Sarah Franzetti
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
In Moyal v. Münsterland Gruppe GmbH & Co. KG, the United States District Court for the Southern District of New York (“SDNY”) held that a breach of contract claim against a foreign debtor could be dismissed under principles of international comity, even if the debtor did not obtain recognition under Chapter 15 of Title 11 of the United States Code (the “Bankruptcy Code”).[1] In February of 2019, Plaintiff David Moyal brought an action in New York state court for breach of a distribution agreement against a German company, Münsterland Gruppe GmbH & Co. KG (“MGKG”).[2] After the action was removed to SDNY, MGKG filed for bankruptcy in Germany.[3] Consequently, all previously filed actions against MGKG were automatically stayed under German law.[4] Following its bankruptcy filing, MGKG filed a motion to dismiss or stay the breach of contract claim in New York, arguing, among other things, that the German automatic stay enjoined such litigation.[5] Plaintiff opposed MGKG’s motion on various grounds, including that Chapter 15 required MGKG to have first filed for recognition in order to be eligible for comity.[6]
SDNY granted MGKG’s motion to dismiss under principles of comity.[7] In general, comity allows one nation to defer to the proceedings in a foreign court or foreign law and decline to exercise jurisdiction in its own courts.[8] US courts have invoked the doctrine in foreign bankruptcy cases by dismissing claims in the US against a party involved in a foreign proceeding, in order to honor cross-border stays and give the debtor a fresh start internationally.[9] However, comity is not guaranteed.[10] In general, a court will extend comity to a foreign insolvency proceeding if the movant can show that “the foreign proceedings are procedurally fair and . . . do not contravene the laws or public policy of the United States.”[11] However, with the enactment of Chapter 15, Plaintiff argued that the foreign proceeding must also be recognized before comity can be extended thereto.
Here, the court held that comity was appropriate.[12] Although lacking an order granting recognition to the German proceeding under Chapter 15, the court concluded that MGKG had shown that the German insolvency laws “comport[ed] with due process and fairly treat[ed] claims of US creditors.”[13] MGKG established that German bankruptcy courts share US policies of distributing assets equally, mandating stays of other proceedings, and declining to show preference to its own creditors over foreign ones.[14] The court swiftly struck down Plaintiff’s suggestion that MGKG first obtain recognition, writing that such a requirement “is absurd and would fly in the face of comity principles.”[15] Rather, the court indicated that a showing that Germany’s bankruptcy laws and policy aligned with that of America was sufficient to warrant granting comity.[16]
The doctrine of comity—to prevent creditors from collecting on claims in the US while an action is stayed by a foreign court—rests on a core bankruptcy tenet: fairness.[17] Here, the court rejected the invitation to impose Chapter 15 recognition requirements before dismissing litigation against a company involved in foreign bankruptcy proceedings.[18]
[1] Moyal v. Munsterland Gruppe GmbH & Co. KG, No. 1:19-CV-04946, 2021 WL 1963899, at *4 (S.D.N.Y. May 17, 2021).
[2] Id. at *1.
[3] Id.
[4] Id.
[5] Id.
[6] Moyal v. Munsterland Gruppe GmbH & Co. KG, No. 1:19-CV-04946, 2021 WL 1963899, at *4, n.1 (S.D.N.Y. May 17, 2021).
[7] Id. at *3.
[8] Id. at *2 (citing In re Maxwell Commc'n Corp. plc, 93 F.3d 1036, 1047 (2d Cir. 1996).
[9] Munsterland, 2021 WL 1963899, at *2.
[10] Id. (citing In re Maxwell Commc'n Corp. plc, 93 F.3d at 1047) (noting that comity is “a discretionary act of deference”).
[11] Munsterland, 2021 WL 1963899, at *2 (quoting JP Morgan Chase Bank v. Altos Hornos de Mexico. S.A. de C.V., 412 F.3d 418, 424 (2d Cir. 2005).
[12] Moyal v. Munsterland Gruppe GmbH & Co. KG, No. 1:19-CV-04946, 2021 WL 1963899, at *3, n.1 (S.D.N.Y. May 17, 2021).
[13] Id. (quoting Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 714 (2d Cir. 1987)).
[14] Munsterland, 2021 WL 1963899, at *3 (citing Philadelphia Gear Corp. v. Phila. Gear, S.A., 44 F.3d 187, 193 (3d Cir. 1994)).
[15] Munsterland, 2021 WL 1963899, at *4, n.1 (quoting JP Morgan Chase Bank v. Altos Hornos de Mexico. S.A. de C.V., 412 F.3d 418, 424 (2d Cir. 2005).
[16] Munsterland, 2021 WL 1963899, at *4.
[17] 11 U.S.C. § 1501.
[18] Moyal v. Munsterland Gruppe GmbH & Co. KG, No. 1:19-CV-04946, 2021 WL 1963899, at *4, n.1 (S.D.N.Y. May 17, 2021) (citing 8 Collier on Bankruptcy ¶ 1509.02 (16th ed. 2021)) (“[C]ourts regularly rule that chapter 15 recognition is not a prerequisite to grant comity to foreign proceedings on the request of a party other than a foreign representative.”)