Amicus Curiae Brief — HSBC Holdings PLC, et al., Petitioners v. Irving H. Picard, et al.

No. 19-277

IN THE

Supreme Court of the United States

___________

HSBC HOLDINGS PLC, ET AL.,

v.

IRVING H. PICARD,

___________

Petitioners,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

___________

BRIEF OF THE CAYMAN ISLANDS

GOVERNMENT AND THE GOVERNMENT OF

THE VIRGIN ISLANDS AS AMICI CURIAE IN

SUPPORT OF PETITIONERS

___________

RICHARD KLINGLER*

JOSEPH B. TOMPKINS, JR.

JOHN K. ADAMS

BRADLEY A. TUCKER

SIDLEY AUSTIN LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8000

rklingler@sidley.com

Counsel for Amici Curiae

September 30, 2019

* Counsel of Record

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .................................

ii

INTEREST OF AMICI CURIAE ..........................

1

SUMMARY OF ARGUMENT ..............................

2

ARGUMENT .........................................................

3

I. THE SECOND CIRCUIT APPLIED U.S.

LAW EXTRATERRITORIALLY IN A

MANNER

THAT

SIGNIFICANTLY

THREATENS AMICI’S LEGAL SYSTEMS

AND IMPAIRS COORDINATION OF U.S.

AND FOREIGN LEGAL SYSTEMS.............

3

A. The Second Circuit’s Decision Neglected

the Foreign Nature of the Transactions at

Issue and the Extensive Foreign Legal

Systems It Displaced. ...............................

5

B. The Second Circuit’s Decision Brings U.S.

Law into Conflict with the Operation of

Amici’s Insolvency Systems. .....................

10

C. The Second Circuit’s Decision Is

Especially Unwarranted Because Amici’s

Insolvency

Systems

Appropriately

Accommodate the Interests of Foreign

Claimants. .................................................

13

II. THE SECOND CIRCUIT’S DECISION

BROADLY

THREATENS

THE

APPROPRIATE COORDINATION OF U.S.

AND FOREIGN LEGAL SYSTEMS.............

16

CONCLUSION .....................................................

23

(i)

ii

TABLE OF AUTHORITIES

CASES

Page

AAR Int’l, Inc. v. Nimelias Enters. S.A., 250

F.3d 510 (7th Cir. 2001) .............................

22

Hilton v. Guyot, 159 U.S. 113 (1895) ............

18

Kiobel v. Royal Dutch Petroleum Co., 569

U.S. 108 (2013) ...........................................

18

Morrison v. Nat’l Austl. Bank Ltd., 561 U.S.

247 (2010) ...................................................

17

Mujica v. AirScan Inc., 771 F.3d 580 (9th

Cir. 2014) ....................................................

22

Perforaciones Exploración y Producción v.

Marítimas Mexicanas, S.A. de C.V., 356 F.

App’x 675 (5th Cir. 2009) ...........................

22

Remington Rand Corp.-Del. v. Bus. Sys. Inc.,

830 F.2d 1260 (3d Cir. 1987) ................... 22, 23

RJR Nabisco, Inc. v. European Cmty., 136 S.

Ct. 2090 (2016) ............................... 4, 17, 19, 21

In re Sealed Case, 932 F.3d 915 (D.C. Cir.

2019) ...........................................................

22

Société Nationale Industrielle Aérospatiale

v. U.S. Dist. Court for the S. Dist. of Iowa,

482 U.S. 522 (1987) .................................. 17, 22

WesternGeco LLC v. ION Geophysical Corp.,

138 S. Ct. 2129 (2018) ....................... 17, 20, 21

FOREIGN CASES

In re Bernard L. Madoff Inv. Sec. LLC,

[2010] (1) CILR 231 ....................................

Galbraith v. Grimshaw, [1910] AC 508

(HL).............................................................

In re Lancelot Inv’rs Fund Ltd., [2009] CIRL

7 ..................................................................

Picard v. Primeo Fund, [2014] (1) CILR

379 ..............................................................

12

13

14

12

iii

TABLE OF AUTHORITIES—continued

Rubin v. Eurofinance SA, [2012] UKSC

46 ................................................................

Stichting Shell Pensioenfonds v. Krys, [2014]

UKPC 41 .....................................................

In re Trident Microsys.(Far East) Ltd.,

[2012] (1) CILR 424 ....................................

Page

13

9

14

STATUTES

11 U.S.C. § 363 ..............................................

9

11 U.S.C. § 550(a)(2) ................................ passim

11 U.S.C. §§ 1502–1532 ................................

18

28 U.S.C. §§ 1604–1608 ................................

18

28 U.S.C. §§ 1609–1611 ................................

18

FOREIGN STATUTES

BVI Business Companies Act, 2004, pt. III,

div. 4, § 58 ..................................................

Companies Law (2018 Revision), pt. V,

§ 90..............................................................

Companies Law (2018 Revision), pt. XVII,

§ 241(1)(e) ...................................................

The Companies Winding Up Rules 2008,

Order 21......................................................

Insolvency Act, 2003, pmbl. ..........................

Insolvency Act, 2003, § 175 ...........................

Insolvency Act, 2003, § 255(1) ......................

