Opposition Brief — Ma v. Continental Illinois National Bank & Trust Co.

[,. Supreme Court, US.

FILED

(2) cr oa

No. 90-511 JOSEPH F. SPANIOL, JR.

= FET

IN THE :

Supreme Court of the United States

OcTOBER TERM, 1990

MICHAEL MA,

Petitioner,

vs.

CONTINENTAL ILLINOIS NATIONAL BANK

& TRUST COMPANY,

Respondent.

RESPONSE TO PETITION FOR WRIT

OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

STEPHEN Novack

(Counsel of Record)

Bruce BRAVER® \N

NOVACK AND MACEY

303 West Madison Street

Suite 1500

Chicago, Illinois 60606

(312) 419-6900

Attorneys for Respondent

CONTINENTAL BANK N.A.

Midwest Law Printing Co., Chicago 60611, (312) 321-0220

~ BEST AVAILABLE COPY

i

TABLE OF CONTENTS

TABLE OF AUPTRORILIE ci ccciccccscvcace

STATEMENT OF THE CASE ...............

a ie bere Mists ke kc vale en 00

1, IE Ri i Sv cece eas

C. Rulings Of The District Court ........

D. The Court Of Appeals’ Decision ......

REASONS FOR DENYING THE PETITION:

I.

THIS ACTION PRESENTS NO CONSTITUTION-

AL DUE PROCESS OR OTHER IMPORTANT

Fn. PE: 0s Svs hesees cheese sess

A. Ma Waived His “‘Due Process” Claim,

Which, In Any Event, Is Meritless ....

B. No Important Federal Issue Is Presented

ee I hs bib oN oda ks buectessdess

Il.

THE SOLE ISSUE RAISED—WHETHER THE

TRANSFER OF THE FUNDS CAUSED MA’S

“LOSS”—WAS PROPERLY DECIDED BY THE

CEP TE Si Se aWhavonkanbdewes ses

A. Ma’s ‘“‘Loss” Resulted Not From The

Bank’s Conduct, But From Ma’s Inaction ..

B. The Result Is No Different Under Section

304 Of The Bankruptcy Code .........

JN ono —

il

1. Federal Law Does Not Require Banks

To Hold Deposits Until A Foreign Rep-

resentative Initiates a Section 304 Pro-

SEE re re ore 14

2. Even If A Section 304 Proceeding Had

Been Filed, The Funds In The Account

Would Have Been Transferred To The

Official Receiver .......ccsccccces 15

CAREC gba daskcvecaes toe ee 19

APPENDIX

PRE res ie oe bee Mel App. 1

Order of District Court, dated December 16, 1988 .. App. 7

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ill

TABLE OF AUTHORITIES

CASES: PAGE

Appliance Buyers Credit Corp. v. Prospect National

Bank, 708 F.2d 290 (7th Cir. 1988)........ 11, 18

Board of Directors of Rotary International v.

Rotary Club, 481 U.S. 587 (1987) .......... 8

Cunard Steamship Co. v. Salen Reefer Services

AS, Tie F.26 Ge Cd Cir. 1085)........... 15

Ex parte Fong Sze Ming, 1987 No. 77 (H.K. Ct.

i MES oss npsbbecwrs recesses 3, 4,5

Feldstein v. Guinan, 148 Ill. App. 3d 610, 499 N.E.

i i MD cc cccevcccscccuwsses 11

Gray v. Lacke, 885 F.2d 399 (7th Cir. 1989), cert.

denied, 110 S. Ct. 1476 (1990)............. 8

Hilton v. Guyot, 159 U.S. 113 (1895) ......... 17

In re Axona International Credit & Commerce

Ltd., 88 Bankr. 597 (Bankr. S.D.N.Y. 1988) ... 16

In re Culmer, 25 Bankr. 621 (Bankr. S.D.N.Y.

egal ag a ee 16

In re Enercons Virginia, Inc., 812 F.2d 1469 (4th

NES a 15

In re Gee, 53 Bankr. 891 (Bankr. S.D.N.Y. 1985) . 16

In re Lines, 81 Bankr. 267 (Bankr. S.D.N.Y. 1988) .. 16

Klucznik v. Nikitopoulos, 152 Ill. App. 3d 323, 503

Dee Bees Gee Det. 1967)... eecccees 11

Ma v. Continental Bank N.A., 905 F.2d 1073 (7th

A rr passim

iv

RBS Fabrics Ltd. v. G. Beckers & Le Hanne, 24

Bankr. 198 (Bankr. S.D.N.Y. 1982) ......... 14

Rendell-Baker v. Kohn, 457 U.S. 830 (1982)... 9

San Francisco Arts & Athletics, Inc. v. United

States Olympic Committee, 483 U.S. 522 (1987) . 9

Stateside Machinery Co. v. Alperin, 591 F.2d 234

ee i oe aon has oh ae RS Os 18

Victrix Steamship Co., S.A. v. Salen Dry Cargo

A.B., 825 F.2d 709 (2d Cir. 1987).......... 16

Virginia Lime Co. v. Craigsville Distributing Co.,

670 F.2d 1366 (4th Cir. 1982) .............. 17, 18

MISCELLANEOUS:

ee ee rrr rer eters passim

Be es Se CD bk c b:b ed pawns eeseeekan 9

EAE vc cdebusssusasaweunbucwerceuey 10

I NE oc ves Kevic si Cw Veveeeeouaeeeeees 2

I Oe ro A tee le aa Oe eae

H. Rep. No. 595, 95th Cong., 2d Sess. 324-25, re-

printed in 1978 U.S. Code Cong. & Ad. News,

Pe eS Cha Ca cater ess 15

S. Rep. No. 989, 95th Cong., 2d Sess. 35, reprinted

in 1978 U.S. Code Cong. & Ad. News, 5787,

EE Sea ek iV i weeks bcckeew es bakeatie uae 15

No. 90-511

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

MICHAEL MA,

Petitioner,

VS.

