Personal Jurisdiction Through Fund Document Forum Selection Clause
The forum selection clause in the Defendant investors’ fund subscription agreements provided that a“[ s ] ubscriber agrees that any suit, action or proceeding... with respect to this Agreement and the [ Debtor fund ] may be brought in New York.” The Second Circuit adopted a broad interpretation of this clause, holding that an action was“ with respect to” the subscription agreement as long as there was even an“ established or discoverable relation,” under which the liquidators’ actions qualified. Thus, the Defendants’ contractual consents through the fund documents’ forum selection clause established personal jurisdiction for the liquidators’ claims against the Defendants.
Extraterritorial Application of the Bankruptcy Code’ s Securities Safe Harbor
The Second Circuit also addressed a split among earlier decisions about whether the US Bankruptcy Code’ s securities safe harbor shields transfers between non-US parties. Section 546( e) of the Bankruptcy Code provides a safe harbor from the trustee’ s avoidance power for settlement payments“ made by or to( or for the benefit of) a... financial institution... in connection with a securities contract” with respect to certain types of avoidance actions, including constructive fraudulent transfer claims. 3 This safe harbor is extended to chapter 15 proceedings via section 561( d) of the Bankruptcy Code, which provides that:
Any provisions of this title relating to securities contracts... shall apply in a case under chapter 15, so that enforcement of contractual provisions of such contracts and agreements in accordance with their terms will not be stayed or otherwise limited by operation of any provision of this title or by order of a court in any case under this title, and to limit avoidance powers to the same extent as in a proceeding under chapter 7 or 11 of [ the Bankruptcy Code ]( such enforcement not to be limited based on
3
11 U. S. C. § 546( e). the presence or absence of assets of the debtor in the United States). 4
The parties did not dispute that the relevant transactions were settlement payments made to financial institutions in connection with a securities contract. The sole dispute was whether section 546( e) applies extraterritorially to shield transfers from and to non-US parties.
The Second Circuit started the analysis with the established presumption against extraterritorial application of US statutes and applied the standard set forth in RJR Nabisco v. Eur. Cmty., 579 U. S. 325( 2016), considering( i) whether Congress intended the statute to apply extraterritorially and( ii) if the presumption against extraterritoriality has not been rebutted, whether the conduct occurred domestically.
Under the Court’ s analysis of the first element, Congress expressed a clear intent to apply section 546( e) extraterritorially through enactment of section 561( d) because section 561( d) would be superfluous if the safe harbors only applied domestically. Under chapter 15, the only avoidance powers possessed by a foreign representative are those under foreign law because, through section 1521( a)( 7) of the Bankruptcy Code,“[ c ] hapter 15 expressly prohibits a foreign representative from using the statutory avoidance powers of the Bankruptcy Code” or from using state law pursuant to section 544( b). Therefore, the Court found that section 561( d)“ must apply extraterritorially if it is to have any effect at all.” Additionally, the Court inferred congressional intent to apply section 546( e) extraterritorially through the overall purpose of chapter 15(“ to provide filing by foreign, not domestic, debtors”) and the legislative history of section 561( d). Congress added section 561( d) in response to the collapse of Long Term Capital Management L. P.(“ LTCM”)— which operated a Cayman Islands fund— to impose the US Bankruptcy Code’ s
4
11 U. S. C. § 561( d). continued on page 53
41