15

9

15

14

9

9

15

SCHOLARLY AUTHORITY

Justice Anthony Smellie, A Cayman Islands

Perspective on Transborder Insolvencies

and Bankruptcies: The Case for Judicial

Co-Operation 2 Beijing L. Rev. 145

(2011) .......................................................... 7, 14

iv

TABLE OF AUTHORITIES—continued

OTHER AUTHORITIES

Page

Bank for Int’l Settlements, Cross-Border

Positions (Q1 2019), https://stats.bis.org/

statx/srs/table/a2?m=S&p=20191&c=&f=

pdf ...............................................................

7

Cayman Is. Ministry of Fin. Servs., The

Cayman Islands Is a Major International

Financial Centre (Sept. 23, 2019) ..............

8

Melanie Debono et al., Capital Econ.,

Creating Value: The BVI’s Global

Contribution (June 2017), https://bvi

globalimpact.com/media-centre/creatingvalue-the-bvis-global-contribution ........ 6, 8, 10

U.S. Dep’t of the Treasury, Major Foreign

Holders of Treasury Securities (Sept. 17,

2019), https://ticdata.treasury.gov/Publish/

mfh.txt ........................................................

7

U.S. Sec. & Exch. Comm’n, Private Funds

Statistics (Nov. 13, 2018), https://www.sec.

gov/divisions/investment/private-fundsstatistics/private-funds-statistics-2018q1.pdf..........................................................

7

United Nations Conference on Trade & Dev.,

Foreign Direct Investment (2018), https://

unctadstat.unctad.org/wds/TableViewer/

tableView.aspx?ReportId=96740 .............. 7, 8

INTEREST OF AMICI CURIAE1

Amici curiae are the governments of the Cayman

Islands and the Virgin Islands (also known as the

British Virgin Islands, or “BVI”). Both the Cayman

Islands and BVI are internally self-governing overseas

territories of the United Kingdom. Each has an

interest in the ongoing and effective administration of

its long-established, modern, and comprehensive

insolvency and commercial law regimes that protect

the interests of thousands of companies, parties that

have invested more than a trillion dollars through

those companies, and others who rely on the legal

determinations issued in amici’s courts. The decision

of the Second Circuit at issue here threatens various

of amici’s interests associated with the ongoing

administration of those legal systems and the

protections they afford to amici’s citizens and to

others.

As described below, several of the “feeder funds” to

Madoff’s investment company have been subject to or

are undergoing insolvency proceedings in Cayman

Islands or BVI courts, and the construction of 11

U.S.C. § 550(a)(2) adopted by the court below would

empower respondent to recover from foreign investors

having no direct connection to the United States. The

result would be to impair or nullify the operation of

Cayman Islands and BVI law by, in the trial court’s

terms, permitting respondent to “reach around” those

legal systems.

1 Pursuant to Supreme Court Rule 37, amici state that no

counsel for any party authored this brief in whole or in part, and

that no entity or person other than amici and their counsel made

any monetary contribution toward the preparation and

submission of this brief. The parties received timely notice and

consented to the filing of this brief.

2

The decision below thus directly implicates amici’s

interests in the effective operation of their legal

systems and in their determinations of the proper

balance among competing property and commercial

interests. The decision more broadly threatens the

accepted

and

traditional

coordination

and

accommodations among U.S. and foreign legal

systems, as well as amici’s well-earned reputation for

providing the legal certainty and clarity that have

made both central components of the modern financial

world.

SUMMARY OF ARGUMENT

The petition seeks review of a Second Circuit

decision that applies U.S. law to transactions

undertaken abroad between foreign parties. Those

parties often are domiciled in or citizens of the

Cayman Islands or BVI, or are subject to insolvency

proceedings conducted in the Cayman Islands or BVI

under their laws. Respondent has often participated in

those proceedings, and he or others similarly situated

would, under the Second Circuit’s construction of 11

U.S.C. § 550(a)(2), be able to use U.S. law to achieve

results deemed unwarranted under the laws of the

Cayman Islands and BVI.

In contrast to the careful analysis of the trial and

bankruptcy courts in this case, the Second Circuit

erred in finding that its decision barely implicated the

interests of foreign states including, specifically,

amici. In fact, the decision threatens the operation and

stability of amici’s insolvency regimes. It also

undermines

legitimate

international

investor

expectations and poses risks to amici’s long-standing,

robust, and carefully constructed systems of

coordinating foreign and domestic law that have made

amici’s legal systems central components of the

3

world’s financial and investment processes. The

decision creates precisely the “international friction”

and “collision” of legal regimes that this Court’s

decisions have sought to avoid.

Moreover, the Second Circuit created this collision of

insolvency systems through reasoning that more

broadly threatens to impose U.S. law abroad in

circumstances and with the adverse effects that are

contrary to this Court’s decisions. If left unreviewed,

the decision would lead to ongoing errors in

determining when U.S. law has effects abroad, how

interference with foreign legal systems is relevant to

determining the extraterritorial effect of U.S. law, and

whether to afford deference to the trial court’s factfinding needed to assess the foreign effects of U.S. law.

Amici curiae respectfully request that the Court

grant the petition.

ARGUMENT

I. THE SECOND CIRCUIT APPLIED U.S. LAW

EXTRATERRITORIALLY IN A MANNER

THAT

SIGNIFICANTLY

THREATENS

AMICI’S LEGAL SYSTEMS AND IMPAIRS

COORDINATION OF U.S. AND FOREIGN

LEGAL SYSTEMS.

