Official Comm. of Unsecured Creditors of Arcapita v. Bahr. Islamic Bank

• Decision Date: 30 March 2016
• Docket Number: 15-cv-03829 (GBD),15-cv-03828 (GBD)
• Citation: 549 B.R. 56
• Parties: Official Committee of Unsecured Creditors of Arcapita, Bank B.S.C. (c), et al., Appellant, v. Bahrain Islamic Bank, Appellee. Official Committee of Unsecured Creditors of Arcapita, Bank B.S.C. (c), et al., Appellant, v. Tadhamon Capital B.S.C., Appellee.
• Court: U.S. District Court — Southern District of New York

549 B.R. 56

Official Committee of Unsecured Creditors of Arcapita, Bank B.S.C. (c), et al., Appellant,

v.Bahrain Islamic Bank, Appellee.

Official Committee of Unsecured Creditors of Arcapita, Bank B.S.C. (c), et al., Appellant,

v.Tadhamon Capital B.S.C., Appellee.

15-cv-03828 (GBD)

15-cv-03829 (GBD)

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

Signed March 30, 2016

Dennis F. Dunne, Evan R. Fleck, Milbank, Tweed, Hadley & McCloy LLP, New York, NY, Andrew Michael LeBlanc, Nicholas Alan Bassett, Milbank, Tweed, Hadley & McCloy, LLP, Washington, DC, for Appellant.

Lani A. Adler, Eunice Rim, John Alexander Bicks, Robert T. Honeywell, K & L Gates LLP, New York, NY, for Appellee.

MEMORANDUM DECISION AND ORDER

GEORGE B. DANIELS

, District Judge:

Plaintiff-Appellant, the official committee of unsecured creditors for the above-captioned chapter 11 action ("Committee"), began adversary proceedings in the United States Bankruptcy Court for the Southern District of New York against Defendants-Appellees Bahrain Islamic Bank ("BisB"), and Tadhamon Capital B.S.C. ("Tadhamon," and together with BisB, "Banks"), respectively, seeking, inter alia , the avoidance of a preferential transfer. In a single decision, the Bankruptcy Court dismissed the adversary proceedings with prejudice, finding that it lacked personal jurisdiction over the Banks. It also denied the Committee's request to engage in jurisdictional discovery. The Committee appeals the dismissal, the decision to dismiss with (as opposed to without) prejudice, and the decision to deny the Committee's request to engage in jurisdictional discovery.¹ After carefully reviewing the record and the parties' briefs, and with the benefit of oral argument, this Court has concluded that the Bankruptcy Court erred when it held that it lacked personal jurisdiction over the Banks. Therefore, this Court vacates the Bankruptcy Court's orders dismissing with prejudice the underlying adversary proceedings for lack of personal jurisdiction, and remands the adversary proceedings to the Bankruptcy Court.²

I. Background Facts³

Before filing for chapter 11 bankruptcy on March 19, 2012, Arcapita Bank B.S.C.(c) was licensed as an Islamic Wholesale bank by the Central Bank of Bahrain, and was headquartered in Bahrain. (BisB Complaint, included in Joint Appendix Vol. 1, attached to Brief for Appellant, (Case No. 15–cv–03828, ECF No. 16-1), at APP005 ¶ 12.⁴ )

BisB is an Islamic commercial bank also headquartered in Bahrain. (Id. at APP005 ¶ 13.) BisB maintains correspondent ban accounts⁵ in the United States at Deutsche Bank, Standard Chartered Bank, and JP Morgan Chase Bank. (Id. at APP005 ¶ 14.)

Tadhamon is also a Bahraini Corporation. (Tadhamon Complaint, included in Joint Appendix Vol. 1, attached to Brief for Appellant, (ECF No. 16-1), APP019 ¶ 13.) Tadhamon does not maintain any correspondent bank accounts in the United States. (See Transcript Regarding Hearing Held on March 9, 2014 re: Motion to Dismiss Adversary Proceeding, (ECF No. 16-2), at APP154:19-21.).

In March 2012, Arcapita hired BisB to make one investment, and Tadhamon to make two investments, respectively, on its behalf. (See BisB Complaint at APP008 ¶¶ 27-31; Tadhamon Complaint at APP022-023 ¶¶ 27-34.) Each transaction was executed in accordance with an agreement ("Placement Agreement") that Arcapita had entered into with each Bank.⁶ (See BisB Complaint at APP007 ¶¶ 23-26; Tadhamon Complaint at APP021-022 ¶¶ 22-26.) The Placement Agreements provided that the Banks to which the agreement applied would formally initiate each investment transaction by submitting an offer to Arcapita to purchase commodities or securities on Arcapita's behalf. The Banks' offer set forth: (1) the amount, in a specific currency, of the funds Arcapita would transfer to the Bank if it accepted the Bank's offer (the "Placement"); (2) the specific bank account into which Arcapita would transfer, and the Bank would receive, the funds; (3) the commodity or securities that the Bank would purchase with the funds on Arcapita's behalf; (4) a pre-determined rate of return that Arcapita would earn on its investment; and (5) a maturity date—i.e., the date on which the Bank would transfer back to Arcapita its initial investment plus an agreed upon prof it rate, minus a fee. (See Declaration of Mohammed Ebraim Mohammed in Support of Motion to Dismiss [ ] Defendant Bahrain Islamic Bank ("Mohammed Decl."), (ECF No. 16-1), Exhibit A, at APP040 ¶ 4.1, id. at APP043; Declaration of Waleed Rashdan in Support of Motion to Dismiss [ ] Defendant Tadhamon Capital B.S.C. ("Rashdan Decl."), (ECF No. 16-1), Exhibit A, at APP063, Exhibit B, at APP069.)

