Appendix — French v. Liebmann (No. 05-1459)
Supreme Court brief2006
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App. i
TABLE OF CONTENTS
Appendix to Petition
Page
Published Opinion of
The United States Court of Appeals
For The Fourth Circuit
entered February 16, 2006.................cccccceeessseees App. 1
Order of
The United States District Court
For the District of Maryland
Re: Affirming the Decision of the Bankruptcy
Court
entered December 8, 2004...............cccccccsseeseeteee App. 19
Memorandum Opinion of
The United States District Court
For the District of Maryland
entered December 8, 2004..............ccccccsssssseeeeees App. 20
Order of
The United States Bankruptcy Court
For the District of Maryland
Re: Granting Trustee’s Motion for Summary
Judgment
entered April 21, 2004................cc...sccscc0000 App. 35
Memorandum Opinion of
The United States Bankruptcy Court
For the District of Maryland
entered April 31, BO0G........:ccccccsccscsssssoiercssvcerene App. 37
App. ii
Order of
The United States Bankruptcy Court
For the District of Maryland
Re: Denying Defendants’ Motion to Dismiss
eriboredl Ceboer GB, BOG, o.oo seiscvicsccanccesssovscsntenes App. 45
Memorandum Opinion of
The United States Bankruptcy Court
For the District of Maryland
entered October 8, 2004................ccccccccecceeseeneees App. 47
Judgment of
The United States Court of Appeals
For The Fourth Circuit
entered February 14, 2006 ............... eee App. 70
Fe A as I Gi cas venbittidei veiscntoniccvianansannanbabenasinae App. 71
$4 TIS CORR sos ccna App. 72
BE CGA We We Cascisticaherdabibessacinransnstainnheneliigunes App. 73
Be Reeds te WD vcnichaptbaniadetaaiciacncesvesandah \csnehabeiionanbies App. 74
a Nc Ae I cckcinsnicdnninikndeebinciiniesbsncihn cneancnnnbebaaeaaea App. 76
ER I chcidentatinhsiacaniacincecciadenhweuibabethualees App. 77
Duke, et al. v. Andler, et al.,
[1932] 4 D.L.R. 529;
Fe aati Rae a Do cicavisincvncnnscndvericblaninaiesin App. 78
H. L. (E.) Galbraith v. Grimshaw, et al.,
[1910] 1 K. B. 339, [1910] L. R. 508... App. 96
Stewart Estate v. Cartwright,
[2001] BHS J. No. 60 1999 No. 1375............... App. 104
App. tii
Excerpts of the Bahamian Fraudulent
EIRENE FE TI Bis arsicis hinchada’ Suentenitasatanacaes App. 109
Bahamian Registration of Records Act, 1928,
IE BT sinc ci ved fei cdcan sens va chsanchicanniibakinerwOhennaicens App. 112
Restatement of the Law,
Second, Conflict of Laws, § 223 .............. eee App. 115
Dicey and Morris,
The Conflict of Laws,
GOT BN RD cas das cctosscrrieSanesasbn dace abacctassnucamuessensas App. 127
Excerpt of David M. Green & Walter Benzjia,
Spanning the Globe: The Intended Reach of the
Bankruptcy Code,
10 Am.Bankr.Inst.L.Rev.85 (Spring 2002)........... App. 139
Excerpt of Odgers, Sir Charles E.,
The Construction of Deeds and Statutes,
GAG WR s RINE A Daa rosicabindbsnnccdicitand oscatabasieecccsDaasiasukcenve App. 140
App. 1
Filed: February 16, 2006
[ENTERED: FEBRUARY 16, 2006]
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
| No. 05-1054
(CA-04-1947-WMN)
In Re: BETTY I. FRENCH,
Debtor,
RANDY LEE FRENCH; DONNA MARIE SHAKA,
Appellants,
versus
GEORGE W. LIEBMANN,
Trustee - Appellee.
ORDER
The court amends its opinion filed February 14,
2006, as follows:
On the cover sheet, the second sentence of the
disposition section is corrected to read:
“Judge Motz wrote the opinion, in which Judge
Wilkinson and Judge Michael joined.”
For the Court
/s/ Patricia S. Connor
Clerk
App. 2
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: BETTY I. FRENCH,
Debtor.
RANDY LEE FRENCH;
DONNA MARIE SHAKA,
Appellants,
Vv.
GEORGE W. LIEBMANN,
Trustee-Appellee.
No. 05-1054
Appeal from the United States District Court
for the District of Maryiand, at Baltimore.
William M. Nickerson, Senior District Judge.
(CA-04-1947-WMN)
Argued: November 29, 2005
Decided: February 14, 2006
Before WILKINSON, MICHAEL, and MOTZ,
Circuit Judges.
Affirmed by published opinion. Judge Motz wrote the
opinion, in which Judge Wilkinson and Judge Michael
joined. Judge Wilkinson wrote a separate concurring
opinion.
App. 3
COUNSEL
Stanton J. Levinson, ‘Silver Spring, Maryland, for
Appellants..Orbie R. Shively, GEORGE W. LIEBMANN,
P.A., Baltimore, Maryland, for Appellee.
OPINION
DIANA GRIBBON MOTZ, Circuit Judge:
This appeal presents the question of whether a
United States bankruptcy court can avoid a
constructively fraudulent transfer of foreign real property
between United States residents. The transferees here
argue that the presumption against extraterritoriality
and the doctrine of international comity preclude
application of the Bankruptcy Code. Both the bankruptcy
court and the district court rejected these arguments and
allowed avoidance. For the reasons that follow, we affirm.
I.
In 1976, Betty Irene French, a resident of
Maryland, purchased a house in the Bahamas. At a
Christmas party held in Maryland in 1981, she gave a
deed of gift to the Bahamian property to her children,
Randy Lee French, a resident of Maryland, and Donna
Marie Shaka, a resident of Virginia (hereinafter “the
transferees"). Assertedly to avoid high Bahamian transfer
taxes, the transferees decided not to immediately record
the deed in the Bahamas.
In the late 1990s, Mrs. French and her husband
began experiencing serious financial problems. Concerned
by this downturn, the transferees decided at last to record
the deed in the Bahamas, a task they accomplished
through a Bahamian attorney in mid-2000. In October
2000, Mrs. French’s creditors filed an involuntary
App. 4
Chapter 7 bankruptcy petition against her. The
bankruptcy court entered an Order for Relief on January
29, 2001.
On August 22, 2002, the bankruptcy trustee,
George W. Liebmann, filed an adversary proceeding
against the transferees to avoid the transfer of the
Bahamian property and to recover the property or its fair
market value for the benefit of the estate.’ In his
complaint, the trustee alleged (in pertinent part) that the
debtor and the transferees had engaged in a
constructively fraudulent transfer, as defined by the
Bankruptcy Code, because the debtor had been insolvent
at the time of the transfer and had received less than a
reasonably equivalent value in exchange. See 11 U.S.C. §
548(a)(1)(B) (2000).
The transferees conceded that the debtor never
received a reasonably equivalent value for her gift of the
Bahamian property, and they further conceded that the
debtor was insolvent in 2000, when the deed was
recorded. These facts would normally be sufficient to
establish constructive fraud.
Nevertheless, the transferees filed a motion to
dismiss before the bankruptcy court based on two
grounds. First, they invoked the presumption against
extraterritoriality, contending that because of it § 548
should not apply to transfers of foreign property. Second,
they maintained that considerations of international
comity counseled the application of Bahamian (rather
than United States) bankruptcy law, which assertedly
! As required by the Bankruptcy Code, 11 U.S.C. §
548(d)(1) (2000), all the parties consider the transfer in
question to have taken place with the recordation of the
deed in 2000, not with the transfer of the deed of gift in
1981.
App. 5
would allow the transferees to retain the Bahamian
property.
The bankruptcy court rejected the transferees’
arguments and denied their motion to dismiss. Liebmann —
uv. French (In re French), 303 B.R. 774 (Bankr. D. Md.
21904). The trustee then moved for summary judgment,
which the bankruptcy court granted by finding the
transfer to be constructively fraudulent; the district court
aifirmed. French v. Liebmann (In re French), 320 B.R. 78
(I). Md. 2004). The transferees noted a timely appeal.
IT.
"It 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.” EEOC v. Arabian Am.
Oil Co., 499 U.S. 244, 248 (1991) {hereinafter Aramco]
(quoting Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285
(1949)). However, courts only apply this presumption
against extraterritoriality when a party seeks to enforce a
statute "beyond the territorial boundaries of the United
States." Id.; see also Kollias v. D & G Marine Maint., 29
F.3d 67, 72 (2d Cir. 1994). The presumption has no
bearing when "the conduct which Congress seeks to
regulate occurs largely within the United States" — that
is, when regulated conduct is domestic rather than
extraterritorial. Envtl. Def. Fund, Inc. v. Massey, 986
F.2d 528, 531 (D.C. Cir. 1993). Thus, before deciding how
the presumption affects the interpretation of a given
statute, a court should consider whether the presumption
applies at all. Both parties have treated the application of
§ 548 to the transfer here as extraterritorial. This
assumption may not be warranted.
This court has never defined when conduct is
extraterritorial for purposes of the presumption. We have
recognized, however, that a similar inquiry — defining
App. 6
"foreign conduct" — is particularly. challenging in cases
(like this one) that involve a "mixture of foreign and
domestic elements." Dee-K Enters., Inc. v. Heveafil Sdn.
Bhd., 299 F.3d 281, 286 (4th Cir. 2002).
In this case too, we believe that any definition
must eschew rigid rules in favor of a more flexible inquiry
into the "place" of regulated conduct. Minimal contact
with the United States should not automatically render
conduct domestic. See Gushi Bros. Co. v. Bank of Guam,
28 F.3d 1535, 1538 (9th Cir. 1994); Kollias, 29 F.3d at 72;
Maxwell Commc’n Corp. PLC v. Societe Generale PLC (In
re Maxwell Commc’n Corp.), 186 B.R. 807, 817 (S.D.N.Y.
1995) [hereinafter Maxwell II]. Nor should minor contact
with another country suffice to render conduct
extraterritorial. See Massey, 986 F.2d at 531-32; Maxwell
Commce’n Corp. PLC v. Societe Generale PLC (In re
Maxwell Commc’n Corp.), 170 B.R. 800, 809 (Bankr.
S.D.N.Y. 1994) ("Not every transaction that has a foreign
element represents an extraterritorial application of our
laws."); Jay Westbrook, The Lessons of Maxwell
Communications, 64 Fordham L. Rev. 2531, 2538 (1996).
To avoid these extremes, we have held for purposes of the
Sherman Antitrust Act that, in determining whether
conduct is "foreign" or "domestic," "a court should
consider whether the participants, acts, targets, and
effects involved" in the transaction at issue “are primarily
foreign or primarily domestic." Dee-K Enters., 299 F.3d at
294. We think that an equally flexible test taking into
account "all component events of the transfer[ ]," Maxwell
IT, 186 B.R. at 816, is appropriate to determine whether
an allegedly fraudulent transfer occurred
extraterritorially.
