VERTIV, INC.; VERTIV CAPITAL, INC.; and GNARITIS, INC. v WAYNE BURT PTE, LTD., and TGS MAHESH

Summarized by Stephen Falanga , Walsh Pizzi O'Reilly Falanga LLP
2 years 2 weeks ago

Case Type:

Business

Case Status:

Reversed and Remanded

Citation:

22-3305 (3rd Circuit, Feb 01,2024) Published

Tag(s):

Ruling:

The Court clarifies standards a court must apply when deciding civil action abstention motions in deference to a pending foreign bankruptcy proceeding. First, the court must find the civil action is "parallel" to the foreign proceeding-meaning both are ongoing and the outcome of the action may affect the debtor’s estate. Next, the moving party must make prima facie showing the foreign bankruptcy provides for equal distribution of assets and imposition of an automatic stay. Finally, the court must assess the foreign proceeding’s fairness to parties and compatibility with US public policy.

Procedural context:

After earlier consent judgments in favor of the creditor-plaintiff were vacated under Rule 60(b)(4), the foreign liquidator for the defendant-debtor company filed a motion requesting the District Court dismiss the amended complaint either (1) on international comity grounds in deference to the ongoing liquidation proceedings in Singapore, or (2) because the District Court lacked personal jurisdiction over the debtor company. The District Court granted the motion on international comity grounds and the creditor-plaintiff appealed. The Third Circuit concluded the District Court had properly applied the initial test for abstention as set forth in the Court's decision in Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, S.A., 44 F.3d 187 (3d Cir. 1994) but did not complete the task as the District Court stopped after finding that the defendant-debtor made a prima facie case for comity to a foreign bankruptcy proceeding. As such, the Third Circuit vacated the District Court’s order dismissing the creditor-plaintiff's action and remanded for further proceedings to allow the District Court to assess the foreign bankruptcy proceeding’s fairness to the parties and compatibility with United States public policy preferences largely as set forth in Chapter 15 of the Bankruptcy Code.

Facts:

In January 2020, creditor companies, Vertiv, Inc., headquartered in New Jersey, filed a civil action in the District of New Jersey against Wayne Burt, PTE, Ltd, a Singaporean corporation seeking judgment of approximately $29,000,000 and foreclosure of a security int erst in stock of another company based on Wayne Burt's default on a loan from Vertiv. One of Wayne Burt’s directors promptly acknowledged the debt and informed the District Court that judgment for Vertiv was proper, and the District Court signed a consent order granting judgment for Vertiv. The judgment awarded Vertiv $29,290,000 in damages, and it declared that Vertiv owned the shares of stock that Wayne Burt had pledged as security for the loan. A subsequent action was then brought for related relief and another consent judgment was also entered. In February, 2021, Wayne Burt moved to vacate both judgments under Federal Rule of Civil Procedure 60(b). It informed the District Court that it was in liquidation proceedings in Singapore—proceedings that began before Vertiv filed its suits in the District Court. It contended that the officers who purportedly consented to the judgments in the District Court lacked the authority to act on Wayne Burt’s behalf because, under Singapore law, only the Singaporean court-appointed Liquidator could do so. In its Rule 60(b) motions (which were filed by the Liquidator on the company’s behalf), Wayne Burt also asserted that the loans underlying the judgments in the District Court never existed. It attached evidence in support of that contention and emphasized that it could not have intervened earlier to oppose the judgments because the Liquidator did not have notice of the pending action. In July 2021, the District Court granted the Rule 60(b) motions and vacated both judgments. Thereafter, the Liquidator filed a motion requesting the District Court dismiss the amended complaint either (1) on international comity grounds in deference to the ongoing liquidation proceedings in Singapore, or (2) because the District Court lacked personal jurisdiction over Wayne Burt. The District Court granted the motion on international comity grounds and the Vertiz appealed. The Third Circuit concluded the District Court had properly applied the initial test for abstention as set forth in the Court's decision in Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, S.A., 44 F.3d 187 (3d Cir. 1994) but did not complete the task as the District Court stopped after finding that the Wayne Burt made a prima facie case for comity to a foreign bankruptcy proceeding. As such, the Third Circuit vacated the District Court’s order dismissing Vertiv's action and remanded for further proceedings to allow the District Court to assess the foreign bankruptcy proceeding’s fairness to the parties and compatibility with United States public policy preferences largely as set forth in Chapter 15 of the Bankruptcy Code.

Judge(s):

CHAGARES, HARDIMAN and FREEMAN

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