In re Toft

453 B.R. 186

55 Bankr.Ct.Dec. 61

In re Dr. Jürgen TOFT, Debtor in a Foreign Proceeding.

No. 11–11049 (ALG).

United States Bankruptcy Court, S.D. New York.

July 22, 2011.

Haynes and Boone, LLP, By: Judith Elkin, Esq., New York, NY, for Dr. Martin Prager, Insolvency Administrator in Germany for Dr. Jürgen Toft.Tracy Hope Davis, By: Elizabetta Gasparini, Esq., New York, NY, for United States Trustee.

MEMORANDUM OF OPINION

ALLAN L. GROPPER, Bankruptcy Judge.

INTRODUCTION

The applicant, Dr. Martin Prager (“Prager” or the “Foreign Representative”), is the insolvency administrator in a proceeding in Germany regarding Dr. Jürgen Toft (“Toft” or “the Debtor”), an orthopedic surgeon who assertedly has debts exceeding 5.6 million euros ($7.6 million) owed to approximately 110 creditors. Prager initiated this chapter 15 proceeding for the purpose of gaining access to Toft's e-mail accounts stored on the servers of two internet service providers (“ISPs”) located in the United States. The Verified Petition states that the Debtor otherwise has no assets in the United States, is not a party to any lawsuits pending in the United States, and is not believed to be currently residing in the United States. Verified Petition at ¶ 8.

The German proceeding was initiated before the Munich District Insolvency Court (the “German Court”) on June 10, 2010. It is represented that Toft refused to cooperate with the administrator and has in fact secreted his assets and relocated to an unknown country outside of Europe, possibly the Philippines. On July 8, 2010, in accordance with what is alleged to be common German practice, the German Court entered a “Mail Interception Order” authorizing Prager, as administrator of the German estate, to intercept Toft's postal and electronic mail.¹ Having received information that Toft might have relocated to London, Prager initiated a proceeding on January 28, 2011 in England. The English High Court of Justice issued an ex parte order (the “English Order”) on February 16, 2011, which granted recognition and enforcement to the German Mail Interception Order.²

The present motion has been filed publicly but requests ex parte relief in accordance with what is said to be German (and English) practice. No notice was provided to the Debtor, and it is requested no notice be required if relief is granted so that the Foreign Representative can continue to investigate the affairs of a debtor whose intransigence, obstructionism, and evasive tactics have allegedly thwarted the German insolvency proceeding. Prager requests that the Court recognize and “grant comity” to the orders of the German and English Courts and enter an order enforcing the Mail Interception Order in the United States by compelling the ISPs, AOL, Inc. and 1 & 1 Mail & Media, Inc., to disclose to Prager all of the Debtor's e-mails currently stored on their servers and to deliver to Prager copies of all e-mails received by the Debtor in the future. Prager contends that this relief is available after recognition of the German main proceeding under §§ 1521 and 1507 of the Bankruptcy Code, and that relief is also available prior to recognition under § 1519(a) of the Bankruptcy Code or alternatively under the power of the Court to recognize orders entered in a foreign proceeding.

A hearing was held on the motion on April 5, 2011, at the request of the Court, with the U.S. Trustee present and opposing the motion. Counsel for the Foreign Representative stated at the hearing that notice had been provided to the ISPs, but neither ISP was represented. In deciding this motion, it is assumed that the foreign proceedings are in conformity with German and English law in all relevant respects. There is also no question that German and English insolvency proceedings are ordinarily entitled to recognition in this country, and that Prager is an experienced and accomplished insolvency administrator. However, through this proceeding, Prager seeks in effect the undisclosed production of past e-mails as well as what can only be described as a wiretap of Toft's future e-mail correspondence.

A bankruptcy trustee would not be entitled to such relief under United States law, and a chapter 15 proceeding cannot ordinarily be pursued without notice to the debtor. The relief requested would also contravene the protection against disclosure of e-mails by internet service providers contained in the Electronic Communications Privacy Act, 18 U.S.C. §§ 2701, et seq., (“Privacy Act” or “Stored Communications Act”), and would appear to constitute an unlawful interception of electronic communications in transit under the Wiretap Act, 18 U.S.C. § 2511, et seq. Effectuation of the relief sought might subject the Foreign Representative, or his U.S. agents and possibly an ISP disclosing the debtor's e-mails, to U.S. criminal liability. For the reasons stated hereafter, this is one of the rare cases in which the relief sought by the Foreign Representative must be denied under § 1506 of the Bankruptcy Code as manifestly contrary to the public policy of the United States.

