ISSUES IN INTERNATIONAL BANKRUPTCY PROCEEDINGS: CONFLICT OF LAWS, COMITY ANTI-SUIT INJUNCTIONS

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1 ISSUES IN INTERNATIONAL BANKRUPTCY PROCEEDINGS: CONFLICT OF LAWS, COMITY ANTI-SUIT INJUNCTIONS RUSSELL C. SILBERGLIED 1 NORTH AMERICAN REGIONAL VICE CHAIR BANKRUPTCY & INTERNATIONAL INSOLVENCY GROUP I. Conflict of Laws: The first section of this outline details how United States bankruptcy courts generally resolve conflict of law problems in international bankruptcy proceedings. A. A conflict of law problem does not arise when a foreign country s bankruptcy law is similar to United States bankruptcy law. 1. When a foreign country s bankruptcy law is similar to United States bankruptcy law, the United States bankruptcy court will apply the foreign country s law. a. In re Banco de Descuento, 78 B.R. 337 (Bankr. S.D. Fl. 1987). (i) Banco de Descuento (the Bank ), an Ecuadorian bank, began liquidating its assets under the General Law of Banks of the Republic of Ecuador (the General Law ) in Ecuador. Meanwhile, the Bank s liquidator filed an ancillary proceeding in the United States Bankruptcy Court for the Southern District of Florida. A creditor from the United States argued that United States liquidation law for 1 Mr. Silberglied is a Director of Richards, Layton & Finger, P.A. ( RL&F ), the Lex Mundi member firm in Wilmington, Delaware (U.S.A.). Mr. Silberglied would like to thank Melissa Chiprich, a summer associate at RL&F, for her substantial contribution to this outline. The views expressed in this outline are Mr. Silberglied s views and are not necessarily shared by, and should not be attributed to RL&F, its other Directors, or its clients

2 banks rather than the General Law controlled because United States liquidation law provided for more economical and expeditious administration of the Bank s assets. (ii) The United States Bankruptcy Court for the Southern District of Florida found no conflict between United States and Ecuadorian law since the two bodies of law are similar. Like United States liquidation law, the General Law provides for a stay of proceedings and a determination of the priority of claims and prohibits preferences and alienation or attachment of the assets of a bank liquidation. (iii) The court added, [Ecuadorian liquidation laws] as written [are] clearly not repugnant to American laws and policies. Id. at Note, however, that a similarity in the overall scheme of two countries bankruptcy laws might not, in certain circumstances, be sufficient to find that a specific issue in question will be treated similarly under either country s law. a. In re Budget Rent-A-Car Corp. ( BRACC ). (i) BRACC loaned $122 million to its wholly-owned subsidiary, BRACII, which was based in England and comprised BRACC's worldwide, non-united States operations

3 (ii) Under United States law, there was a substantial question as to whether BRACC s $122 million loan to BRACII, advanced at a time when BRACII was financially troubled, was debt or should be recharacterized as an equity advance. (iii) British law is more restrictive than United States law on the concept of recharacterizing debt as equity. Thus, the choice of United States or British law likely would have been outcome determinative on this $122 million issue. (iv) Although United States and British insolvency and bankruptcy law are generally very similar, they drastically diverged on this key issue in the case. (v) Because the parties settled (after extensive litigation), the court was not called upon to conduct a conflict of law analysis. B. When United States bankruptcy law conflicts with a foreign country s bankruptcy law, United States courts have followed two different lines of authority in determining which country s law applies. 1. Most courts follow a conflict of law analysis which considers the following factors: (1) was the transaction foreign ; (2) if so, does the United States Bankruptcy Code apply extraterritorially to the transaction; and (3) if it applies extraterritorially, does comity bar the court from applying the United States Bankruptcy Code