The Second Circuit’s decision permitted respondent

to recover assets from foreign investors, received as a

result of purely foreign transactions, in circumstances

where those investors and the transferor investment

funds were subject to insolvency proceedings in the

BVI or the Cayman Islands. As the trial court

concluded, that construction of Section 550(a)(2)

permitted respondent to “reach around” the legal

systems of BVI and the Cayman Islands, and

4

disturbed and conflicted with determinations of

amici’s legal systems. Pet. 178a.

Even as the Second Circuit “assume[d] … that these

conflicts exist,” id. 32a, it failed to give any weight to

amici’s extensive, legitimate interests. The court

found it not “equitable and orderly” to require

respondent “to litigate different claims in different

countries” because the court’s comity analysis

determined that amici’s sole interest was in

“ensur[ing] that the feeder funds’ creditors can recover

as much property as possible.” Id. 36a.

This approach, however, significantly understates

amici’s interests and indeed the U.S. interests

recognized by this Court in facilitating the proper

coordination among U.S. and foreign legal systems.

The Second Circuit’s ultimate conclusion that its

construction of Section 550(a)(2) did not involve the

extraterritorial application of U.S. law ignores the

foreign nature of the transactions at issue and ignores

the displacement of amici’s legal systems and amici’s

interests in the effective administration of those legal

systems, especially in relation to their citizens, their

companies, and others dependent and investing in

reliance on their law. As described below, see infra pp.

10–17, the decision also created particular conflicts

between U.S. law and ongoing proceedings in amici’s

legal systems and ignored the careful balancing of

foreign and domestic interests that amici’s legal

processes facilitate. The Second Circuit’s analysis

simply neglected to consider the extensive foreign

interests impaired by its decision, an analysis

essential to “avoid[ing] the international discord that

can result when U.S. law is applied to conduct in

foreign countries.” RJR Nabisco, Inc. v. European

Cmty., 136 S. Ct. 2090, 2100 (2016).

5

A. The Second Circuit’s Decision Neglected

the Foreign Nature of the Transactions

at Issue and the Extensive Foreign Legal

Systems It Displaced.

1. The foreign nature of the fund transfers subject

to Section 550(a)(2) as construed by the Second

Circuit, and of the affected insolvency proceedings, is

undisputed. As even the court below recognized,

petitioners are “foreign subsequent transferees that

invested in foreign feeder funds” organized under the

foreign law. Pet. 11a. They invested in and redeemed

investments from foreign investment funds called

“feeder funds,” including those organized under the

laws of the Cayman Islands and BVI. Those feeder

funds in turn invested in U.S. securities. When the

value of those securities collapsed, so too did many of

the feeder funds, prompting liquidation proceedings in

the Cayman Islands and BVI. See infra pp. 10–12.

The three largest feeder funds implicated in this

case, accounting for about four billion dollars of

transfers sought by the Trustee, include (1) Fairfield

Sentry Limited, Fairfield Sigma, and Fairfield

Lambda, BVI companies that entered into liquidation

in the BVI; (2) Kingate Global Fund, Ltd. and Kingate

Euro Fund, Ltd., foreign companies that also entered

into liquidation in both Bermuda and the BVI; and (3)

Harley International (Cayman) Limited, a Cayman

Islands company that entered into liquidation in the

Cayman Islands. Pet. 9–10.

Fairfield Sentry Ltd. is representative of the other

feeder funds. This fund was essentially closed to

American investors; the majority of its directors were

European citizens; and its investment manager was

based in Bermuda, its administrator in Amsterdam,

its custodian in Dublin, and its placement agent in the

Cayman Islands. Brief for Amici Curiae Brian Child et

6

al., at 19–20, In re Picard, No. 17-2992(L) (2d Cir. Apr.

25, 2018). Similarly, the Kingate funds, also closed to

American investors, included primarily European

investors with their administrator, custodian, and

consultants all located in Bermuda or Europe. Id. Such

an international structure is not atypical for

companies incorporated in the BVI or the Cayman

Islands, which are especially suited for cross-border

transactions. Id.

2. As a result, the Second Circuit’s decision

empowered respondent to take actions and recover

funds that brought U.S. law into direct conflict and

interfered with some of the world’s most sophisticated

and significant insolvency and property law regimes.

Both the Cayman Islands and BVI are international

business and financial centers performing a role for

the international financial and investment system

akin to that performed by Delaware within the United

States, as a preferred jurisdiction for incorporation.

That role arises in large measure from the certainty,

fairness, and transparency provided in commercial

dispute resolution by the legal systems of the Cayman

Islands and BVI, including especially the clear legal

standards and processes associated with their

resolution of insolvency disputes. These robust legal

regimes have transformed these jurisdictions into

“leading centre[s] specialising in the incorporation of

vehicles

for

cross-border

business

and

accompanying … legal services,” such as insolvency

proceedings.2

2 Melanie Debono et al., Capital Econ., Creating Value: The

BVI’s Global Contribution 11 (June 2017) (“Global Contribution”),

https://bviglobalimpact.com/media-centre/creating-value-thebvis-global-contribution.

