A.P. Esteve Sales, Inc. v. Manning (In Re Manning)A.P. Esteve Sales, Inc. v. Manning (In Re Manning)
OPINION
After Fitmay Produce Limited (“Debt- or”) filed an insolvency petition in the United Kingdom, creditor A.P. Esteve Sales, Inc. (“Esteve”) filed an action against Debtor in San Joaquin County Superior Court (the “State Court”), seeking damages resulting from Debtor’s breach of various almond contracts. Lee Anthony Manning and Peter Squires, joint administrators in Debtor’s insolvency proceeding (the “Administrators”), filed a petition pursuant to § 304, 1 seeking a temporary restraining order (the “TRO”) and preliminary injunction to stay the State Court proceedings. The bankruptcy court issued the TRO and an order to show cause regarding whether to impose a preliminary injunction. Trial was subsequently held, and the bankruptcy court imposed a permanent injunction, prohibiting Esteve and other California creditors from commencing or continuing any action or legal proceeding against Debtor or its property in the United States, or from enforcing any judgment, assessment, or order to create, perfect, or enforce any lien, set-off, or other claim against Debtor or its property in the United States.
Esteve filed a timely notice of appeal.
We AFFIRM.
I. FACTS
The facts are undisputed. Debtor is a company incorporated under the laws of the United Kingdom and imports and exports a variety of food products including *18 hazelnuts, almonds, apricot kernels, and dried fruits. Esteve is a California corporation that grows nuts, fruits, and vegetables in the Central California Valley and markets its produce worldwide.
From August 1996 through September 1997, Debtor entered into fourteen contracts with Esteve to purchase almonds. Esteve delivered the almonds pursuant to the contracts, but Debtor failed to accept delivery or pay for the almonds. Esteve resold the almonds at a loss of $219,400 plus dock fees of $14,000. In November 1997, Esteve requested payment of contract damages. However, Debtor failed to pay.
On December 2, 1997, Esteve obtained a Belgium court (the “Belgium Court”) order authorizing Esteve to “arrest” (attach) two container-loads of Debtor’s almonds located in Antwerp, Belgium. In March 1998, the almonds subject to attachment were sold, and the proceeds in the approximate sum of $280,200 were placed in the custody of the Belgium Court.
On December 8, 1997, Esteve filed the State Court action seeking the balance of damages resulting from Debtor’s breach of contract.
On December 19, 1997, Debtor filed an insolvency petition in the High Court of Justice, Chancery Division, Companies Court (the “British Court”) along with an affidavit to obtain an administrative order from the British Court. On the same day, the British Court issued an order appointing the Administrators to manage Debtor’s business and authorizing them to seek approval for a “voluntary arrangement” as provided for under Part I of the Insolvency Act of 1986.
On January 6, 1998, the Administrators requested that the Belgium Court lift the attachment of the almonds in Antwerp, Belgium. On May 7, 1998, the Belgium Court issued an order denying the request. The court found that the United Kingdom and Belgium did not have reciprocity in connection with their respective insolvency proceedings, that the British insolvency proceeding did not have an extra-territorial effect in Belgium, that the British Court did not recognize the equality of distribution among domestic and foreign creditors, and that the Belgium “arrest” procedure provided for claims of other creditors “and in no sense [would] endanger the equality amongst the creditors, but will on the contrary conserve for the creditors the proceeds of the sale.” Translation of J. by the Judge of Arrests, 1st Chamber, Case No. 98-174-A (May 27, 1998). The Administrators appealed this order.
On February 2, 1998, the Administrators filed a petition in the bankruptcy court pursuant to § 304, seeking the TRO and a preliminary injunction to stay the State Court proceedings and any other actions domestic creditors might initiate.
On February 11, 1998, the bankruptcy court issued the TRO and an order to show cause why a permanent injunction should not be imposed. In August 1998, trial was held on the permanent injunction. Because the parties stipulated to all of the essential facts, no witnesses testified. At the conclusion of trial, the court granted the Administrators’ request for a permanent injunction.
On September 18, 1998, the bankruptcy court entered an order (the “Order”) granting the § 304 petition and the permanent injunction. Specifically, the court enjoined Esteve and other persons and entities from commencing or continuing any action or other legal proceeding against Debtor or its property located in the United States and from enforcing any lien, set-off, or other claim against Debtor or its property in the United States. The court also ordered that if the stay imposed under the Insolvency Act of the United Kingdom should be modified or lifted in a manner that would allow the British creditors to commence or continue actions against Debtor, Debtor’s creditors would be per *19 mitted to commence or continue actions in the United States to the same extent. 2
On September 18, 1998, Esteve timely filed a notice of appeal of the Order.
II.ISSUES
A. Whether the bankruptcy court had subject-matter jurisdiction to grant the injunction pursuant to § 304(b)(1) when Debtor did not have any property in the United States.
B. Whether the bankruptcy court abused its discretion in granting the injunction pursuant to § 304(b)(1).
III.STANDARD OF REVIEW
“The existence of subject matter jurisdiction is a question of law reviewed de novo.”
Schoenberg v. Exportadora de Sal, S.A. de C.V.,
We review the bankruptcy court’s' decision under § 304 to enjoin actions and the enforcement of judgments against debtors involved in foreign bankruptcy proceedings or their property for an abuse of discretion.
See In re Petition of Singer,
IV.DISCUSSION
A. ■ The Bankruptcy Court Had Subject-Matter Jurisdiction to Enjoin Actions Against Debtor Even Though Debtor . Did Not Have Assets in the United States.
Esteve argues for the first time on appeal in his reply brief that the bankruptcy court erred when it ordered an injunction under § 304(b)(1)
3
because the almond proceeds at issue are not located in
*20
the United States, but rather, are being held for distribution in Belgium.
See
Appellant’s Reply Br. at 4-5. This argument challenges the bankruptcy court’s jurisdiction to enjoin actions against a debtor involved in a foreign insolvency proceeding when the activity being enjoined involves property that is not located in the United States. Although issues not raised and argued in the opening brief are ordinarily deemed to have been waived,
see United States v. Montoya,
Although nearly all of the cases in which bankruptcy courts have taken jurisdiction of a § 304 petition involve the presence of the foreign debtor’s property in the United States, see Haarhuis v. Kunnan Enters., Ltd., 223 B.R. 252, 254 (D.D.C.1998), “[n]o-where does the legislative history suggest that the presence of debtor-owned property in the United States which might be vulnerable to domestic process was a sine qua non of bankruptcy court jurisdiction under § 304.” Id. at 255. In Haarhuis, the district court held that “a § 304 petition is not to be considered solely as a proceeding in the nature of an application for in rem or quasi-in-rem relief and affecting only property in the United States.” Id. Rather, the court affirmed the bankruptcy court’s order enjoining a breach of contract action under § 304 even though no domestic assets were involved. Id.
This holding is in accordance with the plain language of 304(b)(l)(A)(i) which states that a court may enjoin the commencement or continuation of any action against “a debtor with respect to property involved in such foreign proceeding.”
The language of the statute here is not unclear in light of its objective and the policy supporting that objective. Clearly, Congress wanted the bankruptcy courts of the United States, subject to certain guidelines, to recognize the primary interests of a foreign proceeding to administer property involved in that proceeding. This policy of comity for foreign proceedings is not dependent on property of the foreign debt- or existing in the United States. Congress certainly had the power to authorize bankruptcy courts to enjoin actions within the United States that effectively undercut this policy whether or not property of the foreign debtor is located in the United States. Accordingly, we conclude that a bankruptcy court has subject-matter jurisdiction to enjoin an action against a foreign debtor with respect to property involved in the foreign proceeding even if the property is located outside of the United States.
B. The Bankruptcy Court Did Not Abuse Its Discretion in Granting the Administrators’ Request for the Imposition of the Injunction Under § 804(b)(1).
The bankruptcy court granted the Administrators’ request for the imposition of the injunction under
Esteve argues that the bankruptcy court erred in enjoining it from proceeding against the almond proceeds because the Belgium Court determined that the proceeds should be distributed in a separate Belgium proceeding rather than in the British insolvency proceeding. Specifically, Esteve argues that the injunction was improper because the almond proceeds are no longer “involved” in the Debtor’s insolvency case, Debtor’s insolvency has no extra-territorial effect in Belgium, the almond seizure is not preferential and creates no lien, and the bankruptcy court should have fashioned a less restrictive remedy. We disagree.
The Code “provides for a flexible approach to international insolvencies dependent upon the circumstances of the ... case. If any philosophy can be attributed to the structure of the Code it is that of deference to the country where the primary insolvency proceeding is located ... and flexible cooperation in administration of assets.”
Hong Kong and Shanghai Banking Corp. v. Simon (In re Simon),
15B F.3d 991, 998 (9th Cir.1998),
cert. denied,
— U.S. —,
Here, Esteve’s assertion that the permanent injunction was improper because the Belgium Court “carve[d] out the almond proceeds from the assets that are property of or involved in the English bankruptcy proceeding,” Appellant’s Opening Br. 5, is without merit. Unlike
In addition, the ultimate disposition of the almond proceeds is irrelevant for purposes of determining the propriety of the injunction. Although the almond proceeds are located in Belgium, the injunction enjoins Esteve and other California creditors from continuing or commencing an action in California against Debtor or Debtor’s property located in the United States. The injunction provides in pertinent part:
Esteve and other persons and entities set forth on Exhibit “A” annexed hereto (the “California Parties”) are permanently enjoined from commencing or continuing any action or other legal proceeding (including, without limitation, arbitration, or any judicial, quasi-judicial, administrative or regulatory action, proceeding or process whatsoever) against the Company or its property in the United States.
Order Granting
1. The § S0Jp(c) Factors Favor the Imposition of an Injunction.
In determining whether to enjoin creditors under
guidelines ... designed to give the court maximum flexibility in handling ancillary cases. Principles of international comity and respect for the judgments and laws of other nations suggest that the court be permitted to make the appropriate orders under all of the circumstances of each case, rather than being provided with inflexible rules.
H.R.Rep. No. 95-595, at 324-25 (1977); S.Rep. No. 95-989, at 35 (1978).
a. Just Treatment of All Holders of Claims.
At the conclusion of the trial, the court considered Esteve’s claim that the United States creditors could be at a disadvantage against creditors not bound by the stay in the British insolvency proceeding (i.e., creditors in some third country that is not the United States or the United Kingdom). The court found that this unsubstantiated prejudice was outweighed by the possibility that Esteve would receive a greater proportional distribution than the creditors in the United Kingdom if the State Court action was allowed to proceed to judgment and the judgment was enforced in Belgium. Accordingly, the court held that it was appropriate to leave “the matter fundamentally in control of proceeding in the United Kingdom” by granting the permanent injunction. Reporter’s Tr. of Proceedings, Mot. for T.R.O. before the Honorable Christopher Klein, Judge (Aug. 12, 1998) at 18.
Esteve asserts that the Belgium Court determined that, based on prior experience, the English Administrators may prefer domestic creditors over foreign creditors. Although the Belgium Court did make this determination, the bankruptcy court correctly found that the distribution schemes in the United Kingdom and the United States are fundamentally similar.
See, e.g., In re Singer,
Also, the bankruptcy court provided for the automatic lifting or modification of the injunction if the British Court lifted or modified the stay imposed under the Insolvency Act to permit British creditors to *24 commence or continue actions against Debtor or Debtor’s property.
Thus, the injunction imposed by the bankruptcy court was consistent with the just treatment of all claimholders including Esteve. An injunction is appropriate “when the failure to enjoin local actions will disrupt the orderly reconciliation of claims and the fair distribution of assets in a single, centralized forum.” 2 L. King, Collier on BANKRUPTCY ¶ 304.05. Had Es-teve been permitted to proceed to judgment, it could have improved its position vis-á-vis other unsecured creditors, thereby potentially disrupting the orderly reconciliation of claims and the fair distribution of assets in the British insolvency proceeding.
See, e.g., Gercke,
Accordingly, the bankruptcy court properly determined that the imposition of the injunction was consistent with the just treatment of all claimholders.
b. Protection of Claimholders in the United States Against Prejudice and Inconvenience in the Processing of Claims in the Foreign Proceeding.
As stated supra, the bankruptcy court considered whether the United States claimholders would be prejudiced or inconvenienced by processing their claims in the British insolvency proceeding and concluded that British insolvency law was fundamentally similar to the distribution scheme under the Code. However, as a precaution, the bankruptcy court ordered that the injunction would be lifted or modified to the extent that the British Court lifted or modified the stay imposed under the Insolvency Act to permit British creditors to commence or continue actions against Debtor or Debtor’s property.
In addition, in response to Esteve’s argument that Esteve could be prejudiced vis-a-vis claimholders from third countries not bound by the stay imposed under the Insolvency Act or the permanent injunction imposed under
“[i]t is doubtful that under§ 304 Congress expected a foreign bankruptcy proceeding to be less prejudicial and inconvenient than a United States bankruptcy case before injunctive relief would be granted.” [Gercke],122 B.R. at 621, 629 . [The creditor] does not posit any particularized harm which will befall it if forced to litigate abroad. Moreover, we unhesitatingly require foreign creditors to litigate in our courts if they wish a distribution from a U.S. debtor’s estate. It is thus difficult to label as so prejudicial and inconvenient to U.S. creditors as to warrant denial of injunctive relief that which we require of foreign creditors in our own cases. Finally, our courts have not shrunk from vacating attachments, when necessary, and sending the U.S. creditors to the foreign court to litigate their claims in a *25 single forum along with other creditors so long as the claims processing procedure is fundamentally fair.
Brierley,
Consequently, the bankruptcy court properly considered the potential prejudice to United States claimholders and crafted the injunction in a manner that provided protection to those claimholders in the event that the British Court lifted or modified the stay.
c. Prevention of Preferential or Fraudulent Disposition of Property of the Insolvency Estate.
Contrary to the Belgium Court’s ruling, there is no indication that British creditors will receive a preference over the disposition of property vis-a-vis foreign creditors. First, the Insolvency Act is fundamentally similar to the Code.
See Singer,
d. Distribution of Estate Proceeds Substantially in Accordance tuith the Order Prescribed by this Title.
