Cunard Steamship Co. Ltd. v. Salen Reefer Services AB

Decision Date19 September 1985
Docket NumberNo. 85-7365,85-7365
Citation773 F.2d 452
Parties, 2 Fed.R.Serv.3d 1288, Bankr. L. Rep. P 70,762 CUNARD STEAMSHIP COMPANY LIMITED, Plaintiff-Appellant, v. SALEN REEFER SERVICES AB, Defendant-Appellee, United Brands Company, Garnishee.
CourtU.S. Court of Appeals — Second Circuit

Joseph K. Molloy, New York City (Kirlin, Campbell & Keating, New York City, of counsel), for plaintiff-appellant.

Donald J. Kennedy, New York City (Edward A. Rial, Haight, Gardner, Poor & Havens, New York City, of counsel), for defendant-appellee.

Before VAN GRAAFEILAND and PRATT, Circuit Judges, and RE, Chief Judge, United States Court of International Trade. *

RE, Chief Judge:

Plaintiff-appellant, Cunard Steamship Company, Ltd. (Cunard), appeals from an order of the United States District Court for the Southern District of New York which vacated an attachment Cunard had obtained against defendant-appellee, Salen Reefer Services, A.B., (Salen). The district court found that the public policy of the United States would best be served by extending comity to a pending Swedish bankruptcy proceeding and the related stay on creditor actions. Thus, the court ordered the attachment vacated so that the debtor's assets could be distributed in the Swedish bankruptcy proceeding according to Swedish law. Since we find that the district court properly granted comity to the Swedish court's stay on creditor actions, we affirm.

Procedural Background

On December 19, 1984, Salen, a business entity established under Swedish law, commenced a bankruptcy proceeding in the Stockholm City Court, in the Kingdom of Sweden. In accordance with Swedish law, an interim administrator was appointed to supervise the affairs of the bankrupt, and creditor actions against the debtor were suspended.

On January 9, 1985, plaintiff-appellant, Cunard, commenced this action in the District Court for the Southern District of New York by obtaining an order of attachment against certain assets of Salen held by garnishee, United Brands Company, pursuant to the Arbitration Act, 9 U.S.C. Sec. 8 (1982), and Rule B(1) of the Supplemental Rules for Certain Admiralty and Maritime Claims of the Federal Rules of Civil Procedure. Cunard based its claim on a contract of charter between Cunard and Salen. The contract provides for the arbitration in London of any dispute arising under the contract. On January 24, 1985, Salen brought a motion by Order to Show Cause seeking to dissolve the attachment.

After a hearing, the District Court, 49 B.R. 614, for the Southern District of New York, in an opinion dated May 1, 1985, granted Salen's motion and ordered that the attachment be vacated. The district court found that the public policy of the United States would be furthered by granting comity to the Swedish court's stay on creditor actions during the Swedish bankruptcy proceeding.

Cunard raises several objections to the district court's order which vacated the attachment. First, it contends that the Swedish court does not possess either in personam jurisdiction over Cunard, or in rem jurisdiction over the attached assets. Thus, it argues that the district court erred in finding that the Swedish court was a court of competent jurisdiction. Second, it submits that the district court's extension of comity in this case violates the public policy of the United States and the State of New York that favors arbitration of disputes. Third, Cunard contends that the district court's order contravenes the policies which underlie section 304 of the Bankruptcy Code, 11 U.S.C. Sec. 304 (1982). Finally, the plaintiff argues that it did not receive reasonable notice of Salen's intention to prove foreign law pursuant to Rule 44.1 of the Federal Rules of Civil Procedure.

Section 304 of the Bankruptcy Code

The threshold question presented is whether, when a debtor is involved in a foreign bankruptcy proceeding, section 304 of the Bankruptcy Code is the exclusive remedy for a trustee or representative of the bankrupt who wishes to stay or enjoin creditor actions in the United States.

Section 304 was enacted as part of the Bankruptcy Reform Act of 1978, and was intended to deal with the complex and increasingly important problems involving the legal effect the United States courts will give to foreign bankruptcy proceedings. In order to administer assets in the United States and to prevent dismemberment by local creditors of assets located here, the representative of a foreign bankrupt may commence a section 304 proceeding, rather than a full bankruptcy case. See S.Rep. No. 989, 95th Cong., 2d Sess. 35, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5821 (Senate Report ); H.Rep. No. 595, 95th Cong., 2d Sess. 324-25, reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6281 (House Report ). This remedy is intended to be broad and flexible. Id.; see also Angulo v. Kedzep, Ltd., 29 B.R. 417, 419 (S.D.Tex.1983) (ancillary proceeding under section 304 is flexible enough to be used for limited purpose of obtaining discovery); Hearings on H.R. 31 and H.R. 32 before the Subcommittee on Civil and Constitutional Rights of the House Committee on the Judiciary, 94th Cong., 2d Sess., Serial 27, 1509, 1510 (1976) (Statement of Prof. Stefan A. Riesenfeld). Indeed, section 304 may be said to have been designed to accommodate the problems we confront here, in which foreign bankruptcy proceedings have been instituted and creditors are attempting to seize assets of the debtor located in the United States.

