In re Florsheim Group Inc.

• Citation: 336 B.R. 126
• Decision Date: 30 September 2005
• Docket Number: Adversary No. 03 A 1859.,Bankruptcy No. 02 B 08209.
• Parties: In re: FLORSHEIM GROUP INC. et al., Debtors. Florsheim Group Inc. et al., Plaintiff, v. USAsia International Corporation, Defendant.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

336 B.R. 126

In re: FLORSHEIM GROUP INC. et al., Debtors Florsheim Group Inc. et al., Plaintiff, v. USAsia International Corporation, Defendant.

Bankruptcy No. 02 B 08209.

Adversary No. 03 A 1859.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

September 30, 2005.

COPYRIGHT MATERIAL OMITTED

Shaw Gussis Fishman, Glantz Wolfson & Towbin, LLC, for Movant or Plaintiff.

McGuire Woods, LLP, for Respondent or Defendant.

MEMORANDUM OPINION

CAROL A. DOYLE, United States Bankruptcy Judge.

This matter is before the court on the post-stipulation briefs of Florsheim Group Inc. ("Florsheim") and USAsia International Corporation ("USAsia"). The parties dispute whether preferential transfers made from Florsheim to USAsia may be avoided pursuant to 11 U.S.C. §§ 547 and 550. For the reasons stated below, the court concludes that Florsheim may avoid these transfers. Therefore, the court will enter a judgment against USAsia in the amount of $115,000 plus post-judgment interest.

I. Issue

The parties have partially settled this adversary proceeding by stipulating to the relevant facts, resolving certain defenses, and agreeing to the amount of judgment if Florsheim should prevail. Three related issues remain in dispute: 1) whether the preferential transfers occurred in the United States or abroad; 2) if the transfers occurred abroad, whether Congress intended §§ 547 and 550 of the Bankruptcy Code to apply extraterritorially; and 3) in any event, whether principles of international comity weigh against applying § 547 to the transfers. The court concludes that the preferential transfers occurred primarily in the United States. Therefore, the court need not decide whether Congress intended to apply § 547 extraterritorially. The court also concludes that principles of international comity do not limit the application of § 547 in this case. Therefore, the court will enter judgment in favor of Florsheim in the amount agreed on by the parties, $115,000 plus post judgment interest.

II. Factual Background

The following facts are taken from the parties' briefs and agreed order stipulating to the facts. Florsheim, a Delaware corporation, filed for Chapter 11 protection in March 2002 in the Northern District of Illinois. In May and June of 2001, Florsheim entered into an agreement to purchase shoes from USAsia, a Taiwanese company with no operations in the United States. USAsia's primary business purpose was to serve as the sales agent for shoes manufactured by Glory Shoes Industrial Limited ("Glory Shoes") in mainland China. Florsheim hired Roberts Trading Company ("Roberts Trading"), a Taiwanese company, to contact USAsia in Taiwan and Glory Shoes in mainland China concerning the purchase of shoes manufactured by Glory Shoes.

Florsheim issued purchase orders in the United States that Roberts Trading translated into Chinese in Taiwan, and then sent by e-mail to USAsia. USAsia accepted the purchase orders by notifying Roberts Trading in Taiwan. At Roberts Trading's direction, USAsia arranged for a shipment of the shoes from China to Florsheim in the United States. USAsia completed United States customs forms for the export of the shoes to the United States.

Florsheim was not obligated to accept or pay for the shoes until it had an opportunity to inspect the shipment in St. Louis, Missouri, and reject non-conforming goods. The purchase orders and related invoices included terms providing that USAsia owned the shoes until Florsheim paid for them. After accepting the shoes in the United States, Florsheim paid approximately $229,000 to USAsia for the shoes via a series of wire transfers from its bank in the United States to USAsia's bank in Taiwan. These payments occurred during the 90 days before Florsheim's bankruptcy filing.

USAsia conducted all discussions and negotiations concerning the purchase orders with Roberts Trading in Taiwan. It did not communicate directly with Florsheim except that it sent copies of the invoices for the shoes to Florsheim by mail in August and September 2001. However, USAsia knew it was facilitating the sale of shoes to Florsheim, a U.S. corporation.