CONTINENTAL ILLINOIS NATIONAL BANK

& TRUST COMPANY,

Respondent.

RESPONSE TO PETITION FOR WRiT

OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

STATEMENT OF THE CASE

A. Overview

The Petition argues that this lawsuit raises fundamental

Constitutional issues and that the opinion below will have

a devastating national impact. It is difficult to imagine

more serious ‘‘misstatements” concerning this action. In-

deed, this Petition is a prime example of why this Court

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changed its rule to encourage responses to certiorari peti-

tions to correct “misstatements of fact or law” before the

Court rules on such petitions. See Sup. Ct. R. 15.1.

Contrary to what the Petition says, this action involves

only a state law breach of contract claim between a bank

and a depositor over the handling of funds in a money

market account. No Constitutional issue is presented. In-

deed, any such “due process” issue was long-ago waived

by the Petitioner. A Constitutional due process claim was

once raised in this case, as Count IV of the Complaint.

(App. 5-6.) But that claim was so deficient that, after the

Respondent filed its motion to dismiss that count (because

of the absence of “state action’’), Petitioner voluntarily

dismissed the “due process” count. (App. 7.) The due proc-

ess count was never re-asserted in the district court and,

further, no Constitutional issue was raised on appeal be-

fore the Seventh Circuit.

Moreover, no federal issue—much less an important fed-

eral issue—is presented by the pleadings. Accordingly,

in ruling on the breach of contract claim, the courts be-

low merely applied state law principles of causation and

damages.

In short, the Petition sets forth precisely what is not

involved here, i.e., any issue of Constitutional or federal

law meriting this Court’s attention. What is involved—

an isolated state law contract claim lacking any merit or

equity—is explained more fully below.

B. Underlying Facts

As of December 6, 1984, the Petitioner, Michael Ma

(‘““Ma’’), then a resident of Hong Kong, had certain funds

in an account in Hong Kong at Continental Illinois Bank

Limited (the “Bank’s Subsidiary”). The Bank’s Subsidiary

=e

was then, and still is, wholly-owned by Respondent Con-

tinental Bank N.A., formerly known as Continental IIli-

nois National Bank & Trust Company of Chicago (the

“Bank’’).2

On December 6, 1984, a judgment for an amount that

was subsequently determined to be in excess of $35 million

(Hong Kong), or about $4.5 million (U.S.), was entered

in Hong Kong against Ma and in favor of Fong Ming (the

“Petitioning Creditor’’). On that same day, Ma transferred

his funds from the Bank’s Subsidiary in Hong Kong to

the Bank in Chicago to open the account at issue herein

(the “‘Account’’). At that time, Ma represented to the

Bank that he was a Hong Kong resident, and all papers

regarding the opening of the Account were prepared and

executed in Hong Kong.

As found by a Hong Kong court, on December 8, 1984,

only two days after the judgment was rendered against

him and after transferring his funds from Hong Kong to

Chicago, Ma “fled Hong Kong with some 30 cardboard

boxes of his worldly possessions,” leaving the judgment

unsatisfied. Ex parte Fong Sze Ming, 1987 No. 77, at 2

(H.K. Ct. App. Dec. 21, 1987). Ma’s daughter continued

to live at his Hong Kong residence.

On March 14, 1985, the Petitioning Creditor filed an

involuntary bankruptcy proceeding against Ma in Hong

Kong (the “Bankruptcy’’). Process was mailed to Ma’s

Hong Kong residence. Ma’s daughter thereafter advised

Ma of the Bankruptcy, and by May 1985, Ma had retained

1 The Bank’s Subsidiary is actually a wholly-owned subsidiary of a

wholly-owned subsidiary of the Bank.

Pursuant to Supreme Court Rule 29.1, the parent company of

the Bank is Continental Bank Corporation. The Bank has no direct

subsidiaries which are not wholly-owned by the Bank.

exiles

Hong Kong counsel to represent him in “all proceedings

and matters in relation to” his Bankruptcy. Jd. at 5. Thus,

Ma had notice of the Bankruptcy soon after it was filed

and weil before the transfer of funds at issue took place.*

On April 1, 1985, the Hong Kong Official Receiver was

appointed Receiver of the Bankruptcy estate and, on May

15, 1985, Ma was adjudicated a bankrupt. The Official Re-

ceiver was, thus, Ma’s bankruptcy trustee and served as

such at all times relevant hereto.

On or about June 12, 1985, the Bank was notified by

the Bank’s Subsidiary that Ma’s Bankruptcy had been

filed, and that the Official Receiver had requested copies

of the statements of the Account. Thereafter, the Offi-

cial Receiver communicated to the Bank’s Subsidiary his

intent to collect the funds remaining in the Account. On

or about June 27, 1985, the Bank’s Subsidiary, based on

advice of counsel, had the Bank transfer the balance in

the Account to the Official Receiver. In order to effect

such transfer at no charge to Ma, the Bank transferred

the funds to the Bank’s Subsidiary for transmission to the

Official Receiver. The Bank used its Subsidiary merely

as a conduit to effect the transfer to the Official Receiver.

The transfer was completed, and the Official Receiver re-

ceived the funds, on or about July 9, 1985.