7

For example, the Cayman Islands is a highly

respected global financial center with a predictable

legal system based on English common law and a

stable political environment. As a major supplier of

cross-border services, the Cayman Islands is a leading

jurisdiction for international investors, with the

country ranked twelfth internationally in cross-border

assets ($680.7 billion) and cross-border liabilities

($652.7 billion).3 According to the United Nations, the

Cayman Islands was the ninth largest recipient of

foreign direct investment and the tenth largest source

of outward investment flows.4 Recognizing the

Cayman Islands as a vital global hub, the Chief Justice

of the Cayman Islands recently described a principle

of its legal regime as “reassuring” the “commercial

necessity for international co-operation between

courts in matters of cross-border insolvency.”5 For

these reasons among others, the Cayman Islands is

the world’s largest domicile for hedge funds (51.1

percent of total net asset value)6 and eighth largest

foreign holder of U.S. treasury securities ($218.4

billion).7 As of December 2018, the Cayman Islands

3 Bank for Int’l Settlements, Cross-Border Positions (Q1 2019),

https://stats.bis.org/statx/srs/table/a2?m=S&p=20191&c=&f=pdf.

4 United Nations Conference on Trade & Dev., Foreign Direct

Investment (2018) (“UN Data”), https://unctadstat.unctad.org/

wds/TableViewer/tableView.aspx?ReportId=96740.

5 Justice Anthony Smellie, A Cayman Islands Perspective on

Transborder Insolvencies and Bankruptcies: The Case for

Judicial Co-Operation, 2 Beijing L. Rev. 145, 147 (2011).

6 U.S. Sec. & Exch. Comm’n, Private Funds Statistics 13 (Nov.

13, 2018), https://www.sec.gov/divisions/investment/privatefunds-statistics/private-funds-statistics-2018-q1.pdf.

7 U.S. Dep’t of the Treasury, Major Foreign Holders of Treasury

Securities (July 2019), https://ticdata.treasury.gov/Publish/mfh.

txt.

8

held $2.34 trillion in assets and $3.77 trillion in

liabilities.8

Similarly, incorporating in the BVI is economically

attractive for many reasons, including the

jurisdiction’s highly regarded BVI Business

Companies Act, 2004 and Insolvency Act, 2003, the

availability of legal expertise grounded in English

common law, effective and respected regulatory

entities, and recourse to fair and sophisticated courts.

As a result, hundreds of billions of dollars in outward

foreign investment is regularly directed through the

BVI. According to the United Nations, the BVI was the

tenth largest recipient of foreign direct investment in

2018 and the world’s seventh largest source of outward

investment flows.9 Assets held by BVI-incorporated

companies alone are estimated at $1.5 trillion, and

investments made by these companies are believed to

support roughly 2.2 million jobs worldwide.10

The insolvency systems of the Cayman Islands and

BVI provide central components contributing to

amici’s role in the global finance and investment

system. The BVI’s laws governing insolvency, for

example, are a modern and comprehensive code

uniquely configured to serve the BVI’s policies and

processes as a global financial center. The BVI’s

Insolvency Act, 2003, largely modeled on United

Kingdom’s Insolvency Act 1986, provides “a

mechanism for insolvent persons to enter into

arrangements with their creditors … the penalization

and redress of wrongdoing associated with insolvent

8 Cayman Is. Ministry of Fin. Servs., The Cayman Islands Is a

Major International Financial Centre 2 (Sept. 23, 2019).

9 UN Data, supra note 4.

10 Global Contribution, supra note 2, at 13–14.

9

persons … the avoidance of certain transactions, cross

border insolvency issues and other matters connected

therewith.” Insolvency Act, 2003, pmbl. The Act, much

like the U.S. Bankruptcy Code, divests an insolvent

corporation of the beneficial ownership of its assets,

and subjects those assets to a statutory trust for

distribution according to statutory rules. Compare

Insolvency Act, 2003, § 175, with 11 U.S.C. § 363. And

if a BVI-incorporated company is liquidated, the

statutory trust “applies not just to assets located

within the jurisdiction of the winding up court, but all

assets world-wide.” Stichting Shell Pensioenfonds v.

Krys [2014] UKPC 41 [14].

The Cayman Islands likewise has well-established

laws concerning property rights and robust insolvency

proceedings. Insolvency proceedings are governed by

the Companies Law (2018 Revision), the Company

Winding Up Rules 2008, the Insolvency Practitioners’

Regulations of 2008, and the Foreign Bankruptcy

Proceedings (International Cooperation) Rules 2008,

together with a substantial body of domestic case law.

The Companies Law provides for three separate

mechanisms to wind up insolvent companies

incorporated in the Cayman Islands. See Companies

Law, pt. V, § 90. The Grand Court has responsibility

for overseeing insolvency proceedings. Within this

court is a Financial Services Division composed of

several judges specializing in complex, cross-border

insolvency proceedings.

Decisions from the Grand Court are subject to

appeal to the Court of Appeal and then to the Privy

Council in London. Similarly, BVI court decisions

under the BVI Insolvency Act, 2003 are subject to “a

final right of appeal to the Judicial Committee of the

Privy Council in London,” which is particularly “well-

10

versed in dealing with international disputes.”11 The

Privy Council is made up of the same judges (formerly

Law Lords, now Justices of the Supreme Court) who

make up the Supreme Court of the United Kingdom.

BVI Insolvency Act matters are heard in the

Commercial Division of the High Court of Justice

before specialist judges with particular expertise in

company, insolvency, and financial services laws.

B. The Second Circuit’s Decision Brings

U.S. Law into Conflict with the Operation of Amici’s Insolvency Systems.

