Bankruptcy Judge Christopher S. Sontchi declined to bestow the Delaware bankruptcy court with responsibility for resolving a dispute between the foreign-based debtor and a bank in England.
The transaction underpinning Judge Sontchi’s November 30 opinion had precipitated the debtor’s chapter 11 filing in Delaware, but he nonetheless dismissed the lawsuit under the doctrine of forum non conveniens.
The Prepackaged Chapter 11 Is Confirmed
The debtor and its affiliates operate fiber-optic networks around the globe. The debtor was a Bermudian company with its principal place of business in Bermuda.
The debtor filed a chapter 11 petition in Delaware to implement a restructuring agreement among the debtor, its non-debtor affiliates and an ad hoc group of senior secured noteholders. The agreement was designed to eliminate $150 million in bonded debt while paying unsecured creditors in full.
The debtor confirmed a chapter 11 plan in late 2019, about 10 weeks after filing. Some 18 months later, the debtor filed an adversary proceeding against an English bank that became the subject of Judge Sontchi’s forum non conveniens opinion.
The Lawsuit After Confirmation
The post-confirmation lawsuit had its foundation in an event occurring before filing.
The debtor’s indirect, Indian parent had a $700 million credit facility with an English bank. The loan agreement provided for English law to govern and made English courts the exclusive venue for disputes.
The debtor was not a borrower and did not guarantee the bank debt. The bank did not have a security interest in the debtor’s assets, but the parent had pledged the stock of the debtor as collateral security for the bank.
The bank defaulted the Indian parent under the credit facility. One day before the debtor was scheduled to make a payment on its own senior secured debt, the bank seized some $10 million in the debtor’s account at the bank in England.
The bank effected the seizure of the account without first foreclosing the debtor’s stock, but asserted that the seizure was a lawful triangular setoff under the terms of the debtor’s account agreement with the bank.
Alleging that its own bankruptcy was necessitated and precipitated by the seizure, the debtor sued the English bank in the Delaware bankruptcy court. The debtor alleged that the seizure was unlawful and that the funds in the account were estate property. In addition to the pendency of the bankruptcy in Delaware, the debtor contended that the bankruptcy court was the proper forum for the lawsuit because the bank’s New York branch had made bookkeeping entries to effect the seizure.
Of significance for our purposes, the bank filed a motion to dismiss under the doctrine of forum non conveniens. While the Delaware bankruptcy court might not have had personal jurisdiction over the English bank, Judge Sontchi said that his indisputable subject matter jurisdiction gave him power to rule on the forum non conveniens motion.
The Requirements Are Met for Forum Non Conveniens
Judge Sontchi explained that forum non conveniens is a discretionary doctrine governed by a three-part test in the Third Circuit. The first element of the test is the availability of an alternative forum.
On that score, English courts were readily available because the bank was headquartered in England and was amenable to process in England.
The second test deals with the plaintiff’s choice of forum, which is ordinarily accorded “great deference.”
In the case before Judge Sontchi, the plaintiff was Bermudian and therefore foreign itself. In addition, the transaction was governed by English law; the transaction occurred in England; the triangular setoff would be governed by English law; there were no witnesses or evidence in the U.S.; and the parties conducted no business in the U.S.
Judge Sontchi said there were “enough facts to overcome the ‘home court’ presumption.” He decided that the debtor’s “choice of forum is afforded little deference.”
The last test deals with public and private interest factors. Balancing them, Judge Sontchi said that they tilted heavily in favor of England.
The fleeting transit of the funds through the New York bank’s branch “does not make the U.S. the ‘locus’ of the alleged culpable conduct,” Judge Sontchi said. He recognized that England has “the stronger local interest in having localized controversies decided there.”
Regarding public interest factors, Judge Sontchi said he would be applying foreign law and would need expert witnesses on English law if the suit were to remain in bankruptcy court. In contrast, the English court would be “comfortable” with the legal issues without expert testimony.
Regarding private interest factors, Judge Sontchi noted that all of the proof and witnesses were in England, where there would be no need for expert witnesses on governing law. Likewise, the English courts could compel the appearance of witnesses, which would be “a huge impediment” if the suit were in the U.S., Judge Sontchi said.
Finding that the private interest factors “heavily” favored dismissal, Judge Sontchi invoked the forum non conveniens doctrine and dismissed.
Bankruptcy Judge Christopher S. Sontchi declined to bestow the Delaware bankruptcy court with responsibility for resolving a dispute between the foreign-based debtor and a bank in England.
The transaction underpinning Judge Sontchi’s November 30 opinion had precipitated the debtor’s chapter 11 filing in Delaware, but he nonetheless dismissed the lawsuit under the doctrine of forum non conveniens.
The Prepackaged Chapter 11 Is Confirmed
The debtor and its affiliates operate fiber-optic networks around the globe. The debtor was a Bermudian company with its principal place of business in Bermuda.
The debtor filed a chapter 11 petition in Delaware to implement a restructuring agreement among the debtor, its non-debtor affiliates and an ad hoc group of senior secured noteholders. The agreement was designed to eliminate $150 million in bonded debt while paying unsecured creditors in full.
The debtor confirmed a chapter 11 plan in late 2019, about 10 weeks after filing. Some 18 months later, the debtor filed an adversary proceeding against an English bank that became the subject of Judge Sontchi’s forum non conveniens opinion.