Allstate Life Ins. Co. v. Linter Group Ltd.

• Citation: 994 F.2d 996
• Decision Date: 02 June 1993
• Docket Number: 1379,Nos. 1378,D,s. 1378
• Parties: Fed. Sec. L. Rep. P 97,459, 24 Bankr.Ct.Dec. 644 ALLSTATE LIFE INSURANCE CO., et al., Appellants, v. LINTER GROUP LIMITED, et al., Appellees. ockets 92-9064L, 93-7052CON.
• Court: U.S. Court of Appeals — Second Circuit

Page 996

994 F.2d 996

Fed. Sec. L. Rep. P 97,459, 24 Bankr.Ct.Dec. 644

ALLSTATE LIFE INSURANCE CO., et al., Appellants, v. LINTER GROUP LIMITED, et al., Appellees.

Nos. 1378, 1379, Dockets 92-9064L, 93-7052CON.

United States Court of Appeals, Second Circuit.

Argued April 22, 1993.

Decided June 2, 1993.

John F. Harnes, New York City (Silverman, Harnes, Obstfeld & Harnes, on the brief), for appellants.

Francis M. Holozubiec, New York City (Terrence J. Galligan, and Kirkland & Ellis, on the brief), for appellees Linter Companies and their liquidators, officers, and directors.

George Brandon, New York City (B. Kelly Kiser, and Milbank, Tweed, Hadley & McCloy, on the brief), for appellee Chase AMP Bank Limited.

The following filed a brief without oral argument:

Boulanger, Hicks, Stein & Churchill, P.C., New York City (J. Portis Hicks, and Todd C. Girolamo, on the brief), for appellee Bank of New Zealand.

Cleary, Gottlieb, Steen & Hamilton, New York City (Mitchell A. Lowenthal, on the brief), for appellee Sumitomo Intern. Finance Australia Ltd.

Davis, Polk & Wardwell, New York City (Steven F. Goldstone, and Bradley J. Butwin, on the brief), for appellees Australia and New Zealand Banking Group Ltd., Commonwealth Bank of Australia, State Bank of South Australia, and Westpac Banking Corp.

Fried, Frank, Harris, Shriver & Jacobson, New York City (Jed S. Rakoff, and John Sullivan, on the brief), for appellee Security Pacific Australia Ltd.

Simpson Thacher & Bartlett, New York City (John J. Kerr, Michael J. Chepiga, and John C. Gustafsson, on the brief), for appellee Barclays Bank Australia Ltd.

Before: TIMBERS, KEARSE, and ALTIMARI, Circuit Judges.

TIMBERS, Circuit Judge:

Appellants appeal from judgments entered in the Southern District of New York, Robert P. Patterson, Jr., District Judge, dismissing securities actions on the grounds of comity and forum non conveniens in recognition of liquidation proceedings pending in Australia.

On appeal, appellants contend that the court abused its discretion in dismissing their actions.

We reject appellants' claims and we affirm the judgments in all respects.

I.

We summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal.

The actions consolidated for this appeal, Allstate Life Ins. Co. v. Linter Group Ltd., 91 Civ. 1655, 1992 WL 136849 (Linter I ) and Allstate Life Ins. Co. v. Linter Group Ltd., 91 Civ. 2873, 1992 WL 398446 (Linter II ), arose from the October 13, 1988 public offering in the United States by appellee Linter Textiles Corporation Ltd. (Linter Textiles), an Australian corporation, of approximately $200 million of its 13 3/4% Senior Subordinated Debentures. The debentures were registered with the Securities and Exchange Commission (SEC), underwritten by Drexel Burnham Lambert, Inc., and issued pursuant to a trust indenture between Linter Textiles and United States Trust Company of New York. Pursuant to SEC regulations, Linter Textiles filed an amended registration statement and disseminated a prospectus to the public.

Prior to the offering, Linter Textiles' parent corporation, appellee Linter Group Ltd. (Linter Group), had outstanding debt of 323,000,000 in Australian dollars. This debt was guaranteed to nine Australian and New Zealand banks (Banks) by Linter Textiles' subsidiaries through negative pledge agreements. On the day before the public offering, Linter Group, Linter Textiles' subsidiaries, and the Banks executed identical agreements releasing the subsidiaries from their guarantees in exchange for promises by Linter Textiles and its subsidiaries to enter into new agreements with the Banks and with each other to guarantee Linter Group's debt within 30 days. These agreements were not disclosed in Linter Textiles' prospectus or its registration statement. Instead, the prospectus stated that Linter Textiles would be virtually debt free after the offering.

