Chapter 15: A More Efficient Path for Recognition of Foreign Judgments as Compared with Adjudicatory Comity( continued from page 12)
The Dispute Before the District Court The Wayne Burt case originated, almost exactly five years ago, as a simple breach of contract claim and evolved into a complex legal battle between Vertiv, Inc., Vertiv Capital, Inc., and Gnaritis, Inc.( together“ Vertiv”), Delaware corporations, and Wayne Burt. The litigation began in January 2020, when Vertiv sued Wayne Burt in District Court, seeking to enforce a $ 29 million consent judgment entered in its favor. At the time the consent judgment was entered, however, Wayne Burt was already in liquidation proceedings in Singapore. Thus, a year after the entry of judgment, the liquidator moved to vacate the judgment on the grounds of comity.
U. S. Bankruptcy proceeding, the Third Circuit created a flexible and context specific two-part test. A parallel proceeding exists when( 1) a foreign proceeding is ongoing in a duly authorized tribunal while the civil action is before a U. S. Court, and( 2) the outcome of the U. S. civil action could affect the debtor’ s estate.
Once the court is satisfied that the foreign bankruptcy proceeding is parallel, the party seeking extension of comity must then make a prima facie case by showing that( 1) the foreign bankruptcy law shares U. S. policy of equal distribution of assets, and( 2) the foreign law mandates the issuance or at least authorizes the request for the stay.
On November 30, 2022, the District Court granted Wayne Burt’ s motion and dismissed the complaint with prejudice. 4 The District Court based its decision on a finding that Singapore shares the United States’ policy of equal distribution of assets and authorizes a stay or dismissal of Vertiv’ s civil action against Wayne Burt. Vertiv appealed to the Third Circuit.
The Third Circuit Establishes a New Adjudicatory Comity Test In February 2024, the Third Circuit, in its opinion, set forth in detail a complex multifactor test for determining when comity will allow a U. S. court to enjoin or dismiss a case, based on a pending foreign insolvency proceeding, without seeking Chapter 15 relief. 5 This form of comity is known as“ adjudicatory comity.”“ Adjudicatory comity” acts as a type of abstention and requires a determination as to whether a court should“ decline to exercise jurisdiction over matters more appropriately adjudged elsewhere.” 6
As a threshold matter, adjudicatory comity arises only when a matter before a United States court is pending in, or has resulted in a final judgment from, a foreign court— that is, when there is, or was,“ parallel” foreign proceeding. In determining whether a proceeding is“ parallel,” the Third Circuit found that simply looking to whether the same parties and claims are involved in the foreign proceeding is insufficient. That is because it does not address foreign bankruptcy matters that bear little resemblance to a standard civil action in the United States. Instead, drawing on precedent examining whether a non- core proceeding is related to a
13 • MAINBRACE
While it is tempting choice for a bankruptcy estate representative to seek a quick dismissal of U. S. litigation, without the commencement of a Chapter 15 case, it is not always the most efficient path.
Upon a finding of a prima facie case for comity, the court then must make additional inquiries into fairness to the parties and compatibility with U. S. public policy under the Third Circuit Philadelphia Gear 7 test. This test considers whether( 1) the foreign bankruptcy proceeding is taking place in a duly authorized tribunal,( 2) the foreign bankruptcy court provides for equal treatment of creditors,( 3) extending comity would be in some manner inimical to the country’ s policy of equality, and( 4) the party opposing comity would be prejudiced.
The first requirement is already satisfied if the proceeding is parallel. 8 The second requirement of equal treatment of creditors is similar to the prima facie requirement regarding equal distribution but goes further into assessing whether any plan of reorganization is fair and equitable as between classes of creditors that hold claims of differing priority or secured status. 9 For the third and fourth part of the four-part inquiry— ensuring that the foreign proceedings’ actions are consistent with the U. S. policy of equality and would not prejudice an opposing party— the court provided eight factors used as indicia of procedural fairness, noting that certain factors were duplicative of considerations already discussed. The court emphasized that foreign bankruptcy proceedings need not function identically to similar proceedings in the United States to be consistent with the policy of equality.