In The Matter Of: Yuval Ran v. Ran, 09-20288.

• Decision Date: 27 May 2010
• Docket Number: No. 09-20288.,09-20288.
• Citation: 607 F.3d 1017
• Parties: In the Matter of: Yuval RAN, Debtor.Zuriel Lavie, Appellant,v.Yuval Ran, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

607 F.3d 1017

In the Matter of: Yuval RAN, Debtor.

Zuriel Lavie, Appellant,

v.Yuval Ran, Appellee.

No. 09-20288.

United States Court of Appeals, Fifth Circuit.

May 27, 2010.

COPYRIGHT MATERIAL OMITTED

H. Miles Cohn (argued), Sheiness, Scott, Grossman & Cohn, L.L.P., Houston, TX, for Lavie.

John Wayne Kitchens, Jr., (argued), Heather Heath McIntyre, Hughes, Watters & Askanase, L.L.P., Houston, TX, for Ran.

Appeal from the United States District Court for the Southern District of Texas.

Before STEWART, DENNIS and HAYNES, Circuit Judges.

CARL E. STEWART, Circuit Judge:

In a matter of first impression before this court, Zuriel Lavie (“Lavie”), an Israeli bankruptcy receiver, appeals the district court's denial of his petition for recognition under Chapter 15 of the Bankruptcy Code of an ongoing, involuntary bankruptcy proceeding pending in Israel, for debtor Yuval Ran (“Ran”). In particular, the petition sought recognition of the Israeli bankruptcy proceeding as a foreign main or nonmain proceeding. If granted, that recognition would have entitled Lavie to the protections of a variety of Bankruptcy Code provisions. For the reasons discussed below, we affirm the district court's denial of Lavie's petition for recognition under Chapter 15 of the Bankruptcy Code.

I. FACTUAL AND PROCEDURAL BACKGROUND

Ran was a well-known Israeli businessman and promoter when he encountered financial difficulties in the late 1990's. In fact, he was a director or shareholder in almost one hundred Israeli companies, some of them publicly-traded. The largest company in which Ran had a controlling interest was Israel Credit Lines Supplementary Financial Services Ltd. (“Credit Lines”), a public company that was co-founded by Ran and for which he served as CEO. Credit Lines raised millions of dollars from investors and owned interests in numerous other companies. It is now in liquidation through an Israeli bankruptcy proceeding, and its receiver has asserted claims against Ran for millions of dollars in damages. On June 16, 1997, an involuntary bankruptcy proceeding was commenced against Ran, in the Israeli District Court of Tel Aviv-Jaffa. Lavie was initially appointed as temporary receiver of Ran's assets and later, on November 28, 1998, Lavie was appointed permanent receiver.

In April 1997, before the involuntary bankruptcy proceeding was commenced, Ran left Israel and has never returned. After leaving, Ran moved to Houston, Texas in May or June of 1997, where he and his family have since resided continuously. Ran's wife and five children are United States citizens, and Ran is a legal permanent resident of the United States and is currently seeking United States citizenship. Ran and his wife own a home in Houston and are both employees of a furniture company in the area. After leaving Israel, Ran temporarily assisted in collecting debts owed to Credit Lines, but ceased doing so when receivership and liquidation proceedings began for Credit Lines in 1998. Currently, Ran carries out no business activity in Israel, and has not done so since 1998.

On December 11, 2006, nearly a decade after Ran and his family emigrated from Israel and more than eight years after being appointed receiver of Ran's estate, Lavie filed a petition seeking recognition of the Israeli bankruptcy proceeding as a foreign main or nonmain proceeding under Chapter 15 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. On May 22, 2007, the Bankruptcy Court denied the petition. The Bankruptcy Court's order was the subject of two appeals to the district court, the first resulting in a remand for additional findings and the second resulting in an order affirming the denial of Lavie's petition for recognition. This appeal followed.

II. DISCUSSION

A. Standard of Review

“We review a district court's affirmance of a bankruptcy court decision by applying the same standard of review to the bankruptcy court decision that the district court applied.” In re Martinez, 564 F.3d 719, 725-26 (5th Cir.2009). “We thus generally review factual findings for clear error and conclusions of law de novo.” Id. at 726 (quoting In re OCA, Inc., 551 F.3d 359, 366 (5th Cir.2008)) (internal quotation marks omitted). While a determination of whether Ran's bankruptcy proceeding is a foreign main or nonmain proceeding is inherently a fact-driven inquiry, the facts in this case are not in dispute and the appeal to the district court was de novo, as is the appeal to this court. See, e.g., In re Belsome, 434 F.3d 774, 776 (5th Cir.2005); see also, William H. Schrag, William C. Heuer, & Robert E. Cortes Cross-Border Insolvencies and Chapter 15: Recent U.S. Case Law Determining Whether a Foreign Proceeding Is “Main” or “Nonmain” or Neither, 17 J. Bankr. L. & Prac. 5, art. 4 (Aug.2008) (noting that “[t]he determination of whether a foreign proceeding is ‘main’ or ‘nonmain’ is fact-driven”).