In this case, the perpetrator and most of the
victims of the fraudulent transfer — all except a single
Bahamian creditor — have long been located in the
United States. Given these facts, the effects of this
App. 7
tiransfer were (naturally) felt most strongly here, and not
in the Bahamas. .
We also find it significant that the conduct
constituting the constructive fraud occurred in the United
States. Section 548 defines a constructively fraudulent
transfer, inter alia, as one where (1) the debtor was
insolvent, and (2) the debtor received “less than a
reasonably equivalent value in exchang2." 11 U.S.C. §
548(a)(1)(B); see also In re GWI PCS 1 Inc., 230 F.3d 788,
805 (5th Cir. 2000). Here, domestic facts and conduct
establish both elements. The determination of Mrs.
French’s insolvency relies almost entirely upon a
comparison of domestic debts and assets. And the
de2cision not to provide a "reasonably equivalent value"
for the transfer was made in the United States as well —
whether we consider the relevant decision to be Mrs.
French’s gift of the deed in 1981, or the transferees’
recordation of the deed in 2000.
However, we recognize that two aspects of this
transfer indisputably involve foreign facts and conduct.
The first is relatively insignificant: the transferees’
Bahamian lawyer recorded their deed to the property in
the Bahamas. The physical place where the deed was
recorded is at most “incidental” to the actual conduct
proscribed by § 548. See Gushi Bros., 28 F.3d at 1538-39.
Moreover, although the act of recordation necessarily
took place abroad, the transferees themselves may well
have been located in the United States both when they
decided to record the deed and when they arranged for
the Bahamian lawyer’s services (the record is not clear on
thus point).
More importantly, the transferees emphasize that
the real property at issue in this case is located in the
Bahamas. At first blush, this fact does not seem critical
because § 548 focuses not on the property itself, but on
the fraud of transferring it. In this case, the facts
App. 8
underlying the fraud occurred here. However, the law has
long recognized the: powerful interest that states and
nations have in the real property within their boundaries;
the strength of that interest explains why the law of the
situs generally applies to real property. See, e.g., Oakey v.
Bennett, 52 U.S. 38, 44-45 (1850); Robinson v. Campbell,
16 U.S. 212, 219 n.a (1818); Restatement (Second) of
Conflict of Laws § 223 comm. b (1974); cf. Robby Alden,
Note, Modernizing the Situs Rule for Real Property
Conflicts, 65 Tex. L. Rev. 585, 591-98 (1986-1987)
(summarizing arguments on the importance of the
location of real property); but cf. Cent. Va. Cmty. Coll. v.
Katz, 546 U.S. ___, 2006 WL 151985, at *8 (Jan. 23, 2006)
("(The] exercise [of bankruptcy jurisdiction] does not, in
the usual case, interfere with state sovereignty even
when States’ interests are affected."). !
Given this long history, the fact that application of
United States law could affect Bahamian real property,
however indirectly, perhaps merits special weight in the
balancing test. The parties in this case certainly seem to
believe so — from the outset both sides have treated §
548’s reach as extraterritorial. Here, we need not resolve
this slippery question. This is so because even if we
assume that the application of the Bankruptcy Code
would be extraterritorial, the presumption against
extraterritoriality does not prevent its application to the
transfer at issue here.
III.
Although the presumption against
extraterritoriality is important to "protect against
unintended clashes between our laws and those of other
nations which could result in international discord," it
nevertheless must give way when Congress exercises its
undeniable "authority to enforce its laws beyond the
territorial boundaries of the United States." Aramco, 499
App. 9
U.S. at 248. Thus, whether a given statutory provision
should be given extraterritorial effect is a question of
congressional intent; there must be the "affirmative
tatention of the Congress clearly expressed” to apply the
provision abroad. Jd. (quoting Benz v. Compania Naviera
Hidalgo, S.A., 353 U.S. 138, 147 (1957)). To determine
whether Congress has expressed such an affirmative
iatention, courts may look to "all available evidence," Sale
v. Haitian Ctrs. Council, Inc., 509 U.S. 155, 177 (1993),
including the text of the statute, the overall statutory
scheme, and legislative history. See Smith v. United
Sitates, 507 U.S. 197, 201-03 & n.4 (1993); Foley Bros.,
Inc. v. Filardo, 336 U.S. 281, 285-88 (1949); United States
v. Gatlin, 216 F.3d 207, 212 (2d Cir. 2000). In this case,
several indicia of congressional intent rebut the
presumption against extraterritoriality.
Pursuant to § 541 of the Bankruptcy Code, all of a
debtor’s property, whether domestic or foreign, is
"property of the estate" subject to the bankruptcy court’s
in rem jurisdiction. See Hong Kong & Shanghai Banking
Corp., Ltd. v. Simon (In re Simon), 153 F.3d 991, 996 (9th
tir. 1998) [hereinafter Simon]. Section 541 defines the
property of the estate broadly as all property "wherever
located." 11 U.S.C. § 541(a) (2000). This phrase first
appeared in the Bankruptcy Code in 1952; Congress
explained that the amendment "make[s] clear that a
trustee in bankruptcy is vested with the title of the
bankrupt in property which is located without, as well as
within, the United States." H.R. Rep. No. 82-2320, at 15
(1952), reprinted in 1952 U.S.C.C.A.N. 1960, 1976. Thus,
"oroperty of the estate" includes both foreign and
_ domestic property.
Section 541 defines "property of the estate" as,
inter alia, all "interests of the debtor in property." 11
U.S.C. § 541(a)(1). In turn, § 548 allows the avoidance of
certain transfers of such "interest[s] of the debtor in
App. 10
property.” 11 U.S.C. § 548(a)(1). By incorporating the
language of § 541 to define what property a trustee may
recover under his avoidance powers, § 548 plainly allows
a trustee to avoid any transfer of property that would
have been "property of the estate" prior to the transfer in
question — as defined by § 541 — even if that property is
not "property of the estate" now.’ Cf. Begier v. IRS, 496
U.S. 53, 58, 59 n.3 (1990) (reaching a similar conclusion
about another avoidance provision, § 547 of the
Bankruptcy Code); Cullen Ctr. Bank & Trust v. Hensley
* The circuits are divided as to whether "property of the
estate" encompasses property that a debtor has
fraudulently transferred. If it does — as the Fifth Circuit
has held, see Cullen Ctr. Bank & Trust v. Hensley (In re
Criswell), 102 F.3d 1411, 1417 (5th Cir. 1997); Am. Nat7
Bank v. MortgageAmerica Corp. (In re MortgageAmera
Corp.), 714 F.2d 1266, 1275 (5th Cir. 1983) — then the
Bahamian property here falls squarely within § 541’s
definition of "property of the estate," and that provision’s
clear incorporation of foreign property would obviously
rebut the presumption against extraterritoriality.
However, not every court has agreed with the Fifth
Circuit’s conclusion that "property of the estate" includes
property that could be, but has not yet been, recovered as
the object of a fraudulent transfer. Instead, other courts
have concluded that property held by third-party
transferees only becomes "property of the estate" after it
has been avoided and recovered. See In re Saunders, 101
B.R. 303, 304-05 (Bankr. N.D. Fla. 1989); see also FDIC v.
Hirsch (In re Colonial Realty Co.), 980 F.2d 125, 131 (2d
Cir. 1992); Dunes Hotel Assocs. v. Hyatt Corp., 245 B.R.
492, 504-05 (D.S.C. 2000). Because we hold that § 548
applies to the transfer in this case even assuming that §
541’s definition of "property of the estate" does not by
itself extend to the Bahamian property, we need not join
this dispute.
App. 11
(In re Criswell), 102 F.3d 1411, 1416 (5th Cir. 1997)
("These § 541 ‘property of the estate’ definitions have
been directly linked with the term ‘interest of the debtor
in. property’ under § 547(b)."). Through this incorporation,
Congress made manifest its intent that § 548 apply to all
property that, absent a prepetition transfer, would have
been property of the estate, wherever that property is
located. 3
This interpretation fully accords with the purpose
of the Bankruptcy Code’s avoidance provisions, which is
tc prevent debtors from illegitimately disposing of
property that should be available to their creditors. See
Palmer & Palmer, P.C. v. U.S. Tr. (In re Hargis), 887 F.2d
77, 79 (5th Cir. 1989) ‘avoidance provisions "protect[ ] the
rights of creditors via protection of the bankruptcy
estate"); see also Unif. Fraudulent Transfer Act § 3 comm.
2, 7A U.L.A. 295 (1984) ("[T]he purpose of the Act [is] to
protect a debtor’s estate from being depleted to the
prejudice of the debtor’s unsecured creditors").
In furtherance of this purpose, Congress provided
that creditors are entitled to the “interests of the debtor
in. property" under § 541 — expressly including all
property “wherever located" — and that they may avoid a
debtor’s fraudulent transfer of the same "interest([s] of the
debtor in property" under § 548. Congress thus
demonstrated an affirmative intention to allow avoidance
of transfers of foreign property that, but for a fraudulent
transfer, would have been property of the debtor’s estate.
Therefore, the presumption against extraterritoriality
does not prevent application of § 548 here.
IV.
The transferees argue, however, that even if the
presumption against extraterritoriality does not prevent
extension of § 548 to the transaction here, we should
App. 12
nevertheless refrain from applying the statute under the
doctrine of international comity. In particular, they
emphasize that disputes concerning real property should
be governed by the law of the situs — here, Bahamian
law. We disagree. Even if the elements of this transfer do
not conclusively render it domestic rather than
extraterritorial, a consideration of all the important
components of the transfer certainly compels the
conclusion that application of the United States
Bankruptcy Code is appropriate here.
International comity is "the recognition which one
nation allows within its territory to the legislative,
executive or judicial acts of another nation, having due
regard both to international duty and convenience, and to
the rights of its own citizens or of other persons who are
under the protection of its laws." Hilton v. Guyot, 159
U.S. 113, 164 (1895). Although there is some dispute as to
the precise contours of this doctrine — compare Hartford
Fire Ins. Co. v. California, 509 U.S. 764, 798 (1993), with
id. at 813 (Scalia, J., dissenting) — at base comity
involves the recognition that there are circumstances in
which the application of foreign law may be more
appropriate than the application of our own law. In this
case, the transferees maintain that application of
Bahamian bankruptcy law, which (according to them)
only allows avoidance if there is proof of an actual intent
to defraud, is more appropriate than application of § 548,
which allows avoidance of constructively fraudulent
transfers like the one at issue here.
In deciding whether to forego application of our
own law under the doctrine of international comity, the
Supreme Court has referred to the factors in Restatement
(Third) of Foreign Relations Law § 403 (1987). See
Hartford Fire Ins., 509 U.S. at 799 & n.25; id. at 818
(Scalia, J., dissenting); see also Maxwell Commce’n Corp.
