October 9, 2013
OUI FINANCING LLC, Plaintiff,
STEVEN DELLAR and OUI MANAGEMENT SAS, Defendant.
OPINION AND ORDER
RONNIE ABRAMS, District Judge.
Plaintiff Oui Financing LLC ("Oui Financing") brings this declaratory judgment, breach of contract and fraud action against Defendants Steven Dellar and Oui Management SAS ("Oui Management"). Defendants move the Court pursuant to Federal Rules of Civil Procedure 12(b)(3) and 12(b)(6) on the grounds that the doctrines of international comity and forum non conveniens require dismissal and alternatively that Plaintiffs fraud claim should be dismissed as duplicative of its breach of contract claim. Plaintiff cross-moves for partial summary judgment on its declaratory judgment and breach of contract claims against Dellar. The Court agrees with Defendants that comity is warranted. Accordingly, Defendants motion to dismiss is granted, and Plaintiffs partial summary judgment motion is denied.
1. Factual Backgrounds
On August 27, 2010, pursuant to a loan agreement and promissory note, Plaintiff made loans to Oui Management, a French societe par actions simplifiee  with its principal place of business in Paris. (Am. Compl. ¶¶ 1, 6, Exs. B, C.) Dellar, the president and a shareholder of Oui Management, contemporaneously executed a guaranty pursuant to which he unconditionally guaranteed repayment of the loans and other related sums. (Id. ¶¶ 1, 7, Ex. A.) The principal, interest and other amounts due under the loans were required to be paid in full no later than September 30, 2012, but Oui Management and Dellar did not make payment. (Id. ¶ 12.) Rather, on September 24, 2012, Oui Management voluntarily commenced a procedure de sauvegarde ("safeguard procedure") in the Paris Commercial Court. (Id. ¶ 16, Ex. B.)
Oui Management's commencement of the safeguard procedure constituted an automatic event of default under the loan agreement. (Id. ¶ 16.) Plaintiff sent Oui Management a letter on October 2, 2012 demanding it be paid the money owed under the loan agreement. (Id. ¶ 17.) Oui Management responded on October 8, 2012, advising Plaintiff that, due to the safeguard procedure, it was prohibited under French law from paying any debt that accrued before September 24, 2012. (Id. ¶ 18, Ex. G.)
On October 17, 2012, Plaintiff filed a complaint asserting declaratory judgment and breach of contract claims against Dellar alone. (Dkt. 1.) On November 27, 2012, Dellar moved to dismiss. (Id. 5.) After that motion was fully briefed, but before the Court issued a ruling, Plaintiff received leave from the Court to file the Amended Complaint, which Plaintiff filed on March 8, 2013. (Id. 19.) The Amended Complaint named Oui Management as an additional Defendant and asserted new claims for breach and fraud. (Id. 18.) Before the Court are Defendants' motion to dismiss the Amended Complaint and Plaintiff's cross-motion for pa al summary judgment.
Shortly before briefing was completed, on May 13, 2013, the Paris Commercial Court issued a judgment approving Oui Management's "safeguard-i.e., restructuring-plan, which provides for the repayment of Oui Management's debts over a seven-year period.
2. French Safeguard Procedure
"[A] comprehensive reform of French bankruptcy law, known as the Business Safeguard Act was enacted on July 26, 2005 and became effective on January 1, 2006." Stephen J. Lubben, Business Liquidation, 81 Am. Bankr. L.J. 65, 84 n.64 (2007): see also Eric Cafritz and James Gillespie, French Bankruptcy Law Reform Assessed. Int'l Fin. L. Rev., Dec. 2005, at 41 (hereinafter, "Cafritz"). A centerpiece of the Business Safeguard Act is the safeguard procedure, which, under the provisions of the French Commercial Code, is:
instituted and opened on the application of a debtor... who, without being insolvent, shows proof of difficulties that he is not in a position to surmount. This procedure is aimed at facilitating the reorganization of the [business] in order to permit it to continue its economic activity, maintain jobs and discharge its debts.
French Comm. Code ("FCC"), Art. L 620-1; see also Anja Droege Gagnier, French Safeguard Proceedings: Paris Court of Appeal Controls the Risk of Abuse, 4 Insolvency & Restructuring Int'l 2, 17 (2010) (hereinafter, "Gagnier"). The safeguard procedure is therefore a "pre-insolvency" proceeding. Danis Aff. Ex. A ¶ 44.
