508 B.R. 330
Bankr. S.D.N.Y.2014Background
- Cozumel Caribe (Mexican debtor) filed a concurso mercantile in Mexico; Nemias Esteban Martinez Martinez is the appointed Conciliator/Foreign Representative in the Chapter 15 case.
- CT Investment Management (CTIM) holds enforcement rights under loan documents and a $103 million pooled loan; about $8 million remains in a New York cash management account controlled by CTIM.
- Mexican Concurso Court entered precautionary measures (May 27 Order) blocking enforcement and access to the cash management account; U.S. District Court extended comity to that order and stayed CTIM’s suit against the guarantors.
- CTIM moved to terminate this Court’s Recognition Order under 11 U.S.C. §§1517(d) and 1506 arguing the Foreign Representative’s conduct (including downgrading CTIM’s scheduled claim to $27M, alleged efforts to void guaranties, asset transfers, dilatory conduct, and failure to report) makes continued recognition manifestly contrary to U.S. public policy.
- The Bankruptcy Court held that despite troubling and inconsistent conduct by the Foreign Representative, CTIM has not shown the grounds for recognition have ceased or that termination is warranted; the $8M in New York sufficiently protects CTIM temporarily. The Motion was denied without prejudice and the Foreign Representative was ordered to provide regular status reports.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether recognition should be terminated under §1517(d) / §1506 because continued recognition is manifestly contrary to U.S. public policy | CTIM: Foreign Representative’s actions (scheduling CTIM’s claim at $27M, blocking guarantor enforcement, facilitating spinoff, dilatory tactics, reporting failures) show recognition is now contrary to U.S. public policy | FR: Recognition was appropriate; disputes belong in Mexican courts; FR denies involvement in some contested acts and says comity questions are separate | Denied — CTIM failed to show grounds for recognition ceased or continued recognition is manifestly contrary to U.S. public policy; protection exists while funds remain in NY account |
| Treatment of CTIM’s claim in Mexican proceedings (scheduled at $27M vs $103M asserted in US) | CTIM: FR took inconsistent positions and reduced CTIM’s claim to $27M, undermining rights | FR: Proposed treatment in Mexican court is not binding here; CTIM knew of the scheduling and has remedies in Mexican courts | Denied — change in claim treatment in Mexican proceeding does not by itself justify vacating recognition; disputes belong to Mexican forum |
| Whether orders/acts in Mexican proceedings (e.g., invalidating guaranty, Costamex spinoff) require termination of recognition | CTIM: Mexican orders/acts seek to evade guaranty enforcement and harm CTIM; recognition facilitates that prejudice | FR: Those matters are separate Mexican proceedings; FR not seeking U.S. enforcement of every Mexican order now | Denied — U.S. court will not act as an appellate court for Mexican rulings; comity is applied case-by-case and §1506 is narrowly construed |
| FR’s alleged misconduct and reporting failures — appropriate remedy | CTIM: Misconduct and nondisclosure justify vacating recognition or other relief | FR: Disputes over involvement; asserts limited responsibility and will report | Denied (for termination) — court noted conduct is troubling and sanction avenues exist (e.g., Rule 9011) but vacatur is not warranted now; court ordered regular status reports and left open other remedies |
Key Cases Cited
- Vitro S.A.B. de C.V. v. Ximple Holdings, 701 F.3d 1031 (5th Cir.) (chapter 15 limits and comity considerations when enforcing foreign orders)
- Cozumel Caribe, S.A. de C.V. v. CT Inv. Mgmt. Co., 482 B.R. 96 (Bankr. S.D.N.Y.) (prior opinion in this case addressing stay and comity)
- In re Metcalfe & Mansfield Alternative Investments, 421 B.R. 685 (Bankr. S.D.N.Y.) (U.S. courts need not relitigate foreign proceedings; relief need not be identical)
- In re Ephedra Prods. Liab. Litig., 349 B.R. 333 (S.D.N.Y.) (public policy exception under §1506 is narrow and ‘manifestly’ limits refusal of comity)
- Altos Hornos de Mexico, S.A. v. Union de Matamoros, 412 F.3d 418 (2d Cir.) (extending comity and deferring to Mexican courts despite delay)
- SNP Boat Serv. S.A. v. Hotel Le St. James (In re SNP Boat Serv. S.A.), 483 B.R. 776 (S.D. Fla.) (noting recognition may be questionable where a foreign representative stonewalls due process inquiries)