Monday, January 27, 2014

Dismissed of Adversary of Adversary Proceeding on Basis of Comity with Netherlands Bankruptcy Proceeding

The Bankruptcy Court of the Southern District of Texas dismissed under principles of comity an adversary proceeding against an defendant who claimed to be a purchaser of equipment in a Netherlands bankruptcy proceeding in the case of Viking Offshore (USA), Inc. v. Viking Offshore (USA), Inc., et al. (In re Viking Offshore (USA), Inc.), 405 B.R. 434 (S.D. Tex. 2008). The court held that although it had subject matter and personal jurisdiction with respect to the injunctive matters asserted against the foreign defendant, principles of comity necessitated the dismissal of the adversary proceeding and that the debtor should seek to assert its rights to the property by way of an appeal in the Netherlands bankruptcy case.

The bankruptcy court found that it had "related to" subject matter jurisdiction of the adversary proceeding as the outcome could alter the debtor's rights, liabilities, options or freedom of action or could influence the administration of the bankruptcy estate. In re TXNB Internal Case, 483 F.3d 292 (5th Cir.2007). The bankruptcy court also held that it had the exclusive jurisdiction of all property of the debtor, wherever located - even extraterritorially. 28 U.S.C. section 1334 (e). The court also found that the defendant's contacts with the United States were sufficient to support the exercise of personal jurisdiction. The Court noted that an injunction, as it is an in personam action, may be enforced against entities only over which the court has personal jurisdiction and that due process in the exercise of personal jurisdiction requires certain "minimum contacts" per International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

The court next turned to issues of permissive abstention, the doctrine of forum non conveniens and comity. The court noted that although the permissive abstention statute of 28 U.S.C. section 1334 (c)(1) does not apply by its plain meaning to the adversary proceeding as the Netherlands bankruptcy proceeding was one under foreign law and not under state law, the Fifth Circuit Court of Appealsheld in the case of Baumgart v. Fairchild Aircraft Corp., 981 F.2d 824 (5th Cir. 1993) that the doctrines of comity and forum non conveniens may apply under 28 U.S.C. section 1334 (c)(1) with respect to foreign proceedings. Under the doctrine of forum non conveniens, a court may decline jurisdiction and dismiss a case even if the case if properly before it, if the case can be more conveniently tried in another forum. Comity is the "recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws." Hilton v. Guyot, 159 U.S. 113 (1895). The Court noted that U.S. courts have applied the doctrine of comity to give effect to judgments rendered in foreign courts with a system of procedures compatible with the requirements of due process of law. The Court also observed that U.S. courts have dismissed proceedings in circumstances in which a foreign bankruptcy proceeding is pending and equity demands that all claims against the debtor's assets be addressed in a single proceeding.

The Court found that although the Netherlands bankruptcy statutes appeared to require notice to creditors at the commencement of the case, that it did not appear to require direct notice to entities asserting an interest in property in which the Netherlands debtor asserts an interest. The Court found that the debtor did have the opportunity to seek review of the Netherlands bankruptcy court's ruling and to assert that the purported conveyance was without notice and deprived the debtor of due process of law and therefore dismissed the adversary proceeding under principles of comity.