Patriarch Partners Agency Services, LLC v. Zohar CDO 2003-1, Ltd.

Background

Patriarch Partners Agency Services, LLC (PPAS) served as Administrative Agent for funds known as the Zohar Funds under various credit agreements. After the Zohar Funds purported to terminate PPAS and appoint Alvarez & Marsal Zohar Agency Services, LLC as successor Administrative Agent, PPAS filed this action seeking declaratory relief, an injunction, and fees. The Zohar Funds later asserted counterclaims alleging that PPAS breached its contractual obligations and seeking damages, fees, and costs.

The Zohar Funds filed for Chapter 11 bankruptcy in Delaware in 2018, and this case was automatically stayed. The Delaware Bankruptcy Court later confirmed a liquidation plan, and a related adversary proceeding involving PPAS and others remained pending there. The Bankruptcy Court transferred the Zohar Funds’ litigation assets, including the claims and counterclaims in this action, to litigation trusts. The Trustee for those trusts, substituted for the Zohar Funds in this case, moved under 28 U.S.C. § 1404(a) to transfer the action to the Delaware Bankruptcy Court.

Legal Standard

Section 1404(a) permits transfer to another federal district where the case could have been brought, or to a district to which all parties consent, when transfer would serve the convenience of the parties and witnesses and the interests of justice. The party seeking transfer had to show by clear and convincing evidence that transfer was appropriate. The court considered private-interest factors, such as the convenience of witnesses and access to evidence, and public-interest factors, such as court congestion, local interests, and familiarity with governing law.

A valid contractual forum-selection clause generally controls the analysis. When such a clause applies, the court generally does not weigh the parties’ private interests because the parties have already agreed on the proper forum.

Analysis

The court held that the transfer motion failed at the first step because PPAS could not have brought this action in Delaware when it was filed. Three Zohar Fund defendants were Cayman Islands companies with their principal places of business in New York, so they were not subject to general jurisdiction in Delaware. The court also found no specific jurisdiction because the conduct underlying the claims occurred in New York and did not arise from contacts with Delaware.

The Trustee argued that the Zohar Funds had consented to Delaware jurisdiction by litigating related matters there, including the bankruptcy proceeding. The court rejected that argument, explaining that consent to jurisdiction in one case extends only to that case. PPAS had not consented to litigate this action in Delaware.

The court also relied on forum-selection provisions in the credit agreements. Those provisions stated that an action concerning a credit document could be brought only in New York State courts in New York County or federal courts sitting in New York County, and that the parties waived objections to venue there. The court construed these provisions as a mandatory forum-selection clause requiring this action to proceed in New York County. It concluded that both PPAS’s claims and the Zohar Funds’ counterclaims concerned breaches of the credit agreements and therefore fell within the clause.

Because the clause required litigation in New York County, the court found that the private-interest factors weighed against transfer. The public-interest factors also did not support transfer. The court found that court congestion was neutral because both districts were busy; the local-interest factor favored New York because the relevant conduct occurred there and key witnesses were there; and the governing law was New York law, making the Southern District of New York the district most familiar with that law.

Disposition

Judge Katharine H. Parker denied the motion to transfer to the Delaware Bankruptcy Court. The Clerk of Court was directed to terminate the motion at ECF No. 249.