The opinion of the court was delivered by: LASKER
This bankruptcy appeal raises an issue of first impression, which is of great significance to the international banking community. The economic interdependence among nations and the role of international banking in national and international affairs has evolved dramatically in this century. It is therefore understandable that when Congress in 1898 and 1910 specified in § 4 of the Bankruptcy Act who may and may not be adjudicated a bankrupt, it did not specifically address the question before us: Does the Bankruptcy Court have jurisdiction to entertain a foreign banking corporation's voluntary petition in bankruptcy?
Despite the seeming simplicity of the issue, the question is thorny. As Justice Cardozo shrewdly observed, judicial construction of statutory language presents " a choice between uncertainties." Like Cardozo, "we must be content to choose the lesser." Burnet v. Guggenheim, 288 U.S. 280, 288, 53 S. Ct. 369, 372, 77 L. Ed. 748 (1933).
On September 23, 1974 a voluntary petition in bankruptcy was filed on behalf of Israel British Bank (IBB) and on the same day it was adjudicated a bankrupt.
The Bank of the Commonwealth (Commonwealth) and the Federal Deposit Insurance Corporation (FDIC) as successor in interest to Franklin National Bank (Franklin) appeal from the decision of the Bankruptcy Court which denied Franklin's motion to dismiss IBB's petition and sustained the court's jurisdiction over IBB.
IBB is a corporation organized under the laws of the United Kingdom and formerly engaged in banking business with its principal place of business in London. It has never had a place of business, office or agent in the United States; has never been qualified to do business here; and never has done business in this country as a bank. IBB's property in this judicial district consists of deposits in various banks totalling several million dollars. On August 2, 1974, IBB filed a debtor's petition in Great Britain for the winding up of its affairs. Approximately four days later a Provisional Liquidator was appointed to safeguard the bank's property, and on December 2, 1974, the High Court, Chancery Division, of the United Kingdom approved IBB's petition and ordered the winding up of its affairs.
Appellants, FDIC and Commonwealth, are lien creditors of IBB in the amounts of $2,000,000. and $500,000. respectively. Both liens were perfected within four months of the filing of IBB's petition here. Consequently, if IBB is adjudicated a bankrupt under the Bankruptcy Act, a trustee in bankruptcy has the power to void those liens pursuant to § 67(a) of the Act, 11 U.S.C. § 107(a).
Section 4 of the present Bankruptcy Act, 11 U.S.C. § 22, provides in relevant part:
"§ 22. Who may become bankrupts
(a) Any person, except a municipal, railroad, insurance, or banking corporation or a building and loan association, shall be entitled to the benefits of this title as a voluntary bankrupt.
(b) Any natural person, except a wage earner or farmer, and any moneyed, business, or commercial corporation, excepting a building and loan association, a municipal, railroad, insurance, or banking corporation, owing debts to the amount of $1,000 or over, may be adjudged an involuntary bankrupt upon default or an impartial trial and shall be subject to the provisions and entitled to the benefits of this title." (Emphasis added).
According to § 4(a), any person can file a petition as a voluntary petition except certain corporation, including "banking corporations." If IBB falls within the definition of "banking corporations" it may not file a petition; conversely, if the exception does not apply, it may enjoy the benefits of the Act.
In the decision below, Judge Galgay concluded that as a matter of law the term "banking corporation" in § 4(a) does not encompass foreign banks which have no business connection with the United States other than the location of assets here, and that the scope of the exception covers only "national banking corporations and banking corporations created under state and territorial laws." He held that IBB fell outside the scope of the exceptions to § 4(a) and accordingly could be adjudicated a voluntary bankrupt.
Contrary to the position adopted by the Bankruptcy Court and urged by IBB, FDIC and Commonwealth argue that (1) the legislative history of the Act fails to support the limitation of the exception to domestic banking corporations; (2) application of the exclusion to foreign banks does not frustrate the purposes underlying the "banking corporation" exception; and (3) the court is without power to modify an unqualified exception for "banking corporations" to cover only domestic banks.
The Ambiguity of a Clear Statute
Although the parties devote considerable attention in their briefs to the legislative history of § 4, each side asserts that a mere reading of the statute immediately compels judgment in its favor.
Quite simply, IBB argues that while it was undeniably a bank in Great Britain, it was also quite definitely not a "bank" as such anywhere in the United States, and therefore does not fall within the "banking corporation" exception of § 4(a). The argument does not wash. There is no provision in the Act which states that a foreign corporation must operate as a bank within the United States in order either to enjoy the benefits of bankruptcy or to fit within the Act's exceptions, and of course the courts cannot write such a requirement into the Act. The corporations listed in § 4(a) -- both those that may be adjudged a bankrupt and those that may not -- are described only with reference to the character of the entities, not to the extent, if any, of actual operation. It would be one thing if IBB had never operated as a bank anywhere. But since its corporate activities have indisputedly been in general those of a bank, it cannot avoid being so defined.
Another section of the Bankruptcy Act highlights the fact that the actual business of a corporation in the United States is unimportant for jurisdictional purposes. According to § 2 of the Act, the Bankruptcy Court has jurisdiction as a general matter over foreign persons and corporations solely on the basis of their having property located in the United States. 11 U.S.C. § 11a(1). The presence of assets -- not the corporate activities within this county -- is the predicate for jurisdiction over foreign corporations.