Ma learned or should have learned of the transfer no

later than November 12, 1985. On that day, the Zurich,

Switzerland branch of Chemical Bank requested on be-

2 Ma’s claim in his Petition (at 3) that he “never received notice

of the involuntary yr! proceeding”’ is directly contradicted

by the May 24, 1989 Affidavit he filed as an exhibit to his Reply

emesendiann In Support of His Cross-Motion for Summary Judg-

ment. In that Affidavit, Ma admitted that his daughter advised

him of the Bankruptcy in late May 1985 and that he promptly re-

tained lawyers to represent him in the Bankruptcy.

odfinn

half of Ma that the balance of the Account be transferred

to an account at Chemical Bank’s New York office. As

Ma’s Account had been closed in July, no funds were

transferred.

Notwithstanding that Ma retained bankruptcy counsel

as early as May 1985, and that Ma learned or should have

learned of the Bank’s now-challenged transfer of funds by

November 1985, Ma did not present his motion to set

aside the Bankruptcy until almost two years later—on

March 31, 1987. On December 11, 1987—over two years

after the Bank transferred the funds to the Official Re-

ceiver—a Hong Kong court dismissed the Bankruptcy based

on its finding that Ma had not been technically “served”’

with notice of the Bankruptcy. The Petitioning Creditor

appealed from that order.

During the pendency of the Petitioning Creditor’s appeal,

Ma and the Petitioning Creditor entered into a settlement

of the Bankruptcy and the $35 million (H.K.) December 6,

1984 judgment which precipitated it. Pursuant thereto:

e The right to the funds collected by the Official

Receiver in connection with the Bankruptcy (in-

cluding the funds from the Account) net of the

Official Receiver’s fees and expenses was trans-

ferred by Ma to the Petitioning Creditor;

e Ma provided other consideration to the Petition-

ing Creditor, including payment of $9.1 million

(Hong Kong); and

e The Petitioning Creditor dismissed his appeal

from the December 11, 1987 order dismissing the

Bankruptcy.

Thereafter, Ma brought this action.

C. Rulings Of The District Court

Ma filed this action in September 1988. In his Com-

plaint, Ma purported to assert claims for breach of con-

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tract (Count I), conversion (Count II), negligence (Count

III) and violation of his Constitutional due process rights

(Count IV), based on the Bank’s transfer of the funds in

the Account to the Official Receiver. (App. 1-6.)

The Bank moved to dismiss Counts II through IV and

filed an answer and affirmative defenses with respect to

Count I. In response, Ma moved to voluntarily dismiss

his due process and conversion counts, and he defended

the negligence count. On December 16, 1988, the district

court granted Ma’s voluntary dismissal motion and dis-

missed the “due process” and conversion claims. (App.

7.) On January 9, 1989, the district court also granted the

Bank’s motion to dismiss the negligence count, leaving

only the breach of contract claim in Count I.

On February 27, 1989, the Bank moved to dismiss or

for summary judgment on Ma’s breach of contract clairn.

Thereafter, Ma cross-moved for summary judgment. On

August 3, 1989, the district court granted the Bank’s

motion, denied Ma’s cross-motion and entered judgment

in favor of the Bank on Count I. (Petition, App. 9a-12a.)

The district court held that, even assuming arguendo that

the Bank breached its contract with Ma (which issue was

not decided), Ma suffered no damages as a result thereof.

(Id. at 1la-12a.) The court accordingly did not reach the

issue of whether the Bank was entitled to transfer the

funds to Ma’s Official Receiver. Subsequently, on August

16, 1989, Ma’s motion for reconsideration was also denied.

(Id. at 13a.)

Ma appealed from the August 3 and 16, 1989 orders.

% No appeal was taken from the December 16, 1988 order allow-

ing the voluntary dismissal of the due process and conversion

claims. Also, no appeal was taken from the January 9, 1989 order

dismissing the negligence count. Thus, the appeal which was filed

concerned only the state law breach of contract claim.

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D. The Court Of Appeals’ Decision

On June 21, 1990, the Court of Appeals for the Seventh

Circuit affirmed the district’s court’s ruling with respect

to Ma’s breach of contract claim. 905 F.2d 1073. Like the

district court, the Court of Appeals did not reach the issue

of whether the Bank had breached the deposit contract.

Rather, it based its ruling on state law causation prin-

ciples and held that the Bank’s transfer did not cause

Ma’s loss.*

REASONS FOR DENYING THE PETITION

I

THIS ACTION PRESENTS NO

CONSTITUTIONAL DUE PROCESS OR OTHER

IMPORTANT “FEDERAL” ISSUE

A. Ma Waived His ‘“‘Due Process’’ Claim,

Which, In Any Event, Is Meritless

The gravamen of Ma’s Petition before this Court is that

his “due process” rights were violated. First, he argues

that his due process right to adequate notice was violated

in the Hong Kong Bankruptcy and that he should have

been given an opportunity in the United States to chal-

lenge his Hong Kong Bankruptcy. (Petition 7-10.) Then,

he argues that the July 1985 transfer of the funds by the

4 As a result of the holdings of the Court of Appeals and the

district court, there is no ruling to review regarding the “‘propri-

ety” of the Bank’s transfer of the funds. At most, this Court could

review only the state law causation issue and, if it found that issue

to be wrongly decided, remand for the courts below to address

the legality of the transfer itself.

—

Bank “patently offends traditional concepts of due proc-

ess’’ because he was not given an opportunity to contest

such transfer in the United States by again contesting

the legality of the Bankruptcy. (/d. at 11.) Both arguments

are, at bottom, virtually identical due process theories.

Neither is properly before this Court.