A safeguard procedure is commenced when a French Commercial Court issues a judgment that serves to open a "period of observation" of the debtor's business. FCC Art. L. 621-3; Balensi Aff. ¶, 2. During the period of observation, the "debtor remains largely in control of its operations." Balensi Aff. ¶ 4. The Commercial Court, however, also appoints certain individuals who play a role in the safeguard procedure. These individuals include:
"supervising judge" who "is charged with ensuring the rapid conduct of the procedure and with protecting the interests present." FCC Art. L. 621-4, 621-9:
"agent" who is "empowered to act in the name and collective interest of the creditors." Id . 621-4, 622-20; Danis Aff. Ex. A ¶ 7. The FCC provides that "any creditor may request the replacement of the court-appointed [agent]." FCC Art. L. 621-7; and
"receiver" charged "to supervise the debtor in his business management or to assist him for all management acts or for certain of them." Id . 621-4; 622-1.
The agent and receiver "keep the supervising judge... informed of the progress of the [safeguard] procedure." Id . 621-8.
The Commercial Court's judgment opening the period of observation also serves to prohibit the debtor from "paving any claims arising prior to the judgment." Id . 622-7. It also stays legal proceedings brought by creditors against the debtor or against the debtor's guarantors. Id . 622-21-1, 622-28; Balensi Aff. ¶ 16 ("[T]he commencement of safeguard proceedings triggers a general automatic stay of legal actions against the debtor and its property for pre-petition liabilities or agreements."); see also Cafritz, at 41-42 ("The commencement of a safeguard procedure, like a U.S. bankruptcy case, results in an automatic stay against creditors in favor of the debtor and guarantors or joint obligors of the debtor."); Adam Gallagher, France's New Fast-Track Safeguard Law, Am. Bankr. Inst. J., Mar. 2011, at 30 ("Safeguard... is a public procedure that confers immediate protection from... creditor actions... The debtor's payment obligations are frozen during the safeguard."). The effect of such a stay is to "give the debtor the necessary breathing space to complete its reorganisation." Gagnier, at 17; see also Cafritz, at 41 ("[A] mandatory stay of creditors' claims... will give breathing room to companies on the brink of insolvency.").
The supervising judge may also appoint one or more "controller creditors" from among the creditors who request such an appointment. FCC Art. L. 621-10. Controller creditors "assist the court-appointed [agent] in his duties and the supervising judge in his task of supervising the administration of the [debtor's business]" during the safeguard procedure. 14. 621-11. They are entitled to examine all the documents provided to the receiver and the agent, subject to the requirement that they observe confidentiality. Id . 621-11; Danis Aff. Ex. A ¶ 9. The agent is charged with notifying the supervising judge of any "comments" provided to him by controller creditors during the procedure. FCC Art. L. 622-20.
After the procedure is opened, the debtor must provide the receiver and agent with, inter alia, a list of its creditors. Id . 622-6. The creditors, for their part, submit "declaration[s] of their claims" to the agent, indicating "the amount of the claim due" and the "nature of the priority or guarantee from which the claim may benefit, " as well as other information. Id . 622-24, 622-25. French creditors "are not treated any differently, and do not have any additional or superceding rights over [non-French] creditors in [safeguard] proceedings." Balensi Aff. ¶ 35.
The receiver and the debtor (with expert assistance, if necessary) prepare an "assessment" of the business documenting the "the origin, seriousness and nature" of the debtor's "difficulties." FCC Art. L. 623-1. In light of this assessment, the debtor and receiver propose a safeguard plan which, inter alia, "determines the perspectives for restructuring" and "sets out the procedure for settling liabilities and the possible guarantees that the debtor must give to make sure this is done." Id . 626-2, 623-1. The receiver shares the plan with, inter alia, the agent and any controller creditor(s). Id . 626-5. The agent, in turn, "draws up a list of the replies [to the plan] given by the creditors, " which is forwarded to the debtor, the receiver and any controller creditor(s). Id . 626-7.
Following a hearing on the safeguard plan, in which controller (hut not other) creditors may participate, the Commercial Court makes a ruling as to whether to adopt or reject the plan. Id . 626-9; Danis Aff. Ex. A ¶ 12. If the plan is approved, the debtor may then continue its business, subject to its compliance with the repayment plan. Danis Aff. Ex. A ¶ 4. "The judgment adopting the plan renders its provisions binding on everyone, " and "persons who have granted a personal guarantee.. may rely on [i.e., invoke] it." FCC Art. L. 626-11; Balensi Reply Aff. ¶ 20.
The debtor, the receiver and the agent (among others) may appeal the court's decision as to the safeguard plan. FCC Art. L. 661-1; Balensi Aff. ¶ 11; Danis Aff. Ex. A ¶ 13. No creditor, including a controller creditor, may appeal. Danis Aff. Ex. A ¶ 13. Under certain conditions, however, a creditor may challenge the commencement of a safeguard procedure by initiating a tierce opposition ("third party objection") proceeding in the Commercial Court. FCC Art. L. 661-2; Balensi Aff. ¶ 34; Danis Aff. Ex. A ¶ 37. "The judgment ruling on the third party objection may be appealed to a court of appeal or to the Court of Cassation by the objecting third party." FCC Art. L. 661-2.
