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An Inconvenient Truth: Litigants’ Access to U.S. Bankruptcy Courts is Subject to Doctrine of Forum Non Conveniens

A recent decision of the United States Bankruptcy Court for the Southern District of New York confirms that despite the increasing frequency and ease with which foreign plaintiffs and defendants can gain access to Bankruptcy Courts in the United States (through Chapter 15 or otherwise), those courts will not hesitate to dismiss a case on the ground of forum non conveniens.[1] 

In 2009, five creditors of Kinbrace Corporation (“Kinbrace”), a Liberian corporation, sued Kinbrace and its principal, Dr. Peter Ritter of Liechtenstein (“Ritter”), in New York State Court for claims relating to the misuse and improper transfer of their funds.  The complaint alleged that from 1997 to 2007, an individual acting for Ritter transferred millions of dollars from their bank accounts into Kinbrace’s account in New York. 

Ritter would be dismissed from the state court action, but the creditors eventually obtained a default judgment against Kinbrace and, in 2012, filed an involuntary Chapter 7 petition against him to enforce the judgment.  The Chapter 7 Trustee in the Kinbrace bankruptcy subsequently commenced an adversary proceeding against Ritter asserting that he breached his fiduciary duty and failed to exercise appropriate oversight over Kinbrace’s bank accounts, leading to the state court judgment against Kinbrace.

Ritter moved to dismiss the adversary proceeding on the grounds of forum non conveniens,[2] which gives a federal court discretion to dismiss a case “when an alternative forum has jurisdiction to hear the case, and trial in the chosen forum would establish oppressiveness and vexation to a defendant out of all proportion to plaintiff’s convenience, or the chosen forum is inappropriate because of considerations affecting the court’s own administrative and legal problems.”[3]

Courts consider three factors when analyzing a forum non conveniens request:  (1) the degree of deference to give the plaintiff’s choice of forum;  (2) whether the defendant’s proposed forum is adequate; and, (3) the private and public interests implicated in the choice of forum.[4]

The first factor weighed in favor of keeping the action in New York, but only slightly.  A plaintiff’s choice of its home forum is typically entitled to great deference, but less deference is required when a foreign plaintiff chooses a United States forum, “even where the nominal plaintiff is American, but is acting in a representative capacity for a foreign entity.”[5]  The second factor favored dismissal:  the Trustee did not even argue that a Liechtenstein proceeding would lack adequate procedural safeguards.[6] 

Finally, the Court weighed the private interest factors –  including “the relative ease of access to sources of proof, availability of compulsory process for attendance of unwilling witnesses, the cost of obtaining attendance of willing witnesses, issues concerning enforceability of a judgment if one is obtained, and all other practical problems that make trial of a case easy, expeditious and inexpensive” – and the public interest factors – including “the administrative difficulties flowing from court congestion, the local interest in having controversies decided at home, the interest in having a trial in a forum that is familiar with the law governing the action, the avoidance of unnecessary problems in conflicts of laws or in the application of foreign law, and the unfairness of burdening citizens in an unrelated forum with jury duty” – and concluded that they weighed “heavily” in favor dismissal:  “[t]he underlying controversy involves the acts and omissions of a Liechtenstein domiciliary, committed in Liechtenstein and relating to his fiduciary duty owed to a Liberian corporation.”[7] 

United States Bankruptcy Courts, especially but not only in New York, regularly host disputes in which foreign litigants participate, but Seidel is just the latest reminder that these courts will defer to tribunals outside of the United States in appropriate circumstances.  

[1] Seidel v. Ritter, 2017 Bankr. LEXIS 1052 (Bankr. S.D.N.Y. Apr. 17, 2017).

[2] He also argued that collateral estoppel and the Rooker-Feldman doctrine precluded the suit given his dismissal from the prior state court action, and that the Court lacked personal jurisdiction over him, but Judge Bernstein rejected these arguments summarily.

[3] Id. at 13 (citing Sinochem Int’l Co. Ltd. v. Malaysia Int’l Shipping Corp., 549 U.S. 422, 429, 127 S. Ct. 1184, 167 L. Ed. 2d 15 (2007).

[4] Id. at 14

[5] Id. at 14 (, Inc. v. Cott Beverages, Canada, 239 F. Supp. 2d 377, 381 (S.D.N.Y. 2003)

[6] However, a statute of limitations defense under Liechtenstein law, or jurisdictional objections by Ritter, might foreclose the litigation in Liechtenstein.  In such a case, the Court found, the alternative forum would not be adequate.  For this reason, the Court ordered that if Ritter asserts any defense that would foreclose the litigation in Liechtenstein but would not present an obstacle in the United States, then the Trustee will be permitted to reopen the lawsuit in the Bankruptcy Court “provided he has diligently pursued his rights in Liechtenstein.”  Id. at 23.

[7] Id. at 21-22.  The Court also observed that Ritter is 79 years old, making travel to the United States difficult, and has no assets in the United States, requiring the Trustee to enforce any eventual judgment in Liechtenstein.