On June 29, 2007, the 11th Circuit Court of Appeal in its unpublished decision in In re Rosacometta, S.R.L., 244 Fed.Appx. 286 (11th Cir. 2007) upheld the decision of the Bankruptcy Court of the Southern District of Florida. The bankruptcy court had allowed an ancillary petition under section 304 (pre-BAPCPA) and enjoined the creditor from collecting on a writ of garnishment in the state court against the Italian company that had filed for bankruptcy relief in Italy. The 11th Circuit rejected the creditor's arguments that the bankruptcy court had acted outside of its jurisdiction, that it had erred in granting comity to a foreign proceeding, and that it had failed to give full faith and credit to a state court decision refusing to dissolve the writ of garnishment. The 11th Circuit held that the bankruptcy court did not abuse its discretion in weighing the section 304(c) factors and granting section 304(b) relief. The 11th Circuit held that prejudice to the creditor was just one of the five factors for the court to consider per section 304(c) and is not even the "ultimate" factor. The 11th Circuit found that the other factors set forth in section 304(c), including comity, weighed in favor of granting the relief. The 11th Circuit further held that the bankruptcy court is granted broad powers under section 304(b) to grant relief to a foreign debtor.
The bankruptcy court had previously issued its decision dated December 19, 2005 in In re Rosacometta, SrL, 336 B.R. 557 (Bankr.S.D.Fla.2005)(Mark C.J.). In this case, the Italian trustee of an Italian corporation that was a debtor in a bankruptcy case in Italy filed an ancillary case under section 304 (pre-BAPCPA) seeking to enjoin all creditor collection activity in the United States nunc pro tunc to the date of the filing of the bankruptcy in Italy. At issue were certain funds owed to the the debtor in the U.S. that a U.S. creditor was attempting to garnish. The court recognized the effect of the Italian automatic stay and found the creditor action in violation of the stay was void, including the attempted garnishment.
This case came before the court under section 304 as a case ancillary to a foreign bankruptcy proceeding. The case was allowed to proceed under 304 as there was a foreign proceeding and the petitioner was the foreign representative. 11 U.S.C. 304(a). The court explained that section 304 enables United States courts to aid foreign bankruptcy proceedings and to accommodate the extraterritorial effect of these proceeding within the U.S. The primary purpose of section 304 is to prevent piecemeal distribution of a foreign debtor's assets in the U.S. by means of legal proceedings in U.S. courts and to afford the foreign court an opportunity to assess where and when claims should be liquidated in order to conserve resources and to maximize distributions to creditors.
The court found that the creditor was not a secured creditor as the writ of garnishment was served after the commencement of the Italian bankruptcy and was therefore void as in violation of the Italian automatic stay. The court found that recognition of the Italian automatic stay was "other appropriate relief" under section 304(b)(3) and consistent with the overall purpose of section 304 and the specific criteria of 304(c). The court held that the claimed funds should be returned to Italy where the creditor may pursue its claim.
The bankruptcy court found the reasoning of Artimm , 278 B.R. 832, 840 (Bankr.C.D.Cal.2002) as persuasive and found that the Italian automatic stay applied extra territorially. The Artimm court concluded that the Italian automatic stay has worldwide effect as Italian law provides for a stay of all creditor collection activities and claims worldwide jurisdiction over the property of the debtor. Id. at 840. The Artimm court also found that provisions of Italian law indicate movement in Itlian law towards handling international insolvencies under the "universal" approach, which advocates treating an international bankruptcy as a single case in which assets and creditor are treated equally wherever they may be located. Id. at 841.
The bankruptcy court stated that many courts have noted that comity is the ultimate factor in determining whether section 304 relief is appropriate. The Supreme Court described comity as "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 tis own citizens..." Hilton v. Guyot, 159 U.S. 113 (1895). Comity is extended to a foreign court if that court is a court of competent jurisdiction and if the laws and public policy of the forum state and the rights of its residents will not be violated. Cunard S.S. Co., Ltd. v. Salen Reefer Services AB, 773 F.2d at 452 (2d Cir.1985). Comity should not be withheld unless its extension would be inimical to the interest of the United States. Cunard, 773 F.2d at 457. The interest of the United States in granting comity is to ensure that “the assets of a debtor are dispersed in an equitable, orderly, and systematic manner, rather than in a haphazard, erratic, or piecemeal fashion.” Cunard, 773 F.2d at 458. United States courts, therefore, have “consistently recognized the interest of foreign courts in liquidating or winding up the affairs of their own domestic business entities.” Id. at 458. Moreover, “every person who deals with a foreign corporation impliedly subjects himself to such laws of the foreign government, affecting the powers and obligations of the corporation with which he voluntarily contracts, as the known and established policy of that government authorizes.” Id. Therefore, U.S. creditors of a bankrupt foreign corporation may be required to assert their claims against the foreign debtor before a foreign court. Cunard, 773 F.2d at 458-59.
The Florida bankruptcy court found that extending comity to the Italian bankruptcy case and the laws of Italy was appropriate as the bankruptcy in Italy was proceeding under the aegis of a court of competent jurisdiction in accordance with the laws and policies of Italy. It further found that extending comity would result n an orderly and fair distribution to all creditors on a worldwide basis. Furthermore, the laws governing the Italian bankruptcy case comported with U.S. standards of procedural fairness and are not inimical to the law or policy of the U.S. The court noted that at least two U.S. court have previously extended comity to Italian bankruptcy proceedings.
Furthermore, the bankruptcy court found that the statutory factors of 304(c) were met, including the just treatment of all holders of claims against or interest in the estate, protection of claim holders in the U.S. against prejudice and inconvenience in processing of claim in the foreign proceeding, prevention of preferential or fraudulent dispositions of property of the estate, and distribution of proceeds of the estate are substantially in accordance with the order prescribed in the bankruptcy code.