3. Comity Principles
International comity is "the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws." Hilton v. Guvot , 159 U.S. 113, 164 (1895); see also Morgenthau v. Avion Res. Ltd. , 11 N.Y.3d 383, 389 (2008) ("The doctrine of comity refers to the spirit of cooperation in which a domestic tribunal approaches the resolution of cases touching the laws and interests of other sovereign states.' (quoting Byblos Bank Europe, S.A. v. Sekerbank Turk Anonym Syrketi , 10 N.Y.3d 243, 247 (2008))). The doctrine is applied not as "an imperative obligation of courts but rather [als a discretionary rule of practice, convenience, and expediency." Royal & Sun Alliance Ins. Co. of Canada v. Century Int'l Arms, Inc. , 466 F.3d 88, 92 (2d Cir. 2006) (citation and internal quotation marks omitted): see also Johnston v. Compagnie Generale Transatlantique , 242 N.Y. 381. 387 (1926); Morganthau, 11 N.Y.3d at 390 ("Whether to apply the doctrine lies in the sound discretion of the court."). The Second Circuit has explained that "[c]omity should be withheld only when its acceptance would be contrary or prejudicial to the interest of the nation called upon to give it effect." Cunard Steamship Co. v. Salen Reefer Servs. AB , 773 F.2d 452, 457 (2d Cir. 1985) (quoting Somportex Ltd. v. Philadelphia Chewing Co. , 453 F.2d 435, 440 (3d Cir.1971]). A defendant carries the burden of showing that comity is appropriate. Allstate Life Ens. Co. v. Linter Group Ltd. , 994 F.2d 996, 999 (2d Cir. 1993).
The Second Circuit has further "repeatedly held that U.S. courts should ordinarily decline to adjudicate creditor claims that are the subject of a foreign bankruptcy proceeding." JP Morgan Chase Bank v. Altos Hornos de Mexico, S.A. de C.V. , 412 F.3d 418, 424 (2d Cir. 2005); see also Finanz AG Zurich v. Banco Economico S.A. , 192 F.3d 240, 246 (2d Cir. 1999) ("American courts regularly defer to such [foreign bankruptcy] actions."); Allstate , 994 F.2d at 999 ("[W]e have recognized that comity is particularly appropriate where... the court is confronted with foreign bankruptcy proceedings."); Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B. , 825 F.2d 709, 713 (2d Cir. 1987) ("American courts have long recognized the particular need to extend comity to foreign bankruptcy proceedings.").
The rationale underlying this principle is that "[t]he equitable and orderly distribution of a debtor's property requires assembling all claims against the limited assets in a single proceeding; if all creditors could not be bound, a plan of reorganization would fail." Victrix , 825 F.2d at 713-14. In such cases, deference to a foreign court of proper jurisdiction is appropriate so long as the foreign proceedings are procedurally fair and do not violate public policy. J.P. Morgan , 412 F.3d at 424; see also Canada Southern Ry. v. Gebhard , 109 U.S. 527, 539 (1883) (American creditors could not sue debtor in New York and were bound to a foreign reorganization plan that was approved by a majority of creditors and was consistent with the "spirit of U.S. bankrupt[cy] law.").
Courts have extended these principles to pre-insolvency proceedings not dissimilar to French safeguard procedures that are designed to assist distressed businesses in avoiding liquidation by relieving them from the immediate pressure of creditors' claims so they may restructure, and ultimately pay, their debts. See, e.g., Ecoban Fin. Ltd. v. Grupo Acerero Del Norte S.A. de C.V. , 108 F.Supp.2d 349, 350-51 (S.D.N.Y. 2000). For example, in J.P. Morgan, a lending bank sued a foreign borrower seeking a declaratory judgment that certain funds held in a collection account at the bank belonged to it. 412 F.3d at 419. The borrower had defaulted on its loan and filed for suspension de pagos ("suspension of payments" or "SOP") in Mexican civil court. Id. at 421. The Second Circuit explained that "[m]uch like Chapter 11 reorganization in the United States, SOP is a judicial order authorized under Mexican law that allows a debtor to suspend payments to its creditors and continue normal operations until such time as the debtor and creditors, under the auspices of the court, reorganize the debt." Id . The court rejected the bank's effort to "use U.S. courts to circumvent" the foreign proceeding and affirmed the district court's dismissal of the bank's suit on comity grounds. Id. at 427; see also Ecoban. 108 F.Supp.2d at 351 (S.D.N.Y. 2000) (dismissing complaint filed by the domestic holder of past-due promissory notes purchased from Mexican corporations that were subject to SOP proceedings in Mexican courts).