PLC v. Societe Generale PLC (In re Maxwell Commc’n
App. 13
Corp.), 93 F.3d 1036, 1047-48 (2d Cir. 1996) {hereinafter
Maxwell III}. The Restatement looks to, inter alia, “the
extent to which the activity takes place within the
territory" of the regulating state, "the connections, such
as nationality, residence, or economic activity, between
the regulating state and the person principally
responsible for the activity to be regulated," "the extent to
which other states regulate such activities" or "may have
an interest in regulating [them]," the “likelihood of
conflict with regulation by another state," and "the
importance of regulation to the regulating state."
Restatement (Third), supra, § 403(2). Applying those
factors, we can only conclude that the doctrine of
international comity does not require that we forego
application of the United States Bankruptcy Code in
favor of Bahamian bankruptcy law.
The strongest argument in favor of applying
Bahamian law is that this case involves real property,
which (the transferees argue) should be governed by the
law of the situs. When a case involves the definition of
property interests, principles of international comity may,
i some cases, counsel courts to employ the property law
of the situs to resolve those interests, notwithstanding
other comity factors. See Koreag, Controle et Revision S.A.
vu. Refco F/X Assocs., Inc. (In re Koreag, Controle et
Revision S.A.), 961 F.2d 341, 349 (2d Cir. 1992).° But
° The transferees’ citation to Kojima v. Grandote Int'l
L.L.C. (In re Grandote Country Club Co., Lid.), 252 F.3d
1146 (10th Cir. 2001), does not support their contention
that there is a per se rule that the law of the situs governs
questions of fraudulent transfers. In that case, the
trustee in a Japanese bankruptcy proceeding brought an
ancillary proceeding in Colorado to avoid an allegedly
fraudulent transfer of Colorado real property that had
been made in Colorado. The Tenth Circuit held that
‘olorado law rather than Japanese law should determine
App. 14
analogous modern choice-of-law principles recognize that
the law of the situs does not necessarily govern "the
allocation of interests in land [between] . . . debtor and
creditor" if "regulation of the relationship is of greater
concern to a state other than the situs." Restatement
(Second) of Conflict of Laws ch. 9, topic 2, introductory
note. This is "particularly" true "when the land is part of
an aggregate of property which it is desirable to deal with
as a unit." Jd. Both of these factors are present in this
case. The real property at issue is part of an aggregate —
the bankruptcy debtor’s estate — that is most desirably
dealt with as a whole. Cf. Katz, 546 U.S. ___, 2006 WL
151985, at *10 (noting that the origins of the Bankruptcy
Clause and the earliest bankruptcy legislation enacted by
Congress show that “the Framers’ primary goal was to
prevent competing sovereigns’ interference with the
debtor’s discharge"). Furthermore, the United States has
a stronger interest than the Bahamas in regulating this
transaction. The purpose of the United States
Bankruptcy Code is to protect the rights of both debtors
and creditors during insolvency. See Philips v. Congelion,
L.L.C. (In re White Mountain Mining Co.), 403 F.3d 164,
169 (4th Cir. 2005) (quoting 1 Collier on Bankrupicy {
3.02[2] (15th ed. rev. 2005)). The Code protects debtors by
providing them a fresh start. See Foley & Lardner uv.
Biondo (In re Biondo), 180 F.3d 126, 130 (4th Cir. 1999).
In exchange, the Code’s avoidance provisions protect
creditors by preserving the bankruptcy estate against
illegitimate depletions. See Hargis, 887 F.2d at 79. The
the fraudulence of the transfer. Jd. at 1150. But the
transfer at issue in Grandote was no ordinary transfer;
rather, it was so deeply enmeshed with Colorado tax law
that the Tenth Circuit deemed the transfer to have been
made by the state of Colorado, not by the debtor. Id. at
1148-49, 1151-52. Colorado thus had a much stronger
connection to the property in question, justifying the
application of local law.
App. 15
United States has a strong interest in extending these
personal protections to its residents — including the vast
majority of the interested parties here. The Bahamas, by
contrast, has comparatively little interest’ in protecting
nonresidents. Cf. Hurtado v. Superior Court, 522 P.2d
666, 670 (Cal. 1974) (holding that Mexico has no interest
in. applying its statutory limitation on damages when
defendants in a tort action were not Mexican residents).
Thus, applying Bahamian law here would undercut the
purpose of the United States Bankruptcy Code by
withdrawing its protections from those it is intended to
caver, while simultaneously failing to protect any
Bahamian residents.
Several other factors make application of United
States law more appropriate. Most of the activity
surrounding this transfer took place in the United States.
Moreover, almost all of the parties with an interest in
this litigation — the debtor, the transferees, and all but
one of the creditors — are based in the United States, and
have been for years. Compare Maxwell III, 93 F.3d at
1051 (deference to British law is appropriate when all of
the parties were British). Certainly, Mrs. French, "the
person principally responsible for the activity to be
regulated," has a strong connection to this country as a
long-time United States resident. Finally, there are no
parallel insolvency proceedings taking place in the
Bahamas. There is thus no danger that the avoidance law
of the regulating state — the United States — will in fact
conflict with Bahamian avoidance law. See Simon, 153
F.3d at 999. Accordingly, we find that the many contacts
between this fraudulent transfer and the United States
justify the application of United States rather than
Bahamian law.
App. 16
V.
For the foregoing reasons, the judgment of the
district court is
AFFIRMED.
WILKINSON, Circuit Judge, concurring:
The unique properties of bankruptcy law compel
an affirmance of the district court. The bankruptcy laws
provide an integrated scheme for gathering and
disbursing the assets of a debtor’s estate. See, e.g., Grady
v. A.H. Robins Co., 839 F.2d 198, 202 (4th Cir. 1988). The
Code anticipates that this will take place within a single
proceeding, rather than asset by asset in inefficient
piecemeal litigation. Indeed, a major purpose of the
Bankruptcy Code is to forestall "a chaotic and
uncontrolled scramble for the debtor’s assets in a variety
of uncoordinated proceedings in different courts."
Underwood v. Hilliard (In re Rimsat, Ltd.), 98 F.3d 956,
961 (7th Cir. 1996) (internal quotation marks omitted);
see also 5 Collier on Bankruptcy { 541.01 (Alan N.
Resnick & Henry J. Sommer eds., 15th ed. rev. 2005)
(explaining that the "central aggregation of property .. .
promotes the effectuation of the fundamental purposes of
the Bankruptcy Code"). Ease and centrality of
administration are thus foundational characteristics of
bankruptcy law.
For these reasons, Congress has broadly defined
property of the estate as property "wherever located and
by whomever held." 11 U.S.C. § 541(a) (2000). This broad
definition reflects congressional support for the Code’s
extraterritorial application in appropriate circumstances.
See Hong Kong & Shanghai Banking Corp. v. Simon (In
re Simon), 153 F.3d 991, 996 (9th Cir. 1998). The
fraudulent transfer provision, 11 U.S.C. § 548(a) (2000),
App. 17
is part and parcel of Congress’s overarching objective to
aggregate assets. Allowing this constructively fraudulent
transfer from the debtor to her children would impair the
orderly administration of the bankruptcy estate. I can
hardly believe, therefore, that Congress wanted us to
excise § 548(a) — and this provision alone — from the
remainder of the Bankruptcy Code. And it is unlikely
that Congress would desire to accord an invariable
exemption from the Code’s operation to those who leave
our borders to engage in fraud. This is particularly true
where, as here, the debtor, the transferees, and virtually
every creditor are located in the United States.
My colleague’s careful opinion leaves intact the
Supreme Court’s’ strong presumption against
extraterritorial application of congressional statutes. See
EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991)
(Aramco); Foley Bros. v. Filardo, 336 U.S. 281, 285 (1949).
Bankruptcy is, in general, materially different from those
provisions held not to apply extraterritorially, such as
anti-discrimination statutes, see Aramco, 499 U.S. at 248
(Title VII); Reyes-Gaona v. N.C. Growers Ass’n, 250 F.3d
861, 864-65 (4th Cir. 2001) (Age Discrimination in
Employment Act), or hourly wage laws, see Foley Bros.,
36 U.S. at 285. In those contexts, ease of administration
is not a raison d’étre, and congressional intent for
extraterritorial application is considerably less clear. See
aiso Curtis A. Bradley & Jack L. Goldsmith, Foreign
Relations Law 528 (2003) (noting that courts have treated
bankruptcy law with special consideration in the
extraterritoriality context). The special context of
bankruptcy law, therefore, provides little occasion to set
forth general pronouncements on extraterritoriality.
Quite properly, the panel opinion also does not
suggest that every portion of the Bankruptcy Code
invariably applies to conduct abroad. Instead, it
represents a sensitive recognition of the administrative
App. 18
exigencies that are bound up with the avoidance of this
fraudulent transfer. I agree with this view, and I am
happy to join in Judge Motz’s fine opinion.
App. 19
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
In re: BETTY I. FRENCH Case No. 01-6-3163-JS
KR KK KK KK KK KK
RANDY LEE FRENCH et al.
Vv. Civil Action No.
WMN-04-1947
GEORGE LIEBMANN, TRUSTEE
[ENTERED: December 8, 2004]
ORDER
In accordance with the foregoing memorandum
and for the reasons stated therein, IT IS this 8th day of
December, 2004, by the United States District Court for
the District of Maryland, ORDERED:
1. That the decision of the Bankruptcy Court
avoiding the transfer of real property to Appellants is
hereby AFFIRMED;
2. That Civil Action No. WMN-04-1947 is hereby
CLOSED; and
3. That the Clerk of the Court shall mail or
transmit copies of this Memorandum and Order to all
counsel of record.
/s/
William M. Nickerson
Senior United States District Judge
App. 20
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
In re: BETTY I. FRENCH Case No. 01-6-3163-JS
FREER KHA HK HK *K KF
RANDY LEE FRENCH et al.
Vv. Civil Action No.
WMN-04-1947
GEORGE LIEBMANN, TRUSTEE
[ENTERED: December 8, 2004]
MEMORANDUM
This is an appeal from a Bankruptcy Court
decision under Section 548 of the Bankruptcy Code*
which avoided as fraudulent the transfer of certain real
property located in the Bahamas. The underlying facts
are largely uncontested. At issue is the permissible
extraterritorial reach of Section 548. Apparently, no other
federal court has addressed this specific issue in a
reported decision, aside from the decision of Bankruptcy
Judge James F. Schneider in this action, Liebmann v.
French, 303 B.R. 774 (Bankr. D. Md. 2003).