Indeed, a foreign bank which does extensive banking business within this country is nevertheless subject to bankruptcy adjudication solely on the basis of its assets here if its principal place of business is outside the United States. 11 U.S.C. § 11a(1). There is no authority for IBB's contention and we decline to adopt it.
There is greater appeal in the position of FDIC and Commonwealth that because the term "banking corporations" does not on its face admit of the refinement sought by IBB, no such restriction is permissible except by Congressional amendment.
Reference to the definitional section of the Act is necessary to understand appellant's position. The word "person" is defined in § 1(23) of the Act to include corporations; § 1(8) defines "corporations" to include:
". . . all bodies having any of the powers and privileges of private corporations not possessed by individuals or partnerships and shall include partnership associations organized under laws making the capital subscribed alone responsible for the debts of the association . . ."
Thus, the Act allows any corporation including foreign corporations with assets in the United States to file a petition in voluntary bankruptcy except for certain categories of corporations, including banking corporations. The term "banking corporation" has been sensibly construed to include "corporations which were authorized by the laws of their creation to do a banking business." Gamble v. Daniel, 39 F.2d 447, 450 (8th Cir.), appeal dismissed, 281 U.S. 705, 50 S. Ct. 464, 74 L. Ed. 1129 (1930). FDIC and Commonwealth argue that a mere reading of § 4(a), together with §§ 1(23) and 1(8) ineluctably lead to the conclusion that a bank such as IBB, authorized under the laws of the United Kingdom to conduct a banking business, squarely falls within the meaning of "banking corporation." According to appellants, the clarity of the statute precludes the need or justification to search elsewhere for a guide to its effect in the case of foreign banks.
A. A Note on the Propriety of Consulting Legislative History
Despite the admonition by FDIC and Commonwealth that resort to legislative history is unwarranted, courts have not been chary to consider that history if it illuminates even superficially "clear" statutory language. See, e.g., Lynch v. Overholser, 369 U.S. 705, 710, 82 S. Ct. 1063, 8 L. Ed. 2d 211 (1962); United States v. American Trucking Associations, 310 U.S. 534, 543, 60 S. Ct. 1059, 84 L. Ed. 1345 (1940); Knapp v. McFarland, 462 F.2d 935, 939 (2d Cir. (1972); Guiseppi v. Walling, 144 F.2d 608, 624 (2d Cir. 1944) aff'd sub nom., Gemsco, Inc. v. Walling, 324 U.S. 244, 65 S. Ct. 605, 89 L. Ed. 921 (1945); but see, e. g., Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 395-97, 71 S. Ct. 745, 95 L. Ed. 1035 (1951) (concurring opinion) (Jackson, J.); Radin, "Statutory Interpretation," 43 Harv.L.Rev. 863 (1930) and Landis, "A Note on 'Statutory Interpretation'," id. at 886. While the words of a statute are of course the primary tool in divining legislative intent, judicial interpretation is not straitjacketed by those words if the legislative history evidences a purpose or objective at odds with a plain reading of the statute.
"It is said that when the meaning of language is plain we are not to resort to evidence in order to raise doubts. That is rather an axiom of experience than a rule of law and does not preclude consideration of persuasive evidence if it exists." Boston Sand & Gravel Co. v. United States, 278 U.S. 41, 48, 49 S. Ct. 52, 54, 73 L. Ed. 170 (1928).
In any event, the debate in this case is largely one of academic interest for a review of the history of § 4 reveals, if nothing else, one stark conclusion: Congress has never considered whether foreign banks are to be treated differently than domestic ones.
B. The History of Section 4
1. The Bankruptcy Act of 18983
Section 4 of the Bankruptcy Act of 1898 (Public Law 171, 55th Congress, 30 Stat. at L. 544, chap. 541), the original predecessor of the present law, provided:
"Sec. 4. Who May Become Bankrupts. -- (a) Any person who owes debts, except a corporation, shall be entitled to the benefits of this Act as a voluntary bankrupt.
(b) Any natural person, except a wage-earner or a person engaged chiefly in farming or the tillage of the soil, any unincorporated company, and any corporation engaged principally in manufacturing, trading, printing, publishing, or mercantile pursuits, owing debts to the amount of one thousand dollars or over, may be adjudged an involuntary bankrupt upon default or an impartial trial, and shall be subject to the provisions and entitled to the benefits of this Act. Private bankers, but not national banks or banks incorporated under State or Territorial Laws, may be adjudged involuntary bankrupts."
The act excluded all corporations from becoming voluntary bankrupts. While permitting certain business corporations to be adjudged involuntary bankrupts, the last sentence in § 4(b) excluded even from that category "national banks or banks incorporated under State or Territorial Laws."
As originally proposed, § 4(b) specifically excluded only "national" banks. As the following exerpts from the legislative history disclose, the reason for the exclusion was the existence of other more effective insolvency laws and procedures. The proponent of the bill in the Senate, Senator William Lindsay, explained:
"There is a law now in force for the control and regulation of national banks, and it was thought best not to interfere with that law. In certain contingencies the government is responsible for the assets of such banks, and it is but reasonable that it should have entire control of them and of their liquidation in ...