In re Treco

• Decision Date: 22 January 1999
• Docket Number: Bankruptcy No. 95 B 44326(JLG).
• Citation: 229 BR 280
• Parties: In re Petition of Alison J. TRECO and David Patrick Hamilton, as Liquidators of Meridien International Bank Limited (In Liquidation).
• Court: U.S. Bankruptcy Court — Southern District of New York

229 B.R. 280 (1999)

In re Petition of Alison J. TRECO and David Patrick Hamilton, as Liquidators of Meridien International Bank Limited (In Liquidation).

Bankruptcy No. 95 B 44326(JLG).

United States Bankruptcy Court, S.D. New York.

January 22, 1999.

COPYRIGHT MATERIAL OMITTED

Stroock & Stroock & Lavan LLP, New York City, for Liquidators.

Otterbourg, Steindler, Houston & Rosen, P.C., New York City, for Bank of New York and JCPL Leasing Corp.

DECISION ON LIQUIDATORS' MOTION FOR PARTIAL SUMMARY JUDGMENT

JAMES L. GARRITY, Jr., Bankruptcy Judge.

In this ancillary case under § 304 of the Bankruptcy Code, Alison J. Treco and David Patrick Hamilton, the official liquidators ("movants") of Meridien International Bank Limited (In Liquidation) ("MIBL"), seek partial summary judgment directing the turnover of funds contained in certain bank accounts maintained in MIBL's name at the Bank of New York ("BNY"). BNY, JCPL Leasing Corp. ("JCPL") and the Deposit Insurance Board ("DIB"), as assignee of Meridien BIAO Bank Tanzania Limited ("Meridien Tanzania"), oppose the motion. Additionally, BNY and JCPL ask us to grant them summary judgment dismissing this case. We grant movants' motion and deny BNY's and JCPL's request for relief.

Facts

The following facts are not in dispute. MIBL is a bank incorporated under the laws of the Bahamas. It has conducted business in the Bahamas, Africa and various other jurisdictions, including the United States.

In or about June 1993, MIBL entered into a loan agreement with BNY. Pursuant to a June 15, 1993 pledge agreement (the "MIBL Pledge"), MIBL pledged certain of its bank accounts (the "MIBL Accounts") as security for that loan. In late 1993, BNY agreed to permit MIBL to overdraw its account. As security for those overdrafts, and pursuant to a November 15, 1994 agreement (the "Pledge Agreement"), Meridien Tanzania pledged BNY certain of its accounts at BNY (the "Pledged Accounts"). The Pledge Agreement permitted BNY to set off funds on deposit in the Pledged Accounts against MIBL's loan obligations if at any time BNY deemed itself to be insecure. BNY's credit accommodations to MIBL ultimately aggregated in excess of $15,000,000.

On or about March 28, 1995, Meridien BIAO Bank of Swaziland Limited commenced an involuntary liquidation proceeding against MIBL in the Supreme Court of the Bahamas pursuant to the Bahamian Companies Act of 1992 (the "Companies Act") and the Companies (Winding-Up) Rules (the "Winding-Up Rules"). By order dated April 25, 1995 (the "Winding-Up Order"), the court directed that MIBL be placed into compulsory liquidation, and appointed movants as the bank's official liquidators.

Effective March 28, 1995, BNY applied all of the funds in the Pledged Accounts to satisfy MIBL's outstanding indebtedness. In April 1995, the Central Bank of Tanzania appointed a Manager to operate Meridien Tanzania. The Manager questioned the validity of the Pledge Agreement and demanded that BNY return the $15 million it had liquidated from the Pledged Accounts.

In June 1995, BNY and JCPL commenced an action in the United States District Court for the Southern District of New York (the "district court") against MIBL, Meridien Tanzania, DIB and certain other entities. In that action, they seek, among other things, (i) a declaratory judgment rejecting Meridien Tanzania's claim for the return of the $15,150,000 in the Pledged Accounts and declaring that BNY can retain this money in satisfaction of amounts owed to it by MIBL, (ii) "in the nature of interpleader", recovery of amounts owed to BNY from the proceeds from the sale of certain aircraft and spare parts, and (iii) also "in the nature of interpleader", a declaratory judgment that BNY, in the event it does not prevail on its other causes of action, can apply against amounts owed to it by MIBL, the funds on deposit in the MIBL Accounts, among others.

DIB, as Meridien Tanzania's assignee, moved for partial summary judgment directing BNY to turnover the Pledged Accounts. The district court denied that motion. On June 22, 1998, after trial of the dispute in the district court, and while the matter was sub judice, DIB and BNY entered into a settlement agreement (the "Tanzania Settlement") pursuant to which BNY, among other things, agreed to pay DIB $4,000,000, plus attorneys' fees in full satisfaction of all claims. BNY made the initial installment payment under that agreement in August of 1998.

