Foreign Proceedings and Ancillary Cases

In In re Blackwell, 270 B.R. 814 (Bankr. W.D. Tex. 2001), Bankruptcy Judge Leif M. Clark addressed a request by joint official liquidators of a Cayman Islands company seeking relief in a case ancillary to a foreign proceeding. The court held that a case ancillary to a foreign proceeding under §304 is commenced by the filing of a petition, and there is no necessity of service. Further, the court held that a court-supervised liquidation of a foreign debtor in the Grand Court of the Cayman Islands under the section of the Cayman Islands Companies Law dealing with "Winding Up by Court" qualified as a foreign proceeding of the kind required to support an ancillary case. The court also noted that when a case ancillary to a foreign proceeding is initiated, and the foreign representative seeks "more generic forms of relief" such as a general stay of creditor collection actions against estate property located in the United States, no separate adversary proceeding is required. However, more specific kinds of relief, such as "turnover" of a particular property, should be sought through an adversary proceeding.

Section 501 Gives Foreign Liquidators Power

In In re Griffin Trading Co., 270 B.R. 883 (Bankr. N.D. Ill. 2001) Bankruptcy Judge Erwin I. Katz addressed certain issues relating to the rights of joint liquidators in a foreign proceeding that is ancillary to a U.S. bankruptcy case. The court held that foreign representatives are only given rights in the U.S. Bankruptcy Courts pursuant to §§303, 304, 305 and 306. Further, the term "foreign representative" as defined in §101(24), was interpreted to relate only to a representative of the estate in a foreign proceeding, which is limited to the main proceeding in a foreign country. Thus, the court held that the Bankruptcy Code provisions conferring rights within the United States do not apply to foreign liquidators appointed by a foreign court to act in a foreign proceeding that is ancillary to the main U.S. proceeding. Thus, those foreign liquidators did have the power under §501 or Bankruptcy Rule 3004 to file a proof of claim on behalf of foreign creditors. The court also rejected the argument that the joint liquidators had authority pursuant to Bankruptcy Rule 3001(b) to file a proof of claim as an authorized agent. Noting that a U.K. liquidator is an agent of and appointed by the English courts, appointed liquidators are subject to control of the court, so they cannot be agents of auditors.

Jury Demands, Proofs of Claim and Counterclaims

In In re Dietert, 271 B.R. 499 (Bankr. S.D. Tex. 2002), Bankruptcy Judge Wesley W. Steen addressed issues relating to jury demands, proofs of claim, objections to claims and counterclaims, noting that it is impossible to reconcile the number of decisions that apply the Seventh Amendment to bankruptcy cases. However, the three relevant Supreme Court decisions of Katchen v. Landy, 382 U.S. 323 (1966), Granfinanciera S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989), and Lagenkamp v. Culp, 111 S.Ct. 330 (1990), state that if a creditor files a claim, the bankruptcy court should determine any objections to that claim notwithstanding that some of the objections might constitute separate actions at law if the creditor had not filed a proof of claim. It is clear the creditors do not have a right to a jury trial with respect to determination of claims or any objections to such claims. The objections to claims, even to the extent they constitute a counterclaim for affirmative relief that exceeds the creditors' claim, can be adjudicated by the bankruptcy judge without a jury, and the judge can award a judgment for affirmative relief against the creditor if all elements necessary to adjudication of the counterclaims are part of the adjudication of the objection to the claim. Further, the creditor retains the right to a jury trial with respect to any issue that need not be adjudicated as part of the allowance of the claim or an objection to the claim. In any event, the consequences of res judicata and collateral estoppel apply to the bankruptcy court's adjudication.