The facts underlying Judge Schneider’s decision
follow. The Debtor, Betty I. French, acquired the property
in question in November 1976. The Debtor asserts, and
this Court accepts for the purposes of this appeal, that
she gifted the deed to the real property to her children,
Appellants Randy Lee French and Danna Marie French,
on December 25, 1981, as a Christmas present. According
to Appellants, the Debtor presented this gift to them in
* 11U‘S.C. § 548.
App. 21
Maryland. The deed was not immediately recorded,
however. Appellants assert that substantial Bahamian
recording taxes made it undesirable to do so at the time,
aad that it was their understanding that, under
Bahamian law, the transfer was complete, valid, and
final upon the delivery of the deed.
In the late 1990s, Appellants’ father, Elwood Dean
French, began to experience serious financial difficulties.
Appellants assert that in response to their father’s
deteriorating financial condition: they determined to
record the deed in the Bahamas so that “their ownership
of the property would not be adversely affected somehow
by Mr. French’s financial difficulties.” Appellants’ Brief at
6. Appellants hired a Bahamian lawyer for that purpose
and on June 21, 2000, the deed was duly recorded among
the land records of the Bahamas Registrar General.
On October 20, 2000, a creditor filed an
involuntary Chapter 7 ban':ruptcy petition against
Appellants’ mother. On August 22, 2002, Appellee, as
Trustee for the Chapter 7 estate, filed an adversary
action under Sections 548 and 550 of the Code to avoid
the pre-petition transfer of the Bahamian property and to
recover that property or its fair market value for the
benefit of the estate. The Trustee alleged that the
property was transferred for no consideration, within 12
months of the filing of the bankruptcy petition, and at a
time that the Debtor was insolvent and thus, was
constructively fraudulent under Section 548(a)(1)(B).° In
° Section 548(a)(1)(B) provides that the trustee can
avoid any transfer of an interest of the debtor in property
that was made within one year prior to the filing of the
petition if the debtor “received less than a reasonably
equivalent value in exchange for such transfer” and “was
insolvent on the date that such transfer was made... or
became insolvent as a result of such transfer.”
App. 22
the alternative, the Trustee asserted that the transfer
was made with the actual intent to defraud the Debtor’s
creditors and thus, could be avoided under. Section
548(a)(1)(A).°
With the Complaint, the Trustee filed a motion for
a temporary restraining order, preventing Appellants
from transferring or encumbering the Bahamian property
for a period of ten days. The Bankruptcy Court granted
that motion and later issued a preliminary injunction -
prohibiting the same.
Appellants moved to dismiss the Trustee’s claim
on three grounds. First, Appellants argued that the
transfer took place in 1981 when the deed was gifted to
them, regardless of when it was recorded. Second,
Appellants asserted that the “presumption against
extraterritoriality” barred the application of Section 548
to transfers of real property located outside of the United
States. Appellants’ third argument was that under
principles of “international comity,” the Bankruptcy
Court should refrain from applying Sections 548 and 550
extraterritorially in this case. The Bankruptcy Court
denied the motion, finding that the argument that the
transfer actually occurred in 1981 involved a factual
dispute inappropriate for resolution on a motion to
dismiss. After reviewing decisions of numerous other
courts upholding the extraterritorial application of other
provisions of the Bankruptcy Code, the Bankruptcy Court
held that neither the presumption § against
§ Section 548(aX(1)(A) provides that the trustee can
avoid any transfer of an interest of the debtor in property
that was made within one year prior to the filing of the
petition if the debtor made such a transfer “with actual
intent to hinder, delay, or defraud any entity to which the
debtor was or became, on or after the date that such
transfer was made .. ., indebted.”
App. 23
extraterritoriality nor the doctrine of international comity
warranted dismissal under the facts presented.
Shortly thereafter, the Trustee filed a motion for
summary judgment. After a hearing, the Bankruptcy
Judge granted the motion as to the Trustee’s claim of
constructively fraudulent transfer. The Court found that
under Section 548(d)(1) of the Bankruptcy Code, the
transfer of the property occurred in June of 2000.’
Because there was no dispute that the conveyance was a
gift without consideration, and that the Debtor was
insolvent at that time, the Bankruptcy Court determined
that the conditions for avoidance under Section
548(a)(1)(B) had been met. Because the transfer could be
avoided under Section 548(a)(1)(B), the Bankruptcy Court
did not reach the merits of Trustee’s claim of intentional
fraud under Section 548(a)(1)(A).
In this appeal, Appellants contend that the
Bankruptcy Court erred in refusing to dismiss the
avoidance action under the presumption against
extraterritoriality and/or the doctrine of international
comity. Because the applicability of the presumption
against extraterritoriality is a pure question of law, this
Court reviews the decision of the Bankruptcy Court as to
that issue de novo. As to whether the Bankruptcy Court
should have declined to exercise its jurisdiction over the
matter based upon the doctrine of international comity,
that question was a matter of that court’s discretion
which this Court reviews under an abuse of discretion
standard. For the reasons that follow, this Court
7 That section provides that a transfer does not occur
until it is perfected against a bona fide purchaser. Thus,
for the purposes of the Bankruptcy Code, the transfer did
not take place until the deed was recorded on June 21,
2000.
App. 24
concludes that the Bankruptcy Court’s decision was
correct in both regards.
Although it has it roots in some earlier decisions of
the Supreme Court,® the “presumption against
extraterritoriality” was first denominated as such in
Equal Employ. Opportunity Commission v. Arabian
American Oil Co. (Aramco), 499 U.S. 244 (1991).’ As
explained in Aramco, “[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." Id. at
248(quoting Foley Bros. 336 U.S. at 285). This
presumption against extraterritorial effect is based on the
common-sense notion that Congress is "primarily
concerned with domestic conditions" when it legislates.
Foiey Bros., 336 U.S. at 285. Courts are required to
assume that Congress acts with knowledge of this
presumption and in Aramco, the Supreme Court
instructed that unless there is "the affirmative intention
of the Congress clearly expressed, courts must conclude
that a federal statute does not apply outside the United
States. Aramco, 499 U.S. at 248 (quoting Benz v.
Compania Naviera Hidalgo, 353 U.S. 138, 147 (1957)).
While Aramco would seem to require some “clear
statement” in the statute itself indicating the
congressional intent that the statute be applied
extraterritorially, that requirement appears to have been
8 See American Banana v. United Fruit Co., 213 U.S.
347 (1909); Foley Bros., Inc. v. Filardo, 336 U.S. 281
(1949).
° In Aramco, the Court held that Title VII of the Civil
Rights Act did not apply to employment activities that
took place abroad.
App. 25
relaxed by the Supreme Court in Smith v. United States,
507 U.S. 197 (1993)."° Under Smith, there must only be
“clear evidence” of congressional intent to apply the
statute extraterritorially. 507 U.S. at 204. In discerning
congressional intent in the statute at issue in Smith,
Chief Justice Rehnquist looked to the overall structure of
the act, the legislative history, and other non-textual
sources. Id. at 201-03. In another Supreme Court decision
issued shortly after Smith, Sale v. Haitian Centers
Council, Inc., 509 U.S. 155 (1993)," the Court indicated
that it looked at “all available evidence” about the statute
in. order to discern congressional intent, including the
legislative history, the place of the particular provision
within the statutory scheme, and the relevance of the
statute to the overall body of law of which it was a part,
i.e., immigration law. 509 U.S. at 177.
Furthermore, lower courts considering the
presumption against extraterritoriality have concluded
that where congressional intent concerning
extraterritorial application cannot be divined courts can
examine additional factors to determine whether the
presumption should be disregarded in a particular case.
Hong Kong & Shanghai Banking Corp., Ltd. v. Simon (In
re Simon), 153 F.3d 991, 995 (9th Cir. 1998). First, "the
presumption is generally not applied where the failure to
extend the scope of the statute to a foreign setting will
result in adverse effects within the United States."
© In Smith, the Court held that the presumption
against extraterritoriality barred an action under the
Federal Tort Claims Act based on conduct that took place
in Antarctica.
‘' In Sale, the Court invoked the presumption against
extraterritoriality to preclude provisions of the
Immigration and Naturalization Act from applying to
Haitian refugees apprehended in international waters.
App. 26
Environmental Defense Fund, Inc. v. Massey, 986 F.2d
528, 531 (D.C. Cir. 1993) (citing Steele v. Bulova Watch
Co., 344 U.S. 280 (1952)). Second, the presumption is not
applicable when the regulated conduct is "intended to,
and results in, substantial effects within the United
States." Laker Airways, Ltd. v. Sabena Belgian World
Airlines, 731 F.2d 909, 925 (D.C. Cir. 1984).
While prior to Judge Schneider’s opinion in this
action, no reported decision has applied these principles
in the context of Section 548 of the Bankruptcy Code,
courts have upheld the extraterritorial application of
numerous other Code provisions, as noted by Judge
Schneider. For example, in Simon, the Ninth Circuit
concluded that a violation of a Section 524 discharge
injunction by a foreign creditor outside the United States
was sanctionable by a United States Bankruptcy Court.
153 F.3d at 995-96. In Nakash v. Zur (In Re Nakash), 190
B.R. 763 (Bankr. S.D.N.Y. 1996), the court held that the
automatic stay of Section 362 should be given
extraterritorial application so as to protect a debtor from
a receiver’s filing of an insolvency proceeding against it in
Israel. In In re Dow Corning Corp., 287 B.R. 396 (E.D.
Mich. 2002), the district court held that the Code’s
prohibition of post-confirmation litigation against a
reorganized debtor applied equally to litigation initiated
abroad.
The fundamental framework of the Bankruptcy
Code compels these results. As the Seventh Circuit noted
in upholding the application of the Code’s automatic stay
provision to halt an action instituted by the receiver of a
debtor in the Federation of St. Kitts and Nevis, “the
efficacy of the bankruptcy proceeding depends on the
[bankruptcy] court’s ability to control and marshal the
assets of the debtor wherever located.” Underwood v.
Hilliard (In re Rimsat, Ltd.), 98 F.3d 956, 961 (7th Cir.
1996). This ability is specifically provided for in the
App. 27
Code’s delineation of the scope of the debtor’s estate: “the
estate is comprised of the debtor’s legal or equitable
interests in property ‘wherever located and by whomever
held.” In re Simon, 153 F.3d 996 (quoting 11 U.S.C. §
54.1(a), emphasis supplied in Simon). As commentators
have aptly observed, “the Bankruptcy Code was drafted
with the realization that the Code’s key provisions would
be: applied extraterritorially when needed to effectuate its
principal goals of asset preservation and equitable
distribution of the same to holders of allowed claims.”
David M. Green and Walter Benzija, “Spanning the
Globe: The Intended Extraterritorial Reach of the
Bankruptcy Code,” 10 Am. Bankr. Inst. L. Rev. 85, 93
(Spring, 2002).
