Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet)
- Summarized by Robert Yan , Otterbourg P.C.
- 12 years 2 months ago
- Citation:
- Docket No. 13-612 (2d Cir. Dec. 11, 2013)
- Tag(s):
-
- Ruling:
- VACATING bankruptcy court’s order and REMANDING for further proceedings, the Court of Appeals for the Second Circuit held that 11 U.S.C. § 109(a) applies to the debtor in a foreign main proceeding under Chapter 15 of the Bankruptcy Code.
- Procedural context:
- Direct appeal from an order of the United States Bankruptcy Court for the Southern District of New York (Chapman, J.) which granted recognition of a foreign main proceeding under Chapter 15 of the Bankruptcy Code without requiring the debtor to have a domicile, residence, place of business or property in the United States.
- Facts:
- Octaviar Administration Pty Ltd (“OA”), a company incorporated in Queensland, Australia, was ordered to be liquidated by the Supreme Court of Queensland on July 31, 2009. Various Australian affiliates of Drawbridge Special Opportunities Fund LP (“Drawbridge”) were investigated as part of the investigation into OA’s affairs. On April 3, 2012, a lawsuit was commenced in Australia against those affiliates. Katherine Elizabeth Barnet and William John Fletcher, the Foreign Representatives, are the liquidators of OA. On August 13, 2012, the Foreign Representatives petitioned the bankruptcy court for an order recognizing the Australian liquidation proceeding of OA as a foreign main proceeding under 11 U.S.C. § 1515. On September 6, 2012, the bankruptcy court entered, over the objection of Drawbridge, an order granting recognition as a foreign main proceeding (the “Recognition Order”). Drawbridge filed a notice of appeal to the district court on September 20. On October 5, 2012, the Foreign Representatives filed a motion seeking discovery from Drawbridge and other parties. Drawbridge sought a stay pending appeal. On November 28, 2012, the bankruptcy court granted a joint application for certification of the Recognition Order for direct appeal to the Court. As to the discovery motion, the bankruptcy court denied the motion to stay discovery on December 10, 2012, and granted the Foreign Representatives’ discovery motion on December 12 (the “Discovery Order”). On February 21, 2013, the Court granted the parties’ joint application for direct appeal and issued a stay of discovery.
The Court first addressed appellate standing. The Court agreed with the Foreign Representatives that, under the facts of the case, Drawbridge lacked standing to appeal the Recognition Order because that Order neither named Drawbridge nor directed any relief against Drawbridge. Drawbridge only relied on the Foreign Representatives’ statement at the Recognition Order hearing that they intended to take discovery of certain directors of Drawbridge. At most, the Recognition Order subjected Drawbridge only to potential future harm. The Court held that potential harm was insufficient to justify appellate standing. Therefore, the Recognition Order was not appealable by Drawbridge when it was issued.
The Court continued its analysis and found that Drawbridge was aggrieved by the Discovery Order. Although discovery orders are generally not appealable, the Court noted that there is an exception for discovery orders issued pursuant to 28 U.S.C. § 1782(a). Section 1782(a) provides for discovery “for use in a proceeding in a foreign or international tribunal.” The Court reasoned in Chevron Corp. v. Berlinger, that a Section 1782 discovery order “constitutes the final resolution of a petition to take discovery in aid of a foreign proceeding” and is immediately appealable. Finding Chapter 15 proceedings similar to Section 1782 proceedings, the Court applied the reasoning in Chevron to this case and concluded that the Discovery Order was appealable.
The Court next addressed whether the Discovery Order granted the Court jurisdiction over the premature notice of appeal from the Recognition Order. Here, Drawbridge’s notice of appeal of the Recognition Order was directed to the district court. Before the district court assumed jurisdiction of the appeal, however, the bankruptcy court suggested that the parties seek certification for a direct appeal to the Court to expedite discovery. The bankruptcy court issued its Discovery Order on December 12, 2012, approximately two weeks after the court granted certification of direct appeal of the Recognition Order to the Court. The parties did not file their joint application for direct appeal to the Court until December 21, 2012. Thus, at the time the Discovery Order was issued, there was no notice of appeal or request for direct appeal pending before the Court. Citing its decision in Community Bank, N.A. v. Riffle, the Court concluded that the Discovery Order caused the “premature notice of appeal from” the Recognition Order to “ripen into a valid notice of appeal.” The Court added that application of the Federal Rules of Appellate Procedure would also lead to the same result. In particular, the Court found that the Foreign Representatives were not deprived of the Rule 3 notice requirements or otherwise suffered any prejudice. Lastly, the Court held that a correctly noticed appeal of the Discovery Order would bring up the Recognition Order for review because the Recognition Order was a necessary prerequisite to the bankruptcy court’s order on discovery.
After concluding it had jurisdiction over the appeal, the Court examined whether 11 U.S.C. § 109(a) applies to a debtor in a Chapter 15 proceeding. The Court held that it did. In reaching its holding, the Court traced the applicable sections under the Bankruptcy Code. Section 1517(a) of the Bankruptcy Code sets forth the general requirements for recognition, and requires, among other things, that the proceeding “is a foreign main proceeding or foreign nonmain proceeding” as defined in section 1502. Section 1502(4) defines the term “foreign main proceeding” to mean “a foreign proceeding pending in the country where the debtor has the center of its main interests.” Section 101(23) defines the term “foreign proceeding” to mean “a collective judicial or administrative proceeding in a foreign country … under a law relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purposes of reorganization or liquidation.” Section 1502(1) defines the term “debtor” for purposes of Chapter 15 to mean “an entity that is the subject of a foreign proceeding.” Turning to section 109(a), “only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title.” The Court found that under section 103(a), Chapter 1 “of this title … appl[ies] in a case under chapter 15.” The Court further found that because section 109 is within Chapter 1 of Title 11, then “by the plain terms of the statute,” section 109 is applicable to a case under Chapter 15. “The debtor that is the subject of the foreign proceeding, therefore, must meet the requirements of Section 109(a) before a bankruptcy court may grant recognition of the foreign proceeding.” The Court found that because the Foreign Representatives made no attempt to establish that OA had a domicile, place of business or property in the United States, the bankruptcy court should not have granted recognition. The Court vacated the bankruptcy court’s order and remanded to the bankruptcy court for further proceedings consistent with its opinion.
- Judge(s):
- Jacobs, Straub (Circuit Judges), and Kuntz (District Judge sitting by designation)
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