4 a. First, the bankruptcy court determines whether the transactions were foreign. If not, the bankruptcy court ends the analysis and applies the United States Bankruptcy Code. (i) Generally, a bankruptcy court applies a center of gravity test, which is a fact-intensive, case-by-case inquiry. [A] transfer made in the U.S. by a foreign national to a foreign national conceivably could be considered a domestic transaction. So, too, a transfer made overseas to a U.S. creditor of a U.S. debtor conceivably could be considered a domestic transaction. Maxwell Communication Corp. v. Barclays Bank (In re Maxwell Communication Corp.), 170 B.R. 800, 809 (Bankr. S.D.N.Y. 1994). See also Stonington Partners, Inc. v. Lernout & Hauspie Speech Prods. N.V., 310 F.3d 118, 131 (3d Cir. 2002). (ii) Gushi Bros. Co. v. Bank of Guam, 28 F.3d 1535 (9th Cir. 1994). (a) Gushi Brothers ( Gushi ) maintained a bank account with the Bank of Guam (the Bank ) in the Marshall Islands. After learning that Gushi had overdrawn on its account, the Bank s president traveled to the Marshall Islands and demanded that Gushi s owners execute a promissory note in the amount of the overdraft. The Bank sent Gushi s - 4 -

5 owners a letter, rejecting the owners request to renegotiate the promissory note and demanding that the owners close an account recently opened at another bank. (b) The Bank was chartered and headquartered in Guam, a United States territory, and belonged to the United States Federal Reserve System. (c) The Ninth Circuit Court of Appeals held that the banking transactions were foreign because the conduct complained of occurred in the Marshall Islands. The court deemed all facts relating to Guam and the Federal Reserve System inapposite. (iii) Interbulk, Ltd. v. Louis Dreyfus Corp. (In re Interbulk, Ltd.), 240 B.R. 195 (Bankr. S.D.N.Y. 1999). (a) Louis Dreyfus Corporation ( Dreyfus ), a United States corporation, negotiated two contracts between itself and debtor Interbulk, Incorporated ( Interbulk ), a United States corporation, by telephone in New York. Later, in trying to secure payments to Dreyfus through accounts in New York, Dreyfus obtained an order of attachment in connection with the contracts in Paris, France

6 Dreyfus sought to enforce the attachment in a British court and filed a proof of claim against Interbulk in the United States Bankruptcy Court for the Southern District of New York. Interbulk brought an adversary proceeding in the bankruptcy court to declare the attachment a preference. (b) The United States Bankruptcy Court for the Southern District of New York held that the attachment was a domestic transaction because the negotiations occurred in New York, the attachment was an effort to secure payment to Dreyfus through accounts in New York, and Dreyfus submitted itself to the bankruptcy court s equitable jurisdiction by filing a proof of claim. b. If the transaction is considered foreign, the bankruptcy court then determines whether the United States Bankruptcy Code applies extraterritorially to the transaction. (i) The United States Congress may legislate beyond the United States borders. Whether Congress so legislated is a matter of statutory interpretation. See Hong Kong and Shanghai Banking Corp. Ltd. v. Simon (In re Simon), 153 F.3d 991, 995 (9th Cir. 1998)

7 (ii) Absent a clear congressional directive to the contrary, courts presume that Congressional legislation applies only within the United States jurisdiction. See Hong Kong and Shanghai Banking Corp. Ltd. v. Simon (In re Simon), 153 F.3d 991, 995 (9th Cir. 1998). (iii) This presumption applies even when the potential international discord is remote or nonexistent. Sale v. Haitian Centers Council, Inc., 509 U.S. 155, (1993). (iv) Nevertheless, in Hong Kong and Shanghai Banking Corp. Ltd. v. Simon (In re Simon), 153 F.3d 991 (9th Cir. 1998), the Ninth Circuit Court of Appeals held that Section 524 of the United States Bankruptcy Code -- the discharge -- applied extraterritorially to enjoin a foreign creditor who sought foreign collection of a debt discharged in a United States bankruptcy proceeding in which the foreign creditor participated. Interestingly, Section 524 does not expressly provide for extraterritorial application. c. Finally, if the United States Bankruptcy Code applies extraterritorially to the foreign transaction, the bankruptcy court determines whether international comity bars it from applying the United States Bankruptcy Code. (i) Comity is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of - 7 -

8 another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws. Hilton v. Guyot, 159 U.S. 113, (1895). (ii) Comity can take two forms: (1) the application of foreign law by a United States court, or (2) deferring to a ruling already rendered by a foreign court. The first of those applications is discussed here as part of the typical threepart choice of law analysis. Section II of this outline considers the other notion of comity, i.e., whether United States courts defer to rulings of foreign insolvency courts, and under what circumstances. (iii) The party moving for abstention based on comity must prove that comity-based abstention is appropriate. United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc., 216 F. Supp. 2d 198, 212 (S.D.N.Y. 2002). (iv) A bankruptcy court evaluate[s] all of the various contacts each jurisdiction has with the controversy in terms of their relative importance with respect to a particular issue and make[s] a reasoned determination as to which jurisdiction's laws and policies are implicated to the greatest extent. Maxwell Communication Corp. v. Barclays Bank (In re - 8 -