In this action, a Maryland debtor gave a deed to
her son and daughter residing in Maryland and Virginia,
respectively. The gift, according to Appellants, was made
in Maryland. There is no dispute that had the deed
related to real property located within the borders of the
United States, the Bankruptcy Court could properly avoid
the gift and return the property to the Debtor’s estate for
the benefit of the creditors. Given the clear congressional
intent expressed in the Bankruptcy Code that property of
a debtor be treated the same whether located here or
abroad, the Court can find no principled reason to reach a
different result as to property subject to a pre-petition
transfer avoidance action. The identical concerns for
marshaling and equitably distributing assets for the
benefit of creditors are implicated.
Here, as they did before the Bankruptcy Court,
Appellants rely heavily on a series of decisions related to
the extraterritorial application of the Code’s preferential
transfer provision in Section 547. See In re Maxwell
Communications Corp., 170 B.R. 800 (Bankr. S.D.N.Y.
1994), affd, 186 B.R. 807 (S.D.N.Y. 1995), aff'd, 93 F.3d
1036 (2° Cir. 1996). In that action, Bankruptcy Judge
App. 28
Tina Brozman concluded that Congress did not intend for
Section 547 to be applied extraterritorially. As an
alternative holding, she concluded that the avoidance
actions before her should be dismissed under principles of
international comity. The district court affirmed on both
grounds. The Second Circuit, however, did not reach the
question as to whether the Code’s preference provisions
could be applied extraterritorially, affirming instead only
on the comity ground.
In a law review article that this Court finds
particularly enlightening, the bankruptcy court’s decision
in Maxwell received some criticism. See Suzanne
Harrison, “The Extraterritoriality of the Bankruptcy
Code: Will the Borders Contain the Code?,” 12 Bankr.
Dev. J. 809 (1996). That article, written before the Second
Circuit issued its decision, anticipated the result on
appeal and suggested that the lower courts should have
limited their consideration to the issue of comity. Id. at
843. The author suggested, and this Court agrees, that
lower courts’ presumption of extraterritoriality analysis
would have benefitted from examining congressional
intent in the context of the Code as a whole instead of the
specific provision in isolation. Courts should “interpret
each section in such a fashion as ‘to preserve an overall
sense and design, in light of the policies sought to be
achieved.” Id. at 831 (quoting Hill v. Spencer Savings &
Loan Ass’n (In Re Bevill), 83 B.R. 880, 887-88 (D.N.J.
1988)).
In a subsequent decision, Judge Brozman limited
her earlier holding in Maxwell. See Interbulk Ltd. v.
Louis Dreyfus Corp. (In re Interbulk, Ltd.), 240 B.R. 195
(Bankr. S.D.N.Y. 1999). In Interbulk, a chapter 11
trustee sought to avoid, under Section 547, an
attachment that a creditor had obtained from a French
court a few weeks before the debtor filed its bankruptcy
petition. When the creditor attempted to rely on the
App. 29
series of decisions in Maxwell “as the linchpin for its
argument that there is a presumption against the
extraterritorial application of United States preference
laws,” Judge Brozman responded:
What [the creditor] fails to realize is
that there are critical distinctions between
the facts of Maxwell and those present
here.
In Maxwell, there were parallel
bankruptcy proceedings in England and the
United States for the debtor, an English
corporation. The joint administrators
appointed by the high court in London and
the examiner appointed by this court
entered into a procedural protocol (the
"Protocol") to coordinate their efforts to
administer the two cases as a single estate.
The Protocol provided for the creation of a
single pool of assets in which creditors from
both countries could share by filing claims
in either jurisdiction. Three foreign (to the
United States) creditors (the "Creditors")
had received transfers overseas from the
debtor within 90 days of the debtor's
bankruptcy filings. All three filed claims in
England, but not here. Cognizant that the
administrators contemplated suit in the
United States to recover the preferences
from them, the Creditors sought
unsuccessfully, in England, to enjoin the
administrators from commencing suit
under section 547 of the Code. The
administrators then filed adversary
complaints in this court to recover the
transfers from the Creditors. The Creditors
promptly moved for dismissal, pursuant to
App. 30
Fed. R.-Civ. P. 12(b)(6), for failure to state a
claim upon which relief could be granted.
The Creditors argued that the transfers
were extraterritorial in nature and
considerations of comity prevented the use
of section 547 to avoid them. I concluded
that section 547 was not meant by
Congress to apply extraterritorially and
that inasmuch as the center of gravity of
these transfers was indeed extraterritorial,
they could not be avoided. I alternatively
concluded that principles of international
comity dictated tht the avoidance actions
had to be dismissed.
Interbulk, 240 B.R. at 198-99.
Like Interbulk, the instant case is readily
distinguishable from Maxwell on its facts. Here, there is
no international aspect to the transaction at issue other
than the happenstance that the property represented by
the deed is in the Bahamas. To the extent that this
Court’s conclusion is at odds with the legal conclusion of
the lower courts in Maxwell, this Court respectfully
disagrees with those holdings.
Aside from their reliance on the Maxwell
decisions, Appellants’ primary argument for the
conclusion that Judge Schneider erred is premised on the
observation that Bahamas property was not actually
property of the estate until after the transfer was
avoided. Appellants note that several of the cases relied
upon by the court below that applied the Bankruptcy
Code extraterritorially did so under the legal fiction that,
because bankruptcy court’s have constructive possession »
over estate preperty, the foreign property is “legally”
located within the jurisdictional boundaries of the court, .
regardless of its actual location. See, e.g., Simon, 153 F.3d
App. 31
at 996. By constructively locating the foreign property
within domestic borders, a court can avoid directly
confronting the presumption against extraterritoriality.
Appellants are correct that Judge Schneider
appears to have based his decision, at least in part, on a
finding that the Bahamas property was property of the
estate. See 303 B.R. at 783 (“Regardless of the fact that
the land in question is located in the Bahamas, it is
property of the estate within the subject matter
jurisdiction of this Court pursuant to Section 541(a).”).
Appellants are also correct that this conclusion would be
at odds with a substantial body of case law, including a
decision of Judge Schneider, that holds that property
recovered by the trustee pursuant to his avoidance
powers is not property of the estate until it is actually
recovered. See In re Murray, 214 B.R. 271 (Bankr. D.
Mass. 1997); In re Yellow Cab Co-op. Ass'n, 178 B.R. 265
(Bankr. D. Colo. 1995); In re Saunders, 101 B.R. 303
(Bankr. N. D. Fla. 1989); see also Allnutt v. Friedman (In
Re Allnutt), 1995 U.S. Dist. Lexis 4870 (D. Md. 1995)
(affirming decision of Judge Schneider). The conclusion
that the real property was not property of the estate,
however, does not alter this Court’s conclusion as to the
non-applicability of the presumption. Confronting the
presumption head on, this Court finds that “all available
evidence” demonstrates that Congress did intend for the
key provisions of the Bankruptcy Code to be applied
ex:traterritorially for the reasons stated above.
In the alternative, even if one concluded that the
evidence of congressional intent was less than compelling,
the Court finds that the so-called Massey exceptions
referenced above would compel the Court to disregard the
presumption in this instance. Allowing a debtor to
defraud creditors, whether constructively or
intentionally, by giving away significant foreign assets to
family members, would undoubtedly “result in adverse
App. 32
effects within the United States." Massey, 986 F.2d at
531. In the context of increasing globalization, to not
apply Section 548 extraterritorially would provide the
potential to deprive creditors of significant assets merely
on the happenstance that they had been cached overseas.
Turning to Appellants’ argument based on
principles of “international comity,” this Court finds even
less support. International comity is defined as “the
recognition which one nation allows within its territory to
the legislative, executive or judicial acts of another
nation, having due regard both to international duty and
convenience, and to the rights of its own citizens or of
other persons who are under the protection of its laws.”
Hilton v. Guyot, 159 U.S. 113, 164 (1895). International
comity “is neither a matter of absolute obligation, on the
one hand, nor of mere courtesy and good will, upon the
other.” Id. at 163. Appellants acknowledge that comity is
typically invoked where there are competing proceedings
in two countries and further acknowledge that, in this
instance, there are no legal proceedings in the Bahamas
that would conflict with the bankruptcy action here.
Instead, Appellants rely on a second aspect of
international comity that was laid out by Justice Scalia in
a dissenting opinion in Hartford Fire Ins. Co. v.
California, 509 U.S. 764 (1993), one that does not arise
out of conflicting proceedings. As summarized by Justice
Scalia, this principle provides that “a nation having some
‘basis’ for jurisdiction to prescribe law should nonetheless
refrain from exercising that jurisdiction ‘with respect to a
person or activity having connections with another state
when the exercise of such jurisdiction is unreasonable.”
Id. at 818 (quoting Restatement (Third) of Foreign
Relations Law of the United States § 403(1)). Whether
the exercise of jurisdiction in a specific context is
App. 33
reasonable turns on a number of factors including, inter
alia:
the extent to which the activity
takes place within the territory [of the
regulating state],
the connections, such as nationality,
residence, or economic activity, between the
regulating state and the person principally
responsible for the activity to be regulated,
the character of the activity to be
regulated,
the importance of regulation to the
regulating state,
the extent to which other states
regulate such activities, and the degree to
which the desirability of such regulation is
generally accepted,
the extent to which another state
may have an interest in regulating the
activity, and
the likelihood of conflict with
regulation by another state.
Id., 509 U.S. at 818-19 (citations omitted). Furthermore,
in discussing international comity in the context of a
bankruptcy action, the Ninth Circuit in Simon has added,
“fi]f any philosophy can be attributed to the structure of
the Code it is that of deference to the country where the
primary insolvency proceeding is located, including the
United States if the plenary proceeding is located here,
App. 34
and flexible cooperation in the administration of assets.”
Simon, 153 F.3d at 998.
The activity at issue here is the transfer of
property. While the property transferred may be located
in the Bahamas, the transfer took place in Maryland. The
only individuals with any relationship to, interest in, or
potential interest in the property - the debtor, the trustee,
the Appellants, and the creditors — are all residents of the
United States. No Bahamian individual or entity has any
stake in the determination of ownership in the property.
Under these circumstances, the Bankruptcy Court did not
err in finding international comity concerns insufficient
to compel it to withhold action.
Accordingly, the decision of the Bankruptcy Court
will be affirmed. A separate order will issue.
/s/
William M. Nickerson
Senior United States District Judge
Dated: December , 2004
App. 35
SO ORDERED
Date signed April 21, 2004
/s/ James F. Schneider
JAMES F. SCHNEIDER
U.S. BANKRUPTCY JUDGE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re:
BETTY I. FRENCH Case No. 00-6-3163-JS
Debtor Chapter 7
KREEK KKK KK KH *K
GEORGE W. LIEBMANN,
Trustee Adv. Pro. No. 02-5757-JS
V.