The due process theory set forth in the Petition is

precisely the one which Ma waived in the district court

nearly two years ago! In Count IV of his Complaint, Ma

asserted that his “due process rights have been denied”

as a result of the Bank’s action. (Complaint, Count IV,

412; App. 5-6.) The Count was titled “Due Process.” (App.

5.) But, after the Bank moved to dismiss that “due proc-

ess” claim on the ground that no state action was in-

volved, Ma promptly moved to voluntarily dismiss the

count. On December 16 , 1988, the district court granted

Ma’s request, holding that Ma could not thereafter raise

the due process claim “without leave of court upon prop-

erly noticed motion.” (Order of district court, dated De-

cember 16, 1988; App. 7.)

Ma never sought leave of the district court to re-raise

his “due process” claim. Nor did Ma attempt to raise this

“Constitutional” claim in the Court of Appeals. Since De-

cember 16, 1988, the “due process” claim simply has not

been part of this case. It is beyond dispute that, where

a theory is not raised (or is abandoned) in the district

court, it is waived and cannot be raised for the first time

on appeal. See, e.g., Board of Directors of Rotary Inter-

national v. Rotary Club, 481 U.S. 537, 549-50 (1987); Gray

v. Lacke, 885 F.2d 399, 409 (7th Cir. 1989), cert. denied,

110 S. Ct. 1476 (1990). For this reason alone, the Peti-

tion should be denied.

But there is more. Again, the basis of the Bank’s ini-

tial motion to dismiss the due process count was that the

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Complaint contained no allegations that either the federal

government or a state government was an actor in the

alleged violation. Accordingly, Ma’s due process claim was

fatally flawed. See Rendell-Baker v. Kohn, 457 U.S. 830,

837-38 (1982) (“state action” required for 14th amendment

claim); San Francisco Arts & Athletics, Inc. v. United

States Olympic Committee, 483 U.S. 522, 542-44 (1987)

(same for 5th amendment claim). Indeed, Ma admits in

the present Petition that there was no state action here.

(Petition 11.) Because there is no such state action, Ma’s

Constitutional due process arguments are baseless.5

B. No Important Federal Issue Is Presented

By This Case

Further, the only federal issue Ma purports to raise is

extremely limited in scope and lacks any national import.

Neither court below reached the issue of whether Section

304 of the Bankruptcy Code imposed on the Bank a duty

to require the Official Receiver to file an ancillary pro-

ceeding thereunder. At most, Section 304 arose in the

Court of Appeals as a tangential matter. That court, re-

sponding to Ma’s arguments, spoke to Section 304 only

in the context of showing that the Bank’s transfer was

not a cause of Ma’s “loss” because the same result would

5 Indeed, Ma’s assertion of an obviously flawed due process issue,

coupled with the omission from his Petition of the fact that he

previously voluntarily dismissed his due process claim, is so

egregious and so pervasively undercuts the basis of his Petition,

that the Bank respectfully submits that it is appropriate to grant

attorneys’ fees to the Bank to compensate it for the cost of the

instant Response or, alternatively, to remand the case to the

courts below for the purpose of awarding such fees and costs. See

28 U.S.C. §1927 (sanctions authérized against attorney who “so

multiplies the proceedings in any case unreasonably and vexatious-

ly”); see also Fed. R. Civ. P. 11.

—10—

have been reached had a Section 304 proceeding been

filed. Ma, 905 F.2d at 1075-77.

Further, to the extent the Section 304 issue is present

here at all, there is no question that this “federal” issue

is not one which this Court should address. Ma has not

pointed to any split of authority on the issue, much less

to a suggestion by courts that the issue is a difficult or

confusing one. And, given the paucity of any authority

on the issue and the infrequency with which it arises (if

at all), resolution of the merits of the issue could hardly

have a wide impact on society. In sum, stripping the Peti-

tion of its rhetoric, this case presents no important or

otherwise pressing federal issue.

* * *

When the Constitutional claim is dismissed as the red-

herring it is, and the “federal’’ issue seen for what it is,

all that is left is a state law breach of contract issue. Even

with respect to this issue, there is no split of authority

or overriding national interest implicated. The Bank be-

lieves, and respectfully suggests, that the state law con-

tract issue offered does not merit this Court’s attention.

See Sup. Ct. R. 10.

II.

THE SOLE ISSUED RAISED—WHETHER THE

BANK’S TRANSFER CAUSED MA’S “LOSS’’—

WAS PROPERLY DECIDED BY THE COURTS BELOW

As shown above, there is no Constitutional or federal

issue for this Court to decide. Nor is there any national-

ly important or disputed state law issue. Moreover, the

state law issues were correctly decided by the-courts

below. This is because the Bank’s conduct in transferring

the funds was not the cause of any harm which Ma may

have suffered. Rather:

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e Any damage was the result of Ma’s long and de-

liberate inaction; and

¢ Had the Bank required the Official Receiver to

file a Section 304 proceeding (which procedure

Section 304 does not require), the bankruptcy

court would have enforced the Hong Kong Bank-

ruptcy proceedings and required the turnover of

the funds to the Official Receiver.

A. Ma’s ‘‘Loss’’ Resulted Not From The Bank’s

Conduct, But From Ma’s Inaction

Because this is a diversity action involving an Illinois

bank account, Illinois law governs Ma’s breach of contract

claim.® Illinois law is firmly established that a plaintiff

may not recover for damages unless they were proxi-

mately caused by the alleged breach of contract. The

Seventh Circuit, applying Illinois law, has confirmed that:

[A] bank will not be held liable [for depositor’s losses]

“unless there is a clear causal relationship between

the bank’s actions and the plaintiff's loss.”