On September 29, 1995, movants commenced this case by filing a petition on MIBL's behalf under § 304 of the Bankruptcy Code. Among other things, in the petition, movants seek an order directing all persons or entities possessing MIBL's assets to turn over those assets, or the proceeds thereof, to them. In this motion, they seek partial summary judgment on their § 304 petition directing BNY to turnover all funds in the MIBL Accounts.

Discussion

We have subject matter jurisdiction over this case pursuant to 11 U.S.C. § 304 and 28 U.S.C. §§ 1334 and 157 and the "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court for the Southern District of New York, dated July 10, 1984 (Ward, Acting C.J.). This is a core proceeding. See 28 U.S.C. § 157(b)(2)(A).

Section 304 empowers a "foreign representative" appointed in a "foreign proceeding" to commence a "case ancillary to that foreign proceeding" by filing a petition in the bankruptcy court. 11 U.S.C. § 304(a). See Koreag, Controle et Revision S.A. v. Refco F/X Associates, Inc. (In re Koreag, Controle et Revision S.A.), 961 F.2d 341, 348 (2d Cir. 1992), cert. denied, 506 U.S. 865, 113 S.Ct. 188, 121 L.Ed.2d 132 (1992); In re Rubin, 160 B.R. 269, 274 (Bankr.S.D.N.Y.1993). A "foreign proceeding" is "a proceeding, whether judicial or administrative ... for the purpose of liquidating an estate, adjusting debts by composition, extension, or discharge, or effecting a reorganization." 11 U.S.C. § 101(23). A "foreign representative" is a "duly selected trustee, administrator, or other representative of an estate in a foreign proceeding." 11 U.S.C. § 101(24).

In relevant part, § 304 states that "after trial on an ancillary petition, the court may ... order turnover of the property of such estate, or the proceeds of ... the foreign debtor's property, to such foreign representative." 11 U.S.C. § 304(b)(2). In determining whether to grant relief under § 304(b)(2), we are guided by what will best assure an economical and expeditious administration of the foreign debtor's estate, consistent with the specific criteria delineated in § 304(c). Five of those factors are relevant here:

(1) just treatment of all holders of claims against or interests in such estate;

(2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding;

(3) prevention of preferential or fraudulent dispositions of property of such estate;

(4) distribution of proceeds of such estate substantially in accordance with the order prescribed by this title; and

(5) comity.

11 U.S.C. § 304(c).¹

Movants contend that MIBL is the subject of a foreign proceeding, that they are duly qualified foreign representatives and that they merit relief in the form of a turnover order under §§ 304(b)(2) and (c). According to them, the MIBL Accounts are property of MIBL's estate which must be administered in MIBL's Bahamian liquidation proceeding. They maintain that we can insure the just treatment of all creditors only by repatriating the MIBL Accounts to the Bahamas because otherwise MIBL's estate will be dismembered and it will be impossible to distribute MIBL's estate in a fair and equitable way. Movants argue that U.S. creditors like BNY will not be unduly prejudiced or inconvenienced if we grant this motion because the claims processing and distribution procedures under the Companies Act are fundamentally fair and substantially in accordance with the order prescribed in the Bankruptcy Code. They urge that the relief they seek will prevent BNY from being preferred unfairly and to the detriment of other creditors. Finally, movants assert that principles of comity mandate that we grant their motion and order turnover of the MIBL Accounts.

BNY and JCPL make two preliminary arguments in opposition to the motion. First, they contend that we must deny it as premature because MIBL failed to comply with its discovery demands. That aspect of the motion is moot because the parties have resolved their discovery disputes. Second, they contend that we must deny this motion as procedurally defective because movants cannot obtain a turnover order without commencing an adversary proceeding, notwithstanding that movants' petition specifically alleges that they are seeking a turnover order and identifies the MIBL Accounts as MIBL assets. In In re Petition of Alain Rukavina, 227 B.R. 234 (Bankr.S.D.N.Y. 1998), BNY urged us to deny the petitioner's motion under § 304(b)(1) of the Bankruptcy Code for a preliminary injunction because he had not commenced an adversary proceeding seeking injunctive relief. Id. at 239-40. We rejected that argument finding that neither the Bankruptcy Code, Federal Rules of Civil Procedure, Federal Rules of Bankruptcy Procedure, nor case law supported BNY's assertion. Id. Rather, we read § 304(b) to provide that the petition commencing the ancillary case is the pleading pursuant to which a movant can seek relief under § 304. Id. BNY makes the same arguments here and we reject them for the reasons we stated in Rukavina.

Fed.R.Bankr.P. 7056 makes Fed.R.Civ.P. 56 applicable here. Rule 56(c) states that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex...