SHELLEY C. CHAPMAN, UNITED STATES BANKRUPTCY JUDGE.
BACKGROUND ... 21
A. The Terms of the Federation Notes and the Portfolio Swap ... 22
B. The Custodian Business of ANZ Bank and ANZ Nominees and Their Involvement as Custodian for Certain Federation Notes... 25
C. The Distribution to ANZ Nominees... 27
D. Proofs of Claim Filed by ANZ Nominees and ANZ Bank ... 27
E. Procedural History ... 28
STANDARD OF REVIEW ... 29
DISCUSSION ... 29
CONCLUSION ... 43
Before the Court is a motion to dismiss (the "Motion") filed by ANZ Nominees Limited ("ANZ Nominees") in the above-captioned adversary proceeding brought by Lehman Brothers Special Financing Inc. ("LBSF"). ANZ Nominees takes the position that this Court has neither in personam jurisdiction nor in rem jurisdiction to resolve this adversary proceeding as it relates to ANZ Nominees, an Australian entity doing business solely in Australia and New Zealand. LBSF responds with three arguments for denying the Motion. First, LBSF contends that ANZ Nominees voluntarily submitted itself to the jurisdiction of this Court by filing a proof of claim in the chapter 11 case of Lehman Brothers Holdings Inc. ("LBHI"). Second, LBSF asserts that ANZ Nominees is a mere department of ANZ Bank Limited ("ANZ Bank") and that ANZ Nominees should be treated as equivalent to ANZ Bank for purposes of the jurisdictional analysis. LBSF asserts that ANZ Bank undertook actions outside the United States, including filing proofs of claim in the LBHI case, that provide the requisite "minimum contacts" necessary to support in personam jurisdiction over ANZ Bank and therefore ANZ Nominees. Third, and in the alternative, LBSF takes the position that this Court has in rem jurisdiction to resolve this adversary proceeding as it relates to ANZ Nominees because this adversary proceeding concerns a dispute over property of the LBSF estate. For the reasons set forth below, the Court grants ANZ Nominees' motion to dismiss for lack of personal jurisdiction. The Court further holds that it has in rem jurisdiction over the property that is the subject of this adversary proceeding as it relates to ANZ Nominees.
LBSF, a wholly-owned subsidiary of Lehman Brothers Inc. and an indirect subsidiary of LBHI, initiated this adversary proceeding on September 14, 2010 against various investment vehicles, trustees, and noteholders who had participated in certain transactions involving credit default swap agreements. In each of these transactions, LBSF (as the credit default swap counterparty) and the noteholder held competing interests in collateral securing an issuer's obligations to (i) LBSF under a credit default swap and (ii) a noteholder under a credit-linked synthetic portfolio note. The transaction documents for these transactions include provisions that govern the priority of payment from the liquidation of such collateral. Those so-called priority of payment provisions entitle the relevant noteholder or noteholders,
As between LBSF and movant ANZ Nominees, this adversary proceeding concerns certain notes issued by Series 2007-1 Federation A-1 Segregated Portfolio and Series 2007-1 Federation A-2 Segregated Portfolio (together, the "Federation Notes"). Each of Series 2007-1 Federation A-1 Segregated Portfolio and Series 2007-1 Federation A-2 Segregated Portfolio was a segregated portfolio of Securitized Product of Restructured Collateral Limited SPC, itself a segregated portfolio company incorporated in the Cayman Islands.
The Federation Notes were issued by (i) Series 2007-1 Federation A-1 Segregated Portfolio in a principal amount of AUD 50,000,000 and (ii) Series 2007-1 Federation A-2 Segregated Portfolio in a principal amount of AUD 14,450,000. The terms of the Federation Notes provided for annual interest payments at a rate of the three-month Bank Bill Swap Reference Rate for Australian dollars plus 1.00%.
Payment to the holders of the Federation Notes was to be derived from two sources. First, each of the issuers would invest all or substantially all of the proceeds from the sale of the Federation Notes with Coöperatieve Centrale Raiffeisen-Boerenleenbank, B.A. ("Rabobank") pursuant to an investment agreement (each, an "Investment Agreement")
Second, each issuer of the Federation Notes would enter into a portfolio credit default swap with LBSF (the "Portfolio Swap"). The Portfolio Swap provided for LBSF to make payments to the applicable issuer equal to the product of a fixed rate of interest and the initial notional amount (equal to the initial principal amount of the Federation Notes issued by each issuer) of a reference portfolio of securities (the "Reference Portfolio").
Functionally then, the "deal" embedded in the Federation Notes was that the holders of the Federation Notes were to provide credit default protection to LBSF with respect to the Reference Portfolio in exchange for fixed payments from LBSF and that such protection would be backed by each issuer's Investment Agreement.