4. Procedural Fairness and Public Policy Considerations
The Paris Commercial Court is a court of competent jurisdiction. FCC Art. L. 621-2 (The French Commercial Court has jurisdiction over debtors engaged in "commercial activity."). As indicated above, the remaining inquiry in the comity analysis is whether the French safeguard procedure is (a) procedurally fair and (b) does not contravene public policy. J.P. Morgan. 412 F.3d at 424. The Court is satisfied that the safeguard procedure meets these criteria.
a. Procedural Fairness
"[I]n order for comity to be extended, the foreign court must abide by fundamental standards of procedural fairness." Cunard , 773 F.2d at 457. In analyzing procedural fairness of foreign bankruptcy proceedings, the Second Circuit has explained that "what is important is that the [foreign] law provides a stay procedure to centralize all claims and enable the assets of a debtor to be dispersed in an equitable, orderly, and systematic manner.' Allstate , 994 F.2d at 999 (quoting Cunard , 773 F.2d at 458). The Allstate court made equally clear that "there is no requirement" that the relevant foreign proceedings "be identical to United States bankruptcy proceedings." Id .; see also In re Brierley , 145 B.R. 151, 166 (Bankr. S.D.N.Y. 1992) ("Nothing dictates that the foreign law be a carbon copy of our law."). Nor must the district court "split hairs" to determine that the foreign proceeding "in general, provides a fair forum in which to litigate [Plaintiff's] claims." Allstate , 994 F.2d at 999. That the foreign proceeding "differs slightly" in certain respects from domestic bankruptcy law is therefore "irrelevant." Id .; see also Ecoban , 108 F.Supp.2d at 353 (comity appropriate although "some of the Mexican procedures may [have] differ[ed] significantly from their American counterparts").
On these principles, the Court is satisfied that French safeguard procedure affords creditors adequate procedural protections:
The safeguard regime ensures that claims against the debtor are centralized by imposing stays at the outset of the procedure to prevent creditors from advancing legal claims in other fora and to prohibit the debtor from "paying any claims arising prior to the judgment."
Creditors are afforded the opportunity to submit their claims to the agent and to inform him or her as to "the amount of the claim due" and as to the "nature of the priority or guarantee from which the claim may benefit, " as well as other information. The FCC makes no distinction between the rights of foreign and domestic creditors.
Creditors' interests in the safeguard procedure are represented by the agent, who is "empowered to act in the name and collective interest of the creditors." As Plaintiff acknowledges, the agent (referred to by Plaintiff as the "creditors' representative") "is responsible for oversight of the claims and interests of creditors" in the safeguard procedure. (Am. Compl, n.27.) The judge supervising the safeguard procedure also is charged with generally "protect[ing] the interests present."
Creditors who so request may be appointed controller creditors and in that capacity may assist the judge and agent in supervising the debtor during the safeguard procedure, direct comments to the supervising judge, review documents relevant to the procedure and participate in the hearing prior to the decision to adopt or reject the safeguard plan.
The agent solicits and lists creditors'"replies" to the safeguard plan (i.e., acceptance or refusal), which are submitted to the receiver.
Dissatisfied creditors may commence a third party objection proceeding in French Commercial Court, the judgment of which may be appealed.
The Court is satisfied that these mechanisms support the French safeguard procedure as a procedurally fair process for creditors. At least one district court found extending comity principles to a safeguard procedure to be appropriate after finding "no reason to determine" that "creditors' interests are not sufficiently protected under French sauvegarde law." SNP Boat Servs. S.A. v. Hotel Le St. James , 483 B.R. 776, 786 (S.D. Fla. 2012). Other U.S. federal courts concerned with French judicial proceedings have determined them to be procedurally fair. See, e.g., Int'l Nutrition Co. v. Horphag Research Ltd. , 257 F.3d 1324, 1330-31 (Fed. Cir. 2001) (stating that "the French courts abided by fundamental standards of procedural fairness, '... and [finding] no abuse of discretion in the district court's judgment that international comity should be extended" (quoting Cunard , 773 F.2d at 457)); Gambra v. Int'l Lease Fin. Corp. , 377 F.Supp.2d 810, 817 (C.D. Cal. 2005) (granting motion to dismiss on forum non conveniens grounds in part because "French courts have a rigorous judicial system that seeks to promote fair proceedings and debate.").
