Assuming service in a preference action was effected on a foreign defendant in accordance with the Bankruptcy Rules, the Federal Rules of Civil Procedure, and the Hague Convention, Bankruptcy Judge Martin Glenn of Manhattan believes that the bankruptcy court has constitutional authority to enter final judgment if the defendant defaults by never responding to the complaint and subsequent filings.
Seeking a recovery of about $15,000, a trustee’s attorney employed the bailiff’s assistant from the High Court of Hong Kong to serve a preference complaint personally on a Hong Kong domiciliary at the defendant’s place of business in Hong Kong. The defendant never responded to the complaint.
In accordance with Bankruptcy Rules 7055 and 7005, the trustee subsequently served a certificate of default, a motion for entry of judgment by default, and a notice of presentment of an order for default judgment by regular mail on the defendant at its place of business in Hong Kong. Still, the defendant did not respond.
Sua sponte, Judge Glenn used his June 29 opinion to analyze whether he had constitutional power to enter final judgment on default.
Judge Glenn had decided in 2012 that the doctrine of implied consent gave him constitutional authority to enter final a default judgment in an adversary proceeding. Executive Sounding Board Associates v. Advanced Machine & Engineering Co. (In re Oldco M. Corp.), 484 B.R. 598 (Bankr. S.D.N.Y. 2012).
Three years later, the Supreme Court decided in Wellness International Network Ltd. v. Sharif, 135 S. Ct. 1932 (2015), that an objection to the power of the bankruptcy court to enter a final order can be waived. The justices also ruled that creditors’ inaction can result in implied consent to the bankruptcy court’s authority to issue a final order.
Like bankruptcy courts in Alabama and Idaho subsequent to Wellness International, Judge Glenn said that he “continues to believe that the analysis in Oldco M. Corp. is correct, permitting the Court to enter default judgments in all adversary proceedings in which a defendant has failed to respond to a properly served summons and complaint.” [Emphasis added.]
Although the case involved a preference suit, the italicized language above indicates Judge Glenn’s belief that the bankruptcy court has constitutional power to enter default judgments in fraudulent transfer suits and any other proceedings requiring the initiation of an adversary proceeding.
Judge Glenn then analyzed the procedural rules, the Hague Convention, and the rules of the Hong Kong Court before concluding that the plaintiff had properly served the complaint on the defendant along with all subsequent papers. Having decided that he possessed constitutional authority, Judge Glenn granted the motion for a default judgment and said he would enter a judgment on default for the amount sought by the trustee.