As a condition to issuance of the Federation Notes, the Federation Notes issued by the Series 2007-1 Federation A-1 Segregated Portfolio were required to receive Standard & Poors' highest rating of "AAA" and the Federation Notes issued by the Series 2007-1 Federation A-2 Segregated Portfolio were required to receive a rating of "A+" from Standard & Poor's.
Declaration of an Early Termination Date with respect to the Portfolio Swap constituted an Event of Default with respect to the Federation Notes that resulted in automatic acceleration of unpaid principal and interest.
Under that scheme, and consistent with the structure of the transaction, all AUD Tranche Loss Amounts owed to LBSF were to be paid first in all instances. If LBSF was not the defaulting party pursuant to the terms of the Portfolio Swap, LBSF was to be paid all termination payments owed to it pursuant to the terms of the Portfolio Swap second. However, if LBSF was the defaulting party pursuant to the terms of the Portfolio Swap, it was to be paid all termination payments owed to it pursuant to the terms of the Portfolio Swap only after payments of interest and principal to the holders of the Federation Notes.
The Federation Notes, the indentures governing the Federation Notes, and the Portfolio Swap Agreements were each governed
ANZ Bank, a company organized under the laws of Australia, has a worldwide presence, including a branch office in New York.
Paul Garry, a director of ANZ Nominees, testified that ANZ Nominees itself had no employees and that employees of ANZ Bank, and specifically ANZ Custodian Services, provided all services on behalf of ANZ Nominees.
ANZ Nominees' role as sub-custodian for ANZ Bank was formalized in that certain Sub-Custody Agreement, dated November 25, 2004 between ANZ Nominees and ANZ Bank (the "Sub-Custody Agreement").
The Federation Notes were offered "outside the United States, to persons who
From May 9, 2007 through December 3, 2007, ANZ Nominees held Federation Notes as custodian for Grange, which ANZ Nominees understood was acting as custodian for certain beneficial holders of Federation Notes.
Between August and October 2008, nineteen of the Australian Holders requested that ANZ Bank take custody of their beneficial interests in the Federation Notes from Citi Australia or UBS AG Australia; ANZ Bank fulfilled those requests pursuant to custody agreements with each beneficial holder and took custody of such entities' beneficial interests in the Federation Notes.
Although the record is not entirely clear,
On October 8, 2008, the Australian affiliate of the Trustee forwarded to an ANZ Bank email address entitled "Fixed Interest Operations" a letter the Trustee had sent to all holders of the Federation Notes notifying such holders of a default under the Portfolio Swap on account of LBHI and LBSF's bankruptcy filings (the "October 8 Notice").
In late October 2008, ANZ Nominees, as registered holder of certain of the Federation Notes, received a "Notice of Designation of Early Termination Date"
Proof of claim number 50672 in the LBHI case ("Claim No. 50672") was filed by "ANZ Nominees Ltd in trust for Tasmanian Perpetual Trustees Ltd."
ANZ Bank filed proof of claim number 29532 in the LBSF case
This adversary proceeding was commenced on September 14, 2010 [ECF No. 1]. LBSF filed an amended complaint (the "First Amended Complaint") on October 1, 2010 [ECF No. 8]. On July 23, 2012, LBSF filed a second amended complaint [ECF No. 303]. The second amended complaint added ANZ Nominees as a defendant for the first time. On September 15, 2014, LBSF filed a third amended complaint [ECF No. 831] and on October 13, 2015, LBSF filed a fourth amended complaint [ECF No. 1156].
Beginning on October 20, 2010, litigation in this action was stayed by a series of orders [Case No. 08-13555, ECF Nos. 12199, 17763, 24198, 29506, 33970, 34697, 38806, 42081]. On January 31, 2014, this Court entered a bridge order extending the litigation stay until the later of May 20, 2014 or thirty days after the date on which the Court entered a scheduling order governing this adversary proceeding [Case No. 08-13555, ECF No. 42417]. On July 14, 2014, this Court entered such a scheduling order, which, among other things, permitted defendants to submit letter requests seeking the Court's permission to raise individualized defenses [ECF No. 794].