Appliance Buyers Credit Corp. v. Prospect National Bank,

708 F.2d 290, 294 (7th Cir. 1983) (citation omitted); ac-

cord Klucznik v. Nikitopoulos, 152 Ill. App. 3d 323, 503

N.E.2d 1147, 1152 (2d Dist. 1987); Feldstein v. Guinan,

148 Ill. App. 3d 610, 613, 499 N.E.2d 535, 537 (1st Dist.

1986) (“Speculative damages or damages not the proxi-

mate result of the breach will not be allowed”’).

Here, any “loss” suffered by Ma was not proximately

caused by the Bank’s conduct. The only Bank conduct chal-

6 As the district court noted in its August 3, 1989 opinion, both

“parties have treated Illinois law as the governing law in this

case.” (Petition, App. lla n.2.)

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lenged by Ma is this: the Bank transferred Ma’s funds

to Ma’s Bankruptcy trustee—the Official Receiver. Yet,

as of that point, Ma had suffered no loss at all. The money

still constituted part of his assets. The only difference was

that, because Ma was in bankruptcy, these (and all other

of his) assets were then being held by the Official Re-

ceiver. To prove the point in its simplest terms—had the

Bankruptcy been dismissed immediately after the Official

Receiver received the funds from the Account and had

Ma then obtained the money from the Official Receiver,

there would have been no “damage” to Ma. Thus, any

damage later occurring (if any) could not have been caused

by the Bank.

Indeed, whatever caused Ma’s alleged loss happened

after the transfer, that is, after the Bank’s involvement

totally and completely ceased. This is what happened after

the Bank’s July 1985 transfer:

e With full knowledge that the funds from the Ac-

count were being held and were subject to being

spent by the Official Receiver, Ma sat back and

did nothing for almost two years;

¢ Ma made no challenge to the Bankruptcy until

March 31, 1987, almost two years after retaining

counsel;

e In the meantime, as Ma was well aware, the Of-

ficial Receiver diligently pursued its task of col-

lecting assets which made up Ma’s Bankruptcy es-

tate and incurred expenses in connection there-

with;

e Ma then agreed to allow all remaining funds held

by the Official Receiver to be paid to the Petition-

ing Creditor as part of the settlement which dis-

charged Ma’s judgment debt to that Creditor; and

¢ Ma filed no proceedings to recover the funds at

issue until the district court action was filed in Sep-

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tember 1988, after the Bankruptcy had been settled

and after he had ultimately given up any right to

the funds at issue to his Petitioning Creditor.

Thus, for two separate reasons, any supposed “loss” was

not caused by the Bank’s transfer. First, if Ma is cor-

rect that the Bankruptcy was invalid because of the type

of service made, then ail he had to do to put a halt to

the Bankruptcy (and cbtain possession of the transferred

funds) was to file a motion to dismiss. And Ma should

have filed this motion promptly after learning of the

Bankruptcy to avoid any expenses and costs of the Of-

ficial Receiver being taxed against the Bankruptcy estate.

However, Ma chose not to challenge the Bankruptcy

promptly; instead he waited nearly two years to do so.

As a result of Ma’s non-action, he lost his opportunity to

stop the Bankruptcy before or soon after the funds from

the Account were transferred and before the Official Re-

ceiver had spent substantial sums collecting Ma’s assets.

Moreover, Ma’s ultimate parting with these funds was

caused not by anything the Bank_did, but by Ma’s own

voluntary act in settling with the Petitioning Creditor. By

voluntarily transferring the right to the Account funds,

Ma gave up any hope of recovering them for himself from

the Official Receiver. Thus, it was not the Bank’s transfer

of the funds to the Official Receiver that caused Ma to

lose the money; it was Ma’s use of these funds to dis-

charge his debt to the Petitioning Creditor that resulted

in such “loss.”

Plainly, Ma’s voluntary delay and his voluntary settle-

ment were, in effect, intervening or superceding causes

of the alleged “loss.” For these reasons, the Bank’s trans-

fer of the funds did not “cause’’ Ma’s alleged loss.

a

B. The Result Is No Different Under

Section 304 Of The Bankruptcy Code

Even were the Court to ignore the impact of Ma’s

deliberate and lengthy inaction, application of Section 304

of the Bankruptcy Code to the facts of this case does not

alter the result. That is because Section 304 presents an

optional, not mandatory procedure, and because, even had

a Section 304 proceeding been filed, the funds would none-

theless have been obtained by the Official Receiver.

1. Federal Law Does Not Require Banks To Hold

Deposits Until A Foreign Representative Initiates

A Section 304 Proceeding

Ma’s contention (at p.7 of his Petition) that the Bank

“‘was clearly obligated to require the Hong Kong Official

Receiver to initiate an ‘ancillary proceeding’ [under Sec-

tion 304] with a bankruptcy court in Illinois before it

transferred Ma’s funds” to the Official Receiver is unsup-

ported by any federal law. The language of Section 304

addresses an option, and then one which is available only

to a “foreign representative,”’ not to entities or financial

institutions holding assets of the bankrupt debtor. See 11

U.S.C. §304; Petition at 2-8. The Bank knows of no statute

or opinion—and Ma has cited to none—which requires

banks or other financial institutions to refuse to transfer

assets to foreign representatives absent the filing of a Sec-

tion 304 proceeding.7 _

7 The courts below did not reach this issue. Moreover, RBS Fabrics

Ltd. v. G. Beckers & Le Hanne, 24 Bankr. 198 (S.D.N.Y. 1982),

cited by Ma, did not address this issue. The issue there was

whether a claim of a United States creditor of a foreign debtor

should be resolved in the United States or in Germany where

bankruptcy proceedings against the debtor were pending. The

court held merely that it was preferable that such choice of forum

issue be resolved by a bankruptcy court in a Section 304 proceed-

ing than by the district court in an attachment action.