In addition to generally displacing robust insolvency

systems that are central components of the global

financial system, the Second Circuit’s decision brings

U.S. law into more direct conflict with the insolvency

systems of the Cayman Islands and BVI. It does so

both by having U.S. law supersede the overlapping

and competing determinations that the trial and

bankruptcy courts below recognized, and by more

specific difficulties created for the operation of those

foreign systems.

Judge Rakoff emphasized how the Cayman Islands’

and BVI’s foreign insolvency regimes overlap with U.S.

bankruptcy laws in this case, stating that “many of the

feeder funds are currently involved in their own

liquidation proceedings in their home countries.” Pet.

178a. He underscored that foreign jurisdictions such

as the Cayman Islands and BVI had their own legal

processes addressing the transfers, property, and

parties at issue, and that the Trustee was,

unjustifiably, “seeking to use [domestic law] to reach

around such foreign liquidations” and thus affecting

both investors with no expectation that U.S. law would

11 Global Contribution, supra note 2, at 58.

11

apply and “foreign jurisdictions [that] have a greater

interest in applying their own laws than does the

United States.” Id. 178a–179a.

Bankruptcy Judge Bernstein also noted the foreign

state and foreign investor interests implicated in the

overlapping insolvency proceedings. He concluded

that, as between the BVI (and Bermuda) and the

United States with regard to their particular

overlapping and competing proceedings, the BVI has

“a greater interest in regulating the activity that gave

rise to the common claims asserted by the [U.S.]

Trustee and [BVI] liquidators.” Pet. 81a. This was so

because the funds at issue were “formed under foreign

law” and “their liquidation, including the marshaling

of assets and the payment of claims, is governed by

local insolvency law.” Id. In addition, “shareholders …

should have expected BVI law to govern,” id. 82a, and

“[t]he United States has no interest in regulating the

relationship between the [feeder funds] and their

investors,” id. 38a. This result was consistent, the

court indicated, with the direction of Congress, which

“has explicitly recognized the central concept of comity

under Chapter 15 of the Bankruptcy Code.” Id. 70a.

Contrary to the Second Circuit’s analysis, Pet. 36a,

the overlapping and conflicting nature of the claims is

also reflected in disputes arising when a bankruptcy

trustee has filed claims under U.S. law against foreign

investors who themselves are subject to claims under

foreign insolvency proceedings by foreign liquidators

(and whose claims against the insolvent funds, in turn,

increase to the extent the trustee secured funds from

the investor pursuant to Section 550(a)(2)).

Cases involving Fairfield Sentry are illustrative.

There, the feeder fund Fairfield Sentry had invested

95 percent of its funds with Madoff Investment

Securities and went into liquidation in the BVI shortly

12

after the disclosure of the Ponzi scheme. Pet. 74a. A

flurry of lawsuits followed under BVI law, ultimately

leading to a Privy Council decision. The Privy Council

held that Fairfield Sentry’s right to recover against

investors for unwarranted distributions “was governed

by BVI law.” Id. 75a (addressing Fairfield Sentry Ltd.

v. Migani, [2014] UKPC 9). This determination, Judge

Rakoff concluded, is “in conflict with what the Trustee

seeks to accomplish here” by seeking recovery of the

same funds from the same investors. Id. 178a.

Similar proceedings are occurring in the Cayman

Islands. In 2010, the Grand Court recognized

respondent as the trustee of the Madoff estate in the

Cayman Islands. In re Bernard L. Madoff Inv. Sec.

LLC, [2010] (1) CILR 231, [6]. When respondent then

issued discovery seeking information from official

liquidators relevant to potential claims involving the

feeder fund, the Grand Court dismissed the

application, because it was “the function of [the feeder

fund’s] official liquidators, not the trustee, to

investigate whether or not [the feeder fund] has any

cause of action against its former professional service

providers.” Pet. 87a (internal quotation omitted).

Respondent also commenced proceedings against the

Primeo Fund in the Cayman Islands to recover

preferential and fraudulent transfers. Picard v.

Primeo Fund, [2014] (1) CILR 379. The Court of

Appeal held that respondent could pursue claims

against the fund, but only under the Cayman Islands’

insolvency regime and not under U.S. bankruptcy law.

Id. [48], [55].

The Second Circuit’s decision permitting the

respondent to recover directly from the foreign

investors under Section 550(a)(2) “reach[es] around”

these proceedings, as Judge Rakoff cautioned, Pet.

178a, interfering with the decisions of Cayman Island

13

and BVI tribunals and impairing the feeder fund

liquidators’ recoveries (while increasing investors’

countervailing claims).

C. The Second Circuit’s Decision Is

Especially Unwarranted Because Amici’s

Insolvency

Systems

Appropriately

Accommodate the Interests of Foreign

Claimants.

The Second Circuit’s disregard of the need to

facilitate coordination and cooperation between U.S.

and foreign legal systems is especially unwarranted

because both the Cayman Islands’ and BVI’s legal

systems effectively operate in just that coordinated

and accommodating manner. Those systems

appropriately take U.S. interests into account, and

indeed respondent has repeatedly pursued his

interests and claims there.

For example, the Cayman Islands’ and BVI’s

insolvency laws accommodate the international nature

of modern insolvency proceedings and acknowledge

the fundamental importance of comity. As the BVI’s

reviewing court stated while discussing “insolvency

proceedings” with an “international dimension,” the

“modern approach … is that the jurisdiction with

international competence is that of the country of the

centre of main interests of the debtor.” Rubin v.