Plaintiffs arguments that the French safeguard procedure is not procedurally fair are unavailing. Plaintiff argues that procedural fairness is lacking because creditors may not appeal a judge's decision on the safeguard plan. But the agent, charged with protecting the creditors' interests, may do so. If a creditor is not satisfied that the agent is sufficiently protecting its interests, a creditor "may request [his or her] replacement." The French law also provides dissatisfied creditors with an alternative grievance mechanism: a creditor may initiate a third party objection proceeding to challenge the debtor's opening of the safeguard procedure.
Plaintiff further complains that "[n]o creditor... has any right to vote on, consent to or reject a proposed or approved repayment plan" and that its priority rights were "not respected." (Opp'n 4.) These arguments are particularly unimpressive here since, as discussed below, Plaintiff participated in Oui Management's safeguard proceeding, "submitted objections to th[e] repayment plan, " (Opp'n 2), and does not dispute that the terms of the adopted plan provide that Plaintiffs loan to Oui Management will be repaid. See Zurich v. Banco Economico S.A., No. 98 Civ. 0005 (SAS), 1998 WL 205341, at *3 (S.D.N.Y. Apr. 28, 1998) (comity appropriate where, inter al/a, there was no evidence that a Brazilian liquidation proceeding "threaten[ed] the very enforceability of the.. notes"). In any event, Plaintiff cites no authority for the proposition that a restructuring proceeding must be consensual or must "respect" priority rights in order to satisfy basic standards of procedural fairness.
The remainder of Plaintiff's arguments that the French safeguard procedure is not procedurally fair focus not on the law itself, but rather on specific frustrations it encountered during the procedure. The focus of the comity analysis, however, is whether the foreign proceeding "in general, provides a fair forum in which to litigate [Plaintiff's] claims." Allstate , 994 F.2d at 999 (emphasis added). That Plaintiff is disappointed with the specific outcome of Oui Management's safeguard procedure is not relevant. See Ecoban , 108 F.Supp.2d at 355 ("Ecoban's unhappiness with the results produced by that [SOP] law is not a legitimate ground for denying the laws and courts of Mexico the comity to which American legal precedent and basic principles of international cooperation entitle them."); see also Johnston , 242 N.Y. at 387 (1926) (stating, in the context of reciprocity, "[w]hen the whole of the facts appear to have been inquired into by the French courts, judicially, honestly and with full jurisdiction and with the intention to arrive at the right conclusion, and when they have heard the facts and come to a conclusion, it should no longer be open to the party invoking the foreign court against a resident of France to ask the American court to sit as a court of appeal from that which gave the judgment."); c.f. Italverde Trading. Inc. v. Four Bills of Lading, No. 04-CV-2793 (NGG) (VVP), 2009 WL 499502, at *8 (E.D.N.Y. Feb. 27, 2009) ("In addition to the reasons set forth above, the court is disinclined to allow the bankrupt Italian entity, having adjudicated claims in an Italian court, to proceed here on an issue already decided by the Italian court.").
In any event. Plaintiff's representations that it had no opportunity to be heard during the procedure are belied by documents, attached to its Amended Complaint, demonstrating that Plaintiff was given such an opportunity:
A December 11, 2012 letter from Plaintiffs U.S. counsel to the receiver reflects that Plaintiff attended a "meeting on November 28th  regarding the safeguard proceeding" which Plaintiff found "useful in clarifying issues and confirming facts." (Am, Comp'. Ex. T.) In this letter, Plaintiff voices its position that "Oui Management and its President and controlling shareholder, Steven Dellar, are using the safeguard proceeding for purposes other than the intended goals of the safeguard process, " namely, "to avoid their obligations" to Plaintiff. Id . The letter further reflects that the receiver suggested to Plaintiffs French counsel that an independent auditor be appointed "to conduct an independent current business review of Oui Management." Id.
In a January 11, 2013 letter from Plaintiffs U.S. counsel to the agent, whom Plaintiff describes as "the appointed representative of the creditors of Oui Management in the safeguard proceeding, " Plaintiff voiced its position that "[a]ny objective observer of this situation must conclude that Oui Management and Mr. Dellar are using the safeguard proceeding as for improper purposes, including to continue to misappropriate the collateral of Oui Financing." (Am. Compl. Ex. U.) Plaintiff requested that the agent, "as the representative of the Oui Management creditors, " "demand that an independent auditor be appointed immediately." Id . The letter further requests that the agent "support Oui Financing's petition to dismiss the safeguard proceeding and to proceed immediately with the liquidation of Oui Management." Id . The letter finally notes "that a hearing on Oui Financing's objections to the safeguard proceeding is scheduled for January 25th" and requests that the agent "appear at that hearing with Oui Financing's counsel to support Oui Financing's petition." Id.