= a

Further, Section 304 does not even impose a require-

ment on the foreign representative to file a proceeding

thereunder. The statute contains no language making such

filing ‘‘compulsory,” and both the pertinent House and

Senate Reports state only that a foreign representative

in a foreign bankruptcy case “‘may file a petition under

this section.”” H. Rep. No. 595, 95th Cong., 2d Sess. 324-

25, reprinted in 1978 U.S. Code Cong. & Ad. News 5963,

6281; S. Rep. No. 989, 95th Cong., 2d Sess. 35, reprinted

in 1978 U.S. Code Cong. & Ad. News, 5787, 5821. Thus,

Section 304 does not mandate that its procedure is the

only one available to the foreign representative. In re

Enercons Virginia, Inc., 812 F.2d 1469, 1472 (4th Cir.

1987); Cunard Steamship Co. v. Salen Reefer Services AB,

773 F.2d 452, 455-56 (2d Cir. 1985). A fortiori, the Bank

could not be bound to have required the Hong Kong Of-

ficial Receiver to have filed a Section 304 proceeding.

2. Even If A Section 304 Proceeding Had Been

Filed, The Funds In The Account Would Have

Been Transferred To The Official Receiver

As shown above, Ma’s failure to act in a timely fashion—

not the Bank’s transfer of the funds—caused his “‘damage.”’

But Ma says that he should have been given the oppor-

tunity in the United States (as well as in Hong Kong)

to contest the Bankruptcy by having the Bank require

the Official Receiver to file a Section 304 proceeding to

obtain the funds. While, as already discussed, the Bank

disagrees with this assertion, even under Ma’s preferred

procedure the result would have been no different.

In a Section 304 proceeding, a debtor’s right to collater-

ally attack the foreign bankruptcy proceedings is very

limited. Generally, such proceedings are enforced unless

Bete teneeenearie

—16—

the enforcement would prejudice the rights of United

States citizens or violate domestic public policy, or the

foreign tribunal lacked jurisdiction. Victrix Steamship Co.,

S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 713-14 (2d

Cir. 1987). Ma does not argue (and has never argued) that

the Hong Kong procedures—adopted directly from the

British model on which our bankruptcy laws were based—

did not provide sufficient procedural! safeguards or other-

wise violated domestic public policy. Ma himself took ad-

vantage of these safeguards, albeit belatedly, in challeng-

ing the Bankruptcy two years after it was filed. And,

there can be no claim that enforcement of the proceedings

prejudiced rights of United States citizens as Ma appar-

ently had no United States creditors. Ma is thus left with

his jurisdictional argument.

Ma’s jurisdictional attack on the Hong Kong proceedings

is apparently based solely on his claim that he was not

properly served with notice of the Bankruptcy.® Yet, for

8 Indeed, United States courts have frequently given effect to

the bankruptcy laws of Hong Kong and other British colonies. Jn

re Axona Intl Credit & Commerce Ltd., 88 Bankr. 597, 610-11

(Bankr. S.D.N.Y. 1988) (“Hong Kong [bankruptcy] law is not re-

pugnant to our ideas of justice, and is inherently fair and regular’);

In re Lines, 81 Bankr. 267, 269-70, 273 (Bankr. S.D.N.Y. 1988)

(Bermuda proceeding); Jn re Gee, 53 Bankr. 891, 901-04 (Bankr.

S:D.N.Y. 1985) (Cayman Island proceeding); In re Culmer, 25

Bankr. 621, 629-32 (Bankr. S8.D.N.Y. 1982) (Bahamian proceeding).

% It must be remembered that Ma’s claim that he was not prop-

erly “served” with notice of the Bankruptcy in 1985 was based on

a technicality. Ma in fact received actual notice of the Bankruptcy,

as shown by his May 1985 retention of counsel with respect to

the Bankruptcy. Further, notice of the Bankruptcy was sent to

Ma’s Hong Kong residence where his daughter continued to reside

and where at least one letter was sent by the Bank to Ma and

admittedly received by him. Such address was the only one known

to the authorities because, during such period, Ma was “‘in flight”

(Footnote continued on following page)

a

= =

the notice to have been sufficient to enforce the Bankrupt-

cy under principles of comity, it need only have been the

“bare minimum”’ notice required by the Constitution.!®

Ma, 905 F.2d at 1076, citing Hilton v. Guyot, 159 U.S.

113, 202-03 (1895). The facts with respect to the “notice”

issue are undisputed:

e Notice of the filing of the Bankruptcy was sent

to Ma’s residence in Hong Kong, the residence

from which Ma had clandestinely fled only months

before;

e Ma’s daughter, who had continued to live in his

Hong Kong residence after Ma’s departure, re-

ceived notice of the Bankruptcy, and thereafter

contacted Ma and advised him of the Bankrupt-

ey; and

* By the end of May 1985, Ma had retained solici-

tors to represent him in the Bankruptcy.!!

Where, as here, the process employed was reasonably

calculated to produce notice, the minimum Constitutional

notice requirements necessary to the enforcement of a

foreign judgment have been satisfied. See, e.g., Virginia

Lime Co. v. Craigsville Distributing Co., 670 F.2d 1366.

% continued

in an attempt to evade the judgment against him. Moreover, con-

trary to Ma's suggestion (Petition at 5 & 9), the Hong Kong courts

did not even finally resolve the technical ‘“‘service”’ issue. Rather,

an appeal of the en Kong court’s December 11, 1987, ruling

on the issue was pending when Ma entered into the settlement

which resulted in the dismissal of such appeai and the Bankruptcy.