In May 2003, Florsheim filed this adversary proceeding against USAsia, seeking to recover approximately $229,000 in preferential payments pursuant to 11 U.S.C. §§ 547 and 550. On September 28, 2004, the parties stipulated to the facts and requested the court to decide whether § 547 of the Bankruptcy Code applies to this transaction. Florsheim and USAsia agree that the payments would be recoverable as preferences but dispute whether § 547 applies to this transaction. The parties agree that Florsheim received subsequent new value of approximately $68,000 from USAsia following the payments in question. They also agree that the payments from Florsheim to USAsia are not avoidable under the laws of England, Hong Kong or Taiwan. USAsia has not filed a proof of claim in Florsheim's bankruptcy, but it admits that the court has personal jurisdiction over it.

Under the parties' agreement, if the court determines that the transfers are avoidable under 11 U.S.C. §§ 547 and 550, Florsheim will receive $115,000 plus interest; if the court determines that the transfers are not avoidable, Florsheim will receive $30,000 plus interest. Because the court concludes that § 547 applies to these transfers, the court will enter the agreed judgment in favor of Florsheim for $115,000 plus interest.

III. Legal Standards

To determine whether § 547 applies to the transaction with USAsia, the court must first decide where the transfer took place. If it took place principally in the United States, then there is no question that U.S. law applies. If it took place outside the U.S., then the court must determine whether Congress intended § 547 to apply extraterritorially. In either event, when applying U.S. laws to transactions with international dimensions, the court should weigh principles of international comity to determine whether application of the statute is appropriate.

A. Determining Where Transaction Took Place

The first question a court must address when considering whether a U.S. law applies to a transaction with international components is whether application of the statute "presents an extraterritoriality problem at all." Envtl. Def. Fund v. Massey, 300 U.S. App. D.C. 65, 986 F.2d 528, 532 (D.C. Cir. 1993). That is, a court must determine whether the statute seeks to "regulate conduct in the United States or in another sovereign country." Id. The conduct at issue in this case is a preferential transfer. Under §§ 547 and 550 of the Bankruptcy code, a trustee may recover preferential transfers made by the debtor. A "transfer" is "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property." 11 U.S.C. § 101(54). However, the definition of "transfer" provides no guidance on how to determine where the transfer took place.

In the absence of statutory guidance, courts generally consider all component events of a financial transaction, rather than one dispositive factor, to determine where it took place. See, e.g., Gushi Bros. v. Bank of Guam, 28 F.3d 1535, 1538-39 (9th Cir. 1994). In analyzing allegedly preferential transfers, courts have applied a "center of gravity" test, under which they "look at the facts of a case to determine whether they have a center of gravity outside the United States." Maxwell Communication Corp. plc v. Barclays Bank (In re Maxwell Communication Corp. plc), 170 B.R. 800, 809 (Bankr. S.D.N.Y. 1994), aff'd sub nom. Societe General plc v. Maxwell Communication Corp. plc (In re Maxwell Communication Corp. plc), 186 B.R. 807 (S.D.N.Y. 1995), aff'd on other grounds, 93 F.3d 1036 (2d Cir. 1996).

If the center of gravity is in the United States, then U.S. law applies. If the center of gravity is outside the United States, then the court must determine whether Congress intended to apply the law extraterritorially. Courts must presume that "legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." Smith v. United States, 507 U.S. 197, 204, 122 L.Ed.2d 548, 113 S.Ct. 1178, 122 L.Ed.2d 548 (1993); EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248, 113 L.Ed. 2d 274, 111 S.Ct. 1227, 113 L.Ed.2d 274 (1991) ("Aramco") (quoting Foley Bros. v. Filardo, 336 U.S. 281, 285, 93 L.Ed. 680, 69 S.Ct. 575, 93 L.Ed. 680 (1949)); see also Restatement (Third) of Foreign Relations Law § 403 (1987) ("Restatement"). This "canon of construction . . . is a valid approach whereby unexpressed congressional intent may be ascertained. It serves to protect against unintended clashes between our laws and those of other nations which could result in international discord." Aramco, 499 U.S. at 248. Therefore, a court must "presume that Congress intended its enactments to apply only within the territorial jurisdiction of the United States, unless the legislation reflects a contrary intent." Kollias v. D&G Marine Maint., 29 F.3d 67, 70 (2d Cir. 1994). Nevertheless, if a statute regulates conduct that took place principally in the United States, a court need not consider the presumption against extraterritoriality at all. See Massey, 986 F.2d at 532.

B. Principles of International Comity

When applying U.S. laws to transactions with international components, courts also consider principles of international comity. These comity considerations are "wholly independent" of the presumption against extraterritoriality. Aramco, 499 U.S. at 264, 111 S.Ct. 1227. Thus, regardless of whether that presumption applies, courts assume that Congress incorporated choice-of-law principles consistent with principles of international comity. Id. at 817. Comity 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...