The Paris Commercial Court's May 13, 2013 judgment adopting Oui Management's safeguard plan states that la-11 of the 13 creditors of Oui Management have been consulted, the holder of Oui Finance [sic] loan representing 80.98% of the liability to be repaid." The judgment notes that Oui Financing "answered the safeguard plan unfavorably."
Contrary to Plaintiff's assertion that it received "no notice of significant developments in the safeguard proceeding, " (Opp'n 5), it appears that Plaintiff not only received notice, but was afforded the opportunity to participate in, and voice its opposition to, the procedure. Baker v. Latham Sparrowbush Assocs. , 72 F.3d 246, 254 (2d Cir. 1995) ("If a party receives actual notice that apprises it of the pendency of the action and affords an opportunity to respond, the due process clause is not offended."); Finanz AG , 192 F.3d at 249 ("[A]lthough the Brazilian proceeding apparently does not require individualized notice, Finanz received actual notice of the Brazilian proceeding... and subsequently filed a timely claim. Accordingly, the District Court correctly concluded that there was no due process violation."); Allstate , 994 F.2d at 1000 (evidence of plaintiffs' participation in foreign liquidation process supported determination that comity was warranted).
In short, the Court finds Plaintiff's attacks on the French proceeding to be, at best, emblematic of precisely the type of hair-splitting the Second Circuit has counseled against. Allstate , 994 F.2d at 999. The Court declines to rule that French safeguard procedures are procedurally unfair.
b. Public Policy
The Court is also satisfied that French safeguard procedures do not offend public policy. The overarching policy of the French safeguard procedure-to enable distressed debtors to reorganize their debts so as to avoid insolvency and repay their creditors-is the same as the U.S. Bankruptcy Code's "strong policy in favor of reorganization." In re Northwest Airlines Corp. , 349 B.R. 338, 380 (S.D.N.Y. 2006); see also N.L.R.B. v. Bildisco and Bildisco 465 U.S. 513 , 528 (1984) ("The fundamental purpose of reorganization is to prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources."); In re Chateaugay Corp. , 94 F.3d 772, 775 (2d Cir. 1996) (noting "important public policy favoring orderly reorganization and settlement of debtor estates"); In re Stanwich Fin. Servs. Corp. , 288 B.R. 24, 26-27 (Bankr. D. Conn. 2002) ("A basic assumption that underlies American bankruptcy law is that it is often preferable to encourage and facilitate rehabilitation of businesses in financial trouble instead of providing for liquidation only.") (citation omitted).
This comes as no surprise. French safeguard procedure was modeled after, and is regularly compared to, proceedings under Chapter 11 of the United States Bankruptcy Code. See Cafritz at 41 (noting that safeguard procedure was "inspired by the U.S. bankruptcy system's Chapter 11 process"); Fabrice Robert-Tissot, The Effects of a Reorganization on (Executory) Contracts: A Comparative Law and Policy Study [United States, France, Germany and Switzerland], 21 Norton J. Bankr. L. & Prac. 5 Art. 4 (2012) (noting that the safeguard procedure "seems to be directly inspired from Chapter 11 of the U.S. Bankruptcy Code"); Adam Gallagher, Pre-Packs U.K. Style, French Debt Cancellation Law, Am. Bankr. Inst. J., Dec. Jan. 2008, at 94 (describing safeguard proceedings as "a kind of chapter 11 à la francaise to allow a company that is in difficulty but is not yet formally insolvent to seek court protection before it actually becomes insolvent."); Weil, Gotshal & Manges LLP, Comparative Guide to Restructuring Procedures 2012, at 42-60 (2012) (noting that the safeguard procedure was modeled on Chapter 11 proceedings). That French safeguard procedure reflects the policies of U.S. bankruptcy law by design militates strongly in favor of extending comity. See Cunard , 773 F.2d at 459 (comity appropriate after determining that "[t]he principles of Swedish bankruptcy law [we ]re not dissimilar to those of our Bankruptcy Code.").
Plaintiff asserts that under Chapter 11, unlike under French safeguard procedure, "creditors have a significant say in any reorganization plan that would modify the terms on which creditors will be paid" and that Chapter 11 provides protections for "the single largest, first ranking creditor." (Opp'n 13 n.42.) Again, however, Plaintiff cites no authority for the proposition that the treatment of first-line creditors under French safeguard procedures diverges so significantly from treatment of creditors under U.S. law such that this Court should hold the former regime to be violative of the public policy of the latter. See J.P. Morgan , 412 F.3d at 428 ("Nothing in the record before us suggests that the actions taken by the Mexican bankruptcy court are not approved or allowed by American law.").