ANZ Nominees submitted such a letter request on July 31, 2014, seeking to file a motion to dismiss for lack of personal jurisdiction [ECF No. 801]. LBSF filed a letter opposing ANZ Nominees' request [ECF No. 807]. On October 6, 2014, this Court granted ANZ Nominees' request and permitted limited jurisdictional discovery [ECF No. 837]. ANZ Nominees filed its motion to dismiss on October 15, 2014 [ECF Nos. 841], together with declarations and a memorandum of law in support thereof [ECF Nos. 842, 843, 844]. ANZ Nominees and LBSF agreed to briefing and discovery schedules on November 3, 2014 [ECF No. 876]. After completing jurisdictional discovery, LBSF filed its opposition to ANZ Nominees' motion to dismiss on April 30, 2015 [ECF No. 1091] (the "Opposition") and a declaration in support thereof [ECF No. 1092]. On June 11,
Rule 12(b)(2) of the Federal Rules of Civil Procedure, incorporated into Rule 7012(b) of the Bankruptcy Rules, provides that a case may be dismissed for lack of personal jurisdiction. See Fed. R. Bankr. P. 7012(b). To survive a Rule 12(b)(2) motion, the plaintiff bears the burden to make a prima facie showing that jurisdiction exists. See O'Neill v. Asat Trust Reg. (In re Terrorist Attacks on September 11, 2001), 714 F.3d 659, 673 (2d Cir.2013) (citing Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34 (2d Cir.2010)). The plaintiff's prima facie showing must include an averment of facts, which, if credited, would suffice to establish jurisdiction over the defendant. Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 567 (2d Cir.1996) (citing Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cir.1994)) (internal quotation marks omitted). However, "[w]hen a defendant rebuts plaintiffs' unsupported allegations with direct, highly specific testimonial evidence regarding a fact essential to jurisdiction — and plaintiffs do not counter that evidence — the allegation may be deemed refuted." In re Methyl Tertiary Butyl Ether ("MTBE") Prod. Liab. Litig., No. 1:00-1898, MDL No. 1358, 2014 WL 1778984, at *1 (S.D.N.Y. May 5, 2014).
LBSF argues that the Court has in personam jurisdiction over ANZ Nominees and, in the alternative, that the Court has in rem jurisdiction over (i) the Distributed Funds and (ii) "LBSF's property interest in senior payment priority."
Rule 7004(d) of the Bankruptcy Rules permits nationwide service of process. See Fed. R. Bankr. P. 7004(d). A bankruptcy court may exercise personal jurisdiction over a defendant served under Rule 7004(d) "[i]f the exercise of jurisdiction is consistent with the Constitution and the laws of the United States." Fed. R. Bankr. P. 7004(f). Because valid service of process under Rule 7004(d) "is sufficient to establish personal jurisdiction, state long-arm statutes are inapplicable, and the only remaining inquiry for a bankruptcy court is whether exercising personal jurisdiction over the defendant would be consistent with the Due Process Clause of the Fifth Amendment." Bickerton v. Bozel S.A. (In re Bozel S.A.), 434 B.R. 86, 97 (Bankr. S.D.N.Y.2010) (citing In re Enron Corp., 316 B.R. 434, 440, 444-45 (Bankr.S.D.N.Y. 2004)). The "forum state" is the United States as a whole, and "a court should consider the defendant's contacts throughout the United States." In re Amaranth Natural Gas Commodities Litig., 587 F.Supp.2d 513, 527 (S.D.N.Y.2008).
LBSF argues that this Court has in personam jurisdiction over ANZ Nominees because (i) ANZ Nominees willingly submitted to the jurisdiction of this Court by filing Claim No. 56072 in the LBHI case
If ANZ Nominees willingly submitted to the Court's jurisdiction, as LBSF contends, the Court need not conduct further jurisdictional inquiry. Similarly, if ANZ Nominees did not willingly submit to the Court's jurisdiction and ANZ Nominees is not a mere department of ANZ Bank, the Court cannot have in personam jurisdiction over ANZ Nominees. Accordingly, the Court will first address LBSF's argument that ANZ Nominees has submitted to the Court's jurisdiction, followed by analyzing whether ANZ Nominees is a mere department of ANZ Bank for jurisdictional purposes. If (i) ANZ Nominees has not willingly submitted to the Court's jurisdiction and (ii) ANZ Nominees is a mere department of ANZ Bank for jurisdictional purposes, the Court will address LBSF's argument that ANZ Bank and its departments are subject to in personam jurisdiction.
LBSF cites to Langenkamp v. Culp, 498 U.S. 42, 44, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) and Cent. Vt. Pub. Serv. Corp. v. Herbert, 341 F.3d 186, 191-92 (2d Cir.2003) for the proposition that a party that files a proof of claim subjects itself to the broad equitable powers of a bankruptcy court; LBSF also cites to Kline v. ED Zueblin, AG (In re Am. Exp. Grp. Int'l Servs., Inc.), 167 B.R. 311, 313 (Bankr.D.D.C.1994) for the proposition that filing a proof of claim is akin to filing a complaint in this Court, which vests the Court with jurisdiction over the filing party for all purposes. Applying this law, LBSF contends that Claim No. 50672 represents ANZ Nominees' submission to the Court's jurisdiction.