RANDY LEE FRENCH
and
DONNA MARIE SHAKA,
Defendants
[ENTERED: April 21, 2004]
ORDER GRANTING THE TRUSTEE’S MOTION FOR
SUMMARY JUDGMENT AND AVOIDING
FRAUDULENT TRANSFER
Based upon the memorandum Opinion filed
simultaneously herewith, the motion for summary
App. 36
judgment filed by George W. Liebmann, Chapter 7
trustee, is hereby GRANTED and the transfer of property
identified as “Lot No. 5 of the subdivision called and
known as Love Estates in the Bambier District of the City
of Nassau on the Island of New Providence, one of the
islands of the Commonwealth of the Bahamas,” from the
debtor, Betty Irene French, to the defendants, Randy Lee
French and Donna Marie Shaka, by deed recorded among
the Land Records of the Bahama Islands on June 21,
2000, is hereby AVOIDED and RECOVERED by the
trustee on behalf of the debtor’s estate as a constructively
fraudulent transfer.
SO ORDERED.
END OF ORDER
App. 37
Date signed April 21, 2004
/s/ James F. Schneider
JAMES F. SCHNEIDER
U.S. BANKRUPTCY JUDGE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re:
BETTY I. FRENCH Case No. 00-6-3163-JS
Debtor Chapter 7
KRKK KKK KK KK
GEORGE W. LIEBMANN,
Trustee Adv. Pro. No. 02-5757-JS
Vv.
RANDY LEE FRENCH
and
DONNA MARIE SHAKA,
Defendants
(ENTERED: April 21, 2004]
MEMORANDUM OPINION GRANTING’ THE
TRUSTEE'S MOTION FOR SUMMARY JUDGMENT
AND A VOIDING FRAUDULENT TRANSFER
On February 11, 2004, the trustee's motion for
summary judgment came on for hearing. For the reasons
set: forth, the motion will be granted.
FINDINGS OF FACT
App. 38
On July 13, 1999, the Peninsula Bank ("Bank")
obtained a judgment in the amount of $3 97,425.10,
against Betty Irene French ("debtor") in the Circuit Court
for Wicomico County, Maryland. On October 20, 2000, the
Bank filed the instant involuntary Chapter 7 bankruptcy
petition in this Court against the debtor. On January 29,
2001, an order for relief was entered. On February 11,
2001, the debtor filed her schedules under penalty of
perjury and swore that her assets had not diminished
significantly during the year before the petition was
filed.’
On August 22, 2002, George W. Liebmann, the
Chapter 7 trustee, filed the instant complaint to avoid
and recover an alleged fraudulent transfer of real
property’ in the Bahama Islands, made by the debtor to
her son and daughter, the defendants Randy French
("Randy") and Donna Shaka ("Donna"), for no
consideration within one year of the filing of the petition.
The verified complaint alleged that the debtor did not list
the property in her schedules or disclose its existence in
her Statement of Financial Affairs. It further alleged that
the property was purchased by the debtor and titled in
1 In the debtor's Statement of Financial Affairs [P. 24],
she stated under penalty of perjury that during one year
before bankruptcy she made no payments to insiders, she
suffered no losses from fire, theft, other casualty or
gambling, no garnishment or seizure of assets, no
repossession of assets or returns, that she made no large
gifts or charitable contributions and no transfers of assets
outside the ordinary course.
* The property was identified in the complaint as “Lot
No. 5 of the subdivision called and known as Love Estates
in the Bambier District of the City of Nassau on the
Island of New Providence, one of the islands of the
Commonwealth of the Bahamas." Complaint, § 11.
App. 39
her name by deed dated November 11, 1976, and recorded
in the Bahamas; and that she transferred the property to
the defendants by deed dated December 25, 1981, but
that the deed was not recorded among the Bahamian
land records until June 21,2000.°
The trustee also filed a motion [P. 2] for temporary
restraining order ("TRO"), which this Court granted by
order [P. 3] entered August 26, 2002. The TRO prohibited
the defendants from transferring or encumbering the
Behamian property for a period often days. On
September 4, 2002, Judge E. Stephen Derby granted the
plaintiffs request for a preliminary injunction [P. 7],
CONCLUSIONS OF LAW
Summary judgment is appropriate when (1) the
pleadings, depositions, answers to interrogatories,
admissions on file and affidavits show that there is no
genuine issue of material fact; and 2) the moving party is
entitled to judgment as a matter of law. In determining
the facts for summary judgment purposes, the Court may
rely upon affidavits made with personal knowledge that
sei; forth specific facts otherwise admissible in evidence
and sworn or certified copies of papers attached to such
affidavits. Fed. R. Civ. P. 56(c); Fed. R. Bankr. P. 7056;
Bailey v. Blue Cross & Blue Shield of Virginia, 67 F.2d
53, 56 (4th Cir. 1995); Miller v. FDIC, 906 F.2d 972, 973
(4th Cir. 1990). Permissible inferences to be drawn from
the underlying facts are viewed in the light most
favorable to the nonmoving party. Miller, 906 F.2d at
973-74 (4th Cir. 1990) (citing Matsushita Elec. Indus. Co.,
* The Court has previously determined that the instant
complaint to recover property of the estate located in the
Bahamas does not implicate an _ extraterritorial
application of the Bankruptcy Code. Liebmann v. French
(In re French), 303 B.R. 774 (Bankr. D. Md. 2003).
App. 40
Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 206 S.
Ct. 13848, 1356, 89 L. Ed. 2d 538, 553 (1986)). In the
instant case, all of the facts and inferences therefrom
have been construed in a light most favorable to the
defendants.
The undisputed facts here present qualify this
transfer as constructively fraudulent. 11 U.S.C. §
548(a)(1)(B).* In order to obtain summary judgment on the
complaint, the trustee must demonstrate without dispute
that the transfer of the subject property was made within
one year of the filing of the debtor's bankruptcy petition
for less than reasonably equivalent value while the
debtor was insolvent. BFP v. Resolution Trust Corp., 511
U.S. 531, 535, 114 S. Ct. 1757, 1760, 128 L. Ed. 2d 556
(1994); Tavenner v. Smoot, 257 F.3d 401, 408-09 (4th Cir.
* Section 548(a)(1)(B) provides as follows:
§ 548. Fraudulent transfers and obligations.
(a)(1) The trustee may avoid any transfer of
an interest of the debtor in property, or any
obligation incurred by the debtor, that was made
or incurred on or within one year before the date
of filing of the petition if the debtor voluntarily or
involuntarily -
(BX) received less than a reasonable
equivalent value in exchange for such transfer or
obligation;
(ii(I) was insolvent on the date that such
transfer was made or such obligation was
incurred, or became insolvent as a result of such
transfer or obligation|[.]
Id.
App. 41
2001); Harman v. First American Bank of Maryland (In
re Jeffrey Bigelow Design Group, Inc.), 956 F.2d 479, 484-
85 (4th Cir. 1992); Koch v. Rogers (In re Broumas), 203
B.R. 385, 393 (D. Md. 1996). Constructive fraud does not
require proof of actual fraudulent intent. Balaber-Strauss
uv. Sixty-Five Brokers (In re Churchill Mortgage
Investment Corp.), 256 B.R. 664, 667 (Bankr. S.D.N.Y.
2000) ("If actual intent to defraud creditors cannot be
proved under Section 548(a)(IMA),.a transfer may be
avoided under a theory of constructive fraud.").
While the Court accepts the defendants’
contention for purposes of ruling on summary judgment
that the property was given to the defendants by deed of
gift on December 25, 1981, the gift was not a matter of
public record until June 21, 2000, when the deed was
recorded. The debtor admitted in her deposition that she
continued to visit and reside in the property after she
made the gift and that she kept some personal belongings
there. Deposition, 14-16, Exhibit 2 of Plaintiff s Ex Parte
Motion for Temporary Restraining Order [P. 2].
Section 548(d)(1) of the Bankruptcy Code, which
determines when a transfer occurs, provides that a
transfer does not take place until it is perfected against a
bona fide purchaser. In this case, therefore, the transfer
occurred on June 21, 2000, when the deed to the property
was recorded by the defendants.® Because the transfer
occurred a mere five months before the debtor's
®* “This comports with Section 548(d)(1) of» the
Bankruptcy Code, which provides that a transfer occurs
‘when such transfer is so perfected that a bona fide
purchaser from the debtor against whom applicable law
permits such transfer to be perfected cannot acquire an
interest in the property transferred that is superior to the
interest in such property of the transferee, but if such
transfer is not so perfected before the commencement of
App. 42
involuntary petition was filed, the transfer occurred
within the one year requirement of Section 548(a)(1).
The undisputed facts also demonstrate that the
debtor received less than reasonably equivalent value in
exchange for the transfer. The debtor acknowledged that
the transfer was by deed of gift. Randy also testified to
that effect. Donna did not dispute the testimony of the
debtor or Randy that the transfer was by deed of gift.
Finally, there is no genuine dispute as to the
material fact that the debtor was insolvent at the time of
the transfer. Her schedules filed under penalty of perjury
on February 11, 2001, less than one year after the
conveyance took place, clearly demonstrate the fact of her
insolvency. They reflect assets totaling $220,950,
compared with liabilities of $2,940,175.35 [P.21]. The
gross difference between the debtor's assets and liabilities
with no reported change of circumstances in the year
before bankruptcy leads to the inescapable conclusion
that she was insolvent on June 21, 2000, the date of the
transfer. "Where a debtor is shown to be insolvent at a
date subsequent to a particular transfer and the debtor's
condition did not change during the interim period, it is
logical and permissible to presume that the debtor was
insolvent as the time of the transfer." Grant v. Davis (In
re Damason Constr. Corp.), 101 B.R. 775, 778 (Bankr.
M.D. Fla. 1989), citing Foley v. Briden (In re Arrowhead
Gardens, Inc.), 32 B.R. 296 (Bankr. D. Mass. 1983). The
fact is undisputed that the debtor reported that she
suffered no diminution of assets during the year prior to
bankruptcy. Therefore, the Bank's judgment alone
probably rendered her insolvent as early as July 13,1999,
well before the date of transfer.
the case, such transfer is made immediately before the
date of the filing of the petition.’ 11 U.S.C. § 548 (d\J)."
Liebmann, 303 B.R. 774, 777 (2003).
App. 43
Because the record supports the finding that the
transfer was constructively fraudulent, it is unnecessary
to address the other grounds raised in the complaint.
WHEREFORE, the trustee's motion for summary
jadgment will be GRANTED and the subject transfer will
be AVOIDED and RECOVERED by the trustee.
ORDER ACCORDINGLY.
cc: Orbie R. Shively, Esquire
Liebmann and Shively
8 W. Hamilton Street
Baltimore, Maryland 21201
Counsel to the Chapter 7 Trustee
George W. Liebmann, Esquire
Liebmann and Shively
8 W. Hamilton Street
Baltimore, Maryland 21201
Plaintiff and Chapter 7 Trustee
Stanton J. Levinson, Esquire
P.O. Box 1746
Silver Spring, Maryland 20915
Counsel for the Defendants
Randy Lee French
20957 Nanticoke Road
Bivale, Maryland 21814
Donna Marie Shaka
11322 Magnolia Place
Smithfleld, Virginia 23430
Betty Irene French
3999 Greenhill Church Road
Quantico, Maryland 21856
App. 44
Office of the U.S. Trustee
300 West Pratt Street
Suite 350
Baltimore, Maryland 21201
App. 45
SO ORDERED
[ENTERED: OCTOBER 8, 2003]
Date signed October 07, 2003
/s/ James F. Schneider
JAMES F. SCHNEIDER
U.S. BANKRUPTCY JUDGE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re:
BETTY I. FRENCH Case No. 00-6-3163-JS
Debtor Chapter 7
RRKKKKK KKK KK
GEORGE W. LIEBMANN,
Trustee Adv. Pro. No. 02-5757-JS
v.
RANDY LEE FRENCH
and
DONNA MARIE SHAKA,
_ Defendants
ORDER DENYINu THE DEFENDANTS’
MOTION TO DISMISS
Based upon the memorandum opinion filed
simultaneously herewith, the defendants’ motion to
dismiss is hereby DENIED.
App. 46
END OF ORDER
cc: Orbie R. Shively, Esquire
George W. Liegmann, Esquire
Liebmann and Shively
8 W. Hamilton Street
Baltimore, MD 21201
Counsel to the Chapter 7 Trustee
George W. Liegmann, Esquire
Liebmann and Shively
8 W. Hamilton Street
Baltimore, MD 21201
Plaintiff and Chapter 7 Trustee
Stanton J. Levinson, Esquire
P.O. Box 1746
Silver Spring, Maryland 20915
Counsel for the Defendants
Randy Lee French
20957 Nanticoke Road
Bivale, Maryland 21814
Donna Marie Shaka
11322 Magnolia Place
Smithfield, Virginia 23430
Betty Irene French
3999 Greenhill Church Road
Quantico, Maryland 21856
App. 47
In re: BETTY IRENE FRENCH, Debtor; GEORGE
W. LIEBMANN, Trustee v.
RANDY LEE FRENCH and
DONNA MARIE SHAKA, Defendants
Case No. 06-63163-JS, Chapter 7,
Adv. Pro. No. 02-5757-JS
UNITED STATES BANKRUPTCY COURT FOR THE
DISTRICT OF MARYLAND
303 B.R. 774; 2003 Bankr. LEXIS 1813
October 7, 2003, Decided
[ENTERED: OCTOBER 8, 2003]
DISPOSITION: [**1] Defendants’ motion to dismiss
clenied.
LexisNexis(R) Headnotes
SOUNSEL: For Chapter 7 Trustee: Orbie R. Shively,
Esquire, George W. Liebmann, Esquire, Liebmann and
Shively, Baltimore, MD.
George W. Liebmann, Esquire, Plaintiff and Chapter 7
Trustee, Liebmann and Shively, Baltimore, Maryland.
For Defendants: Stanton J. Levinson, Esquire, Silver
Spring, Maryland.
eTUDGES: JAMES F. SCHNEIDER, U.S. BANKRUPTCY
JUDGE.
OPINION BY: JAMES F. SCHNEIDER
OPINION: [*775]
_ App. 48
MEMORANDUM OPINION DENYING THE
DEFENDANTS' MOTION TO DISMISS
This matter is before the Court upon the
defendants’ motion to dismiss the trustee's complaint to
recover fraudulently transferred estate property. For the
reasons set forth, the motion will be denied. :
FINDINGS OF FACT |
On October 2U, 2000, the Peninsula Bank filed the
instant involuntary Chapter 7 bankruptcy petition in this
Court against the debtor, Betty Irene French. On
January 29, 2001, an order for relief was entered.
On August 22, 2002, George W. Liebmann, the
Chapter 7 trustee, filed the instant complaint to avoid
and recover an alleged fraudulent transfer made by the
debtor to her son, Randy French, and her daughter,
Donna Shaka, of certain [**2] real property located in
Nassau in the Bahama Islands for no consideration
within 12 [*776] months of the filing of the petition. The
verified complaint alleged that the debtor did not list the
property in her schedules or disclose its existence in her
Statement of Affairs which she filed in her bankruptcy
case. It further alleged that the property was purchased
by the debtor and titled in her name by deed dated
November 11, 1976, and recorded in the Bahamas; that
she deeded the property to the defendants by deed dated
December 1981 but not recorded in the Bahamian land
records until June 21, 2000.
The trustee also filed a motion [P. 2] for temporary
restraining order ("TRO"), which:this Court granted by
order [P. 3] entered August 26, 2002. The TRO prohibited
the defendants from transferring or encumbering the
Bahamian property for a period often days. On
App. 49
September 4, 2002, Judge E. Stephen Derby granted the
plaintiffs request for a preliminary injunction [P. 7].
On October 10, 2002, the defendants filed the
instant motion to dismiss [P. 9]. The motion was
premised upon two legal arguments. First, that the
transfer in question occurred upon the date the
unrecorded deed was executed, [**3] namely, December
1981, well outside the one-year period authorized for the
recovery of fraudulemt conveyances. Second, that Sections
548 and 550 of the Bankruptcy Code nl [*777] providing
for the recovery of fraudulent transfers, do not apply to
property located cutsiide the borders of the United States,
citing Maxwell Communication Corp. v. Barclays Bank
(In re Maxwell Communication Corp.), 170 B.R. 800
(Bankr, S.D. N.Y. 1994), affd, 186 B.R. 807 (S.D.NLY.
1995), affd, 93 F.3d 1036 (2d Cir. 1996), and principles of
International comity..
nl Section 548/a) provides, as
follows:
§ 548. Fraudulent transfers and
obligations.
(A\) The trustee may avoid any
transfer of an interest of the debtor in
property, or any obligation incurred by the
debtor, that was made or incurred on or
within one year before the date of the filing
of the petition, if the debtor voluntarily or
involuntarily-
(A) made such transfer or incurred
such obligation with’ actual intent to
hinder, delay, or defraud any entity to
which the debtor was or became, on or after
App. 50
the date that such transfer was made or
such obligation was incurred, indebted; or
(B)Gi) received less than a
reasonably equivalent value in exchange
for such transfer or obligation; and
(ii) was insolvent on the date that
such transfer was made or such obligation
was incurred, or became insolvent as a
result of such transfer or obligation;
(II) was engaged in business or a
transaction, or was about to engage in
business.or a transaction, for which any
property remaining with the debtor was an
unreasonably small capital; or
(III) intended to incur, or believed
that the debtor would incur, debts that
would be beyond the debtor's ability to pay
as such debts matured.
11 U.S.C. $ 548(a).
Section 550 of the Code provides, as follows:
§ 550. Liability of transferee of avoided
transfer
(a) Except as otherwise provided in
this section, to the extent that a transfer is
avoided, under section 544, 545, 547, 548,
549, 553(b), or 724(a) of this title, the
trustee may recover, for the benefit of the
estate, the property transferred, or, if the
court so orders, the value of such property,
from- -
App. 51
(1) the initial transferee of such
transfer or the entity for whose benefit
such transfer was made; or
(2) any immediate or mediate
transferee of such initial transferee.
(b) The trustee may not recover
under section (a)(2) of this section from- -
(1) a transferee that takes for value,
including satisfaction or securing of a
present or antecedent debt, in good faith,
and without knowledge of the voidability of
the transfer avoided; or
(2) any immediate or mediate good
faith transferee of such transferee.
(c) If a transfer made between 90
days and one year before the Sling of the
petition- -
(1) is avoided under section 547(b) of
this title; and
(2) was made for the benefit of a
creditor that at the time of such transfer
was an insider;
the trustee may not recover under
subsection (a) from a transferee that is not
an insider.
(d) The trustee is entitled to only a
single satisfaction under subsection (a) of
this section.
App. 52
(e)(1) A good faith transferee from
whom the trustee may recover under
subsection (a) of this section has a lien on
the property recovered to secure the lesser
of- -
(A) the cost, to such transferee, of
any improvement made after the transfer,
less the amount of any profit realized by or
accruing to such transferee from such
property; and
(B) any increase in the value of such
property as a result of such improvement,
of the property transferred.
(2) In this subsection,
"improvement" includes- -
(A) physical additions or changes to
the property transferred;
(B) repairs to such property;
(C) payment of any tax on such
property;
(D) payment of any debt secured by
a lien on'such property that is superior or
equal to the rights of the trustee; and
(E) preservation of such property.
(f) An action or proceeding under
this section may not be commenced after
the earlier of- -
App. 53
(1) one year after the avoidance of
the transfer on account of which recovery
under this section is sought; or
(2) the time the case is closed or
dismissed.
11 U.S.C. $ 550.
[**4]
They also cited the case of Kojima v. Grandote
Intern., LLC (In re Grandote Country Club Co., Ltd.), 252
I*.3d 1146 (8th Cir. 2001), for the proposition that foreign
law can never apply to property located in another
country.
The defendants claim that there are no cases
standing for the proposition that Sections 547 and 548
may be applied outside the United States to permit a
trustee to recover property.
CONCLUSIONS OF LAW
. To the extent that the motion to dismiss contests
the date of the transfer, it must fail. "When ruling upon a
rnotion to dismiss a complaint for failure to state a claim
for which relief can be granted pursuant to Federal Rule
/2(6)(6), the Court must accept as true all well-pleaded
allegations in the complaint, including all reasonable
inferences that may be drawn from them, in the light
rnost favorable to the plaintiff." Hemelt v. Pontier (In re
Pontier), 165 B.R. 797, 798 (Bankr. D. Md. 1994). As
stated in the complaint, the transfer in this case occurred
cn June 21, 2000, when the deed to the property was
recorded among the Bahamian land records by the
clefendants. This comports with Section 548(d)(1) of the
Bankruptcy [**5] Code, which provides that a transfer
App. 54
occurs “when such transfer is so perfected that a bona
fide purchaser from the debtor against whom applicable
law permits such transfer to be perfected cannot acquire
an interest in the property transferred that is superior to
the interest in such property of the transferee, but if such
transfer is not so perfected before the commencement of
the case, such transfer is made immediately before the
date of the filing of the petition."
The motion to dismiss could be denied without
even addressing the extraterritoriality of the Bankruptcy
Code, because the complaint does not allege that the
transfer occurred outside this country, which the motion
to dismiss assumes. Nevertheless, to the extent that the
avoidance of the transfer at issue requires [*778] a
discussion of extraterritoriality, it is rioted that the
extraterritorial application of the Bankruptcy Code has
been upheld in the context of the discharge injunction of
Section 524, the worldwide effect of the automatic stay of
Section 362, and the prohibition against litigation against
a reorganized debtor after confirmation of a plan,
pursuant to Sections 524 and 1141, considerations that
have some application [**6] to the present controversy.
In Hong Kong and Shanghai Banking Corp., Ltd.
v. Simon (In re Simon), 153 F.3d 991 (9th Cir. 1998), the
Ninth Circuit held in a Chapter 7 case that the violation
of the discharge injunction by a foreign creditor outside
the United States was sanctionable by the USS.
Bankruptcy Court. In so holding, the court stated:
Congress has the unquestioned
authority to enforce its laws beyond the
territorial boundaries of the United States.
E.E.O.C. v. Arabian American Oil Co., 499
U.S. 244, 248, 111 S. Ct. 1227, 113 L. Ed.
2d 274 (1991) ("Aramco"). Whether
Congress has exercised that authority in a
App. 55
particular case is a matter of statutory
construction. Stegeman v. United States,
425 F2d 984, 986 (9th Cir. 1970)(en banc).
In construing a statute to ascertain
Congress’ territorial intent, we begin with
the presumption that "the legislation of
Congress, unless a contrary intent appears,
is meant to apply only within the territorial
jurisdiction of the United States." Foley
Bros. v. Filardo, 336 U.S. 281, 285, 69 S.
Ct. 575, 93 L. Ed. 680 (1949). With that
presumption in mind, we analyze intent
[**7] by first examining the language of the
act for indications of intent regarding
extraterritorial application. Aramco, 499
U.S. at 248, 111 S. Ct. 1227, 113 L. Ed. 2d
274. In addition to the plain statutory
words, intent may be discerned with
reference to similarly-phrased legislation,
id. at 250-51, HI S. Ct. 1227, or the overall
statutory scheme. Foley Bros., 336 U.S. at
286, 69 S. Ct. 575. If these inquires are
inconclusive, examination of legislative
history is appropriate. Jd. Resort to
administrative interpretations of the law
may be employed if the legislative history
is inconclusive. Id. at 286-88, 69 S. Ct. 575.
If Congressional intent concerning
extraterritorial application cannot be
divined, then courts will examine
additional factors to determine whether the
traditional presumption against
extraterritorial application should be
disregarded is a particular case. First, “the
presumption is generally not applied where
the failure to extend the scope of the
statute to a foreign setting will result in
App. 56
adverse effects within the United States."
Environmental Defense Fund, Inc. v.
Massey, 300 U.S. App. D.C. 65, 986 F.2d
528, 531 (D.C. Cir. 1993) [**8] (citing Steele
v. Bulova Watch Co., 344 U.S. 280, 73 S.
Ct. 252, 97 L. Ed. 319, 1953 Dec. Comm'r
Pat. 424 (1952)). Second, the presumption
against extraterritoriality is not applicable
when the regulated conduct is "intended to,
and results, in, substantial effects within
the United States" Laker Airways, Ltd. v.
Sabena Belgian World Airlines, 235 U.S.
App. D.C. 207, 731 F.2d 909, 925 (D.C. Cir.
1984).
Applying this analysis to the instant
case, the district court was entirely correct
in upholding the bankruptcy court's order
and giving effect to the section 524
discharge injunction.
The district court properly
concluded that as to actions against the
bankruptcy estate, Congress. clearly
intended extraterritorial application of the
Bankruptcy Code. The filing of a
bankruptcy petition under 17 U.S.C. § $
301, 302 or 303 creates a bankruptcy
estate. 11 U.S.C $ 541 (a). With certain
exceptions, the estate is comprised of the
debtor's legal or equitable interests in
property "wherever [*779] located and by
whomever held." Id. (emphasis supplied).
The district court in which the bankruptcy
case is commenced obtains exclusive in rem
jurisdiction over all of the [**9] property in
the estate. 28 U.S.C. $ 1334(e); Commodity
Futures Trading Comm'n v. Co Petro
App. 57
Marketing Group, Inc., 700 F.2d 1279, 1282
(9th Cir. 1983)(interpreting 28 U.S.C. $
1471, the statutory precursor to 28 U.S.C. §
1334(e)). The court's exercise of "custody"
over the debtor's property, via its exercise
of in rem jurisdiction, essentially creates a
fiction that the property - - regardless of
actual location - - is legally located within
the jurisdictional boundaries of the district
in which the court sits. See Katchen uv.
Landy, 382 U.S. 323, 327, 86 S. Ct. 467, 15
L. Ed. 2d 391 (1966)(noting that
bankruptcy courts have "constructive
possession" over estate property) (internal
quotation marks and citations omitted);
Commodity Futures, 700 F.2d at 1282
(noting that under the bankruptcy code,
“all property of the debtor, wherever
located, is in custodia legis of the
bankruptcy court."). This includes property
outside the territorial jurisdiction of the
United States. See Stegeman, 425 F.2d at
986 (construing extraterritorial
jurisdictional [**10] reach of — prior
Bankruptcy Act); see also Underwood v.
Milliard (In re Rimsat, Ltd.), 98 F.3d 956,
961 (7th Cir. 1996).
Given this clear expression of intent
by Congress in the express language of the
Bankruptcy Code, we conclude _ that
Congress intended extraterritorial
application of the Bankruptcy Code as it
applies to property of the estate. Although
Hong Kong-Shanghai concedes this point, it
questions whether such an extraterritorial
application may operate to enjoin a foreign
proceeding. As a matter of general
App. 58
principle, protection of in rem or quasi in
rem jurisdiction is a sufficient basis for a
court to restrain another’ court's
proceedings. Donovan v. City of Dallas, 377
U.S. 408, 412, 84 S. Ct. 1579, 12 L. Ed. 2d
409 (1964). In such cases, "the state or
federal court having custody of such
property has exclusive jurisdiction to
proceed." Jd. This rationale extends to
foreign proceedings. See Seattle Totems
Hockey Club v. National Hockey League,
652 F.2d 852, 855 (9th Cir. 1981); see also
Gau Shan Co. v. Bankers Trust Co., 956
F.2d 1349, 1356 (6th Cir. 1992); China
Trade & Develop. Corp., v. U. V. Choong
Yong, 837 F.2d 33, 36 (2d Cir. 1987). [**11]
In the bankruptcy context, the
Seventh Circuit has expressly held that
protection of the bankruptcy court's in rem
jurisdiction over estate property allows an
international proceeding to be enjoined
pursuant to the automatic stay in 11 U.S.C.
$ 362. Underwood, 98 F.3d at 961. As Chief
Judge Posner explained: "The efficacy of
the bankruptcy proceeding depends on the
court's ability to control and marshal the
assets of the debtor wherever located..." Id.
_ As applied to the concept of in rem
bankruptcy jurisdiction, there is no
functional difference between’ the
automatic stay imposed by 11 U.S.C. $ 362
upon the commencement of a bankruptcy
and the injunction prohibiting collection
actions against the bankruptcy estate
provided in 17 U.S.C. $ 524(a)(3). Each stay
operates to protect the estate and the in
App. 59
rem jurisdiction of the bankruptcy court.
Accordingly, we join the Seventh Circuit's
logic and hold that a bankruptcy court may
validly exercise its in rem jurisdiction to
protect estate property wherever the
property is located in issuing a discharge
injunction under 11 U.S.C. $ 524. [**12]
Thus, the district court correctly held in
this case that the 11 U.S.C. $ 524 discharge
enjoined Hong [*780] Kong-Shanghai from
commencing collection against any
bankruptcy estate property regardless of its
geographic location.
Simon, 153 F.3d at 995-96.
According to Section 541(a) of the Bankruptcy
Code n2 property of the bankruptcy estate includes every
interest of a debtor in property "wherever located and by
whomever held." In Nakash v. Zur (In re Nakash), 190
B.R. 763 (Bankr. S.D.N.Y. 1996), this provision was held
to indicate congressional intent that the automatic stay
provisions of Section 362 of the Code be given
extraterritorial application to protect a debtor from the
filing of an insolvency proceeding against it in Israel.
n2 Section 541 (a) provides, as follows:
§ 541. Property of the estate.
(a) The commencement of a case
under section 301, 302, or 303 of this title
creates an estate. Such estate is comprised
of all the following property, wherever
located and by whomever held:
(1) | Except as_ provided in
subsections (b) and (c)(2) of this section, all
App. 60
legal or equitable interests of the debtor in
property as of the commencement of the
(2) All interests of the debtor and
the debtor's spouse in community property
as of the commencement of the case that is-
(A) under the sole, equal, or joint
management and control of the debtor; or
(B) liable for an allowable claim
against the debtor, or for both an allowable
claim against the debtor and an allowable
claim against the debtor's spouse, to the
extent that such interest is so liable.
(3) Any interest in property that the
trustee recovers under section 329(b),
363(n), 543, 550, 553, or 723 of this title.
(4) Any interest in property
preserved for the benefit of or ordered
transferred to the estate under section
510(c) or 551 of this title.
(5) Any interest in property that
would have been property of the estate if
such interest had been an interest of the
debtor on the date of the filing of the
petition, and that the debtor acquires or
becomes entitled to acquire within 180 days
after such date- -
(A) by bequest, devise, or
inheritance; :
(B)as a result of a _ property
settlement agreement with the debtor's
App. 61
spouse, or of an interlocutory or final
divorce decree; or
(C) as a beneficiary of a life
insurance policy or of a death benefit plan.
(6) Proceeds, product, offspring,
rents, or profits of or from property of the
estate, except such as are earnings from
services performed by an individual debtor
after the commencement of the case.
(7) Any interest in property that the
estate acquires after the commencement of
the case.
11 U.S.C. § 541 (a).
[**13]
In the case of In re Dow Corning Corp., 287 B.R.
396 (E.D. Mich. 2002), a confirmed Chapter 11 plan was
given extraterritorial effect based upon the following
analysis:
Generally, there is a presumption
against extraterritorial application of
United States law as argued by the
Australian Claimants. However, in the
bankruptcy context, that presumption does
not apply if ignoring the bankruptcy court
orders would have "substantial effects
within the United States." Jn re Simon, 153
F.3d 991, 997 (9th Cir. 1998). As noted
previously, Dow Australia is contributing
cash and insurance assets to the Joint Plan
and Dow Australia has filed a contribution
claim against the Debtor. If the Australian
App. 62
Claimants were allowed to pursue their
claims against Dow Australia, the Debtor
would lose Dow Australia's contribution
and would also have to defend its products
in the Australian courts.
It is noted that the Australian
Claimants have submitted themselves to
this Court's jurisdiction by participating in
this bankruptcy action. When a creditor
submits to bankruptcy court jurisdiction by
filing a proof of claim in order to collect its
debt, the creditor is [**14] subject to the
court's orders and any discharge order
pursuant to 11 U.S. C. $ 524. Id. at 997.
International comity does not [*781]
prohibit an injunction issued by the
bankruptcy court. Jd. at 997-98. It is noted
that the Bankruptcy Code extends the
bankruptcy court's power over the debtor's
legal and equitable interests in property
"wherever located." