Three opinions by an Eleventh Circuit panel in one chapter 15 appeal are a prelude to a petition for rehearing en banc or a petition for certiorari to resolve a circuit split. Either would decide whether a bankruptcy court may grant foreign main recognition under chapter 15 even if the debtor has no residence, domicile, place of business or property in the U.S.

As it now stands, the Second Circuit has held in In re Barnet, 737 F.3d 238 (2d Cir. 2013), that a bankruptcy court may not grant recognition if the debtor has no residence, domicile, place of business or property in the U.S., a seeming requirement under Section 109(a).

Under former Section 304, the Eleventh Circuit had held that property, residence or domicile in the U.S. was not required to maintain an ancillary proceeding. In re Goerg, 844 F.2d 1562 (11th Cir. 1988). Section 304 was repealed in 2005 alongside the adoption of chapter 15. In the case on appeal to the Eleventh Circuit, the bankruptcy court and the district court both concluded that Goerg remained good law given the similarity between prior Section 304 and chapter 15.

Both lower courts in the case on appeal predicted that the Eleventh Circuit would follow Goerg, creating a split with Barnet from the Second Circuit. Their predictions were correct as a technical matter, but the story isn’t over, because the April 3 opinions from the Eleventh Circuit are an invitation for a petition for rehearing en banc or a petition for certiorari.

Note: Other lower courts have declined to follow Barnet. Bound by Barnet, courts in the Second Circuit routinely hold that Section 109(a) is satisfied if the foreign representative has a retainer lodged with a law firm in the district where the chapter 15 petition was filed.

Whether it be the Supreme Court or the Eleventh Circuit sitting en banc, the outcome will depend on whether the court adopts a simplistic approach to statutory interpretation.

The Foreign Debtor

A resident and citizen of Oman, the debtor was divorced in the U.K., where the court awarded £24 million to his former wife. The debtor was adjudged bankrupt in the U.K. when he refused to pay.

The joint trustees in the U.K. filed a chapter 15 petition in Florida, seeking foreign main recognition. They intended to use powers under chapter 15 to conduct discovery regarding Florida corporations that the debtor owned and that allegedly had real property in Florida worth $94 million.

The debtor conceded that the liquidators satisfied all requirements for recognition under Section 1517. However, the debtor contended that he no longer owned any property in the U.S. The U.K. trustees took the position that the debtor may have fraudulently transferred the assets.

Based on Barnet and the idea that he had no property in the U.S., the debtor opposed recognition by arguing he did not fall within the description of a debtor in Section 109(a). Section 109 is made applicable in chapter 15 cases by Section 103.

Section 109(a) says:

[O]nly a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title.

Predicting that the Eleventh Circuit would follow Goerg and split with Barnet, Bankruptcy Judge Lori V. Vaughan granted foreign main recognition. In re Al Zawawi, 634 B.R. 11 (Bankr. M.D. Fla. Aug. 31, 2021). To read ABI’s report, click here.

The debtor appealed but lost in a decision by District Judge Gregory A. Presnell, who upheld recognition found by Judge Vaughan. Al Zawawi v. Diss (In re Al Zawawi), 637 B.R. 663 (M.D. Fla. Feb. 28, 2022). To read ABI’s report, click here.

The Opinion for the Circuit

The debtor appealed. In one of three opinions resolving in the appeal, Circuit Judge Barbara Lagoa wrote the opinion for the panel. She found appellate jurisdiction by holding that an order granting foreign recognition resolved a discrete bankruptcy proceeding and thus was a “final” order.

On the merits, Judge Lagoa framed the question as whether the definition of a debtor in Section 109(a) applies to chapter 15 cases. She said that a “plain reading” of Section 103(a) means that Section 109(a) “does apply to Chapter 15 cases.” However, she cited Goerg for holding that the definition of a “debtor” did not apply to ancillary proceedings under former Section 304.

“Because we are bound by [Goerg] and understand its reasoning to be sufficiently applicable to the question presented in this case,” Judge Lagoa held, “we are compelled to respond in the same manner today.”

Judge Lagoa characterized what Goerg found to be a “point of tension” between the definitions of a “debtor” and a “foreign proceeding.” Deciding to follow the definition of a “foreign proceeding,” she said that the court in Goerg “relied on the ‘purpose’ of § 304 to break the tie” and to hold “that ‘debtor’ eligibility under the [Bankruptcy] Code was not ‘a prerequisite to section 304 ancillary assistance.’”

Judge Lagoa decided “that the former § 304 and Chapter 15 are sufficiently similar in terms of their purposes such that our decision in Goerg controls our analysis in this case.”

