In transnational bankruptcy proceeding, Eighth Circuit upholds auxiliary jurisdiction of Nebraska bankruptcy court to issue injunctions in aid of liquidation proceeding at corporation's domicile in Cayman Islands
Phyllis Hoffman (plaintiff) was one of about 950,000 buyers who are parties to a Vehicle Service Contract (VSC) guaranteed by National Warranty Insurance Group (NWIG). NWIG is a Cayman Islands corporation. It operated a risk retention group insuring group members who were obligated to contract holders who had bought VSCs from those group members. NWIG's principal place of business was Lincoln, Nebraska and all of its business and assets lay within the United States.
After a number of incidents where group members declined to let NWIG use their reserve accounts to pay claims, plaintiff filed a lawsuit against NWIG which she hoped to convert into a class action. NWIG then transferred $24 million out of its U.S. bank accounts to banks in the Cayman Islands and filed for liquidation under Cayman law.
NWIG's official liquidators were Theo Bullmore and Simon Whicker. They filed a petition in a Nebraska bankruptcy court under 11 U.S.C. Section 304 seeking to enjoin all proceedings against the assets linked to the Cayman Island liquidation. Plaintiff, on behalf of herself and others similarly situated, opposed the requested Section 304 relief. After conducting a trial on the merits of the injunction, the bankruptcy court granted it. The Bankruptcy Appellate Panel affirmed the decision of the bankruptcy court. On further appeal, the U.S. Court of Appeals for the Eighth Circuit also affirms. According to the Court of Appeals, the key issue is whether the Bankruptcy Appellate Panel had mistakenly upheld the bankruptcy court's decision to exercise ancillary jurisdiction over the present matter.
"Congress expressly granted ancillary jurisdiction to bankruptcy courts to act as local auxiliaries to a foreign bankruptcy proceeding to honor requests from foreign representatives for the turnover of assets, injunctions and other such relief. See 11 U.S.C. Section 304 (2004). Ancillary jurisdiction is triggered by a foreign representative filing a petition showing the commencement of a foreign proceeding. Id. [Plaintiff] challenges the bankruptcy court's finding [that] the Cayman Islands liquidation was a "foreign proceeding.' As this challenge implicates the bankruptcy court's jurisdiction, we review the matter de novo."
The Bankruptcy Code defines the term "foreign proceeding' as: "a proceeding, whether judicial or administrative and whether or not under bankruptcy law, in a foreign country in which the debtor's domicile, residence, principal place of business, or principal assets were located at the commencement of such proceeding, for the purpose of liquidating an estate, adjusting debts by composition, extension, or discharge, or effecting a reorganization, 11 U.S.C. Section 101(23). The bankruptcy court found [that] the Cayman Islands proceeding was a foreign proceeding in National Warranty's domicile for the purpose of winding up and liquidating the corporation."
On appeal, a major point of contention is the meaning of the term domicile. "The bankruptcy court found, and the bankruptcy appellate panel agreed, [that] the Cayman Islands is National Warranty's domicile because it is its place of incorporation. Ms. Hoffman contends, as a matter of law, [that] the term "domicile' as used in Section 304 applies only to natural person debtors because corporate debtors are not generally deemed to have a "domicile.' We reject this argument."
"The meaning of the term "domicile' and the term's application to corporate debtors is well settled. For years, federal courts interpreting jurisdictional and venue issues have considered a corporation's domicile to be its place of incorporation. [Cite]. Ms. Hoffman argues that jurisdiction and venue cases are inapplicable to bankruptcy proceedings. However, even within the legal discipline of bankruptcy, a corporation's domicile is the place of incorporation. See, e.g., Bank of Augusta v. Earle, 38 U.S. 519, 588 (1839) (a corporation "must dwell in the place of its creation'). Moreover, we can think of no reason to distinguish domicile in jurisdiction cases from domicile in bankruptcy cases involving Section 304. We thus conclude [that] the term "domicile' as used in Section 304 refers to a corporation's place of incorporation." [962]
Citation: In re: National Warranty Insurance Risk Retention Group (Hoffman v. Bullmore), 384 F.3d 959 (8th Cir. 2004).
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