Simon, In re

• Decision Date: 27 August 1998
• Docket Number: No. 96-16859,96-16859
• Citation: 153 F.3d 991
• Parties: , Bankr. L. Rep. P 77,783, 98 Cal. Daily Op. Serv. 6641, 98 Daily Journal D.A.R. 9261, 2 Cal. Bankr. Ct. Rep. 41 In re William Neil SIMON, Debtor. HONG KONG AND SHANGHAI BANKING CORPORATION, LIMITED, Plaintiff-Appellant, v. William Neil SIMON, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 991

153 F.3d 991

33 Bankr.Ct.Dec. 141, Bankr. L. Rep. P 77,783,

98 Cal. Daily Op. Serv. 6641,

98 Daily Journal D.A.R. 9261,

2 Cal. Bankr. Ct. Rep. 41

In re William Neil SIMON, Debtor HONG KONG AND SHANGHAI BANKING CORPORATION, LIMITED Plaintiff-Appellant, v. William Neil SIMON, Defendant-Appellee.

No. 96-16859.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 8, 1998.

Decided Aug. 27, 1998.

Howard J. Weg, Orrick, Herrington & Sutcliffe, Los Angeles, CA, for plaintiff-appellant.

Michael D. Cooper, Wendel, Rosen, Black & Dean, Oakland, CA, for defendant-appellee.

Appeal from the United States District Court for the Northern District of California; Claudia Wilken, District Judge, Presiding. D.C. No. CV-95-02211-CW.

Before: HALL and THOMAS, Circuit Judges, and WHALEY, ¹ District Judge.

Opinion by Judge THOMAS; Partial Concurrence and Partial Dissent by Judge HALL.

THOMAS, Circuit Judge:

This appeal concerns whether a foreign creditor is subject to bankruptcy court sanctions for pursuing foreign collection of a debt discharged in a domestic bankruptcy in which the foreign creditor participated. We conclude that a bankruptcy court may sanction the foreign creditor for violating a court injunction, and affirm the district and bankruptcy courts.

I

The money trail which forms the basis for this dispute began when Hong Kong and Shanghai Banking Corp., Ltd. ("Hong Kong-Shanghai") extended a loan ("Loan") for over $24 million to Odyssey International Holdings, Ltd. ("Odyssey"). Hong Kong-Shanghai is an international banking company incorporated in Hong Kong, which has offices in San Francisco and New York, and frequently does business in the United States. Odyssey is an international company incorporated in the British Virgin Islands, and maintaining offices in Hong Kong. William Neil Simon ("Simon"), Odyssey's major shareholder, personally guaranteed the Loan. Paragraph 15 of Simon's guarantee provides:

This guarantee and all rights, obligations and liabilities arising hereunder shall be construed and determined under and may be enforced in accordance with the laws of Hong Kong. I hereby agree that the Courts in Hong Kong shall have jurisdiction over all disputes arising under the guarantee and irrevocably appoint Denton Hall Burgin & Warrens of 1001 Hutchinson House, Hong Kong to be my agent for the purpose of accepting service of process hereunder.

When he executed the guarantee, Simon lived in and operated his company from Hong Kong. Under the guarantee agreement, Simon was to satisfy the Loan in full within one year. Instead, facing personal debts of over $200 million, he traveled to the United States and filed a personal bankruptcy under Chapter 7 of the United States Bankruptcy Code.

In his bankruptcy schedules, Simon listed the guarantee to Hong Kong-Shanghai on account of the Loan as an obligation or liability. Hong Kong-Shanghai filed a proof of claim in the bankruptcy court in the amount of more than $37 million, which accounted for its share in a separate, $200 million syndicate bank loan. Hong Kong-Shanghai did not file a proof of claim for Simon's guarantee of the Loan, nor did it object to the discharge of his debts. The bankruptcy court entered an order granting Simon a discharge of all debts on January 29, 1995. As part of its order, the bankruptcy court issued the following injunction:

All creditors whose debts are discharged by this order ... are enjoined from instituting or continuing any action or employing any process or engaging in any act to collect such debts as personal liabilities of the above-named debtor.

This injunction was issued pursuant to 11 U.S.C. § 524(a)(2), which provides:

(a) A discharge in a case under this title-

....

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived....

On February 6, 1995, Hong Kong-Shanghai filed a "Complaint for Declaratory Judgment Regarding the Debtor's Discharge" in bankruptcy court. Essentially, Hong Kong-Shanghai sought a declaratory judgment pursuant to 28 U.S.C. § 2201(a) from the bankruptcy court that, while Simon's discharge and the injunction against Hong Kong-Shanghai were effective within the United States, the discharge and injunction were not enforceable outside the United States. Hong Kong-Shanghai requested the bankruptcy court to issue an order containing any one of three findings: (1) that the discharge did not apply to enjoin Hong Kong-Shanghai from enforcing the Simon guarantee in Hong Kong; (2) that if the discharge so provided, it be modified to permit prosecution of the guarantee in Hong Kong; or (3) if Hong Kong-Shanghai chose to commence collection proceedings in Hong Kong, it would not be subject to sanctions in the United States.