5. Dellar's Guarantor Status
Plaintiff argues that "Dellar should not be allowed to use a foreign proceeding to prevent Plaintiff from pursuing claims against Dellar as a non-debtor guarantor in accordance with Dellar's New York law governed contract." (Opp'n 15.) Specifically, Plaintiff argues that:
Dellar entered into a valid New York contract to induce Plaintiff to loan money to Borrower, and he expressly waived all defenses to enforcement of that contract in New York. If Dellar is allowed to avoid and rewrite his personal and direct obligations to Plaintiff via a safeguard repayment plan to which Plaintiff, as the largest and only secured creditor of Borrower, has not consented, that result will violate clear United States and New York law and public policy. New York and United States law favors enforceability of non-debtor guaranties (as does French law in a true insolvency proceeding). Dellar should not be permitted to effect an end-run around New York law.
Id. 15-16 (internal citations omitted).
The issue here is properly framed not as whether Dellar seeks an impermissible "endrun" around his contractual obligations, but rather, as the Second Circuit has framed it, whether, Plaintiff's attempt to sue Dellar here constitutes "the sort of end-run around a parallel foreign bankruptcy proceeding of which [the Second Circuit has] repeatedly disapproved." JP Morgan. 412 F.3d at 427 (citing cases).
Courts have regularly answered that question in the affirmative, holding that parties' private agreements as to choice of forum or applicable law, or even as to waiver of the comity defense, must be subordinated to the "overarching concerns" the comity doctrine addresses, including "demonstrating a proper level of respect for the acts of other sovereign nations, ensuring fairness to litigants, and efficiently using scarce judicial resources, " See United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc. , 216 F.Supp.2d 198, 212 (S.D.N.Y. 2002) (citation and internal quotation marks omitted). Rather, "[t]he presence of such clauses.. does not preclude a court from granting comity where it is otherwise warranted." Allstate , 994 F, 2d at 1000.
As Judge Baer explained in JP Morgan, where the relevant agreement contained a "waiver provision that appear[ed] to encompass the comity argument":
In short, the presence of this waiver provision fails to change the rule and the result. As with a contract that contains only a forum-selection and choice-of-law provision, courts still determine that the considerations associated with comity trump the parties' express wishes. That the parties here appear to have stated their intentions with even more emphasis does not change the fact that there are important considerations that may not have concerned the parties then but which must concern this Court now for example, Altos Hornos's other creditors and the importance of a unified administration rather than a piecemeal administration of its estate in the SOP proceeding. Dismissal on the ground of comity should prevail.
2004 WL 42268, at *7 (S.D.N.Y. Jan. 8, 2004); see also Cunard , 773 F, 2d at 459 (policy of deference to foreign bankruptcy proceedings prevails despite that "the strong public policy in favor of arbitration is well recognized"); Export-Import Bank of Republic of China v. Grenada , 876 F.Supp.2d 263, 269 (S.D.N.Y. 2012) ("While the enforcement of valid contracts and the collection of valid judgments.. are certainly important considerations, they do not outweigh the commitment of the United States to principles of comity.") (citation and internal quotation marks omitted); Kenner Prods. Co, v. Societe Fonciere et Financiere Agache-Willot , 532 F.Supp. 478, 479-80 (S.D.N.Y. 1982) ("Nor do we find that the choice of venue clause contained in the guaranty at issue overrides these concerns for comity and judicial efficiency. While such clauses are prima facie valid, they are not enforceable if such enforcement would be 'unreasonable.' (quoting M/S Bremen v. Zapata Off-Shore Co. , 407 U.S. 1, 10 (1972))).
Dellar is the president and a shareholder of Oui Management, and his obligations are clearly closely intertwined with Oui Management's. Permitting Plaintiff to obtain a judgment against him in this Court would very likely interfere with the implementation of the recently adopted safeguard plan. This is presumably why the FCC operates to stay actions against individual guarantors as well as the debtor itself and why, now that the safeguard plan has been approved, the FCC provides that creditors may not seek redress against Dellar outside the plan's terms.
Under such circumstances, courts have declined to permit actions against debtor's representatives when the debtor is subject to foreign proceedings. For example, upon determining that dismissal of claims against the bankrupt entities was appropriate, the Allstate court explained, as to claims against individual defendants:
it cannot be said that the court abused its discretion where, as here, it would have been inefficient and inequitable to permit the individual claims to go forward. Indeed, since these individuals were sued solely because of their affiliation with the [bankrupt] companies, to allow these claims to go forward in the United States despite the dismissal as to the [bankrupt] companies would defeat the purpose of granting comity in the first place.