9 Maxwell Communication Corp.), 170 B.R. 800, 816 (Bankr. S.D.N.Y. 1994). (v) Maxwell Communication Corp. v. Barclays Bank (In re Maxwell Communication Corp.), 170 B.R. 800 (Bankr. S.D.N.Y. 1994), illustrates how a court evaluates the various contacts and determines which jurisdiction s laws and policies are most implicated. (a) Maxwell Communication Corporation ( MCC ) was a publicly-owned holding company, incorporated in England and operated by British executives, who received instructions from a British board of directors. Before filing its Chapter 11 petition in the United States, MCC transferred money to defendant banks in England. The transfer documents provided that British law governed resolution of any subsequent disputes. MCC sought to avoid the transfers under Section 547 of the United States Bankruptcy Code. The defendant banks argued that, based on principles of comity, British law governed the foreign transfers. (b) The United States Bankruptcy Court for the Southern District of New York held that the British - 9 -

10 choice of law provision governed the foreign transactions. (c) The court also stated that, under principles of comity, British law would have governed the avoidance issue even if the transfer documents had lacked a choice of law provision. The court reasoned that England had the most contact with the issue: (1) MCC was a British company; (2) most of MCC s creditors were British; (3) MCC negotiated the transfers in England; and (4) the challenged transfers occurred in England. Furthermore, the United States policy interests did not compel the court to apply the United States Bankruptcy Code since (1) England s avoidance law is not repugnant to Section 547, and (2) the defendant banks probably assumed that British, not United States, bankruptcy law would govern if MCC, a British company, filed for bankruptcy. (vi) In re French, 303 B.R. 774 (Bankr. D. Md. 2003). (a) A Chapter 7 debtor allegedly transferred real property located in the Bahamas for no consideration within months of filing her bankruptcy petition. The Chapter 7 trustee filed a

11 complaint in the United States Bankruptcy Court for the District of Maryland, seeking to avoid the allegedly fraudulent transfer under Section 548 of the United States Bankruptcy Code. The debtor moved to dismiss the complaint, arguing that the court, under principles of comity, should not apply Section 548 to property located in the Bahamas. The debtor further argued that Bahamian law governed because the debtor had an interest in Bahamian property. (b) The United States Bankruptcy Court for the District of Maryland held that Section 548 of the United States Bankruptcy Code rather than Bahamian law governed the avoidance action because, under Bahamian law, the debtor no longer had an interest in Bahamian property, which she previously conveyed. 2. A minority of courts follow a typical United States conflict of law analysis rather than the three-part analysis described above. In essence, without discussing whether the Bankruptcy Code purports to apply extraterritorially or whether comity concerns warrant deference, these courts treat the choice of applying United States or foreign law no

12 differently than they would approach a conflict between the laws of two states within the United States. a. These courts will first determine whether a choice-of-law clause exists in a contract. (i) United States bankruptcy courts and appellate courts on review will usually enforce a foreign choice-of-law clause in a contract. (a) In re Harnischfeger Indus., Inc., 293 B.R. 650 (Bankr. D. Del. 2003). 1) The United States Bankruptcy Court for the District of Delaware enforced a United States choice-of-law clause in a purchase order that spurred a dispute between an Austrian debtor and the debtor s receiver. 2) Delaware law recognizes the validity of choice of law clauses contained in purchase orders. Id. (b) Assuranceforeningen Skuld, Den Danske Afdeling v. Allfirst Bank (In re Millenium Seacarriers, Inc.), 96 Fed. Appx. 753 (2d Cir. 2004). 1) Millennium Seacarriers, Inc. ( Millennium ) purchased insurance from Assuranceforeningen Skuld, Den Danske Afdeling ( Skuld ). The