Following a hearing, the bankruptcy court granted Simon's motion to dismiss for failure to state a claim upon which relief may be granted. The bankruptcy court noted that, although the discharge injunction was not directly enforceable in Hong Kong, it was enforceable in United States district court via the imposition of sanctions against Hong Kong-Shanghai followed by appropriate collection proceedings against Hong Kong-Shanghai's property located in the United States. Moreover, the bankruptcy court found that such enforcement did not contemplate the extraterritorial application of a United States statute. Finally, the court refused to modify the discharge injunction, holding that there was no legal basis for modifying an injunction where it was appropriate and fully supported by bankruptcy law.

Hong Kong-Shanghai appealed the bankruptcy court's order to the United States District Court for the Northern District of California. The district court issued a ruling affirming the bankruptcy court's conclusion that the injunction was not an extraterritorial application of a United States statute. The district court concluded that: (1) the Bankruptcy Code conferred in rem jurisdiction to the court over all the property making up the debtor's estate, thus "it cannot be said that enjoining actions, wherever they may be instituted, so as to preserve the court's exclusive in rem jurisdiction is an extraterritorial application of the Court's equitable powers;" and (2) because Hong Kong-Shanghai had submitted to the equity jurisdiction of the bankruptcy court by participating in the bankruptcy, the court was not acting extraterritorially in issuing the injunction. Hong Kong-Shanghai appeals the district court's order, primarily arguing that the section 524 discharge injunction constitutes an improper extraterritorial application of a statute.

II

Congress has the unquestioned authority to enforce its laws beyond the territorial boundaries of the United States. E.E.O.C. v. Arabian American Oil Co., 499 U.S. 244, 248, 111 S.Ct. 1227, 113 L.Ed.2d 274 (1991) ("Aramco "). Whether Congress has exercised that authority in a particular case is a matter of statutory construction. Stegeman v. United States, 425 F.2d 984, 986 (9th Cir.1970)(en banc). In construing a statute to ascertain Congress' territorial intent, we begin with the presumption that "the legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." Foley Bros. v. Filardo, 336 U.S. 281, 285, 69 S.Ct. 575, 93 L.Ed. 680 (1949). With that presumption in mind, we analyze intent by first examining the language of the act for indications of intent regarding extraterritorial application. Aramco, 499 U.S. at 248, 111 S.Ct. 1227. In addition to the plain statutory words, intent may be discerned with reference to similarly-phrased legislation, id. at 250-51, 111 S.Ct. 1227, or the overall statutory scheme. Foley Bros., 336 U.S. at 286, 69 S.Ct. 575. If these inquires are inconclusive, examination of legislative history is appropriate. Id. Resort to administrative interpretations of the law may be employed if the legislative history is inconclusive. Id. at 286-88, 69 S.Ct. 575.

If Congressional intent concerning extraterritorial application cannot be divined, then courts will examine additional factors to determine whether the traditional presumption against extraterritorial application should be disregarded in a particular case. First, "the presumption is generally not applied where the failure to extend the scope of the statute to a foreign setting will result in adverse effects within the United States." Environmental Defense Fund, Inc. v. Massey, 986 F.2d 528, 531 (D.C.Cir.1993) (citing Steele v. Bulova Watch Co., 344 U.S. 280, 73 S.Ct. 252, 97 L.Ed. 319 (1952)). Second, the presumption against extraterritoriality is not applicable when the regulated conduct is "intended to, and results in, substantial effects within the United States" Laker Airways, Ltd. v. Sabena Belgian World Airlines, 731 F.2d 909, 925 (D.C.Cir.1984).

Applying this analysis to the instant case, the district court was entirely correct in upholding the bankruptcy court's order and giving effect to the section 524 discharge injunction.

A

The district court properly concluded that as to actions against the bankruptcy estate, Congress clearly intended extraterritorial application of the Bankruptcy Code. The filing of a bankruptcy petition under 11 U.S.C. §§ 301, 302 or 303 creates a bankruptcy estate. 11 U.S.C. § 541(a). With certain exceptions, the estate is comprised of the debtor's legal or equitable interests in property "wherever located and by whomever held." Id. (emphasis supplied). The district court in which the bankruptcy case is commenced obtains exclusive in rem jurisdiction over all of the property in the estate. 28 U.S.C. § 1334(e); Commodity Futures Trading Comm'n v. Co Petro Marketing Group, Inc., 700 F.2d 1279, 1282 (9th Cir.1983)(interpreting 28 U.S.C. §...