SVB Financial Group's Manhattan Venue

As I have previously blogged, SVB Financial Group seems to be trying to do venue by declaration. Consider the grounds for venue under 28 USC 1408 and how they apply to SVBFG:  

• Location of principal place of business for majority of past 180 days.  All of SVBFG's regulatory filings in the last 180 days said its address—principal place of business—is in Santa Clara, CA.
• Location of principal assets for majority of past 180 day. The majority of its assets for the last 180 days—Silicon Valley Bank—were in Santa Clara.
• Location of domicile for majority of past 180 day.  SVBFG is incorporated in Delaware and always has been. 
• Location of pending affiliate's case's venue for majority of past 180 day. SVBFG does not have any affiliate cases pending, much less in SDNY.

SVBFG's claim to SDNY venue seems to be based on the location of its principal assets. Those principal assets are as of today the equity of two of its non-debtor subsidiaries. But for almost all of the past 180 days, the principal assets were the equity in the bank. Not only is SVBFG trying to ignore the 180 days rule (which exists precisely to prevent this sort of gaming), but its argument that its assets are located in NY is simply wrong.  

Both of the SVBFG subsidiaries are Delaware entities according to SVBFG's last annual report. The subsidiaries might have their principal offices in Manhattan, but that's irrelevant. The corporate stock is not located in Manhattan (I really hope they aren't suggesting that the DTC's holding of stock certificates does the trick--if so, everyone can file in Manhattan). When a parent owns a subsidiary's stock, the stock either has no location as an intangible or is located where the subsidiary is domiciled.  Nothing else makes sense.

To see why, consider the following: suppose a car is my principal asset. It's titled in Delaware, but currently illegally double-parked in Manhattan. In that case SDNY venue would be proper. There's direct ownership of a physical asset that has a location and that's enough for the venue statute. It's no different than owning a building in Manhattan. But now imagine that my principal asset is not the car, but stock in a Delaware corporation, and the corporation's sole asset is a car that's illegally double-parked in Manhattan. In this scenario, I do not directly own the asset that is in Manhattan. To impute it to me would render the venue statute meaningless.  Congress knows how to talk about indirect ownership when it wants. It didn't in the venue statute. The statute is about the principal assets of the debtor, not the debtor's non-debtor subsidiaries. Trying to bootstrap in this way is akin to LTL trying to bootstrap on non-debtor J&J's "distress." Bankruptcy law has clear boundaries—debtor vs. non-debtor—but if it's going to be ignored, then what are the "rules"? 

While I'm thumping on the venue issue, what of the "no harm, no foul" argument? I don't know what the harm is of SDNY venue at this point. This isn't an obvious issue like Boy Scouts going to Delaware to avoid 5th Circuit law on non-debtor releases. But I can say this with confidence: Sullivan & Cromwell clearly thought there was some benefit to their client in having SDNY venue, rather than Delaware or California venue. It's not that these other venues are somehow not equipped to handle a case like this (and notice how insulting that argument is to most of the 375 bankruptcy judges in the country...). Delaware and (Central District) of California have both done large bank holding company bankruptcies:  WaMu and IndyMac. Perhaps S&C simply doesn't want to take the Acela to Wilmington and stay at the Hotel Dupont, just as the California-based creditors don't want to fly out to LaGuardia. But it's also possible that there's some substantive legal issue S&C is concerned about that led it to file the case in SDNY. The very fact that the debtor ordered "off-menu" when there were two good, legitimate, alternative venue choices should set everyone's spidey sense tingling. I was pleased that the court has not put in "venue is proper" language in its orders so far; we'll have to see if there's an objection. That might turn on whether other parties can suss out a potential disadvantage to being in SDNY and want to risk the possibility that the judge takes umbrage with a venue motion, even if it's about governing law, rather than a question of getting a fair shake.