13 insurance policy contained a Norwegian choiceof-law clause. Thereafter, Millennium filed for bankruptcy in the United States and Skuld sought to recover the value of unpaid insurance premiums. Under Norwegian law, the unpaid insurance premiums were not given the priority of maritime liens. Since Norwegian law did not provide a remedy, Skuld argued it could pursue its claim under United States law. 2) The United States Bankruptcy Court for the Southern District of New York enforced the Norwegian choice-of-law clause in the insurance contract. 3) The Second Circuit Court of Appeals affirmed the bankruptcy court s decision. In transactions of an international character, freely negotiated...choice-of-law clauses are binding unless a court finds that it would be unfair, unjust, or unreasonable to hold [a] party to his bargain. Id. at (internal citation omitted). The court found that no injustice would result by enforcing the Norwegian choice-of-law clause

14 (ii) Other courts in the United States have not enforced foreign choice-of-law clauses for the following reasons. (a) The contract provided that the choice-of-law clause would govern only certain controversies. E.g., Liverpool & London Steamship Protection & Indemnity Assoc. Ltd. v. Queen of Leman MV, 296 F.3d 350, (5th Cir. 2002) (holding that United States law determined whether a maritime lien existed because the foreign choice-of-law clause was not written to govern all possible in rem actions). (b) The parties who agreed to the choice-of-law clause had unequal bargaining power. See Indussa Corp. v. S.S. Ranborg, 377 F.2d 200, 201 (2d. Cir. 1967) (refusing to enforce a foreign choice-of-law clause in a bill of lading that was a contract of adhesion). (c) Principles of comity may trump a choice-of-law clause. See JP Morgan Chase Bank v. Altos Hornos de Mexico S.A. DE C.V., No. 03 Civ (HB), 2004 WL (S.D.N.Y. Jan. 8, 2004). In JP Morgan, various promissory notes contained a choice-of-law clause which provided that New York or Mexican law would apply if the debtor or

15 creditor filed an adversary proceeding in New York or Mexico respectively. After the debtor filed for bankruptcy in Mexico, the creditor filed an adversary proceeding in New York. The United States District Court for the Southern District of New York held that, despite the choice-of-law clause, principles of comity empowered the Mexican court to hear the adversary proceeding and to decide the proceeding under Mexican law, which the Mexican court better understood. (d) The chosen law has no substantial relationship to the parties or transaction, and no reasonable basis for the parties choice exists. See In re Kellas, 113 B.R. 673, 679 (D. Or. 1990). (e) The chosen law is contrary to a fundamental policy of the forum state. In re Kellas, 113 B.R. 673, 679 (D. Or. 1990). For example, while there are no reported decisions on point, a United States bankruptcy court would probably not apply foreign law, even if the contract has a foreign choice-of-law clause, to uphold a contractual clause stating that the contract terminates or a party is in default upon the party s insolvency or filing for bankruptcy

16 This type of contractual provision, known as an ipso facto clause, is void as against United States public policy and the United States Bankruptcy Code. See 11 U.S.C. 365(e)(1)(B); 11 U.S.C. 363(l). b. If the issue concerns a matter of internal corporate governance, courts applying the traditional United States conflict of law analysis will apply the internal affairs doctrine. (i) The internal affairs doctrine is a conflict of law principle that requires the law of the state of incorporation to govern issues relating to, inter alia, transactions and relationships between a corporation and its officers, directors, and shareholders. Edgar v. MITE Corp., 457 U.S. 624, 645 (1982). (ii) In re Harnischfeger Indus., Inc., 293 B.R. 650 (Bankr. D. Del. 2003). (a) Beloit Austria, an Austrian corporation, was a wholly-owned subsidiary of Beloit Corporation ( Beloit ), a United States corporation. In spring 1999, Beloit paid Beloit Austria s vendors and deposited money in Beloit Austria s bank accounts. In June 1999, Beloit filed its Chapter 11 petition in the United States Bankruptcy Court for the District of Delaware; however, Beloit kept depositing

17 money in Beloit Austria s bank account. Beloit then asserted that Beloit Austria owed it $7 million. In November 1999, Beloit Austria filed for insolvency proceedings in Austria. (b) The United States Bankruptcy Court for the District of Delaware was called upon to determine whether Beloit s monetary advances constituted a loan or an equity investment. Beloit argued that United States law governed the issue. Beloit Austria s Receiver argued that Austrian law governed based on the internal corporate affairs doctrine. (c) The United States Bankruptcy Court for the District of Delaware held that the internal corporate affairs doctrine applied because the issue involved transactions between a corporation and its shareholders. Therefore, the court applied Austrian law. C. Conclusion: 1. If United States bankruptcy law conflicts with a foreign country s bankruptcy law, the bankruptcy court will follow one of two lines of authority: the majority three-part conflict of law analysis focusing on comity concerns or the minority, traditional United States conflict of law analysis