The Court has examined Claim No. 56072 and notes that it was signed by an individual identifying himself or herself as "duly authorised officer of Tasmanian Perpetual Trustees Ltd."
As ANZ Nominees did not willingly submit to the Court's jurisdiction and LBSF concedes that ANZ Nominees is not otherwise subject to the Court's jurisdiction except as a mere department of ANZ Bank, the Court must now determine, for purposes of its jurisdictional analysis,
A court may exercise jurisdiction over a defendant not otherwise subject to the court's jurisdiction where the defendant is a "mere department" of an entity over which the court has personal jurisdiction. See GEM Advisors, Inc. v. Corporacion Sidenor, S.A., 667 F.Supp.2d 308, 319 (S.D.N.Y.2009). The question under the mere department analysis is "whether the allegedly controlled entity was a shell for the allegedly controlling party," Int'l Equity Invs., Inc. v. Opportunity Equity Partners, Ltd., 475 F.Supp.2d 456, 458 (S.D.N.Y.2007) (internal quotation marks omitted); it is not necessary that the entity was used to commit fraud, a showing normally required to pierce the corporate veil under U.S. law. See GEM Advisors, 667 F.Supp.2d at 319. To determine whether a party is a mere department of a controlling entity, courts consider four factors set forth by the Second Circuit in Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp., 751 F.2d 117, 120-22 (2d Cir.1984):
Id.; see also GEM Advisors, 667 F.Supp.2d at 319. A court may assert jurisdiction where there is a subsidiary amenable to jurisdiction that is a mere department of the parent-defendant, see Storm LLC v. Telenor Mobile Commc'ns AS, No. 06 Civ. 13157, 2006 WL 3735657, at *13 (S.D.N.Y. Dec. 15, 2006), or where there is a subsidiary-defendant that is a "mere department" of a parent amenable to jurisdiction, see Int'l Equity Invs., 475 F.Supp.2d at 458. The Court will assess each of the Beech factors in turn.
With respect to the first Beech factor, ANZ Nominees concedes that it is wholly owned by ANZ Bank and that ANZ Nominees and ANZ Bank have interlocking directors and staff.
To establish the second Beech factor, "a plaintiff must show that the subsidiary `cannot run its business without the financial backing of its parent.'" Williamson v. Verizon Communications Inc., No. 11 Civ. 4948(LTS)(HBP), 2013 WL 227691 at *1 (S.D.N.Y. Jan. 22, 2013) (quoting In re Ski Train Fire in Kaprun Austria on Nov. 11, 2000, 230 F.Supp.2d 403, 410 (S.D.N.Y.2002)). LBSF argues that the second Beech factor is established because ANZ Nominees conducts limited business operations and because ANZ Bank reports ANZ Nominees' profits on its consolidated financial statements.
While the Court agrees with ANZ Nominees and the Williamson court that an allegation of consolidated earnings reports, by itself, is insufficient to establish ANZ Nominees' financial dependence on ANZ Bank, the record here is sufficient to support a finding that ANZ Nominees is financially dependent on ANZ Bank. First, as LBSF notes, ANZ Nominees conducted limited business operations, which operations were dependent on ANZ Bank. In fact, Mr. Garry described ANZ Nominees' business as acting as a sub-custodian for ANZ Bank. There is nothing in the record suggesting that ANZ Nominees solicited its own clients, and Mr. Garry confirmed that the "vast majority" of ANZ Nominees' custodial account holders would have first been clients of ANZ Bank.
Further, the Sub-Custody Agreement demonstrates that ANZ Nominees did not earn fees on its sub-custody business; rather, account holders paid ANZ Bank directly and ANZ Nominees was only eligible for reimbursement of expenses incurred in providing the sub-custody services (excluding day-to-day overhead such as salaries, rents, and office expenses). Thus, ANZ Nominees generated no revenue on the Sub-Custody Agreement, which formed the "vast majority" of its business, and was not entitled to reimbursement of its day-to-day overhead expenses. ANZ Nominees was also dependent on employees who were paid by ANZ Bank to provide its services. Accordingly, there can be no doubt that ANZ Nominees could not run its business without the financial backing of ANZ Bank.
The third and fourth Beech factors also weigh in favor of a mere department finding. Although it is uncontested that ANZ Nominees observed corporate formalities and had its own directors who owed ANZ Nominees fiduciary duties,
In accordance with the foregoing, the Court finds that, for purposes of its jurisdictional analysis, the Beech factors overwhelmingly support treating ANZ Nominees as a department of ANZ Bank.