In 1991, Linter Group, Linter Textiles, and Linter Textiles' subsidiaries (collectively the Linter companies) became insolvent and were placed in liquidation by orders of the Supreme Court of New South Wales, Australia. Subsequently, appellants, a group of institutional investors, including insurance companies and publicly-traded mutual funds owning more than $120 million in debentures, commenced an action in the Australian Federal Court against, inter alia, the Linter companies and the Banks, alleging violations of Australian law in connection with the public offering. Appellants also commenced a declaratory judgment action in the Equity Division of the New South Wales Court requesting a ruling under Australian law that their claims were not subordinate to the Banks' claims. Appellants subsequently have attempted unsuccessfully to stay these proceedings in favor of their United States actions, Linter I and Linter II. At present, both Australian suits are pending.

(A) Linter I

On March 8, 1991, appellants commenced an action in the Southern District of New York against the Linter companies, their liquidators, and several of their officers and directors, alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, as well as state and common law. Specifically, appellants alleged that Linter Textiles' prospectus and registration statement contained material misrepresentations that induced them to purchase debentures. On December 12, 1991, defendants in that action moved to dismiss or stay the action on the basis of the ongoing liquidation proceedings in Australia and on the ground of forum non conveniens. Following oral argument on the motion, on March 20, 1992, the court ordered the parties to submit additional briefing on the issue of whether the Australian insolvency proceedings were being conducted in an unfair manner so that appellants' claims would be prejudiced in those proceedings. In an opinion and order dated June 1, 1992, the court granted defendants' motion to dismiss, on the ground of comity, in favor of the ongoing liquidation proceedings in Australia. Judgment was entered on June 8, 1992. On September 4, 1992, the court denied appellants' Fed.R.Civ.P. 59(e) motion to amend the judgment.

(B) Linter II

On April 26, 1991, appellants commenced another action in the Southern District of New York against the Linter companies and the Banks, alleging that the Banks aided and abetted as well as conspired with the Linter companies to defraud them, in violation of § 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder. In July 1991, the Banks moved to dismiss the complaint on the ground of forum non conveniens. In an opinion and order dated January 9, 1992, the court denied the Banks' motion. Allstate Life Ins. Co. v. Linter Group Ltd., 782 F.Supp. 215 (S.D.N.Y.1992). Accordingly, on February 14, 1992, the Banks answered the complaint and asserted cross-claims for contribution and indemnification against the Linter companies. After the court dismissed Linter I, however, the Banks filed a second motion to dismiss on the ground of forum non conveniens. The Linter companies also moved to dismiss on the ground of comity, asserting that the rationale of the court's decision in Linter I was equally applicable to Linter II. In an opinion and order dated December 21, 1992, the court granted both motions. Judgment was entered on January 4, 1993.

Appellants now appeal from both judgments, asserting that the court abused its discretion in dismissing Linter I on the ground of comity and Linter II on the grounds of comity and forum non conveniens.

II.

(A) Comity

Appellants contend that the court improperly dismissed Linter I and Linter II against the Linter companies, their liquidators, and several of their officers and directors on the ground of comity. The Supreme Court has defined comity as "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, 159 U.S. 113, 164, 16 S.Ct. 139, 143, 40 L.Ed. 95 (1895). As a general rule, comity may be granted where "it is shown that the foreign court is a court of competent jurisdiction, and that the laws and public policy of the forum state and the rights of its residents will not be violated." Cunard S.S. Co. v. Salen Reefer Serv. AB, 773 F.2d 452, 457 (2 Cir.1985). Indeed, as long as the foreign court abides by "fundamental standards of procedural fairness", granting comity is appropriate. Id.

Moreover, we have recognized that comity is particularly appropriate where, as here, the court is confronted with foreign bankruptcy proceedings. Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 713 (2 Cir.1987) ("American courts have long recognized the particular need to extend comity to foreign bankruptcy proceedings."). We also recognize that, since comity is an affirmative defense, the Linter companies carried the burden of proving that comity was appropriate. Drexel Burnham Lambert Group Inc. v. Galadari, 777 F.2d 877, 880 (2 Cir.1985). Further, since the extension or denial of comity is within the court's discretion, we will reverse the court's decision only when we find an abuse of discretion. Remington Rand Corp.-Delaware v. Business Sys., Inc., 830 F.2d 1260, 1266 (3 Cir.1987); Cunard, supra, 773 F.2d at 460.

In determining whether the Australian insolvency proceedings warranted comity, the court, applying the law of this Circuit, focused on several factors as indicia of procedural fairness. These factors included: (1) whether creditors of the same class are treated equally in the distribution of assets; (2) whether the liquidators are considered fiduciaries and are held accountable to the court; (3) whether creditors have the right to submit claims which, if denied, can be submitted to a...