Eurofinance SA [2012] UKSC 46, [13]; see also

Galbraith v. Grimshaw [1910] AC 508 (HL), 513

(“[C]onsistent with the comity of nations [is] a rule of

international law that if the court finds that there is

already pending a process of universal distribution of

a bankrupt’s effects it should not allow steps to be

taken in its territory which would interfere.”).

This ordinary liquidation process is coupled with

concern for international cooperation and assistance in

14

cross-border insolvency cases. As the Chief Justice of

the Cayman Islands observed, “[j]udicial international

co-operation is a well-established tradition in Cayman

Islands’ jurisprudence.”12 In keeping with this

tradition, Order 21 of The Companies Winding Up

Rules 2008 describes “international protocols” for

insolvency proceedings. This Order provides for the

establishment of a protocol when either the company

in liquidation is subjected to a concurrent bankruptcy

proceeding under foreign law or the assets of a

company in liquidation located in a foreign country are

subjected to a bankruptcy proceeding or receivership

of the law of that country. The Grand Court is

accustomed to issuing orders to facilitate international

coordination under Order 21. See, e.g., In re Trident

Microsystems (Far East) Ltd. [2012] (1) CILR 424 (the

“terms of the cross-border insolvency protocol

stipulation” with the Delaware court under Order 21

“would be strictly followed”); In re Lancelot Inv’rs

Fund Ltd. [2009] CIRL 7 (“[T]he Grand Court of the

Cayman Islands has, on many occasions, assisted

American courts and … [we] would expect the [foreign]

court to help us in like circumstances.” (first and

second alterations in original) (internal quotation

omitted)).

In particular, the insolvency processes of both amici

are designed to facilitate and permit the consideration

of the types of fraud-related and other recovery claims

that the respondent seeks to use Section 550(a)(2) to

accomplish unilaterally. For example, Part XVII of the

Companies Law confers statutory jurisdiction on the

Grand Court of the Cayman Islands to hear

applications for recognition and ancillary orders

brought by the “foreign representative” who has been

12 Smellie, supra note 5, at 147.

15

appointed in a “foreign bankruptcy proceeding,” in

terms similar to 11 U.S.C. § 1515 of the Bankruptcy

Code. A foreign representative, in turn, has been held

to include a trustee appointed to a company under

Chapters 7, 11, or 15 of the U.S. Bankruptcy Code. A

foreign representative may apply to the Grand Court

for relief ancillary to the foreign bankruptcy

proceeding under § 241 of the Companies Law,

including “ordering the turnover to [the trustee] of any

property belonging to a debtor.” Companies Law (2018

Revision), pt. XVII, § 241(1)(e).

Likewise, and much like 11 U.S.C. § 548(a)(1)(A), the

BVI Insolvency Act, 2003 permits the avoidance or

recovery of certain company transactions, including

fraudulent trading. The Act imposes liability for

business activities carried out “at any time before the

commencement of the liquidation of the company” with

the intent to defraud creditors or for any other

fraudulent purpose. Insolvency Act, 2003, § 255(1).

The Companies Act also specifies that a company in

certain circumstances may recover a distribution to its

members if the company did not meet the solvency test

as a result of the distribution. BVI Business

Companies Act, 2004, pt. III, div. 4, § 58.

Respondent has repeatedly pursued his interests

under these regimes. See supra pp. 10–12. Failing in

these courts, or concurrently, respondent and others

similarly situated in the future will, under the Second

Circuit’s construction of Section 550(a)(2), be able to

achieve the same desired result in U.S. courts under

U.S. law.

16

II. THE SECOND CIRCUIT’S DECISION

BROADLY THREATENS THE APPROPRIATE COORDINATION OF U.S. AND

FOREIGN LEGAL SYSTEMS.

The Second Circuit’s dismissive approach to foreign

states’ interests and to coordination among

international legal systems is reflected in that court’s

adoption of general principles whose effects are not

limited to the bankruptcy context. Instead, the Second

Circuit adopted and applied several legal principles

and approaches to construing U.S. law that broadly

threaten foreign sovereign and investor interests and

risk disrupting coordination between U.S. and foreign

legal systems.

The Second Circuit’s analysis in each respect fails to

recognize that Congress seeks generally to avoid

disruptions to international legal cooperation and

coordination in international finance, trade, property,

and cultural systems—just as other sovereign states

seek to accommodate U.S. interests. These generally

harmful effects arise from the Second Circuit’s

approach to each of the principal issues presented by

this case: (i) when statutes need to be separately

considered in determining when U.S. law has a foreign

effect, (ii) how interference with foreign legal systems

is relevant to the determination of a foreign effect of

U.S. law, and (iii) whether to afford deference to a trial

court’s assessment of the foreign effects of U.S. law.

1. Just as foreign states strictly limit the application

of their laws to events arising in the United States and

appropriately regulated by U.S. law, so does Congress

generally recognize that extraterritorial application of

U.S. law can harm international cooperation and

conventions related to international comity that lead

foreign states to limit the foreign application of their

laws. That is, Congress can be presumed to recognize

17

that it is generally in the interests of the United States

not to have U.S. law apply extraterritorially.

This basic principle is well-recognized in U.S. law.

