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IN RE GLOBO COMUNICACOES E PARTICIPACOES

November 17, 2004.

In re: GLOBO COMUNICACOES E PARTICIPACOES S.A., Debtor. GMAM INVESTMENT FUNDS TRUST I, FOUNDATION FOR RESEARCH, & WRH GLOBAL SECURITIES POOLED TRUST, Petitioning Creditors/Appellants,
v.
GLOBO COMUNICACOES E PARTICIPACOES S.A., Appellee.



The opinion of the court was delivered by: VICTOR MARRERO, District Judge

DECISION AND ORDER

Appellants GMAM Investment Funds Trust 1, Foundation for Research, and WRH Global Securities Pooled Trust (collectively, "Appellants") have appealed a final order of the United States Bankruptcy Court for the Southern District of New York (Beatty, U.S.B.J.), pursuant to 28 U.S.C. § 158(a)(1) and Fed.R. Bankr. P. 8001(a). That order, dated March 3, 2004, dismissed Appellants' involuntary petition for relief under Chapter 11 of the United States Bankruptcy Code (hereinafter, "the Petition") against Globo Comunicacoes e Participacoes S.A. (hereinafter, "Globopar") for reasons expressed by the Bankruptcy Court in a hearing held on February 19, 2004 (hereinafter, "the Hearing"). Appellants argue that the Bankruptcy Court committed numerous reversible errors in dismissing Appellants' Petition, and request that the order of dismissal be vacated and the case be remanded for further proceedings before a different bankruptcy judge.

For the reasons discussed below, the Court vacates the order of the Bankruptcy Court and remands to the Bankruptcy Court for further proceedings consistent with this opinion. The Court declines to order reassignment of the case to another bankruptcy judge on remand.

  I. BACKGROUND

  This appeal presents several novel questions of law concerning a domestic creditor's ability to subject a foreign corporation to the jurisdiction of the federal bankruptcy courts. The involuntary bankruptcy petition giving rise to the appeal represents a creative way of resorting to United States bankruptcy courts to seek repayment of funds owed by an allegedly recalcitrant foreign debtor. The arguments marshaled on behalf of Appellants and Globopar, both in the Bankruptcy Court and on appeal, are similarly novel.

  All of the intense lawyering on both sides, however, does not obscure one of the central points in contention in this appeal: that the Bankruptcy Court below did not develop a factual record sufficient for this Court to properly evaluate many of the arguments presented by Appellants and Globopar on appeal. The Court therefore will order, on remand, that the Bankruptcy Court develop a more detailed factual record, with findings of fact as well as an analysis of procedures necessary to ascertain: whether the case should be dismissed pursuant to 11 U.S.C. § 305 (a) (1); whether the Bankruptcy Court may, consistent with Due Process requirements, exert personal jurisdiction over Globopar; and finally, whether the doctrine of forum non conveniens should deprive the federal bankruptcy courts of venue over Appellants' petition.

  Because of the sparseness of the Bankruptcy Court's record and stated considerations, the following recitation of the facts and allegations contained in the briefs, supporting exhibits, and appellate material submitted to this Court is necessarily incomplete. The Court will nonetheless attempt to provide a brief overview of the facts on which all parties agree, as well as the facts contested by Appellants and Globopar.

  A. GLOBOPAR'S OPERATIONS AND DEBT

  The parties agree that Globopar is a holding company organized under Brazilian law. Globopar owns, either directly or indirectly, one of the largest television production centers in the world. It is considered the leader in Brazilian pay television services, including among its holdings a major provider of programming content for Brazilian television, a large Brazilian publishing and printing company, and major Brazilian media licensing and distribution operation. Appellants do not dispute that Globopar's headquarters and all of its own employees are located in Brazil, and that its principal office and place of business are in Rio de Janeiro, Brazil. Nor do they dispute that the vast majority of Globopar's property and other holdings are located outside of the United States.

  Globopar concedes, however, that it does wholly own a Delaware corporation called DTH USA, Inc. ("DTH"), a holding company that possesses 30 percent interests in each of three Delaware general partnerships. These general partnerships have offices and operations in Florida, but concern pay television subscriber services located exclusively in Latin America. The record does not reveal who else owns interests in the Delaware general partnerships, the value of DTH's partnership interests, or the number of employees employed by, and amount of property owned by, the general partnerships or DTH.*fn1 Globopar also admits that at one point it had maintained an active bank account in the United States used to distribute interest payments, and that the account shows a current balance of approximately $32,000.*fn2 It claims that the bank records are inaccurate. However, the validity of this claim was not evaluated by the Bankruptcy Court.