10 There is, and can be, no question that Ma, a long-time resi-

dent of Hong Kong, had sufficient “minimum contacts” with Hon

Kong to justify its assertion of jurisdiction over him assuming me

ficient service.

11 Jt should be noted that the transfer of the funds at issue did

not occur until July 1985, more than one month after Ma had re-

tained counsel to represent him in the Bankruptcy.

(4th Cir. 1982) (mail to last known address is constitu-

tionally sufficient); Stateside Machinery Co. v. Alperin,

591 F.2d 234, 241-42 (3d Cir. 1979) (same). Such notice

requirements are plainly met where, as here, notice was

in fact sent to Ma’s last known address, i.e., the only place

he could have been reached given his flight.

Accordingiy, any attack by Ma in a Section 304 proceed-

ing on the enforceability of the Hong Kong Bankruptcy

proceedings would have failed. Instead, the bankruptcy

court would have enforced the Hong Kong Bankruptcy,

and the Bank would have been ordered to transfer the

funds in the Account to the Official Receiver, whom even

Ma concedes was otherwise his properly-appointed bank-

ruptcy trustee. As the Court of Appeals concluded:

So far as Ma is concerned, the only difference be-

tween the informal procedure the Bank used and a

formal proceeding under §304 was the lack of an op-

portunity to wage a collateral attack on the Receiver’s

appointment. As such an opportunity would have

been worthless to Ma and would only have raised the

cost of administering the estate, the procedures the

Bank followed did not cause Ma any loss.

905 F.2d at 1077 (emphasis added).

* * *

In sum, there was no “clear causal relationship’’ be-

tween the transfer by the Bank and Ma’s alleged “‘loss.”

Appliance Buyers Credit Corp., 708 F.2d at 294. The acts

(and omissions) which caused the loss, if any, were those

of Ma. Having incurred a huge obligation, attempted to

run away therefrom, and, finally, having settled his

underlying debt at his own pace, Ma tried to grasp on

to a technicality and have the Bank reimburse him for

part of his debt. Such a result would be an unconscionable

windfall for Ma. Ma’s desperate and continuing attempt

to obtain such a windfall should now be put to rest.

—~19—

CONCLUSION

For the foregoing reasons, this Court should deny Ma’s

Petition.

Respectfully submitted,

STEPHEN NovACK

(Counsel of Record)

Bruck BRAVERMAN

NOVACK AND MACEY

303 West Madison Street

Suite 1500

Chicago, Illinois 60606

(312) 419-6900

Attorneys for Respondent

CONTINENTAL BANK N.A.

APPENDIX

App. 1

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

MICHAEL MA,

Plaintiff,

Vv. No.

NATIONAL BANK & TRUST

COMPANY OF CHICAGO,

)

)

)

)

CONTINENTAL ILLINOIS ) JURY DEMANDED

)

)

a national banking corporation, )

)

)

Defendant.

COMPLAINT

Plaintiff, MICHAEL MA, by his attorneys, Eugene J.

Kelley, Jr. and Hal R. Morris (Arnstein, Gluck, Lehr &

Milligan, Of Counsel), complains of defendant, CONTINEN-

TAL ILLINOIS NATIONAL BANK & TRUST COM-

PANY OF CHICAGO, a national banking corporation, as

follows:

COUNT I

1. Plaintiff, Michael Ma, is an individual who is a resi-

dent of the country of Switzerland.

2. Defendant is a banking corporation duly organized

national bank, and has its principal place of business in

Chicago, Illinois. At all times relevant, defendant was au-

thorized to conduct and was conducting business in the

State of Illinois.

App. 2

3. The amount in controversy exceeds, exclusive of inter-

ests and costs, the sum of Ten Thousand Dollars ($10,000).

4. Jurisdiction is based upon diversity of citizenship in

the requisite jurisdictional amount.

5. On or about December 6, 1984, plaintiff established and

opened a money market account, Account No. 00-9483003,

with defendant.

6. Upon the establishment and opening of the money

market account, defendant became bound by an implied

contract under which it was to hold all deposits or other

funds in the subject account to be disbursed only in con-

formity with plaintiff's instructions.

7. Subsequent to the opening of the subject account,

plaintiff made numerous deposits and withdrawals.

8. As of July 1, 1985, the balance in said account was

$157,432.37.

9. On July 1, 1985, defendant withdrew or caused to

be withdrawn all of the funds on deposit in the subject

account. Said withdrawal was made without the instruc-

tion, check, order, direction or assent of plaintiff.

10. Subsequent to July 1, 1985, plaintiff made numerous

requests for reimbursement of the funds which were with-

drawn on that date. Further, plaintiff has fully performed

all terms and conditions of its agreement with defendant.

11. Defendant refuses and continues to refuse to reim-

burse plaintiff for the funds withdrawn on July 1, 1985.

12. Defendant has not performed its agreement with

plaintiff in that it disbursed funds on deposit in the sub-

ject account without the instruction, check, order, direc-

tion or assent of plaintiff.

App. 3

13. Plaintiff has not ratified the July 1, 1985 with-

drawal.

14. By reason of defendant’s breach, plaintiff has sus-

tained damages in the sum of $157,432.37 plus interest.

WHEREFORE, plaintiff, MICHAEL MA, demands judg-

ment against defendant, CONTINENTAL ILLINOIS NA-

TIONAL BANK & TRUST COMPANY, for the sum of

$157,432.37 together with interest at the legal rate to the

date of judgment; the costs of this action and such other

and further relief as this Court shall deem just and equi-

table.