To exercise personal jurisdiction over a corporation, such entity must have sufficient "minimum contacts" with the forum such that "maintenance of the suit does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945). To satisfy the minimum contacts requirement, there must be "some act [of the entity] by which the [entity] purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958). A court can exercise two categories of personal jurisdiction: general jurisdiction and specific jurisdiction. Daimler AG v. Bauman, ___ U.S. ___, 134 S.Ct. 746, 754, 187 L.Ed.2d 624 (2014). "General, all-purpose jurisdiction permits a court to hear `any and all claims' against an entity." Gucci Am., Inc. v. Li, 768 F.3d 122, 134 (2d Cir.2014) (citations omitted). "Specific jurisdiction, on the other hand, permits adjudicatory authority only over issues that `arise[e] out of or relat[e] to the [entity]'s contacts with the forum." Gucci, 768 F.3d at 134 (quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n. 8, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984)). If insufficient contacts exist for a court to exercise general personal jurisdiction, it may still exercise specific jurisdiction. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985).
LBSF concedes in its papers that ANZ Bank and ANZ Nominees are not subject to this Court's general jurisdiction.
LBSF contends that this Court has specific jurisdiction over ANZ Bank (and thus ANZ Nominees as a department of ANZ Bank) for purposes of this adversary proceeding by virtue of ANZ Bank's filing proofs of claim in the LBSF and LBHI cases.
In support of its argument, ANZ Nominees cites to Cruisephone Inc. v. Cruise Ships Catering and Servs. N.V. (In re Cruisephone), 278 B.R. 325 (Bankr. E.D.N.Y.2002). There, the plaintiff initiated an adversary proceeding against a creditor who had filed a proof of claim but had withdrawn the claim subsequent to the commencement of an adversary proceeding.
Claim number 29532, filed by ANZ Bank against LBSF, does not fit neatly into the holding of Cruisephone Inc. inasmuch as, unlike the withdrawn claims in Cruisephone Inc., claim number 29532 was expunged, albeit with the consent of ANZ Bank, by order of this Court. Thus the Court must determine whether a proof of claim that is expunged prior to the debtor's filing of an adversary proceeding is properly viewed as the creditor's submission to the court's jurisdiction in that adversary proceeding. Although this question was the subject of thoughtful discussion by counsel at the Hearing, neither party addressed the question squarely in its papers and neither party was able to refer the Court to any law on point at the Hearing. Research subsequent to the Hearing uncovered the decision in Picard v. The Estate of Doris Igoin, Laurence Apfelbaum, and Emilie Apfelbaum (In re Bernard L. Madoff Investment Securities LLC), 525 B.R. 871 (Bankr.S.D.N.Y.2015) ("Apfelbaum"), in which Judge Bernstein provided a thoughtful and well-reasoned analysis of just this question.
In Apfelbaum, the SIPA Trustee for the debtor commenced an adversary proceeding against certain French defendants to avoid and recover allegedly fraudulent transfers. The French defendants filed a motion to dismiss the adversary proceeding for lack of personal jurisdiction. The Trustee opposed the motion, arguing, among other things, that the court had jurisdiction based on the defendants' filing SIPA customer claims in the debtor's SIPA proceeding. The SIPA customer claims were denied by the Trustee without objection and finally disallowed by the court prior to the adjudication of the motion to dismiss; accordingly, the outcome of the adversary proceeding had no impact on the allowance of the SIPA customer claims. Apfelbaum, 525 B.R. at 880.
In analyzing the Trustee's argument that the court had jurisdiction over the French defendants by virtue of the SIPA customer claims, Judge Bernstein first stated the law as follows: "As a rule, filing a claim subjects the creditor to the equitable power of the bankruptcy court because it triggers the process of allowance and disallowance of claims. Consistent [with] the rule's rationale, the submission to personal jurisdiction is limited to litigation concerning the claims allowance process." 525 B.R. at 887. Judge Bernstein cited to
Id.
The Second Circuit further determined that for a dispute to be vital to the bankruptcy process such that filing a proof of claim would result in a waiver, "the dispute must be part of the claims-allowance process or affect the hierarchical reordering of creditors' claims." Id. Judge Bernstein observed that the Second Circuit found that the trustee's claims in Germain were not part of the claims-allowance process and did not affect the hierarchical reordering of creditors' claims. Apfelbaum, 525 B.R. at 887. The Second Circuit drew the distinction because:
Germain, 988 F.2d at 1327.
Applying the principle illustrated in Germain, Judge Bernstein held that the SIPA trustee's adversary proceeding did not affect the claims allowance process and, therefore, the court did not have personal jurisdiction over the French defendants on the basis of their disallowed proofs of claim:
Apfelbaum, 525 B.R. at 888.