  It is also undisputed that Globopar has frequently availed itself of the United States debt market to raise what, by any account, is an extremely large amount of debt. Globopar has direct dollar-denominated debt of approximately $1.18 billion in principal amount. (See Appellee Br. at 10.) Though it is unclear from the record before the Court exactly how much of that debt was actually negotiated or sold in the United States, held by United States creditors, or actually paid into United States bank accounts, Appellants allege that the instruments associated with approximately $750 million worth of bond debt (hereinafter, "the Bond Debt" or "the Notes") was sold on United States markets and expressly subjects Globopar to the jurisdiction of New York state or federal courts for "any suit, action or proceedings . . . which may arise out of or in connection with the [Bond Debt]." (Appellant Br. at 8-9 (quoting Section 28.01(a) of the Trust Deeds for the Bond Debt containing the jurisdictional provision at issue (hereinafter, "the Trust Deeds")).) Globopar also held a $200 million revolving credit facility entered into with various United States and international banks (hereinafter, "the Bank Debt") that allegedly subjects Globopar to the jurisdiction of New York state or federal courts in "any action or proceeding arising out of or relating to" the Bank Debt. (Appellant Br. at 10 (quoting Section 12.13 of the agreement memorializing the Bank Debt).) Appellants also allege, "on information and belief," that "a substantial portion of the Bank Debt is held by U.S. banks, and a substantial portion of the Bond Debt is owned by U.S. investors" (Appellant Br. at 7), though they have not proved these claims through any factfinding proceeding.

  Also of relevance to this appeal are provisions contained within the Trust Deeds restricting bondholders' ability to sue on the Bond Debt absent approval from 25 percent of the bondholders, commonly known as a "no action" clause. The clause provides in pertinent part that "No Noteholder shall be entitled to proceed directly against the Issuer [i.e., Globopar] . . . to enforce the performance of any of the provisions of this Trust Deed, of the Notes," or of related notes unless the trustee of the Bond Debt fails to do so after receiving a written request by the holders of 25 percent or more of the outstanding notes. (See Appellant Br. at 41.)

  B. GLOBOPAR'S DEFAULT ON THE DEBT

  In January of 1999, the Brazilian Central Bank announced that the Brazilian currency unit, the real, would no longer be pegged to the United States dollar. This action caused the value of the real to deteriorate markedly against the dollar, to the point where by October of 2002, the burden on Globopar of dollar-denominated debt negotiated under an earlier Brazilian monetary policy allegedly became untenable. The currency deterioration led Globopar to announce on October 28, 2002, that it would restructure its debt and, to that end, place a moratorium on all interest payments under its debt instruments. It does not appear that those payments have resumed, though Globopar claims to have engaged in consensual restructuring efforts with creditors since it declared the moratorium. According to Globopar, those consensual negotiations have borne fruit, resulting in the formation of steering committees composed of holders of Bank and Bond Debt and progress towards restructuring all of the outstanding debt. Globopar claims to have paid over $12 million in fees to advisors to the Bank and Bond Steering Committees in 2003 alone. (See Appellee Br. at 11-12.) However, it apparently has not paid any of the accumulated interest on the debt since the October 2002 moratorium, an amount that Appellants estimate totals over $100 million on the Bond Debt alone. (See Appellant Br. at 14.)

  C. THE INVOLUNTARY BANKRUPTCY PETITION AND PROCEEDINGS IN THE BANKRUPTCY COURT

  Appellants' involuntary bankruptcy petition was filed in the Bankruptcy Court on December 11, 2003. According to Globopar, each of the Appellants is "related in one way or another to an investment company known as W.R. Huff Asset Management Co., Inc." (hereinafter, "Huff"), and the Petition was filed exactly one month after a Huff employee sent a letter demanding that Globopar modify positions it had taken during consensual restructuring discussions. (Appellee Br. at 12-13.) Globopar's allegations clearly imply that Appellants, rather than representing three different creditors' viewpoints, each of whom agreed that filing an involuntary bankruptcy petition was necessary to secure the funds owed to them, actually represented only a single creditor's desire to use the bankruptcy process as a means of extracting concessions from Globopar. The record, however, does not indicate what, if any, corporate or personal ties exist among the three petitioning creditors. Nor does it show whether the petition sought to destroy what would otherwise have been good-faith consensual restructuring negotiations, supported by all other creditors, or whether the negotiations instead were simply interposing unreasonable delay and harming increasingly impatient creditors' interests. The record on this account is incomplete in part because neither the parties, nor the Bankruptcy Court, sought to notify or hear from other creditors of Globopar regarding their views of the voluntary reorganization effort's progress.