18 2. It is worth observing that courts applying the minority approach generally have applied foreign law rather than the United States law. Thus, it is conceivable that these seemingly divergent lines of authority really are not fundamentally different; rather, it is possible that the courts that decided Harnischfeger and Millennium Seacarriers did not perform a comity analysis because they had already determined, for other reasons, to apply foreign law. II. Comity and Rulings of Foreign Insolvency Tribunals: This section of the outline explores whether courts in the United States will honor a ruling in a foreign bankruptcy proceeding. A. What is comity? 1. Comity is the recognition which one nation allows within its territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws. Hilton v. Guyot, 159 U.S. 113, (1895) (emphasis added). B. Comity requires a United States court to honor a ruling in a foreign bankruptcy proceeding in most circumstances. 1. As applied to a bankruptcy proceeding, the extension of comity enables the assets of a debtor to be dispersed in an equitable, orderly, and systematic manner, rather than in a haphazard, erratic or piecemeal fashion. Cunard S.S. Co. Ltd. v. Salen Reefer Serv. AB, 773 F.2d 452, 458 (2d Cir. 1985)

19 C. Yet, despite principles of comity, a United States court will not honor a ruling in a foreign bankruptcy proceeding that lacked notions of procedural fairness. 1. Under the law of the United States, a foreign judgment cannot be enforced in a U.S. court unless it was obtained under a system with procedures compatible with the requirements of due process of law. For instance, [n]otice is an element of due process and the United States will not enforce a judgment obtained without the bare minimum requirements of notice. Int l Trans., Ltd. v. Embotelladora Agral Regiomontana, SA DE CV, 347 F.3d 589, 594 (5th Cir. 2003). 2. To determine whether a foreign bankruptcy proceeding abide[s] by fundamental standards of procedural fairness, [a court] focuse[s] on several factors [such] as indicia of procedural fairness, including: (1) whether creditors of the same class are treated equally in the distribution of assets; (2) whether the liquidators are considered fiduciaries and are held accountable to the court; (3) whether creditors have the right to submit claims which, if denied [by the debtor], can be submitted to a bankruptcy court for adjudication; (4) whether the liquidators are required to give notice to the debtors potential claimants; (5) whether there are provisions for creditors meetings; (6) whether a foreign countrys insolvency laws favor its own citizens; (7) whether all assets are marshalled before one body for centralized distribution; and (8) whether there are provisions for an automatic stay and for the lifting of such stays to facilitate the centralization of claims. Finanz AG Zurich v. Banco

20 Economico S.A., 192 F.3d 240, 246, 249 (2d. Cir. 1999) (internal citation omitted). D. At least two United States courts have refused to honor orders issued in foreign bankruptcy proceedings due to the lack of requisite notice. 1. Int l Trans., Ltd. v. Embotelladora Agral Regiomontana, SA DE CV 347 F.3d 589 (5th Cir. 2003). a. The Agral Companies ( Agral ), Mexican companies, filed for bankruptcy in Mexico under Mexican law. International Transactions, Ltd. ( ITL ) obtained an arbitration award against Agral in Dallas, Texas. Sharp Capital, Inc. ( Sharp ) acted as ITL s undisclosed agent and the provisional intervener for Agral s creditors. At ITL s instruction, Sharp filed a claim in the Mexican bankruptcy court for confirmation and recognition of the award. Then, without ITL s authorization, Sharp assigned the award to a third party. Subsequently, ITL filed suit against Sharp in the United States District Court for the Northern District of Texas. Two years later, the Mexican bankruptcy court determined that Sharp was no longer Agral s creditor and dismissed Sharp as the provisional intervener. Although Mexican bankruptcy law typically affords notice to all creditors, ITL never received notice of that bankruptcy proceeding. Moreover, ITL did not appear in the Mexican bankruptcy court

