Courts Divided on Venue for Small-Dollar Avoidance Actions

When a trustee pursues an avoidance action for less than $12,850, is the debtor’s bankruptcy court the proper venue? The courts are divided, but Bankruptcy Judges Jim D. Pappas of Pocatello, Idaho, and S. Martin Teel, Jr., of Washington, D.C., concluded that venue is proper in the debtor’s court, even if their conclusions were based on a drafting error that Congress may have committed in adopting 28 U.S.C. § 1409(b). The facts in both cases were typical of a small-dollar avoidance actions. The trustees were seeking to recover about $11,000 and $12,000, respectively. In Idaho, the trustee was pursuing a constructively fraudulent transfer under Section 548 and Idaho law. In Washington, D.C., the trustee was after a preference under Section 547. Claiming that venues in the debtors’ courts were improper under Section 1409(b), both defendants filed motions to dismiss under Rule 12(b)(3). Saying that the courts do not agree, Judges Pappas and Teel relied on the plain meaning of Section 1409(b) in concluding that venue was proper in the debtors’ courts.

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