994 F.2d at 1000; see also Finanz AG , 192 F.3d at 242 (affirming district court's dismissal, on comity grounds, of complaint seeking to recover on promissory notes guaranteed by a defendant subject to Brazilian liquidation proceedings); Victrix , 825 F.2d at 714 (creditors "who obeyed the Swedish court's stay and sought relief only in the bankruptcy proceeding" would be affected by plaintiffs attempt to secure a "captive fund" elsewhere); United Feature Syndicate , 216 F.Supp.2d at 212-213 (declining to consider breach of contract claims brought by New York distributor of newspaper features against officers of bankrupt Canadian corporation, to the extent that adjudication of claims "might interfere" with the equitable and orderly distribution of Canadian corporation through ongoing Canadian bankruptcy proceedings); Tradewell. Inc. v. Am. Sensors Electronics, No, 96 CIV. 2474 (DAB), 1997 WI. 423075, at *4 (S.D.N.Y. July 29, 1997) (applying comity to breach of contract claim that would interfere with foreign bankruptcy proceedings).
To support its argument that it may proceed against Dellar, Plaintiff cites to Elliott Int'l L.P. v. Vitro. S.A.B. de C.V. , 95 A.D.3d 565 (1st Dep't 2012), which affirmed judgments entered in two related actions in New York Supreme Court against guarantors of notes issued by a bankrupt Mexican glass manufacturer. On appeal, the defendants argued that comity required deference to the Mexican court supervising the company's bankruptcy proceeding. Id. at 565. Pointing to the fact that defendants executed a "broad, unconditional guaranty, signed indentures that included the express agreement that their obligations would be governed by New York law, waived any rights under Mexican laws, and irrevocably submitted themselves to the jurisdiction of New York courts, " the First Department held that "[i]t would prejudice plaintiffs for a New York court to ignore the express language of their bargained-for rights." Id. at 565-66.
Elliott is distinguishable. As noted above, there is minimal "prejudice" to Plaintiff here, as the already-approved safeguard plan provides for repayment of its loan. Further, in Elliott, the Mexican court rejected defendants' attempt to stay the New York case, "finding it unnecessary to involve itself' in the action. Id. at 566. This Court has received no such indication from French authorities. Indeed, the FCC expressly states that guarantors may invoke the plan. Finally, at least one recent case has distinghuished Elliott where the plaintiff "chose to affirmatively participate in the [foreign] proceeding, " as the Court has found Plaintiff did here. Basile v. CAI Master Allocation Fund, Ltd., 966 N.Y.S.2d 344, at *8 (Sup. Ct. 2013),
The Court recognizes, as did the Elliott court, that New York generally has a "strong interest.. in protecting the justifiable expectation of the parties who choose New York law as the governing law of a letter of credit." 95 A.D.3d at 566 (quoting Banco Nacional De Mexico, S.A. v. Societe Generale , 34 A.D, 3d 124, 130 (1st Dep't 2006)). Elliott does not suggest, however, that the mere (and commonplace) insertion of a governing law clause in a guaranty by contracting parties must operate to foreclose courts' ability to later apply the principle of comity. Such a reading would allow private parties, unconcerned with the "spirit of cooperation" with which domestic courts must "approach the resolution of cases touching on the laws and interests of other sovereign states, " Morgenthau , 11 N.Y.3d at 389, to strip those courts of the valuable discretion they are afforded in such cases. Rather, Elliott narrowly held that, on balance, "defendants-appellants failed to show that circumstances exist that warrant the extension of comity to a foreign court." 95 A.D.3d at 565; see also Sebastian Holdings, Inc. v. Deutsche Bank AG , 78 A.D.3d 446, 454 (2010) (A court is required to balance "international duty' against its obligation to protect the rights of persons... under the protection of its laws.'" (quoting Hilton , 159 U.S. at 163-64)). The balance here tips in the other direction, as it has in many other cases. See. e.g., Finanz AG , 192 F.3d at 247 (finding that "the particular need to extend comity to foreign bankruptcy proceedings" outweighed the United States'"strong interest in ensuring the enforceability of valid debts under the principles of contract law and in maintaining New York's status as one of the foremost commercial centers in the world.") (internal citations and quotation marks omitted). "To hold otherwise would undermine the fundamental principles of comity by interfering with the acts of a foreign jurisdiction's legislature or judicial body." Sung Hwan Co., Ltd. v. Rite Aid Corp. , 7 N.Y.3d 78, 85 (2006).
For the reasons set forth above, comity is warranted. Accordingly, Defendants' motion to dismiss is granted and Plaintiffs partial motion for summary judgment is denied. The Clerk of Court is respectfully directed to close items 22 and 31 on the docket and to terminate this case.