Macauley Law

Dynamerica Manufacturing, LLC v. Johnson Oil Co.

Defending preference litigation can be a nuisance, especially when one is sued in a distant court over a small dollar amount. In the 2005 amendments to the Bankruptcy Code, Congress apparently addressed this issue by requiring actions seeking to recover less than $10,950 against third parties to be brought where the defendant resides. Nevertheless, one decision from the Western District of Michigan concluded that venue over a small-dollar preference action is proper in the district in which the bankruptcy case is located because preference actions arise under the Bankruptcy Code and, in the venue exception, Congress did not include the words "arising under."

While at Zuckerman Spaeder, Mr. Macauley represented Johnson Oil Company, LLC ("Johnson") in defense of a small-dollar preference action brought by Dynamerica Manufacturing, LLC in the U.S. Bankruptcy Court for the District of Delaware. Johnson moved to dismiss the suit on the basis of improper venue and cited to the legislative history behind the venue amendment.

Judge Kevin Gross issued a written memorandum granting Johnson's motion to dismiss. Although the Court acknowledged the omission of "arising under" in the statute's text, the Court focused on the clear legislative history supporting the venue change and reasoned that the language omission was unintentional.

This is an important decision because defendants in small-dollar preference actions should not have to obtain representation to defend them because it is virtually impossible to do so in a cost-effective manner.

Judge Gross's written memorandum order is unpublished. Click here for a copy of the written decision from the Court's website.