21 b. ITL urged the United States District Court for the Northern District of Texas to enforce the arbitration award and to find Sharp s assignment invalid. The district court honored the Mexican bankruptcy court s determination. c. The issue on appeal was whether ITL had notice and an opportunity to be heard in the Mexican bankruptcy court on its claim to the arbitration award. d. The Fifth Circuit Court of Appeals held that ITL was not afforded notice and an opportunity to be heard. Thus, it reversed, holding that the district court erred in honoring the Mexican bankruptcy court s determination based on principles of comity. 2. Interpool, Ltd. v. Certain Freights of the M/V Venture Star, 102 B.R. 373 (D.N.J. 1988). a. Wah Kwong filed an involuntary liquidation proceeding against Karlander Kangaroo Lines ( KKL ), an Australian corporation, in Australia. The Australian court ordered KKL to liquidate its assets. Mr. Dunn, KKL s liquidator (the Liquidator ), entered into various agreements with Wah Kwong, which the Australian court approved. The Liquidator also filed a petition in the United States Bankruptcy Court for the District of New Jersey for relief under Section 304 of the United States Bankruptcy Code. Section 304 provides for a United States insolvency case ancillary to foreign insolvency proceedings. Under Section 304, the Liquidator sought

22 to administer assets located in the United States pursuant to Australian bankruptcy law and the Wah Kwong agreements. Subsequently, various KKL creditors in the United States filed an involuntary Chapter 7 petition against KKL. b. The issue before the United States District Court was whether it should, under principles of comity, honor the Australian court s approval of the Wah Kwong agreements even though Australian law does not require a liquidator to give notice to creditors from the United States. c. Despite principles of comity, the District Court for the District of New Jersey did not honor the Australian court approval of the agreements because the United States creditors were not notified before the Australian court ratified the agreements between the Liquidator and Wah Kwong. Therefore, the Australian proceedings lacked notions of due process. E. One United States court addressed the procedural fairness of a liquidation proceeding in Ecuador. 1. In re Banco de Descuento, 78 B.R. 337 (Bankr. S.D. Fl. 1987). a. Banco de Descuento (the Bank ) was an Ecuadorian bank located in Ecuador. An Ecuadorian court ordered the Superintendent of Banks of the Republic of Ecuador (the Liquidator ) to liquidate the Bank s assets. At the same time, the Liquidator filed a petition under Section 304 of the United States Bankruptcy Code. The

23 Liquidator requested an injunction, staying actions by American creditors pending the Bank s liquidation in Ecuador. First National Bank of Palm Beach ( First Palm Beach ), an United States creditor which questioned the timing and cause of the Bank s liquidation, opposed the petition and urged the bankruptcy court not to honor the Ecuadorian liquidation proceeding. b. One of the issues before the United States Bankruptcy Court for the Southern District of Florida was whether the Ecuadorian liquidation proceedings comported with United States notions of fairness and due process so that it could extend comity to the Ecuadorian proceeding. c. In addressing the issue, the bankruptcy court found Ecuadorian and United States liquidation laws for banks similar. Like United States law, the General Law of Banks of the Republic of Ecuador provides for a stay of proceedings and a determination of the priority of claims and prohibits preferences and alienation or attachment of the assets of a bank liquidation. d. This similarity suggests that the Ecuadorian liquidation proceeding comported with United States notions of fairness and due process. e. Nevertheless, the United States Bankruptcy Court for the Southern District of Florida refrained from answering the issue: As the proceedings in Ecuador progress, the Court will be able to assess whether the [Ecuadorian liquidation laws], as applied, provides

24 fair treatment to United States creditors. Id. at 340. The court stayed the United States proceeding. F. Most United States courts have honored a ruling in foreign bankruptcy proceedings under principles of comity. a. Comity Based On Notice: (i) Ecoban Fin. Ltd. v. Grupo Acerero del Norte SA DE CV, 108 F. Supp. 2d 349 (S.D.N.Y. 2000). (a) Grupo Acerero del Norte ( Acerero ), a Mexican conglomerate, filed a Suspension of Payments ( SOP ) petition (similar to a United States Chapter 11 petition) in Mexico. The Mexican court granted Acerero s petition. Subsequently, Ecoban Finance Limited, a New York corporation, filed a lawsuit in the United States District Court for the Southern District of New York to collect on a series of pastdue promissory notes that Acerero had issued in Mexico. Acerero moved to dismiss the New York suit, asking the district court, for reasons of comity, to defer to the Mexican SOP proceeding. (b) In considering the motion to dismiss, the United States District Court for the Southern District of New York focused on whether the SOP proceeding comported with United States notions of