COUNT II

CONVERSION

1-7. Plaintiff realleges and incorporates by reference

paragraphs 1 through 7, inclusive, of Count I of this Com-

plaint as paragraphs 1 through 7, inclusive of this Count

Il.

8. On July 1, 1985, plaintiff had on deposit with defen-

dant the sum of $157,432.37, in the subject account for

safekeeping to be disbursed only in conformity with plain-

tiff's instructions.

9. On July 1, 1985, defendant then and there converted

for its own use and withdrew or caused to be withdrawn

all of the funds on deposit in the subject account, thereby

depriving plaintiff of the use and enjoyment of said funds.

10. Subsequent to July 1, 1985, plaintiff made numerous

demands that defendant re-deliver and return the funds

withdrawn on July 1, 1985 from the subject accoun®

11. Defendant has refused and continues to refuse to

re-deliver the funds or to pay the value of the funds or

any part to plaintiff.

App. 4

12. Plaintiff has not ratified the July 1, 1985 withdrawal.

13. By reason of defendant’s wrongful conversion of

plaintiff's monies, plaintiff sustained damages in the sum

of $157,432.37, plus interest, no part of which has been

paid.

WHEREFORE, plaintiff, MICHAEL MA, demands judg-

ment against defendant, CONTINENTAL ILLINOIS NA-

TIONAL BANK & TRUST COMPANY, for the sum of

$157,432.37 together with interest at the legal rate to

the date of judgment; punitive damages in excess of

$1,000,000; the costs of this action and such other and fur-

ther relief as this Court shall deem just and equitable.

COUNT III

NEGLIGENCE

1-7. Plaintiff realleges and incorporates by reference

paragraphs 1 through 7, inclusive, of Count I of this Com-

plaint as paragraphs 1 through 7, inclusive of this Count

Il.

8. At all times relevant, defendant had a duty to pro-

tect the funds of plaintiff held on deposit at defendant’s

bank and to only pay out such funds in conformity with

plaintiff's instructions.

9. On July 1, 1985, defendant wilfully, or recklessly or

negligently paid out the funds held on deposit in the sub-

ject account. Said funds were paid without the instruc-

tion, check, order, direction or assent of plaintiff, or the

appropriate order of a court with jurisdiction.

10. Illinois law provides a statutory method whereby

foreign judgments may be registered in the United States

to be accorded full faith and credit and enforced. Ill. Rev.

Stat. ch. 110, $412-601-12-617, 4412-618-12-626.

ee OA re aS nme!

App. 5

11. Defendant claims to have paid the funds from said

money market account in satisfaction of a foreign judg-

ment entered by the official receiver of Hong Kong.

12. Notwithstanding defendant’s claim, no registration

; of the Hong Kong receiver’s judgment was ever entered

and proper notice was never served on plaintiff.

13. As a result of defendant’s breach of its duties,

plaintiff has been damaged in the sum of $157,432.37, plus

interest.

WHEREFORE, plaintiff, MICHAEL MA, demands judg-

ment against defendant, CONTINENTAL ILLINOIS NA-

TIONAL BANK & TRUST COMPANY, for the sum of

$157,432.37 together with interest at the legal rate to

the date of judgment; punitive damages in excess of

$1,000,000; the costs of this action and such other and fur-

ther relief as this Court shall deem just and equitable.

COUNT IV

DUE PROCESS

1-2. Plaintiff realleges and incorporates by reference

paragraphs 1 through 2, inclusive, of Count III of this

Complaint as paragraphs 1 through 2, inclusive, of this

Count IV. |

3. Jurisdiction is based on this Court’s Federal Ques-

tion Jurisdiction 28 U.S.C. §1331.

4-11. Plaintiff realleges and incorporates by reference

paragraphs 5 through 12, inclusive, of Count III of this

Complaint as paragraphs 4 through 11 of this Count IV.

12. As a result of defendant’s breach and failure to re-

quire registration of the purported judgment against plain-

tiff, prior to withdrawing or causing to be withdrawn all

iii adil

App. 6

the funds in the subject account, plaintiff's due process

rights have been denied and plaintiff has been damaged

in the sum of $157,432.37, plus interest.

WHEREFORE, plaintiff, MICHAEL MA, demands judg-

ment against defendant, CONTINENTAL ILLINOIS NA-

TIONAL BANK & TRUST COMPANY, for the sum of

$157,432.37 together with interest at the legal rate to

the date of judgment; punitive damages in excess of

$100,000; the costs of this action and such other and fur-

tner relief as this Court shall deem just and equitable.

Plaintiff demands trial by jury

By: /s/ Hal R. Morris

One of the Attorneys for

Plaintiff, Michael Ma

Eugene J. Kelley, Jr.

Hal R. Morris

Of Counsel:

Arnstein, Gluck, Lehr & Milligan

7500 Sears Tower

Chicago, Illinois 60606

(312) 876-7100

App. 7

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Case Number: 88 C 7827 Date: DEC. 16 1988

Name of Assigned Judge: WILLIAM T. HART

Case Title: Michael Ma v. Continental Illinois National

Bank & Trust Company of Chicago

* * * * *

MOTION: Plaintiff’s Motion to Voluntarily Dismiss

Counts II and IV.

* * * *

DOCKET ENTRY:

(1) UO) Judgment is entered as follows:

(2) [Other docket entry:]

Plaintiff's motion to voluntarily dismiss counts II

and IV without prejudice is granted on condition

that plaintiff may not reinstate said counts without

leave of court upon properly noticed motion.

* * * * *