DISCUSSION

Chapter 15 of the Bankruptcy Code, which adopted the substance and most of the text of the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on Cross–Border Insolvency (“Model Law”), provides a comprehensive scheme for recognizing and giving effect to foreign insolvency proceedings. Chapter 15 contemplates a short and (in most cases) fairly simple petition for recognition. 11 U.S.C. § 1515. Where the foreign case is recognized as a foreign main proceeding,³ certain relief goes into effect automatically. 11 U.S.C. § 1520. The Court thereafter has discretion to grant a foreign representative relief as provided in § 1521, which includes “the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor's assets, affairs, rights, obligations, or liabilities.” 11 U.S.C. § 1521(a)(4). In addition to relief available after an order for recognition has been entered, the foreign representative may request preliminary relief under § 1519, in order to “protect the assets of the debtor or the interests of the creditors” pending the order of recognition. 11 U.S.C. § 1519(a). Section 1519(a)(3) specifically references § 1521(a)(4) as a form of relief available on a preliminary, emergency basis.

Section 1507 further provides that the Court is authorized to grant any “additional assistance” available under the Bankruptcy Code or under “other laws of the United States,” provided that such assistance is consistent with the principles of comity and satisfies the fairness considerations set out in the statute.⁴ The relationship between § 1507 and § 1521 is not entirely clear; one court has stated that such post-recognition assistance is “largely discretionary and turns on subjective factors that embody principles of comity.” In re Bear Stearns High–Grade Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325, 333 (S.D.N.Y.2008), aff'g 374 B.R. 122 (Bankr.S.D.N.Y.2007). In any event, there is no doubt that the relief available under chapter 15, and particularly additional assistance granted pursuant to § 1507, should be consistent with the principle of comity. See In re Metcalfe & Mansfield Alt. Invs., 421 B.R. 685, 697 (Bankr.S.D.N.Y.2010). Section 1507 specifically so provides with respect to “additional assistance,” and more broadly, § 1509(b)(3) directs that once a foreign representative obtains recognition, “a court in the United States shall grant comity or cooperation to the foreign representative.”

Notwithstanding the direction that a U.S. court grant comity or cooperation to a recognized foreign representative in insolvency matters, it is also beyond question that, “The principle of comity has never meant categorical deference to foreign proceedings. It is implicit in the concept that deference should be withheld where appropriate to avoid the violation of the laws, public policies, or rights of the citizens of the United States.” In re Treco, 240 F.3d 148, 157 (2d Cir.2001); see also Pravin Banker Assocs., Ltd. v. Banco Popular Del Peru, 109 F.3d 850, 854 (2d Cir.1997); Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 713 (2d Cir.1987); Cunard S.S. Co. Ltd. v. Salen Reefer Servs. AB, 773 F.2d 452, 457 (2d Cir.1985). Consistent with the traditional limits of comity, all relief under chapter 15 is subject to the caveat in § 1506, providing the court with authority to deny the relief requested where such relief would be “manifestly contrary to the public policy of the United States.” 11 U.S.C. § 1506; In re Ephedra Prods. Liability Litig., 349 B.R. 333 (S.D.N.Y.2006). The principal issue in this proceeding is whether the relief Prager seeks would be manifestly contrary to U.S. public policy.

The Foreign Representative states that the recognition of the German Mail Interception Order would not be contrary to U.S. public policy. He urges that it be given global effect and ratified in the United States based principally on the fairness of the German procedures and the principle of comity. There is authority that relief granted in a foreign insolvency case can be recognized and given effect in this country. See In re Artimm, S.r.l., 278 B.R. 832, 843 (Bankr.C.D.Cal.2002). But Prager cannot cause this Court to apply the laws of Germany—or England—in proceedings in this country simply by making an impassioned appeal to comity. For one thing, foreign procedures are not routinely imported into U.S. law—disclosure here proceeds in accordance with U.S. practices and principles, and discovery is conducted in U.S. courts under our rules of civil procedure even when foreign litigants are involved. See Societe Nat. Ind. Aerospatiale v. U.S. Dist. Court for S.D. Iowa, 482 U.S. 522, 546, 107 S.Ct. 2542, 96 L.Ed.2d 461 (1987).⁵ More generally, courts have a compelling interest in applying the procedural rules of the forum regarding how...