proper under 28 U.S.C. § 1408 was only raised in a reply brief by one of the movants, the Court would not consider the issue and assumed venue was proper under 28 U.S.C. § 1408. Under section 1412, the Court has discretionary power to transfer a case if the transfer would be in the best interest of justice or for the convenience of the parties.

In considering whether the case should be transferred in the interest of justice, the court considers whether (i) transfer would promote economic and efficient administration of the bankruptcy estate, (ii) the interests of judicial economy would be served by the transfer, (iii) the parties would be able to receive a fair trial in each of the possible venues, (iv) either forum has an interest in having the controversy decided within its borders, (v) the enforceability of any judgment would be affected by the transfer and (vi) the debtor's original choice of forum should be disturbed. In considering the convenience of the parties, the court looks at six factors: (i) proximity of creditors of every kind to the court, (ii) proximity of the debtor, (iii) proximity of witnesses necessary to the administration of the estate, (iv) location of the assets, (v) economic administration of the estate and (vi) necessity for ancillary administration if liquidation should result.

After a careful analysis of all of those factors, the Court found that a transfer of venue was appropriate because, among other things, "the thin nexus of the Debtor to the Southern District of New York, and the overwhelming contacts between the Debtor and Eastern District of California, combined with no overriding factors making it substantially more likely that the Debtor's prospects for a successful reorganization would be enhanced if this Court were to retain jurisdiction, raise serious questions whether the Court would abuse its discretion if it denied the motion to transfer venue in the interests of justice." In re Dunmore Homes, Inc., No. 07-13533 (MG), slip op. at 20 (S.D. N.Y. Jan. 14, 2008).

The Court found that where the Debtor's connections, including the majority of a Debtor's creditors and contacts, were in California, which could create, among other things, geographical hardships on the parties involved, the Court would exercise its discretion to grant the Motion and transfer the bankruptcy case to California.