A New York Bankruptcy Court Denies Defendant’s Motion To Dismiss Based on Improper Venue Under § 1409 and Under § 547

January 27, 2021, Eastern District of New York – Defendant Central Garden & Pet Co. sold pet supplies to the Debtor Petland Discounts, Inc. Debtor paid Defendant via check, 95 days after the invoice date, which fell within ninety days of the petition date, giving rise to a preference claim. The Trustee sought to avoid the transfer as a preferential payment under Bankruptcy Code § 547 and recover the value of the transfer for the benefit of the Debtor’s estate under Bankruptcy Code § 550.

Defendant alleged that venue of the adversary proceeding was not proper in the Eastern District of New York under 28 U.S.C. § 1409(b) because the Trustee seeks to recover a debt of less than $25,000, and because the Defendant is neither incorporated in New York nor is New York its primary place of business. Therefore, the action falls within the “small-dollar exception” which requires the Trustee to bring certain proceedings in the defendants’ home court instead of the bankruptcy court where the Debtor’s case was pending. Defendant also separately moved for summary judgment under an ordinary course of the business exception under § 547(c)(2)(A), alleging that the Debtor, through its purchase of pet supplies, incurred a debt in the ordinary course of business and the transfer was made per the parties’ ordinary course of business.

The Court denied the Defendant’s motion to dismiss based on improper venue under 28 U.S.C.S. § 1409 because the action was one that “arises under” title 11 and fell squarely within §1409(a) and because venue restrictions imposed by § 1409(b) do not apply to preference actions. The Court held that while the dollar amount involved in this adversary proceeding is rather small, the issues raised by the parties require the Court to analyze many facets of procedural law, jurisdictional issues and to consider the role of the judiciary when interpreting statutes.

The Court also denied Defendant’s motion to dismiss based upon the11 U.S.C.S. § 547(c)(2)(A) the ordinary course of the business exception because it was not ripe for summary judgment. The Court held that the complaint in this action was filed by the Trustee. The Trustee did not take part in the Debtor’s business transactions with Defendant nor has he had the opportunity to assess the validity of the documents submitted by Defendant. Thus, the Trustee must be allowed to reach his own conclusion on the allegations presented by Defendant before a determination can be reached on the merits. 

Mendelsohn v. Cent. Garden & Pet Co. (In re Petland Discs.), Nos. 8-19-72292-reg, 20-08088-reg, 2021 Bankr. LEXIS 197 (Bankr. E.D.N.Y. Jan. 26, 2021)

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