B. Chapter 15's Framework

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) enacted Chapter 15 of the Bankruptcy Code, “so as to provide effective mechanisms for dealing with cases of cross-border insolvency.” 11 U.S.C. § 1501(a). It replaced former Section 304 of the Bankruptcy Code and “incorporate[s] the Model Law on Cross-Border Insolvency” drafted by UNCITRAL, the United Nations Commission on International Trade Law, which in turn, is based upon the European Union Convention on Insolvency Proceedings (the “EU Convention”). See 11 U.S.C. § 1501(a) et seq.; see also In re Tri-Continental Exch. Ltd., 349 B.R. 627, 633-34 (Bankr.E.D.Cal.2006). The statutory intent to conform American law with international law is explicit in the text of Section 1501(a), and also is expressed in Section 1508, which states that “[i]n interpreting this chapter, the court shall consider its international origin, and the need to promote an application of this chapter that is consistent with the application of similar statutes adopted by foreign jurisdictions.” 11 U.S.C. § 1508; see also House Report on the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, H.R.Rep. No. 109-31, pt. I, at 105 (2005) reprinted in 2005 U.S.C.C.A.N. 88, 169 (“[Chapter 15]” incorporates the Model Law on Cross-Border Insolvency to encourage cooperation between the United States and foreign countries with respect to transnational insolvency cases .... [hereinafter “House Report”]; 8 Alan N. Resnick & Henry J. Sommer, Collier on Bankruptcy § 1501.01 (15th ed. rev.2008) (explaining the basis for Chapter 15)).

A non-exhaustive list of relief available to a foreign proceeding's representative in a Chapter 15 case includes: (1) an automatic stay of actions against the debtor under Bankruptcy Code Section 362; (2) the ability to operate the debtor's business; (3) examination of witnesses; and (4) the entrusting of the administration of the debtor's United States assets to the foreign representative. See generally 11 U.S.C. § 1520(a)(1)-(3); see also id. § 1519(a)(1)-(3). In order for a foreign proceeding to gain recognition within the framework of Chapter 15, the following prerequisites must be met:

(1) such foreign proceeding for which recognition is sought is a foreign main proceeding or foreign nonmain proceeding within the meaning of section 1502;

(2) the foreign representative applying for recognition is a person or body; and

(3) the petition meets the requirements of section 1515.

11 U.S.C. § 1517(a); see also

In re Betcorp Ltd., 400 B.R. 266, 285 (Bankr.D.Nev.2009).

This statutory mandate is subject to a narrow public policy exception which permits a court to refuse recognition “if the action would be manifestly contrary to the public policy of the United States.” 11 U.S.C. § 1506. But, the exception is intended to be invoked only under exceptional circumstances concerning matters of fundamental importance for the United States. See In re Iida, 377 B.R. 243 (9th Cir. BAP 2007) ; In re Atlas Shipping A/S, 404 B.R. 726 (Bankr.S.D.N.Y.2009); In re Ernst & Young, Inc., 383 B.R. 773, 781 (Bankr.D.Colo.2008). Nevertheless, recognition under Section 1517 of the Bankruptcy Code is not a “rubber stamp exercise.” In re Basis Yield Alpha Fund (Master), 381 B.R. 37, 40 (Bankr.S.D.N.Y.2008). Even in the absence of an objection, courts must undertake their own jurisdictional analysis and grant or deny recognition under Chapter 15 as the facts of each case warrant. See In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325, 335 (S.D.N.Y.2008). The ultimate burden of proof on the requirements of recognition is on the foreign representative. See id. at 334.

Although listed as the third element, the first requirement for recognition under Section 1517 is purely procedural in nature; that is, the petition must meet the pleading requirements of Section 1515. See 11 U.S.C. § 1517(a)(3). Section 1515 establishes several pleading requirements. First, it requires that the foreign representative has filed a petition for recognition. Id. § 1515(a). Second, Section 1515 requires the petitioner to establish that a foreign proceeding exists, and that the petitioner has been appointed as the foreign representative. Id. § 1515(b). The first two paragraphs of this subsection provide for what constitutes sufficient evidence, and specify that the petitioner may satisfy this requirement by providing a “certified copy of the decision commencing such foreign proceeding and appointing the foreign representative” and “a certificate from the foreign court affirming the existence of the foreign proceeding and the appointment of the foreign representative.” Id. Third, Section 1515 requires that the petition for recognition must be accompanied by a statement identifying all foreign proceedings with respect to the debtor that are known to the foreign representative. Id. § 1515(c). Lavie has satisfied all of these procedural requirements. Thus, Section 1517(a)(3) has been satisfied. Lavie...