25 fundamental procedural fairness. If so, principles of comity dictated dismissal. (c) The district court held that the SOP proceeding did not violate United States notions of procedural fairness and that comity deference was appropriate under the circumstances. (d) The district court reasoned that Acerero s creditors were given legitimate opportunity to make their claims and to address any grievances within the SOP proceeding. (e) Moreover, the district court did not find the SOP process unfair just because it could last ten years. (ii) Finanz AG Zurich v. Banco Economico S.A., 192 F.3d 240 (2d Cir. 1999). (a) Banco Central de Brazil ( Central Bank ) placed Banco Economico S.A. ( BESA ) in a Brazilian extrajudicial liquidation, which is functionally similar to a United States bankruptcy proceeding. Yet, unlike a United States bankruptcy proceeding in which a creditor receives individualized notice, creditors in a Brazilian extrajudicial proceeding receive only published notice of the liquidation

26 (b) Subsequently, Finanz AG Zurich ( Finanz ) filed suit in the United States District Court for the Southern District of New York to recover the value of various promissory notes in the Brazilian liquidation. BESA moved to dismiss the New York action in deference to the Brazilian liquidation proceeding under principles of comity. Finanz maintained that the Brazilian proceeding violated United States standards of due process and fundamental fairness because creditors were not individually notified. (c) The United States District Court for the Southern District of New York extended comity to the Brazilian liquidation proceeding under principles of comity and dismissed Finanz s suit. (d) The Second Circuit Court of Appeals affirmed the district court s grant of comity to the Brazilian liquidation proceeding. The appeals court held that the Brazilian liquidation proceeding did not violate due process because, even though Finanz did not receive individualized notice, it had actual notice of the proceeding

27 (e) Although the appeals court did not ultimately decide whether Brazil s policy of published notice violates United States standards of due process and fundamental fairness, the tone of the opinion suggests that published notice does not provide sufficient notice and that, but for the creditor having actually read the published notice, the case could have been decided differently. (f) In United States domestic bankruptcy cases, if the debtor is unaware of the creditor s claim or identity, United States courts recognize that published notice satisfies the due process requirements if the published notice is reasonably calculated to apprise the unknown creditors of the pending bankruptcy. See Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 317 (1950). (g) On the other hand, published notice does not satisfy due process when the creditor is known to the debtors. Known creditors must be given actual notice of the case. Jones v. Chemetron Corp., 212 F.3d 199, 205 (3d. Cir. 2000). (iii) Pravin Banker Assoc., Ltd. v. Banco Popular del Peru, 165 B.R. 379 (S.D.N.Y. 1994)

28 (iv) Banco Popular del Peru (the Bank ) was a bank incorporated in Peru. The Superintendent of Banks in Peru ordered the Bank to dissolve and liquidate its assets. The Bank s liquidation committee publicly announced all decisions about the Bank s claims. As required by Peruvian liquidation law, the Special Representative (similar to a bankruptcy trustee) created three lists of claims and creditors: (1) a preliminary list of creditors, (2) a creditor list that included non-declared creditors, and (3) a list indicating all approved and rejected claims. The Special Representative published the third list in an official Peruvian newspaper and sent actual notice to all foreign creditors. Pravin Banker Associates ( Pravin ), the Bank s creditor, learned about the dissolution and liquidation but never participated in the liquidation process. Subsequently, Pravin filed suit in the United States District Court for the Southern District of New York to collect a debt that the Bank owed it. The Bank moved to dismiss the New York suit based on principles of comity. (v) The United States District Court for the Southern District of New York extended comity to the Peruvian dissolution and liquidation proceedings, finding that the Peruvian proceedings comported with United States notions of due

29 process and fairness. The court reasoned that Pravin received actual notice. (vi) Cunard S.S. Co. Ltd. v. Salen Reefer Serv. AB, 773 F.2d 452 (2d Cir. 1985). (a) The United States District Court for the Southern District of New York was called upon to decide whether it should extend comity to a Swedish bankruptcy proceeding. (b) The court extended comity, reasoning that the Swedish bankruptcy administrator and trustee notified all of the debtor s creditors. The Swedish bankruptcy court abided by fundamental standards of procedural fairness. b. Comity Based On Similarity of Substantive Law: (i) Kenner Prod. Co. v. Societe Fonciere et Fianciere Agache- Willot, 532 F. Supp. 478 (S.D.N.Y. 1982). (a) The United States District Court for the Southern District of New York extended comity to a French bankruptcy proceeding. (b) The court did not discuss procedural due process. Rather, the court discussed the similarities between French and United States bankruptcy law governing

30 distribution of assets. Because they were similar, the court extended comity. c. Lindner Fund, Inc. v. Polly Peck Int l PLC, 143 B.R. 807 (S.D.N.Y. 1992). (i) Polly Peck International ( Polly Peck ) was a publicly-held conglomerate organized under the laws of the United Kingdom. The Companies Court of England and Wales in the Chancery Division of the High Court of Justice granted an Administration Order that allowed Polly Peck to reorganize. An Administration Order is substantively similar to a United States Chapter 11 petition. The Administration triggered a stay against all other proceedings regarding Polly Peck. Subsequently, Lidner Fund, Incorporated filed a lawsuit in the United States District Court for the Southern District of New York against Polly Peck. Polly Peck moved to dismiss the New York lawsuit on grounds of comity. (ii) The United States District Court for the Southern District of New York extended comity to the British reorganization proceeding. (iii) The court did not discuss procedural due process. Rather, the court extended comity because the bankruptcy proceeding was filed in a sister common law jurisdiction

31 United States courts presume that such common law courts comport with United States notions of due process. d. In re Schimmelpenninck, 183 F.3d 347 (5th Cir. 1999). (i) A Dutch bankruptcy court ordered Schimmelpenninck to liquidate its assets. Thereafter, a creditor from the United States filed suit in the United States Bankruptcy Court for the Northern District of Texas. (ii) The United States Bankruptcy Court for the Northern District of Texas extended comity to the Dutch bankruptcy proceeding, reasoning that the Netherlands is a sister common law jurisdiction. G. Conclusion: United States courts will extend comity to a ruling in a foreign bankruptcy proceeding as long as due process was afforded, such as actual notice or similarity with United States substantive law. III. International Anti-suit Injunctions: The last section of this outline briefly examines international anti-suit injunctions, an issue that may arise in international bankruptcy proceedings. A. An international anti-suit injunction issued by a United States bankruptcy court enjoins a creditor, who is subject to the United States bankruptcy court s jurisdiction, from pursuing litigation before foreign courts. Quaak v. Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, 17 (1st Cir. 2004). B. In deciding whether to issue an international anti-suit injunction, a United States bankruptcy court considers principles of international comity and the facts of the

32 case. Those considerations ordinarily establish a rebuttable presumption against issuing an injunction that halts foreign proceedings. This is known as the anti-suit injunction doctrine. Quaak v. Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, 17 (1st Cir. 2004). C. Notwithstanding this presumption against foreign anti-suit injunctions, a bankruptcy court may issue an injunction if the foreign proceeding will undermine the bankruptcy court s ability to reach a just and speedy result. Quaak v. Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, 19 (1st Cir. 2004). D. In re Rare, LLC, 298 B.R. 762 (Bankr. D. Colo. 2003). 1. Rare, LLC ( Rare ) was a fine wine supplier in the United States. The Marcianos, United States creditors, ordered and paid for wine futures from Rare, but Rare never delivered the wine. Accordingly, the Marcianos sued Rare in a French court to obtain the wine in which the Marcianos claimed an interest. Subsequently, Rare filed its Chapter 11 petition in the United States Bankruptcy Court for the District of Colorado. Instead of causing the ongoing suit in France to be stayed, the Marcianos pursued the French suit. The French court ordered the post-petition seizure of the wine. 2. Rare moved the United States Bankruptcy Court for the District of Colorado to issue an international anti-suit injunction, enjoining the Marcianos from pursuing the French suit any further. 3. Despite the anti-suit injunction doctrine, the United States Bankruptcy Court for the District of Colorado granted Rare s motion. The court

33 reasoned that Rare s Chapter 11 petition triggered an automatic stay. If the court refrained from enforcing the automatic stay, Rare s rights to reorganize would be effectively eviscerated. 4. The court further reasoned that any interests in comity did not overcome the court s interest in controlling Rare s property. The interest of the French courts in adjudicating a matter that, at its core, is a dispute between American citizens is minor compared to the interest of this Court in determining the applicability of the automatic stay which is the very cornerstone of this Court s jurisdiction. Id. at