Lavie v. Ran

• Decision Date: 30 March 2009
• Docket Number: Civil Action No. H-08-1961.
• Citation: 406 B.R. 277
• Parties: Zuriel LAVIE, Appellant, v. Yuval RAN, Appellee.
• Court: U.S. District Court — Southern District of Texas

406 B.R. 277

Zuriel LAVIE, Appellant, v. Yuval RAN, Appellee.

Civil Action No. H-08-1961.

United States District Court, S.D. Texas, Houston Division.

March 30, 2009.

COPYRIGHT MATERIAL OMITTED

Wayne Kitchens, Hughes Watters Askanase, Houston, TX, for Appellee.

ORDER

GRAY H. MILLER, District Judge.

Pending before the court is appellant Zuriel Lavie's appeal from the Southern District of Texas Bankruptcy Court's decision denying recognition of the Israeli bankruptcy proceeding involving appellee Yuval Ran as either a "foreign main" or "foreign nonmain" proceeding under Chapter 15 of the Bankruptcy Code.¹ Dkt. 8. Having reviewed the parties' briefs, the bankruptcy court's opinion, and the applicable law, the court AFFIRMS the bankruptcy court's rulings.

I. BACKGROUND

Prior to 1997, appellee Yuval Ran ("Ran") was a prominent Israeli businessman and the CEO of Israel Credit Lines Supplementary Financial Services Ltd. ("Credit Lines"). See In re Ran, 390 B.R. 257, 260 n. 1 (Bankr.S.D.Tex.2008). Credit Lines encountered financial difficulties and ultimately began liquidating its interests in 1995. Id.

In April of 1997, Ran left Israel and moved to Houston, Texas, where he and his family have resided continuously since mid-1997. Ran's wife and five children are U.S. citizens, and Ran is a permanent legal resident of the United States, who possesses a green card and is currently seeking U.S. citizenship. Ran and his wife own a home in Houston and are both employees of a furniture company in the area. Additionally, Ran does not maintain any bank accounts outside of Harris County, Texas. Id.

Because of threats to his family in Israel, Ran testified that he does not intend to return to Israel, but rather will remain in Houston indefinitely. In fact, since the relocation in 1997, Ran has not engaged in any business dealings in Israel, other than temporarily helping to collect debts owed to Credit Lines, which ceased in 1998 when receivership and liquidation proceedings for Credit Lines commenced. Id.

In July 1997, involuntary bankruptcy proceedings were instituted against Ran in an Israeli court. During the proceedings, Zuriel Lavie ("Lavie") was appointed temporary receiver and, later, by order dated October 28, 1999, trustee of Ran's estate. Id. The Israeli court declared Ran bankrupt and ordered the liquidation of Ran's estate. Id.

Nearly a decade after Ran and his family emigrated from Israel and more than seven years after being appointed trustee of Ran's estate, on December 11, 2006, Lavie filed a petition seeking recognition of the Israeli bankruptcy proceeding as a foreign main or foreign nonmain proceeding under Chapter 15 of the Bankruptcy Code in the U.S. Bankruptcy Court of the Southern District of Texas. 06-BK-37067, Dkt. 1. The bankruptcy court denied Lavie's petition, and Lavie appealed to this court, which remanded the case to the bankruptcy court for additional findings. 06-BK-37067, Dkts. 22, 33; Lavie v. Ran, 384 B.R. 469, 472 (S.D.Tex.2008).

On remand, the bankruptcy court declined to recognize the Israeli bankruptcy proceeding as either a foreign main or foreign nonmain proceeding, thereby restricting Lavie's access to certain remedies and relief. In re Ran, 390 B.R. at 301-02. The bankruptcy court thoroughly analyzed whether the proceeding should be recognized as a foreign main proceeding; however, only a conclusory statement was made regarding the court's finding with respect to denial of foreign nonmain recognition. Id. at 260, 262, 262-99. Lavie then filed the instant appeal, again challenging the denial of recognition of the Israeli proceeding as either a foreign main proceeding or foreign nonmain proceeding. Dkt. 8.

II. ANALYSIS

A. Standard of Review

"When reviewing a bankruptcy court's decision, the district court functions as an appellate court and applies the standard of review generally used in the federal court of appeals." Range v. United States, 256 B.R. 868, 872 (S.D.Tex.2000); see also Webb v. Reserve Life Ins. Co. (In re Webb), 954 F.2d 1102, 1103-04 (5th Cir.1992). Findings of fact "shall not be set aside unless clearly erroneous and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." Range, 256 B.R. at 872-873; see also Young v. Nat'l Union Fire Ins. Co. (In re Young), 995 F.2d 547, 548 (5th Cir.1993). However, matters of law are reviewed de novo, which "requires the district court to make a judgment independent of the bankruptcy court and without deference to that court's analysis and conclusions." Range, 256 B.R. at 873; see also Summit Coffee Co. v. Herby's Foods, Inc. (In re Herby's Foods, Inc.), 2 F.3d 128, 131 (5th Cir.1993).