Following “the logic of Goerg,” Judge Lagoa affirmed the bankruptcy court’s grant of recognition, “based on the definition of ‘foreign proceeding’ in § 101(12), as informed by the purpose of Chapter 15.” In light of Goerg, she said that “debtor eligibility under Chapter 1 is not a prerequisite for the recognition of a foreign proceeding under Chapter 15.”

Judge Lagoa’s ‘Concurrence’

Immediately after her opinion for the panel, Judge Lagoa wrote a five-page special concurrence that reads like a dissent from her own opinion. In the opening paragraph, she said:

I agree that Goerg compels the result reached by the majority opinion. But if we were writing on a clean slate, I would reverse the bankruptcy court’s determination that 11 U.S.C. § 109(a) does not apply to Chapter 15 cases in accordance with the plain text of 11 U.S.C. § 103(a).

Judge Lagoa spent the remainder of her concurrence refuting “the Foreign Representatives’ four main arguments supporting the application of Goerg and why I do not believe they are supported by the text of the Bankruptcy Code.”

Summarizing, Judge Lagoa said, “§ 103(a) plainly provides that § 109(a) applies to cases under Chapter 15, and I do not find any of the Foreign Representatives’ counterarguments based on the text of the Bankruptcy Code to be persuasive.” Were she not bound by Goerg, she said she would “adhere to the plain meaning of § 103(a) and reverse the bankruptcy court’s determination that § 109(a) does not apply to Chapter 15 cases.”

The Concurrence by Judge Tjoflat

Senior Circuit Judge Gerald B. Tjoflat wrote a 47-page special concurrence that reads like a dissent from Judge Lagoa’s concurring opinion that would overrule Goerg. Judge Tjoflat’s belief in the continuing validity of Goerg is not surprising, because he was the author of Goerg.

Judge Tjoflat said that he “respectfully disagree[s] with the majority’s interpretation of In re Goerg as abstract purposivism.” In large part tracking an amicus brief by four experts on chapter 15, he saw the Eleventh Circuit as “bound by In re Goerg because the current definition of a foreign proceeding is substantially the same as the one we soundly interpreted in In re Goerg.”

The amicus brief was submitted by the American College of Bankruptcy, Prof. Jay L. Westbrook, retired bankruptcy judge Allan L. Gropper, Daniel M. Glosband and Patricia A. Redmond. Prof. Westbrook and Mr. Glosband were the primary draftsmen assisting the Department of State in drafting chapter 15.

Judge Tjoflat said that adopting the debtor’s “position . . . would reward fraudulent transfers of a foreign debtor’s assets in the United States because once the debtor sells his American property, the foreign proceeding cannot be recognized.”

Judge Tjoflat characterized the debtor as saying that “if a United States Bankruptcy Court finds a potentially fraudulent transfer of all a foreign debtor’s American assets was successfully executed, the Chapter 15 case is over because the debtor would be ineligible to then file for bankruptcy in the United States.”

“Common sense,” Judge Tjoflat said, “tells us this result almost certainly cannot be correct.” Congress, he said, “could write such a self-defeating statute. But in my view, it did not do so.” [Emphasis in original.]

Scholarly Commentary

Daniel Glosband provided ABI with the following commentary.

I am pleased that the Eleventh Circuit affirmed the lower courts in Al Zawawi and that section 109(a) will not be an Eleventh Circuit requirement for chapter 15 recognition. 

However, I am disappointed that the panel decision affirmed solely based on its view that it was bound by its 1988 precedent In re Goerg rather than by adopting and bringing current the Goerg analysis. Judge Lagoa said rather tersely in her Special Concurrence that she would have reversed if she were not bound by Goerg, based on an incomplete and wholly unreasoned analysis.

Judge Tjoflat’s Special Concurrence was excellent, providing statutory context and analysis for both Goerg (which he wrote over 30 years ago) and Al Zawawi. As instructed by Congress (in section 1508), he reviewed relevant UNCITRAL materials (the Guide to Enactment and Interpretation and the UNCITRAL collection of caselaw) and concluded correctly (as emphasized by the amici curiae in our brief) that the nature of the debtor in the foreign proceeding was not relevant to recognition since recognition focuses on the eligibility of the foreign proceeding and not of the debtor in that proceeding.

Judge Tjoflat also pointed out the abusive possibilities of applying Section 109(a) — a debtor in a foreign proceeding could fraudulently transfer any U.S. assets (even if they would otherwise be a legitimate target of the foreign representative) and prevent recognition, thwarting recovery efforts by the foreign representative.

Mr. Glosband is of counsel in the Boston office of Goodwin Procter LLP.