  Appellants apparently served copies of the Petition on a Mr. Mauro Molchansky and on Debevoise & Plimpton LLP, Globopar's attorney in this matter. (See Declaration of Ronnie Vaz Moreira, dated January 19, 2004 (hereinafter, "Moreira Decl.") ¶¶ 30-31.) Globopar responded to the petition by entering a special appearance before the Bankruptcy Court on January 19, 2004, for the purpose of contesting the exercise of jurisdiction over Globopar and seeking to dismiss the Petition. In its Motion to Dismiss, Globopar argued that: (1) the Bankruptcy Court lacked subject matter jurisdiction over the case; (2) the Bankruptcy Court could not assert personal jurisdiction over Globopar because Appellants' service of process was ineffective and because, in any event, the exercise of personal jurisdiction over Globopar would not comport with constitutional Due Process requirements; (3) venue was inappropriate in the Southern District of New York; and (4) the case should be dismissed by the Bankruptcy Court on grounds of forum non conveniens. In support of these arguments, Globopar sought to introduce statements from experts on Brazilian law indicating that Brazilian courts would refuse to recognize any orders of the Bankruptcy Court on the grounds that Brazilian courts purported to exercise exclusive jurisdiction over bankruptcy proceedings related to Brazilian companies. (See Appellee Br. at 13-14.) Appellants filed response papers on February 10, 2004, to which Globopar replied shortly thereafter.

  The Bankruptcy Court held a single hearing on February 19, 2004, to consider Appellants' Petition, and the complex issues raised by Globopar's Motion to Dismiss, at which the court stated several conclusions that served as the basis for its dismissal of Appellants' Petition. As an initial matter, the court concluded that Globopar's consent to the exercise of jurisdiction in New York extended only to suits over the Bond Debt and did not constitute a consent to federal jurisdiction over bankruptcy proceedings such as the ones instituted by Appellants. (See Transcript of Hearing on Motion for an Order to Dismiss Petition, Feb. 19, 2004 (hereinafter, "Hr'g Tr.") at 5.) Next, the court explicitly refrained from addressing issues related to service of process. (Hr'g Tr. at 6-7.)

  Turning to the merits of Globopar's Motion to Dismiss, the Bankruptcy Court determined sua sponte that Appellants' petition constituted an abuse of process, and should therefore be dismissed pursuant to 11 U.S.C. § 105 (a).*fn3 While the court did not clarify the legal principles underlying its conclusions, it listed several reasons why it believed that Appellants' Petition amounted to an abuse of the judicial process. First, the court concluded that it had "never heard of a [sic] involuntary debtor in possession," could not compel Globopar to perform the role of such a debtor (Hr'g Tr. at 8, 30), and thus, did not agree that Appellants were seeking proper relief under the Bankruptcy Code. Second, the court concluded that it could not exercise effective jurisdiction over the case because Globopar had extremely few assets in the United States, and because it credited Globopar's arguments that Brazilian courts would refuse to recognize any judgments or orders issued by the Bankruptcy Court.*fn4 Brazilian law's apparent hostility towards foreign bankruptcy proceedings involving Brazilian companies was apparently relevant to the court because it concluded that Brazilian courts' lack of cooperation would render it impossible for the Bankruptcy Court to marshal Globopar's Brazilian assets in support of a court-managed restructuring. (Hr'g Tr. at 24-25, 32 (concluding that the court could not "issue any effective order that would bring money from Brazil to the United States").)

  Third, though the Bankruptcy Court had earlier stated that it lacked sufficient information to determine whether the "no action" clause in the Trust Deeds limited Appellants' ability to file the instant petition (see Hr'g Tr. at 5-6), the court nonetheless concluded that this provision rendered Appellants' filing of a Petition an abuse of the bankruptcy process. This determination was apparently grounded on the court's view of the Petition as an improper effort to avoid the no action clause and seek to enforce Globopar's obligations without having to gain the support of additional creditors or work through the trustee of the Notes. (See Hr'g Tr. at 27-29.)

  The alleged presence of these three factors led the Bankruptcy Court to conclude that any further proceedings would waste the court's resources, fail to provide effective relief to creditors, and undermine the provisions of the no action clause. While the court admitted that Appellants' Petition "may not literally fit within the definition of abuse of process" (Hr'g Tr. at 30), it ultimately determined that it had authority under Section 105(a) to dismiss the Petition. (See Hr'g Tr. at 29 (quoting Section 105(a)); id. at 35-36 ("And, so, I believe it's under the powers that I have under one 105-A [sic] that I can find that there is no purpose that would be served by this proceeding, . . . that it would be an abuse of the bankruptcy process for this case to be allowed to continue.").)

  The Bankruptcy Court issued its order dismissing Appellants' Petition on March 5, 2004, "for the reasons stated on the record at the [February ...


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