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The Hongkong and Shanghai Banking Corporation Limited v. Brandt

United States District Court, S.D. New York

December 29, 2017

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, Appellant,
v.
WILLIAM A. BRANDT, JR., TRUSTEE FOR CFG PERU INVESTMENTS PTE. LTD. (SINGAPORE), Appellee.

          ORDER AND OPINION

          VALERIE CAPRONI, UNITED STATES DISTRICT JUDGE

         Before the Court is a motion seeking leave to appeal a discovery ruling in a bankruptcy proceeding. Because the matter does not involve a final order appealable as of right and because the issue does not warrant an interlocutory appeal, the motion for leave to appeal is denied.

         I. BACKGROUND

         Hongkong Shanghai Banking Corporation Limited (“HSBC-HK” or “Appellant”) seeks to appeal a discovery ruling by the bankruptcy court. See Memorandum Decision and Order Granting Trustee's Motion for Order Authorizing Issuance of Subpoenas to Hongkong Shanghai Banking Corporation Limited, July 19, 2017 (“Rule 2004 Order”) [Dkt. 1, App'x A].[1] The underlying bankruptcy proceeding involves jointly-administered chapter 11 cases for seventeen related debtor companies (“Debtors”); the Debtors' value derives from three Peruvian operating companies that are involved in the fishing industry. Id. at 3, 5-6. One of the Debtors, CFG Peru Investments Pte. Limited (Singapore) (“CFG Peru”), is the 100% direct and indirect owner of the Peruvian operating companies. Id. at 3.

         Appellant is one of a group of lenders that have a credit arrangement with a subset of the Debtors and the three Peruvian operating companies, with some of those entities as borrowers, some as guarantors, and some as obligors. Rule 2004 Order at 5-6. CFG Peru is not a borrower, guarantor, or obligor under the credit arrangement. Id. at 6. Nonetheless, CFG Peru has, through its court-appointed Trustee William Brandt, Jr. (“Trustee” or “Appellee”), filed proofs of claim against four of the Debtors who are involved in the credit arrangement (the “Borrowing Debtors”) on the basis of senior notes issued by one of the underlying Peruvian operating companies; the four Borrowing Debtors are guarantors, along with CFG Peru, of the senior notes, generating potential reciprocal rights of contribution, indemnification, and reimbursement. Id. at 3, 8.

         In November 2015, after the companies involved in the credit agreement began to experience financial difficulties, HSBC-HK broke with the other lenders and petitioned, ex parte, for wind-up proceedings in Hong Kong and the Cayman Islands for two of the Debtors; those petitions were ultimately withdrawn per an agreement amongst the two Debtors and Appellant.[2]Rule 2004 Order at 6-7. Although that agreement called for sale of the operating companies, the Debtors instead filed for protection pursuant to chapter 11. Id. at 7. Appellant has since filed a Notice of Appearance in the jointly-administered cases, as well as proofs of claim against the four Borrowing Debtors that are involved in the credit agreement-the same four against which Appellee has filed proofs of claim. Id. at 8-9.

         As part of his involvement in the chapter 11 cases, the Trustee sought discovery from HSBC-HK under Bankruptcy Rule 2004, contending that HSBC-HK's aggressive conduct in seeking repayment of its loans may have “interfered with the [Borrowing Debtors'] relationships with [their] lenders, suppliers, and trade counterparties, constrained [their] liquidity, and negatively impacted [their] ability to resume normal operations.” Id. at 9-10, 11. The discovery sought, according to the Trustee, could support defenses to HSBC-HK's claims or identify claims against other parties. Id. at 10. HSBC-HK opposed the discovery for a variety of reasons, including that the Bankruptcy Court lacks personal jurisdiction; the Bankruptcy Court rejected HSBC-HK's arguments and authorized the Trustee to proceed with Rule 2004 discovery. See id. at 12-23.

         Appellant now seeks leave to appeal the Rule 2004 Order, arguing, as discussed below, that the Order is appealable as of right or, in the alternative, that an interlocutory appeal of the Order is warranted. See Appeal Mem. ¶¶ 21-38.

         II. DISCUSSION

         District courts have jurisdiction to hear appeals of federal bankruptcy court decisions pursuant to 28 U.S.C. § 158(a), which provides, in relevant part, that “[t]he district courts of the United States shall have jurisdiction to hear appeals . . . from final judgments, orders, and decrees; . . . [and, ] with leave of the court, from other interlocutory orders and decrees . . . .” In re Lehman Bros. Holdings Inc., 566 B.R. 353, 358 (S.D.N.Y. 2017) (quoting 28 U.S.C. § 158(a)) (internal quotation marks omitted). A district court reviews a bankruptcy court's “conclusions of law de novo, and its findings of fact for clear error.” Id. (citation omitted). Accordingly, this Court must determine whether the appeal of the Rule 2004 Order is properly before the Court.

         A. The Rule 2004 Order is Not a Final Order Affording Appeal as of Right

         “A bankruptcy court's order is ‘final' if it completely resolve[s] all of the issues pertaining to a discrete claim, including issues as to the proper relief.” In re Adelphia Commc'ns Corp., 333 B.R. 649, 656 (S.D.N.Y. 2005) (internal quotation marks and citation omitted). Because bankruptcy proceedings can persist for years, the Second Circuit has determined that the intent of the governing statute is to allow for immediate appeal from bankruptcy court orders that “finally dispose of discrete disputes within the larger case.” In re Fugazy Exp., Inc., 982 F.2d 769, 775 (2d Cir. 1992) (internal quotation marks and citations omitted). “[A] ‘dispute, ' for appealability purposes in the bankruptcy context, means at least an entire claim on which relief may be granted.” Id. at 775-76.

         Courts have routinely found that bankruptcy court orders granting or denying discovery, including orders related to Rule 2004 discovery, are not final for the purposes of an appeal to a district court. See In re Towers Fin. Corp., 164 B.R. 719, 720 (S.D.N.Y. 1994) (“Bankruptcy court orders granting or denying discovery do not finally dispose of an entire claim on which relief may be granted, and therefore are generally treated as interlocutory and not appealable as of right.”) (collecting cases) (citations omitted). See also In re Royce Homes LP, 466 B.R. 81, 89 (S.D. Tex. 2012) (“In the bankruptcy context, discovery orders also are generally considered interlocutory and not immediately appealable.”) (collecting cases) (citations omitted); In re Gray, 447 B.R. 524, 531 (E.D. Mich. 2011) (finding that a majority of courts have treated orders regarding Rule 2004 discovery as interlocutory and not final). This Court sees no reason to depart from this consensus.[3]

         Appellant nonetheless argues that the Rule 2004 Order is final “because it resolves the issue of the Trustee's entitlement to Rule 2004 discovery from HCBC-HK, as well as whether the Bankruptcy Court has jurisdiction required to authorize the discovery sought from HSBC-HK.” Appeal Mem. ¶ 23. See also Appellant's Reply Brief in Further Support of its Motion in the Alternative for Leave to Appeal the Bankruptcy Court's July 19, 2017 Order Authorizing Rule 2004 Discovery (“Reply Mem.”) [Dkt. 6] ¶ 5. Courts in this Circuit ...


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