The principles illustrated in Germain and applied by Judge Bernstein in
To establish specific in personam jurisdiction, the defendant's "suit-related conduct" must create the necessary connection to the forum state. Walden v. Fiore, ___ U.S. ___, 134 S.Ct. 1115, 1121, 188 L.Ed.2d 12 (2014). The defendant's connection to the forum must arise out of contacts the "defendant himself creates," and those contacts must be between the defendant and "the forum [s]tate itself, not... persons who reside there." Id. at 1122 (emphasis in original). To show minimum contacts with the United States, the plaintiff must demonstrate that the defendant "purposefully availed" itself of the privilege of doing business in the forum and "could foresee being haled into court there." See Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 127 (2d Cir.2002). However, the foreseeability of causing harm in the forum state, without more, is not enough to establish minimum contacts. See Walden, 134 S.Ct. at 1125. This is to ensure "that a defendant will not be haled into a jurisdiction solely as a result of `random,' `fortuitous,' or `attenuated' contacts, or of the unilateral activity of another party or a third person." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (citing Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984)).
Even if a court finds that the defendant has the requisite minimum contacts, it can refuse to exercise jurisdiction if the exercise of jurisdiction would not be reasonable. MTBE, 2014 WL 1778984, at *2. The reasonableness inquiry "asks whether it is reasonable under the circumstances of the particular case to assert personal jurisdiction." Amaranth, 587 F.Supp.2d at 527.
As an initial matter, ANZ Nominees argues that application of the mere department is inapplicable in the context of a specific jurisdiction analysis.
In GEM Advisors, the court considered whether a foreign corporation could be subject to the court's personal jurisdiction under N.Y. C.P.L.R. § 302(a), including section 302(a)(1). GEM Advisors, 667 F.Supp.2d at 318. Section 302(a)(1) is a means of asserting specific jurisdiction over a non-domiciliary defendant for a cause of action "arising from ... transact[ion][of] any business within the state..." N.Y. C.P.L.R. § 302(a)(1); Best Van Lines, Inc. v. Walker, 490 F.3d 239, 246 (2d Cir.2007) (describing an analysis under section 302(a)(1) as an evaluation of specific jurisdiction); Levitin v. Sony Music Entertainment, 101 F.Supp.3d 376, 390 (S.D.N.Y.2015) (plaintiffs made prima facie showing of specific jurisdiction over defendants by showing defendants transacted business in New York under section 302(a)(1)). The plaintiffs in GEM Advisors alleged that the foreign corporation, IFN, was subject to jurisdiction under N.Y. C.P.L.R. § 302(a)(1) because its subsidiary, Sidenor, was an agent or mere department of IFN and had transacted business in New York. After finding that Sidenor was an agent and mere department of IFN and that Sidenor had transacted business in New York, 667 F.Supp.2d at 319-320, the GEM Advisors court then concluded that personal jurisdiction over IFN existed under N.Y. C.P.L.R. § 302(a)(1) because "[plaintiff] has made an adequate prima facie showing that IFN is amenable to personal jurisdiction because of its relationship with Sidenor, which ... transacted business in New York...." Id. at 321. Accordingly, the GEM Advisors court employed the mere department test in the context of a specific jurisdiction analysis.
In Refco, the plaintiff attempted to establish the court's general jurisdiction over foreign entities under the theory that such entities were mere departments of "a parent corporation which has a presence in New York." Refco, 2014 WL 2610608 at *8 n. 10. The Refco court observed, with a citation to a footnote in the Second Circuit's decision in Sonera Holding B.V. v. Cukurova Holding A.S., 750 F.3d 221 (2d Cir.2014), that constitutionality of the mere department test as a means of establishing general jurisdiction "may not be fully consistent with the constitutional principles articulated in Daimler." Id. After noting this tension, the Refco court applied the mere department test and determined that, in any event, the allegations in the complaint were insufficient to establish that the foreign entities were mere departments of the New York parent. Id. In other words, the Refco court in footnote 10 expressed doubt over the constitutionality of finding general jurisdiction over a foreign entity based on a mere department theory prior to determining that the issue was moot because the foreign entities were not mere departments in any event. There is nothing in footnote 10 of the Refco decision that suggests a refusal to apply the mere department test to a specific jurisdiction analysis.
Further, the constitutional tension referred to in Refco is not related to the
Sonera Holding, 750 F.3d at 225 n. 2.
Accordingly, while the Second Circuit and the Refco court both expressed concern over whether it was constitutional to establish general jurisdiction over a foreign defendant through the actions of its mere department in the forum, neither court issued a ruling or expressed an opinion as to the propriety of establishing specific jurisdiction over a foreign defendant through the actions of its mere department in the forum.