B. Chapter 15 of the Bankruptcy Code

On appeal, Lavie disputes the bankruptcy court's denial of recognition of the Israeli bankruptcy proceeding as either a foreign main or foreign nonmain proceeding. The latter, in the context of an individual debtor, presents a question of first impression.

1. Statutory Interpretation

The court's review requires statutory analysis of Chapter 15 of the Bankruptcy Code, which inescapably begins with the language of the statute itself. Generally, the "plain meaning" of words should be utilized when interpreting an ambiguous statute or when terms are not otherwise defined. See, e.g., Mead Corp. v. Tilley, 490 U.S. 714, 715, 109 S.Ct. 2156, 104 L.Ed.2d 796 (1989); Bankamerica Corp. v. United States, 462 U.S. 122, 122-23, 103 S.Ct. 2266, 76 L.Ed.2d 456 (1983). Further, "[i]t is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme." Davis v. Mich. Dept. of Treasury, 489 U.S. 803, 809, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989). It is axiomatic that statutes should not be construed in a way that defeats the statutory intent. See, e.g., United States v. Braverman, 373 U.S. 405, 408, 83 S.Ct. 1370, 10 L.Ed.2d 444 (1963).

Unique to the interpretation of Chapter 15 of the Bankruptcy Code, "the court shall consider its international origin, and the need to promote an application of [Chapter 15] that is consistent with the application of similar statutes adopted by foreign jurisdictions." 11 U.S.C. § 1508. Thus, proper analysis requires consulting the Model Law on Cross-Border Insolvency ("Model Law"), the Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency ("Guide"), the reports cited within the Guide, and the UNCITRAL Case Law On Uniform Texts. See H.R. REP. NO. 109-31(1), at 109-10 (2005), as reprinted in 2005 U.S.C.C.A.N. 88, 172-73.

Likewise, statutes, cases, arid interpretative materials of the European Union are also instructive. Hence, the court should consult the European Union's Council Regulation on Insolvency Proceedings ("Regulation"), the European Union's Convention on Insolvency Proceedings ("Convention"), and the Report on the Convention on Insolvency Proceedings ("Virgos-Schmit Report").² See Council Regulation No. 1346/2000, 2000 O.J. (L 160) 1(EC); Council, Report on the Convention on Insolvency Proceedings, No. 6500/96 (May 2, 1996) (prepared by Miguel Virgos & Etienne Schmit); see also Alesia Ranney-Marinelli, Overview of Chapter 15 Ancillary and Other Cross-Border Cases, 82 AM. BANKR. L.J. 269, 273-74 (2008).

2. Brief Overview of Chapter 15 and Requirements for Recognition

"Chapter 15 . . . [is] designed to optimize disposition of international insolvencies by facilitating appropriate access to the court system of a host country (the United States, in the case of Chapter 15) by a representative of an insolvency proceeding pending in a foreign country." In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, 389 B.R. 325, 333 (S.D.N.Y.2008) (citing 15 U.S.C. § 1521).

Under the predecessor of Chapter 15, Section 304 of the Bankruptcy Code, the ability to provide relief to foreign petitioners was largely discretionary, based on subjective factors and comity. Id. However, with the advent of Chapter 15, courts have been divested of much of this discretion and are now directed by objective statutory guidelines. Id. Unlike Section 304, as a prerequisite to granting relief pursuant to Chapter 15, the court must "recognize" the foreign proceeding. Once the foreign proceeding is recognized, "flexible and pragmatic" subjective considerations and comity are then weighed in fashioning the appropriate relief. Id. at 333-34.

Pursuant to Section 1517(a), the court "shall" order recognition if:

(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). This statutory mandate is subject to a narrow public policy exception, which is outlined in Section 1506. This exception 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. However, the exception is "intended to be invoked under exceptional circumstances concerning matters of fundamental importance for the [United States]." In re Tri-Continental Exchange Ltd., 349 B.R. 627, 638 n. 16 (Bankr.E.D.Ca.2006).

Here, the second and third elements are indisputably met; therefore, the court focuses only on the requirement outlined in the first element, that the foreign proceeding constitutes either a foreign main proceeding or a foreign nonmain proceeding.

3. Foreign Main and Foreign Nonmain Proceedings

"A foreign proceeding, as defined by Chapter 15, can be one of three types: a main proceeding, a non-main proceeding, or simply a foreign proceeding that is neither main nor non-main." In re Tradex Swiss, 384 B.R. 34, 42 (Bankr.D.Mass. 2008); see also H.R. REP. NO. 109-31(I), at 107 (2005), as reprinted in 2005...