Debtor Has Arbitration Burden

In In re Cavanaugh, 271 B.R. 414 (Bankr. D. Mass. 2001), Bankruptcy Judge Joan N. Feeney addressed a claim that a debtor was required to arbitrate an alleged violation of the automatic stay. The court noted that the debtor has the burden of establishing that his claim should not be arbitrated, and to meet that burden, he must satisfy the test articulated by the Supreme Court in Greentree Fin. Corp.-Alabama v. Randolph, 121 S.Ct. 513 (2000), which noted that the purpose of the Federal Arbitration Act (FAA) is to "reverse the longstanding judicial hostility to arbitration agreements...and to place arbitration agreements upon the same footing as other contracts." The court then turned to the two-part test in Randolph, noting that the first question was whether the parties agreed to submit the debtor's claims to arbitration. The debtor's claims included an allegation that the defendant sought payment of attorney's fees in violation of the Bankruptcy Code, and that they purposely violated the discharge injunctions as well as made specific allegations with regard to themselves. The court reviewed the particular provision and noted that while the promissory note containing the arbitration provision makes reference to attorney's fees that may be permitted under the Bankruptcy Code and awarded "by any court exercising jurisdiction," the dispute over attorney's fees may not fit squarely within the arbitration provision of the note as a dispute arising from the contract between the parties and contemplated as circumstance where the bankruptcy court would determine the attorney's fees. The court noted that the second question was more complex in that the debtor also sets forth a violation of the automatic stay for—among other things—collecting attorney's fees from the debtor during the pendency of the automatic stay, and set forth an alleged violation for contempt of court for violating §§506 and 362. The court noted that the automatic stay is the "single most important protection afforded to debtors by the Bankruptcy Code" and that the automatic stay is an injunction issuing from the authority of the bankruptcy court. Therefore, the court held that the bankruptcy court should determine whether the injunction was violated and protect it from collateral attacked in another form. The court also held that the debtor's causes of action with respect to the alleged stay violation were core proceedings as they arise under Title 11. The court held that the debtor's claims were not derivative of any pre-petition, legal or equitable rights that arose solely because of Title 11, and as such, the debtor was entitled to see redress in the bankruptcy court system and not compelled to arbitrate their claims.

Miscellaneous

• In re First City Bancorporation of Texas Inc., 270 B.R. 807 (N.D. Tex. 2001) (in considering a motion for sanctions, what matters is whether sanctions were appropriate, not what motivated the request for sanction or whether the moving party is also guilty of wrongdoing);
• In re Sigmond, 270 B.R. 858 (Bankr. S.D. Ohio 2001) (as recoupment is neither a "claim" nor "debt" that is dischargeable, creditor is under no obligation to file proof of claim or to commence dischargeability proceeding in order to exercise recoupment rights and was not in violation of the discharge injunction when recouped);
• In re Comdisco Inc., 270 B.R. 909 (Bankr. N.D. Ill. 2001) (trustee may not reject and thereby breach one contract and still enjoy the benefits of the related contract if a breach of one contract is also a breach of the related contract);
• In re Laclede Steel Co., 271 B.R. 127 (8th Cir. BAP 2002) (in order to fall within the ordinary course of business defense, late payments made during the preference period must fall within normal range of lateness);
• In re Foreman Enterprises Inc., 271 B.R. 483 (Bankr. W.D. Pa. 2000) (action brought against debtor's bank for alleged wrongful dishonor of letter of credit fell within at least "related to" jurisdiction where debtor was contractually obligated to indemnify bank for damages incurred in connection with letter of credit and resolution of dispute could, at the very least, affect the debtor's liabilities or administration of its estate);
• In re Wilson, 271 B.R. 511 (Bankr. E.D. Mich. 2001) (joint conduct between the debtor and non-debtor defendants allegedly in connection with fraudulently obtained loans is not sufficient to confer bankruptcy court jurisdiction on the non-debtor defendants);
• In re Bauhaft, 271 B.R. 517 (Bankr. E.D. Mich. 2001) (while a pre-petition waiver of discharge for a particular debt or all debts is against public policy and unenforceable, pre-petition stipulation of facts that fully establish the elements of a non-dischargeability claim was entitled to be given collateral estoppel effect in the subsequent dischargeability proceeding brought in bankruptcy court); and
• In re Youngstown Osteopathic Hospital Assn., 271 B.R. 544 (Bankr. N.D. Ohio 2002) (while D&O liability policy was an asset of the estate, the court could not enter an order preventing the insurer from making payments to officers and directors to fund costs of defense as policy proceeds were not included in the bankruptcy estate nor protected by the automatic stay).