LBSF argues that ANZ Bank has minimum contacts with the United Stated because "ANZ [Bank] took affirmative action to cause the transfer to it of property of the LBSF estate after the petition date, with knowledge of the bankruptcy and in violation of the stay, which caused serious harm to LBSF, and the underlying causes of action against ANZ [Bank] arise out of those activities."
LBSF's argument is largely premised on the notion that ANZ Bank must have directed the Trustee to terminate the Portfolio Swap, thereby setting in motion the chain of events that led to ANZ Nominees receiving and distributing the Distributed Funds.
In his supplemental declaration, Mr. Garry explains that ANZ Nominees did
Moreover, the October 8 Notice stated that the Trustee required direction only from the Controlling Class, i.e., a majority of the holders of Federation Notes. In other words, the Trustee could have acted on direction from the Controlling Class, without any response to the October 8 Notice from ANZ Nominees, unless the holdings of the Australian Beneficial Holders were such that the Australian Beneficial Owners constituted the Controlling Class. LBSF has not alleged that the holdings of the Australian Beneficial Holders were sufficient to constitute the Controlling Class.
In accordance with the foregoing, the Court rejects LBSF's argument that ANZ Bank or ANZ Nominees has sufficient minimum contacts with the United States by virtue of its allegedly having directed
In the absence of an inference that ANZ Nominees or ANZ Bank affirmatively directed the Trustee to terminate the Portfolio Swap, LBSF is left with arguments that (i) the Court has specific jurisdiction over ANZ Bank because ANZ Bank knew at the time it took on its roles as custodian on behalf of the Australian Beneficial Holders that the Federation Notes had a connection to the United States and the LBSF estate and that it knew that its receipt of the Distributed Funds would cause harm to the LBSF estate
First, as this Court explained in Lehman Brothers Special Financing Inc. v. Bank of America National Association, et al. (In re Lehman Brothers Holdings Inc.), 535 B.R. 608 (Bankr.S.D.N.Y.2015) ("Shield"), the foreseeability of harm being felt in the forum state and, relatedly, of being haled into court in the forum state, is not sufficient to meet the minimum contacts test articulated by the Supreme Court in Walden. See Shield, 535 B.R. at 623. Accordingly, the Court finds that ANZ Bank does not have the requisite minimum contacts with the United States to justify asserting specific jurisdiction over it in this adversary proceeding.
Second, and also as this Court explained in Shield, even if ANZ Bank could be reached under the New York long-arm statute, to assert specific jurisdiction, the Court would still need to find that ANZ Bank had established minimum contacts with the United States. See Shield, 535 B.R. at 624 ("even if [defendant] can be reached under the New York long-arm statute, that conclusion would not invalidate the minimum contacts analysis performed above, nor would it eliminate this Court's obligation to engage in it."). As the Court finds that ANZ Bank does not have the requisite minimum contacts with the United States to justify asserting specific jurisdiction, it cannot assert jurisdiction under the New York long-arm statute.
The court in which a bankruptcy proceeding is pending has "exclusive jurisdiction of all the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate." 28 U.S.C. § 1334(e) (emphasis supplied); see also Sinatra v. Gucci (In re Gucci), 309 B.R. 679, 681 (S.D.N.Y.2004). Property of the estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case," 11 U.S.C. § 541(a)(1), and includes "even strictly contingent interests," Mid-Island Hosp., Inc. v. Empire Blue Cross & Blue Shield (In re Mid-Island Hosp., Inc.), 276 F.3d 123, 128 (2d Cir.2002). A debtor's security interest in collateral or a debtor's interest in an executory contract as of the commencement of the case comprises property of the estate. See Lehman Bros. Special Financing Inc. v. BNY Corp. Tr. Servs. Ltd., 422 B.R. 407, 411, 418 (Bankr. S.D.N.Y.2010). A contract is executory if "termination requires the non-debtor party
The bankruptcy court's in rem jurisdiction is broad and reaches property wherever located. See 28 U.S.C. § 1334(e). In other contexts, a court may only exercise in rem jurisdiction over property physically within the court's jurisdiction at the time of the suit. See 4A Charles Alan Wright & Arthur R. Miller, FEDERAL PRACTICE & PROCEDURE § 107 (3d ed.). However, in the bankruptcy context, Congress explicitly gave bankruptcy courts global reach over the debtor's property via section 541(a) of the Bankruptcy Code and section 1334(e) of title 28 of the United States Code. See Hong Kong & Shanghai Banking Corp., Ltd. v. Simon (In re Simon), 153 F.3d 991, 996 (9th Cir.1998), cert. denied, 525 U.S. 1141, 119 S.Ct. 1032, 143 L.Ed.2d 41 (1999) ("Congress intended extraterritorial application of the Bankruptcy Code as it applies to property of the estate."); Gucci, 309 B.R. at 683 (declaring that "[s]ection 1334(e) ... embodies a Congressional determination that bankruptcy courts should determine rights in property of bankrupt estates regardless of where that property may be found"); Nakash v. Zur (In re Nakash), 190 B.R. 763, 768 (Bankr. S.D.N.Y.1996) (exercising in rem jurisdiction to enforce automatic stay against foreign receiver related to foreign assets of foreign debtor).
