In re: Décor Holdings, Inc., et a

Case Type:
Case Status:
23-60-bk (2nd Circuit, Nov 22,2023) Published
United States Court of Appeals for the Second Circuit ruled that it did not have jurisdiction to rule on the Eastern District of New York Court's order vacating the Bankruptcy Court's entry of default judgment against a Chinese preference defendant and remanding the matter to the Bankruptcy Court. The District Court’s order setting aside the default judgment was not an appealable, final order. The issue in question had not been fully litigated on the merits.
Procedural context:
Appeal to the United States Court of Appeals for the Second Circuit by a post-confirmation litigation administrator seeking to vacate the Eastern District of New York Court's order vacating the Bankruptcy Court's entry of default judgment against a Chinese preference defendant.
Décor Holdings, Inc., et al (the "Debtors") filed their bankruptcy petitions on February 12, 2019. Sumec Textile Company Limited ("Sumec") was a creditor of the Debtors. Sumec submitted a claim for credit insurance and in return for insurance payments, authorized its Chinese credit insurer to collect the full amount of the debt in Sumec’s name. The insurer subsequently hired a U.S. collection agency that filed a proof of claim against the Debtors in Sumec's name and requested that all notices be sent to the U.S. collection agency. Subsequently, a plan was confirmed and a litigation administrator was appointed, who was authorized to bring preference actions. In August 2020, the litigation administrator filed an adversary proceeding against Sumec seeking the return of preferential transfers totaling approximately $695,000, and mailed the summons and complaint to Sumec, care of the U.S. collections agent. The collection agent asked for extensions of time to respond to the complaint. Ultimately, an answer was not filed and the Bankruptcy Court for the Eastern District of New York entered default judgment. Sumec claimed it never received the summons and complaint or was otherwise made aware of the action. Sumec moved for the Bankruptcy Court to re-open the adversary proceeding and vacate the default judgment. It argued that litigation administrator’s service of process by mailing a copy of the summons and complaint to a domestic debt-collector hired by Sumec’s insurer to collect on the debt owed to Sumec did not satisfy due process or establish personal jurisdiction over Sumec. The bankruptcy court denied the motion, finding that the debt collect0r was Sumec’s subagent for purposes of the proof of claim, that service of process on Sumec at the address listed in the proof of claim constituted proper service under Bankruptcy Rule 7004(b)(3), and that the litigation administrator reasonably relied on the information in the proof of claim. Sumec appealed to the District Court who issued a Memorandum and Order, vacating the entry of default judgment and remanding to the bankruptcy court for further proceedings. In doing so, the District Court held that Sumec never specifically conferred authority to either the credit insurer or collection agent to accept service of process on its behalf, and that the litigation administrator did not reasonably rely on the proof of claim for that purpose. The appeal to the Second Circuit Court of Appeals by the litigation administrator followed.
WESLEY, CHIN, and BIANCO, Circuit Judges

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