Prosperum Capital Partners LLC v. NHC Food Company Inc

Background

Prosperum Capital Partners LLC sued NHC Food Company Inc., New Happy Food Company, and You Nay Hor Khao for alleged breach of a future-receivables agreement and breach of a personal guarantee. Prosperum alleged that it agreed to purchase up to $155,005 in future accounts receivable, with the defendants authorizing daily withdrawals of 9% of their revenue. It alleged that the defendants stopped making payments after paying $41,334.64, leaving a principal balance of $113,670.36, plus $28,417.59 in contractually calculated damages.

The defendants removed the case from New York state court after NHC, New Happy, and Khao filed bankruptcy cases in the Northern District of Georgia. Prosperum filed a proof of claim in the NHC bankruptcy case for the same alleged contract damages. The defendants said that the bankruptcy cases involved an alleged scheme in which Khao’s son, Kim Ngov Hor, also known as Danny Hall, allegedly forged Khao’s name on lending agreements, including the agreement at issue. Prosperum did not appear in the federal case or oppose the motion to transfer.

Transfer Standards

The defendants moved under 28 U.S.C. §§ 1404 and 1412. Section 1404 permits a federal court to transfer a civil action to another district where it could have been brought when transfer would serve party and witness convenience and the interests of justice. The court considers factors including witness and party convenience, the location of relevant documents and events, the ability to compel witnesses, the parties’ relative resources, the governing law, the plaintiff’s forum choice, and trial efficiency.

Section 1412 permits transfer of a case or proceeding under the Bankruptcy Code. The court explained that this provision generally applies to the bankruptcy case itself or to proceedings asserting causes of action created by the Bankruptcy Code, not merely to claims related to a bankruptcy case.

Analysis

The court held that Section 1412 did not provide a basis for transfer because Prosperum’s claims were contract and guarantee claims that did not depend on bankruptcy law and could exist outside bankruptcy jurisdiction.

The court nevertheless found that the Northern District of Georgia was a proper venue under Section 1404 because the defendants resided or were based there. It then balanced the relevant transfer factors. The convenience of witnesses favored transfer because the defendants and likely witnesses were based in Georgia, and Prosperum did not challenge the defendants’ assertion that most witnesses were there. The location of operative events also favored transfer because the defendants’ performance and alleged breach appeared to have occurred in Georgia, although the complaint did not specify where the agreement was negotiated or performed.

The convenience of the parties favored transfer because the defendants were located in Georgia and Prosperum had pursued related relief in the Georgia bankruptcy cases rather than participating in the New York litigation. The relative means of the parties also favored transfer based on the defendants’ asserted financial circumstances following the alleged fraud and bankruptcy filings. Finally, efficiency and the interests of justice strongly favored transfer because the Georgia bankruptcy court would address substantially the same liability and damages questions involved in Prosperum’s complaint.

The court treated Prosperum’s original choice of a New York forum, the location of documents, the ability to compel witnesses, and the forum’s familiarity with New York law as neutral. The court noted that much of the evidence would be electronic and that the contract claims did not involve unusually complex questions of New York law.

Disposition

The court granted the defendants’ motion to transfer under 28 U.S.C. § 1404. It directed the Clerk of Court to transfer the case to the Northern District of Georgia. The ruling transferred the case; it did not resolve the merits of Prosperum’s breach-of-contract or guarantee claims.