Chapter 15 of the Bankruptcy Code provides a comprehensive scheme for recognizing and giving effect to foreign insolvency proceedings. Section 1506, however, permits a court to refuse to recognize or enforce a foreign order that “would be manifestly contrary to the public policy of the United States.” In one of the few reported decisions to utilize and construe Section 1506, Judge Allan L. Gropper of the Bankruptcy Court for the Southern District of New York recently denied a foreign representative’s request for relief as “manifestly contrary” to U.S. policy.
The case, In re Toft, involved a doctor, Jürgen Toft, who was the subject of a German insolvency proceeding. The doctor refused to cooperate with the administrator of that proceeding, hid assets and fled to an unknown country. The German Court subsequently entered a Mail Interception Order (the “Order”), permissible under German law, that authorized the administrator to intercept the doctor’s postal and electronic mail. Believing that the doctor may have relocated to London, the administrator sought and obtained an order from an English court recognizing and enforcing the Order in England.
The foreign representative then sought enforcement of the Order in the United States through Chapter 15. The sole reason for seeking recognition from the U.S. court was that the debtor’s email accounts were stored on Internet Service Providers (“ISPs”) located in the United States. The doctor had no property in the United States, there was no indication that the doctor was residing in the United States, and there were no lawsuits pending in the United States. The representative sought undisclosed production of past emails, as well as the ability to monitor future email correspondence. The doctor was not provided notice of the Chapter 15 proceeding, and the administrator specifically requested that no notice be provided so that he could investigate the doctor’s emails undetected.
The foreign representative argued that various provisions of Chapter 15 required the U.S. court to recognize and give effect to the Order. Specifically, the representative pointed to Section 1521(a)(4), which, upon recognition of a foreign proceeding, entitles a foreign representative to the “delivery of information concerning that debtor’s assets, affairs, rights, obligations or liabilities.” The German representative also pointed to Section 1509(b)(3), which states that, “subject to the limitations that might be imposed consistent with this chapter,” a U.S. court “shall grant comity or cooperation to the foreign representative” seeking relief from the court.
Judge Gropper first analyzed whether the U.S. court even had jurisdiction to hear the case. In finding jurisdiction proper, Judge Gropper found that the absence of tangible property or business in the United States was not fatal to the foreign representative’s request. He stated that jurisdiction under Chapter 15 does not require an inquiry into the debtor’s nexus to the United States; rather, it is a proceeding ancillary to a foreign proceeding. If the foreign representative sought an additional, plenary proceeding under Section 1511, the representative would then be required to demonstrate that the debtor has assets in the United States. Judge Gropper reasoned that, by imposing this requirement for plenary proceedings, “the statute contemplates the commencement of a Chapter 15 case even where there are no assets of the debtor in the United States.”
Judge Gropper then raised the issue of whether enforcement of the Order would be manifestly contrary to U.S. public policy under Section 1506. Although he conceded that Section 1506 should be used sparingly and restricted to impingement on “fundamental principles of law,” Judge Gropper held that this was “one of the rare cases” in which the relief requested by the foreign representative was manifestly contrary to U.S. public policy.
The court focused primarily on the fact that enforcing the Order would likely violate the Wiretap Act, 18 U.S.C. § 2511, et seq., and the Electronic Communications Privacy Act, 18 U.S.C. §§ 2701, et seq., (the “Privacy Act”). The Wiretap Act guards against the intentional interception of electronic communication; the only exceptions to the law require consent of one of the parties to the electronic communication, or a warrant. The Privacy Act prevents unauthorized third parties from accessing or obtaining stored electronic communications, and the available exceptions require a search warrant or subpoena. The court found that “the relief sought would directly compromise privacy rights subject to a comprehensive scheme of statutory protection, available to aliens, built on constitutional safeguards incorporated in the Fourth Amendment as well as the constitutions of many States.”
The court also held that, contrary to the assertions of the foreign representative, the relief requested exceeds what would be available to an estate administrator or trustee in a U.S. bankruptcy proceeding. The foreign administrator had argued that the requested relief would be available in a U.S. proceeding under Bankruptcy Rule 2004 and under Section 704 of the Code. His petition cited U.S. cases where bankruptcy trustees have been authorized to intercept a debtor’s mail and even investigate a debtor’s residence. The court found this argument unconvincing, as in each case cited by the foreign administrator the debtor was given sufficient notice of the proceeding and an opportunity to object. Further, the court recognized that the bankruptcy trustee would not have authority to circumvent the Wiretap Act or the Privacy Act, nor could the actions of a trustee fall under the exceptions of either statute; therefore, enforcing the Order could subject the foreign administrator and any agents to criminal liability.
The Court’s holding is a narrow one, the implications of which may not be far-reaching. Nonetheless, the case provides an important reminder that the principles of comity embodying Chapter 15 are not limitless