Again, there is no indication that the proceeds of the Debtor’s estate will be distributed in a manner that is substantially inconsistent with the Code. “[S]ection 304(c)(4) does not command that the distributive scheme wholly replicate ours. What it directs the court to consider is whether that scheme is ‘substantially in accordance’ with that which we employ.”
Brierley,
Consequently, this factor supports the imposition of an injunction under
e.Comity.
The Supreme Court has defined comity as
neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon the other. But it 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,
While neither
“[U]nder general principles of comity as well as the specific provisions of
Here, the bankruptcy court granted comity in favor of the British insolvency proceeding because the British insolvency laws are fundamentally similar to the Code. Therefore, American creditors should receive fair treatment under British law. This determination was not erroneous. Esteve has not demonstrated any basis for a finding that it will likely be treated unfairly in the British insolvency proceeding. Because the British Insolvency Act is not “repugnant to American laws and policies,”
Brierley,
2. The Injunction Is Not Improper or Overly Broad.
Esteve argues that the injunction was not authorized under
Although this case involves the liquidation of Debtor rather than reorganization, we disagree with Esteve’s argument that allowing Esteve to proceed with the litigation will not disrupt the British insolvency proceeding. As stated supra, permitting Esteve to obtain a judgment lien on the almond proceeds would likely give Esteve an advantage over other unsecured creditors who are bound by the British Court’s stay.
In addition, while we agree with Esteve that
Finally, comity with the United Kingdom is appropriate under
Accordingly, the injunction against Es-teve and other California creditors was properly imposed under
V. CONCLUSION
In sum, the bankruptcy court had subject-matter jurisdiction to enjoin actions against Debtor even though Debtor did not have any property in the United States.
In addition, the bankruptcy court did not abuse its discretion in granting the Administrators’ request for injunctive relief under
AFFIRMED.
Notes
. Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code,
. At oral argument on appeal, both parties conceded that they understood that the scope of the injunction did not preclude Esteve or other creditors from bringing actions against Debtor or Debtor’s property outside of the United States. Thus, for example, Esteve was not precluded by the bankruptcy court from obtaining a judgment against Debtor in the United Kingdom, Belgium, France, or any country other than the United States.
.
§ 304 . Cases ancillary to foreign proceedings.
(a) A case ancillary to a foreign proceeding is commenced by the filing with the bankruptcy court of a petition under this section by a foreign representative.
(b) Subject to the provisions of subsection
(c) of this section, if a party in interest does not timely controvert the petition, or after trial, the court may—
(1)enjoin the commencement of continuation of—
(A) any action against—
(i) a debtor with respect to property involved in such foreign proceeding; or
(ii) such property; or
(c) In determining whether to grant relief under subsection (b) of this section, the court shall be guided by what will best assure an economical and expeditious administration of such estate, consistent with—
(1) just treatment of all holders of claims against or interests in such estate;
(2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding;
(3) prevention of preferential or fraudulent dispositions of property of such estate;
(4) distribution of proceeds of such estate substantially in accordance with the order prescribed by this title;
(5) comity; and
(6) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns.
. Although the determination of whether to grant an ancillary petition under
Here, because Esteve does not challenge the propriety of the ancillary petition on appeal, but rather, challenges the propriety of the injunction under
. Esteve does not challenge the bankruptcy court’s understanding of Belgium law or demonstrate any actual prejudice suffered by the imposition of the injunction. Indeed, as the Belgium Court specifically stated: "a conservatory arrest is a temporary measure and cannot cause any damages to the matter itself, and in no sense will endanger the equality amongst the creditors, but on the contrary will conserve for the creditors the proceeds of the sale of, in this case, perishable goods.” Translation of J. by the Judge of Arrests, 1st Chamber, Case No. 98-174-A (May 27, 1998) at 5.
. For example, the automatic stay under § 11 of the Insolvency Act is "generally coextensive with ours under Code § 362 except that it applies to both pre- and postpetition claims alike,” "[t]he Insolvency Act provides a comprehensive procedure for the orderly and equitable distribution of a debtor's assets among all of its creditors,” "[gjeneral unsecured creditors are treated pari passu under section 107 [of the Insolvency Act,]” and “[s]ecured creditors are paid the value of their security and, to the extent they are not fully paid, they share pari passu with general unsecured claims.”
Brierley,
. The territorial approach favors domestic creditors by “administering the insolvent firm’s assets located within its borders according to its own laws without any regard to the firm's assets located elsewhere.” Robert K. Rasmussen, A New Approach to Transnational Insolvencies, 19 Mich.J. Int’l L. 1, 16 (Fall 1997) (noting that academics have largely embraced the universalis! approach).
. The universalis! philosophy "contemplates one plenary transnational proceeding completely governing the administration of assets worldwide.”
Simon,
.We need not address