This Court has repeatedly stated that “[i]t is a basic

premise of our legal system that, in general, ‘United

States law governs domestically but does not rule the

world.’” RJR Nabisco, 136 S. Ct. at 2100 (quoting

Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 454

(2007)). As a result, “[i]t is a longstanding principle of

American law that legislation of Congress, unless a

contrary intent appears, is meant to apply only within

the territorial jurisdiction of the United States.”

Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 255

(internal quotation omitted). This presumption can be

overcome only by “‘the affirmative intention of the

Congress clearly expressed’ to give a statute

extraterritorial effect.” Id.

This principle “rests on the perception that Congress

ordinarily legislates with respect to domestic, not

foreign, matters,” id., and intends to “prevent[]

unintended clashes between our laws and those of

other nations which could result in international

discord.” WesternGeco LLC v. ION Geophysical Corp.,

138 S. Ct. 2129, 2136 (2018). These considerations

apply with particular force in cases like this one

because “providing a private civil remedy for foreign

conduct creates a potential for international friction

beyond that presented by merely applying U.S.

substantive law to that foreign conduct.” RJR Nabisco,

136 S. Ct. at 2106.

These principles and the respect accorded to foreign

legal regimes are also reflected in a broad range of

particular doctrines of this Court. For example, U.S.

courts often decide that U.S. law must give way in

circumstances where foreign legal regimes and

interests are especially strong. See, e.g., Société

18

Nationale Industrielle Aérospatiale v. U.S. Dist. Court

for the S. Dist. of Iowa, 482 U.S. 522 (1987). Courts

must also employ their powers to give effect to foreign

judgments and to foreign legal processes, see, e.g.,

Hilton v. Guyot, 159 U.S. 113 (1895), and they may not

recognize causes of action without any relevant nexus

to the United States. See Kiobel v. Royal Dutch

Petroleum Co., 569 U.S. 108, 115 (2013). Congress has

carefully delineated the need for a nexus to U.S.

interests that must exist before a foreign sovereign can

be subjected to suit or the execution of process in U.S.

courts. See 28 U.S.C. §§ 1604–1608 (immunity from

suit); id. §§ 1609–1611 (immunity from attachment

and execution of process). Indeed, specifically in the

bankruptcy context, Congress has designed the

bankruptcy laws to accommodate legitimate foreign

interests. See 11 U.S.C. §§ 1502–1532 (Chapter 15).

2. In each of the Second Circuit’s principal

determinations, the court sharply departed from these

decisions of this Court and the basic principles they

reflect. Each departure poses a significant risk to the

cooperative international legal order that Congress

presumably seeks to advance and which this Court has

carefully protected in Morrison and RJR Nabisco, as

well as other cases reflecting related doctrines.

Together, these departures clearly warrant this

Court’s review and reversal.

a. First, contrary to the teachings of Morrison and

RJR Nabisco, the court below failed to identify the

relevant statute for purposes of determining whether

this case presents a “domestic” application of U.S. law.

In examining the “focus” of relevant U.S. law, the

court ignored how Section 550(a)(2) operates as a right

of action “focused” on secondary transactions—which

can occur domestically or abroad and in this case

clearly occurred abroad. See supra I.A. Instead, the

19

court reasoned that the only relevant statute was 11

U.S.C. § 548(a)(1)(A), which regulates primary

conduct and served as a predicate for Section

550(a)(2)’s operation.

This Court has previously rejected precisely this

type of reasoning as posing a significant “risk of

conflict between the American statute and a foreign

law,” RJR Nabisco, 136 S. Ct. at 2107 (quoting

Morrison, 561 U.S. at 255), and indeed reversed the

Second Circuit in this respect. In RJR Nabisco, the

Second Circuit had reasoned that it could, as it has

done again here, decline to analyze Congress’s intent

with regard to a remedial cause of action because that

remedial statute did not define the relevant regulated

conduct. Id. 2099. This Court rejected this approach.

Instead, it directed that courts pay heightened and

separate attention to the creation and operation of

private rights of action, such as Section 550(a)(2),

because “providing a private civil remedy for foreign

conduct creates a potential for international friction

beyond that presented by merely applying U.S.

substantive law to [the] foreign conduct.” Id. 2106.

When applied to a foreign secondary transaction,

Section 550(a)(2) operates in just this way, as a

foreign-based remedy or injury claim, which

implicates all the concerns giving rise to the Morrison

presumption. Such statutory provisions create “a risk

of conflict” between U.S. and foreign law, as here, and

“where such a risk is evident, the need to enforce the

presumption is at [the] apex.” Id. 2107. WesternGeco

provides no basis for the Second Circuit’s choice to

analyze Section 550(a)(2), because that case involved

only a calculation of damages against a party that had

clearly violated U.S. law. It created no claim against

third parties acting abroad and no interference with

20

the operation of foreign legal systems or those parties

reliant upon them.

b. Second, the Second Circuit clearly erred in

determining that Section 550(a)(2) was not being

applied extraterritorially by omitting, as irrelevant to

its analysis, the various effects of Section 550(a)(2) on

foreign entities and legal systems.

The Second Circuit took into consideration none of

the effects of its decision on investor expectations and

the operation of foreign legal processes and

regulations identified at length above. See supra I.B–

C. It was equally dismissive of the careful analysis of

certain of these adverse effects undertaken by both

Judge Rakoff and Bankruptcy Judge Bernstein. See

supra I.B.