Since bankruptcy courts possess a general expertise in bankruptcy matters, there is an historic preference which favors bankruptcy adjudications by a judge with experience in bankruptcy law. See, e.g., In re Kaiser, 722 F.2d 1574, 1581 (2d Cir.1983). The bankruptcy courts' expertise in bankruptcy matters should prove helpful in appraising foreign bankruptcy proceedings and in determining the effect those proceedings should be given in the United States.

Section 304 provides, inter alia, that the court may enjoin actions and the enforcement of judgments against the debtor or the property of the debtor, or "order other appropriate relief." 11 U.S.C. Sec. 304(b). The statute specifically lists several factors or "guidelines" that the court is to consider in evaluating a debtor's petition under Section 304. 11 U.S.C. Sec. 304(c). As the House Report explains:

The court is to be guided by what will best assure an economical and expeditious administration of the estate, consistent with just treatment of all creditors and equity security holders; protection of local creditors and equity security holders against prejudice and inconvenience in processing claims and interests in the foreign proceeding; prevention of preferential or fraudulent disposition of property of the estate; distribution of the proceeds of the estate substantially in conformity with the distribution provisions of the bankruptcy code; and, if the debtor is an individual, the provision of an opportunity for a fresh start. These guidelines are designed to give the court the maximum flexibility in handling ancillary cases. Principles of international comity and respect for the judgments and laws of other nations suggest that the court be permitted to make the appropriate orders under all of the circumstances of each case, rather than being provided with inflexible rules.

House Report, supra, at 324-25, U.S.Code Cong. & Admin.News 1978, at 6281.

Since section 304 was designed for cases such as this, it would have been eminently proper for the district court to have referred the case to a bankruptcy "unit" of the court. See RBS Fabrics Ltd. v. G. Beckers & Le Hanne, 24 B.R. 198, 200 (S.D.N.Y.1982); 28 U.S.C.A. Sec. 151 (West Supp.1985). In its memorandum of law before the district court, the defendant requested relief "pursuant to Sec. 304 of the Bankruptcy Code," and the district court considered this section in evaluating Salen's motion. At 618. However, although we believe that an ancillary proceeding pursuant to section 304 would have been a preferred remedy, the fact that the district court did not refer the case to the bankruptcy court does not require that its decision be reversed.

We do not find in the statute or in the legislative history a clear congressional mandate, either express or implied, that section 304 was to be the exclusive remedy for a foreign bankrupt. The statute is not phrased in mandatory or exclusive terms, and the language of the accompanying House and Senate Reports is permissive. For example, both the House and Senate Reports state that "the foreign representative may file a petition under this section." Senate Report, supra, at 35; House Report, supra, at 324 (emphasis added), U.S.Code Cong. & Admin.News 1978, at 5821, 6281.

Section 304, as originally introduced in both the House and Senate, was substantially similar to section 304 as enacted, but contained no reference to comity. See H.R. 8200, 95 Cong., 1st Sess. Sec. 304, reprinted in Collier on Bankruptcy, App. III (1984); S. 2266, 95th Cong., 2d Sess. Sec. 304, reprinted in Collier on Bankruptcy, App. III (1984). Section 304(c) was subsequently amended before passage in order expressly to direct the bankruptcy court to consider comity when evaluating a petition under section 304. See 11 U.S.C. Sec. 304(c). It is clear that the drafters of the original bill did not intend to overrule in foreign bankruptcies well-established principles based on considerations of international comity. See, e.g., Clarkson Co. v. Shaheen, 544 F.2d 624, 629 (2d Cir.1976); In re Colorado Corp., 531 F.2d 463, 468 (10th Cir.1976). A more reasonable interpretation is that comity was added to Sec. 304(c) to clarify and require that comity must be considered in ancillary proceedings in the bankruptcy court.

In proposing the predecessor bill to the Bankruptcy Code, the Commission on the Bankruptcy Laws of the United States, in its explanatory...

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