By: Christina Buru
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
In general, a creditor of a debtor may file a proof of claim against the debtor in a United States bankruptcy case. The filing of such a proof of claim, which may seem routine, can result in the creditor’s submission to the bankruptcy court’s jurisdiction. In In re China Fishery Group,[1] the United States Bankruptcy Court for the Southern District of New York held that it had jurisdiction over a foreign creditor notwithstanding that the proof of claim[2] stated that the creditor was not submitting to the court’s jurisdiction.[3] In that instance, The Hongkong Shanghai Banking Corporation Limited (“HSBC-HK”) filed Proofs of Claim against CFIL, CFGL, and SmartGroup.[4] HSBC-HK also filed claims against N.S. Hong.[5]
Following his appointment, the trustee for CFG Peru Investments,[6] made a motion, for an order authorizing the trustee to seek discovery from HSBC-HK under Bankruptcy Rule 2004(a).[7] The trustee sought the information because he alleged HSBC-HK had been aggressively attempting to obtain repayment of the loans, “‘even at the risk of disrupting the operations of the CF group and to the possible detriment of CFG Peru and its other creditors and stakeholders.’”[8] HSBC-HK opposed the motion[9] arguing, among other things, that the court lacked personal jurisdiction.[10] According to the trustee, this was a “textbook” case to grant a rule 2004(a) motion.[11] Additionally, the trustee asserted he met the burden of showing the court had jurisdiction because HSBC-HK had previously filed proofs of claim.[12]
HSBC-HK argued that it had not submitted to the bankruptcy court’s jurisdiction. [13] According to HSBC-HK, the filing of the Proofs of Claim was not “voluntary,”[14] and it had to choose between “either foregoing repayment of money owed to it by the Debtors for which it is a creditor, or potentially subjecting itself to claims against it in a forum with which it has no contacts and in which it engaged in no relevant conduct.”[15] Moreover, HSBC-HK’s Proofs of Claim contained the following provision: “The filing of this Proof of Claim is not…(b) a consent by the Claimant to the jurisdiction of the Bankruptcy Court with respect to the subject matter of the Claim or… any other proceeding…otherwise involving the Claimant.” The court disagreed with HSBC-HK and found that HSBC-HK had submitted to the bankruptcy court’ jurisdiction. According to the court, (1) it is well settled that “the filing of a proof of claim waives an individual's due process right to insist on minimum contacts within the forum state before being subject to the court's jurisdiction;”[16] and (2) the case relied upon by HSBC-HK was “inapposite since it does not speak to the court's jurisdiction.”[17]
Bankruptcy Rule 2004(a) allows for an interested party, which includes a trustee, to request information.[18] This request is broader than under Federal Rules of Civil Procedure and has often been equated to a fishing expedition.[19] Courts deny such requests when doing so would result in abuse or harassment.[20] In considering a Bankruptcy Rule 2004 request, the court needs to balance the interests of the competing parties as well as how relevant and necessary the requested material is.[21] Here, the court concluded that although the debtor did not have direct dealings with HSBC-HK the relationship to certain creditors was enough to compel discovery.[22]
The In re China Fishery Group court reinforces the well-settled precedent that filing a proof of claim, “waives an individual's due process right to insist on minimum contacts within the forum state before being subject to the court's jurisdiction.”[23]
[1] In re China Fishery Group Ltd., 16-11895 (JLG), 2017 WL 3084397, at *1 (Bankr. S.D.N.Y. 2017).
[2] See id. at *6.
[3] See id. See also, In re Adelphia Commc'ns Corp., 307 B.R. 404, 412 (Bankr. S.D.N.Y. 2004).
[4] See In re China Fishery Group Ltd., 16-11895 (JLG), 2017 WL 3084397, at *3 (each claim was approximately $104,000,000, “on account of principal, interest and other charges allegedly due and owing to it under the Club Facility and related agreements”).
[5] See id. (for $14,198,119.85 “ on account of a Deed of Guarantee dated June 5, 2014”)
[6] See Id. at *1(“The Pacific Andes Group of companies collectively constitute the world’s twelfth largest fishing company. The seventeen debtors in these jointly administered chapter 11 cases (each a “Debtor” and collectively, the “Debtors”), consist principally of holding companies and defunct operating companies, and comprise a small part of that group”).
[7] Fed. R. Bankr. P. 2004.
[8] See In re China Fishery Group Ltd., 16-11895 (JLG), 2017 WL 3084397, at *3
[9] See id. at *1.
[10] See id. at *5.
[11] See id. at *4 (“He contends that the results of his investigation could (i) support defenses to the claims filed by HSBC–HK in these cases, e.g., avoidable transfers, equitable subordination under section 510(c) of the Bankruptcy Code, or other theories of lender liability, and potentially other affirmative estate claims; and (ii) identify potential claims and causes of action the estate may have against other parties”).
[12] See id. at *5.
[13] See id. at *6.
[14] See Stern v. Marshall, 564 U.S. 462 (2011).
[15] In re China Fishery Group Ltd., 16-11895 (JLG), 2017 WL 3084397, at *7.
[16] Arecibo Cmty. Health Care, Inc. v. Puerto Rico, 270 F.3d 17, 26 (1st Cir. 2001).
[17] In re China Fishery Group Ltd., 16-11895 (JLG), 2017 WL 3084397, at *7.
[18] Fed. R. Bankr. P. 2004 (“on motion of any party in interest, the court may order the examination of any entity”).
[19] See In re Drexel Burnham Lambert Grp., Inc., 123 B.R. 702, 711 (Bankr. S.D.N.Y. 1991).
[20] See In re Mittco, Inc., 44 B.R. 35, 36 (Bankr. E.D. Wis. 1984).
[21] See In re Drexel Burnham Lambert Grp., Inc., 123 B.R. at 712. See also In re Texaco, Inc., 79 B.R. 551, 553 (Bankr. S.D.N.Y. 1987)
[22] In re China Fishery Group Ltd., 16-11895 (JLG), 2017 WL 3084397, at *7. See also In re Ionosphere Clubs, Inc., 156 B.R. 414, 432 (S.D.N.Y. 1993).
[23] See id. at *6 (“That is because “by filing a claim against a bankruptcy estate the creditor triggers the process of ‘allowance and disallowance of claims,’ thereby subjecting himself to the bankruptcy court's equitable power.”)(internal citations omitted).