Judge Rakoff emphasized the foreign nature of the

relevant transfers and transferees, noting that “a mere

connection to a U.S. debtor, be it tangential or remote,

is insufficient on its own to make every application of

the Bankruptcy Code domestic.” Pet. 166a. He

similarly noted that respondent would be adversely

affecting both investors with no expectation that U.S.

law would apply and “foreign jurisdictions [that] have

a greater interest in applying their own laws than does

the United States.” Id. 179a. Judge Bernstein also

noted the foreign sovereign and investor interests

implicated in the dispute and the predominance of BVI

interests (as well as investors’ expectation that BVI

law would govern). Id. 81a-82a.

The Second Circuit’s dismissive treatment of this

analysis and of the effects of its decision on foreign

sovereign and investor interests rested on a basic legal

error. The court incorrectly relied upon WesternGeco,

138 S. Ct. 2129. It reasoned that the focus of

Section 548(a)(1)(A) could be attributed to Section

21

550(a)(2) as a remedy for a violation of Section

548(a)(1)(A), by analogy to how this Court considered

the “focus” of the substantive Patent Act provision,

Section 271(f)(2), should inform the assessment of the

related

damages

calculation

provision.

But

WesternGeco concerned only the calculation of

damages based on actions abroad, to be paid by a party

that violated the Patent Act through U.S.-based

conduct. Id. 2138. As the Court correctly noted,

“[t]hose overseas [acts]” that informed the calculation

of the U.S. damages award “were merely incidental to

the infringement” and were unlike the “substantive

element of a cause of action” at issue in RJR Nabisco.

Id. In contrast, Section 550(a)(2) does not rely on

foreign acts just as a basis for calculating damages. It

is, instead, an authorization to claim directly against

foreign actors for events occurring abroad. Even under

the WesternGeco framework, those foreign actions

provide the essential element for pursuing the cause of

action under Section 550(a)(2) and should have led to

the conclusion that Section 550(a)(2) was being applied

abroad, not domestically.

By misapplying WesternGeco and RJR Nabisco so

dramatically, the Second Circuit authorized a general

approach that will directly regulate foreign conduct,

support claims against foreign investors in purely

foreign transactions, and cause precisely the “potential

for international friction” that RJR Nabisco indicated

would arise from permitting any private remedy to be

directed abroad in this manner. RJR Nabisco, 136 S.

Ct. at 2106.

c. Third, the Second Circuit failed to recognize that

an appropriate analysis of international comity rests

on a series of reasonableness determinations and

factual determinations regarding how U.S. law may

collide with foreign law and disturb investor

22

expectations. Had the court not failed in this manner,

it would have deferred to the District Court’s

assessments, which found that international comity

required that U.S. law not be applied.

This Court has recognized that, in making comity

determinations,

“[t]he

exact

line

between

reasonableness and unreasonableness … must be

drawn by the trial court, based on its knowledge of the

case and of the claims and interests of the parties and

the governments whose statutes and policies they

invoke.” Société Nationale, 482 U.S. at 546. Very

recently, the D.C. Circuit has held that a trial court’s

international comity assessment must be reviewed

deferentially, for abuse of discretion, because “we

generally review for abuse of discretion when the

district court finds itself responsible for making such a

fact-bound reasonableness call.” In re Sealed Case, 932

F.3d 915, 933–34 (D.C. Cir. 2019); see Remington

Rand Corp.-Del. v. Bus. Sys. Inc., 830 F.2d 1260, 1266–

67 (3d Cir. 1987) (similar analysis). This conclusion is

surely right because only careful scrutiny of evidence

can support an informed assessment and balancing of

the relevant factors. This conclusion is illustrated in

this case by the careful, fact-based analysis and

weighing of relevant factors undertaken by the trial

court and bankruptcy court. See Pet. 68a–83a, 176a–

179a. Indeed, all courts of appeals that have addressed

the issue—other than the Second Circuit—have

recognized that they must defer to the trial court’s

record-based application of international comity

principles. See In re Sealed Case, 932 F.3d at 934;

Mujica v. AirScan Inc., 771 F.3d 580, 589, 599 (9th Cir.

2014); Perforaciones Exploración y Producción v.

Marítimas Mexicanas, S.A. de C.V., 356 F. App’x 675,

680–81 (5th Cir. 2009) (per curiam); AAR Int’l, Inc. v.

Nimelias Enters. S.A., 250 F.3d 510, 517–18 (7th Cir.

23

2001) (same for adjudicative comity); Remington Rand

Corp.-Del., 830 F.2d at 1266–67.

Because the Second Circuit’s error in this respect

was not limited to insolvency cases, and because the

Second Circuit reviews a disproportionate number of

cases involving foreign sovereigns or the conflicts of

U.S. and foreign law, its determination would—unless

reviewed and corrected by this Court—have

potentially wide-ranging effects on the coordination of

U.S. and foreign laws.

CONCLUSION

For the foregoing reasons, the Court should grant

the petition for certiorari.

Respectfully submitted,

RICHARD KLINGLER*

JOSEPH B. TOMPKINS, JR.

JOHN K. ADAMS

BRADLEY A. TUCKER

SIDLEY AUSTIN LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8000

rklingler@sidley.com

Counsel for Amici Curiae

September 30, 2019

* Counsel of Record