Despite the bankruptcy court's broad reach to assert jurisdiction over foreign property, the bankruptcy court's in rem jurisdiction cannot be enforced extraterritorially without in personam jurisdiction over the defendant. See Found. for Research v. Globo Communicacoes e Participacoes S.A. (In re Globo Comunicacoes e Partipacoes S.A.), 317 B.R. 235, 251-52 (S.D.N.Y.2004). In other words, "the bankruptcy court is precluded from exercising control over property of the estate located in a foreign country without the assistance of the foreign courts." In re Int'l Admin. Servs., Inc., 211 B.R. 88, 93 (Bankr.M.D.Fla.1997).
LBSF asserts that the Court can assert in rem jurisdiction on the basis of the LBSF estate's purported property interests in (i) the Distributed Funds and (ii) LBSF's purported senior right to priority.
This Court has previously held, however, that it can exercise its in rem jurisdiction on the basis of the estate's property interests in transaction documents and collateral. Shield, 535 B.R. at 629; see also Lehman Bros. Special Financing Inc. v. BNY
The bankruptcy estate is composed of, inter alia, "all legal or equitable interests of the debtor in property as of the commencement of the case." Lehman Bros. Special Financing Inc. v. BNY Corp. Tr. Servs. Ltd., 422 B.R. 407, 418 (Bankr.S.D.N.Y.2010) (emphasis in original) ("BNY"). In BNY, the Court found that LBSF had a property interest in the transaction documents there at issue. BNY, 422 B.R. at 418. The trustee took the position that the so-called "flip clause" that purportedly altered the payment priorities in favor of the noteholders and against LBSF was self-executing and triggered by LBHI's bankruptcy filing on September 15, 2008 such that LBSF had no property interest in the transaction documents as of the commencement of its own case, on October 3, 2008. See id. Judge Peck found that the transaction documents were executory contracts and analyzed them in accordance with the principle that executory contracts are property of the estate where, as of the commencement of the case, "termination requires the non-debtor party to undertake some post-petition affirmative act." See id. Judge Peck found that, as of the LBSF petition date, the transaction documents at issue in BNY "required certain affirmative acts be taken prior to the effectiveness of any modification of payment priority." BNY, 422 B.R. at 418. Among other affirmative acts, Judge Peck found that "payments required by [the transaction documents] cannot be calculated until after termination of the relevant Swap Agreement" and "[t]he relevant termination events took place after commencement of the LBSF case." Id. Accordingly, Judge Peck held that "LBSF held a valuable interest in the Transaction Documents as of the LBSF Petition Date and, therefore, such interest is entitled to protection as part of the bankruptcy estate." Id.
The Federation Notes and the transaction documents governing them, like the transaction documents in BNY, were executory contracts as of the commencement of the LBSF case. Thus, for the LBSF estate to have a property interest in the transaction documents governing the Federation Notes, termination of such transaction documents must have "require[d] the non-debtor party to undertake some post-petition affirmative act" as of the commencement of the case on October 3, 2015. BNY, 422 B.R. at 418 (citations omitted). Here, as with the transaction documents at issue in BNY, the transaction documents governing the Federation Notes could not be terminated until the Trustee took the affirmative action of terminating the Portfolio Swap. Accordingly, the LBSF estate has a property interest in the transaction documents governing the Federation Notes.
The offering memorandum states (and ANZ Nominees has not disputed) that LBSF has a security interest in the Investment Agreements.
In accordance with the above, the Court finds that it has in rem jurisdiction over LBSF's property interest in the transaction documents associated with the Federation Notes and in LBSF's security interest in the collateral securing the Federation Notes. The Court's finding that neither ANZ Nominees nor ANZ Bank has minimum contacts for the purposes of the assertion of specific personal jurisdiction does not preclude the Court's exercise of in rem jurisdiction. See Shield, 535 B.R. at 629.
For all of the foregoing reasons, ANZ Nominees' motion to dismiss for lack of personal jurisdiction is granted. Notwithstanding the Court's lack of personal jurisdiction over ANZ Nominees, the Court has in rem jurisdiction and concomitant adjudicatory authority over the property at issue in this dispute and shall exercise such jurisdiction. The parties are directed to settle an order consistent with this decision.