On or around March 14, 2012, Arcapita accepted an investment offer from BisB. Pursuant to the terms of the offer, Arcapita transferred $10 million to a BisB-designated account, specifically, BisB's JP Morgan Chase correspondent bank account located in New York. (BisB Complaint at APP008 ¶¶ 27-28.) The same day that it received the money in its New York correspondent bank account, BisB purchased 14,245 troy ounces of palladium on Arcapita's behalf through a broker in London. (Mohammed Decl. at APP035 ¶ 10; Declaration of Nicholas A. Bassett in Support of the Objection of the Official Committee of Unsecured Creditors to Bahrain Islamic Bank's Motion to Dismiss the Complaint ("Bassett Decl."), (ECF No. 16-1), Exhibits A-C, at APP081-086.) The investment was set to mature on March 29, 2012. (BisB Complaint at APP008 ¶ 31.) Before Arcapita made the $10 million Placement, it was already indebted to BisB in the amount of $9,774,096.15. (Id. at APP006 ¶¶ 20, 22.)

On or about March 15, 2012, Arcapita accepted two investment offers from Tadhamon. (Tadhamon Complaint at APP022 ¶ 27.) Pursuant to the terms of the offers, Arcapita made two $10 million transfers to a Tadhamon-designated New York HSBC correspondent bank account maintained by Khaleeji Commercial Bank B.S.C. ("Khaleeji"), Tadhamon's bank in Bahrain. (Id. at APP022 ¶ 28.) After receiving the funds, Khaleeji transferred the funds to Tadhamon's account at Khaleeji in Bahrain. (Id. ) Tadhamon then used the funds to purchase Bahranian securities on Arcapita's behalf. (Rashdan Decl. at APP054 ¶ 13.) The investments were set to mature on March 30, 2012 and April 16, 2012, respectively.⁷ (Tadhamon Complaint at APP 022-023 ¶¶ 32-33.) Before Arcapita made the two Placements totaling $20 million, it was already indebted to Tadhamon in the amount of $18,497,734.48. (Id. at APP020-021 ¶¶ 19, 21.)

On March 19, 2012, less than a week after executing all three Placements, Arcapita filed for bankruptcy. (BisB Complaint at APP008 ¶ 30; Tadhamon Complaint at APP022 ¶ 31.)

On each of the applicable maturity dates, the Banks failed to remit any of the proceeds owed to Arcapita. (BisB Complaint at APP008 ¶ 32; Tadhamon Complaint at APP022-023 ¶¶ 32-35.) On April 30, 2012, Arcapita delivered demand letters to the Banks, informing the Banks that the funds were property o f the bankruptcy estate of Arcapita. (BisB Complaint at APP008-009 ¶ 33; Tadhamon Complaint at APP023-024 ¶ 37.) In response, each Bank asserted that it was withholding all or nearly all of the funds as a setoff against the existing debts owed by Arcapita to each Bank. (BisB Complaint at APP009 ¶ 34; Tadhamon Complaint at APP024 ¶ 38.) In December 2012, Tadhamon returned to Arcapita approximately $2 million, the difference between the antecedent debt Arcapita owed Tadhamon and the total amount that Arcapita had transferred to Tadhamon in connection with the Tadhamon Placements. (Tadhamon Complaint at APP024 ¶ 40.) BisB has failed to return any portion of the funds Arcapita transferred in connection with the Placement it made with BisB. (BisB Complaint at APP 009 ¶ 36.)

II. Procedural History

In June 2013, the Bankruptcy Court confirmed the proposed plan of reorganization in Arcapita's bankruptcy. (See Memorandum of Decision ("Decision"), included in Joint Appendix Vol. 2, attached to Brief for Appellant, (ECF No. 16-2), at APP273.) The Bankruptcy Court subsequently entered an order granting the Committee leave, standing, and the authority to pursue claims against the Banks. (Id. )

On August 26, 2013, pursuant to the authority granted by the Bankruptcy Court, the Committee commenced these adversary proceedings against the Banks to recover the funds transferred by Arcapita and received by the Banks. (See BisB Complaint; Tadhamon Complaint.) The adversary proceedings asserted that at the time Arcapita and the Banks entered into the Placements, Arcapita was insolvent, the Placements occurred less than ninety days before it filed for bankruptcy, and that the Placements were improperly made to pay off the debts Arcapita owed each Bank.⁸ (BisB Complaint at APP011-012 ¶¶ 49-57; Tadhamon Complaint at APP026-027 ¶¶ 54-62.)

On November 18, 2013, the Banks moved to dismiss the adversary complaints asserting that (i) the Bankruptcy Court lacked personal jurisdiction over the Banks; (ii) the Committee's claims were barred by the presumption against extraterritoriality; and (iii) the claims were barred by principles of international comity. (See generally , Motions to Dismiss the Complaint, (ECF No. 16-1), at APP031-076.)

On April 17, 2015, the Bankruptcy Court issued its decision concluding that the transfers to the New York correspondent bank accounts designated by each of the Banks was an insufficient basis on which to establish specific personal jurisdiction over the Banks. The Bankruptcy Court held that "while the use of the [correspondent bank] account[s were] admittedly a contact [with the United States,] it [was] too weak to satisfy due process requirements," because the use of the correspondent bank accounts was "neither the beginning nor the end of the Placement, but rather a transitory step." (Decision at APP278-279.) The Bankruptcy Court also emphasized that "the use of the accounts was not central to the alleged wrong" because the causes of action were all ...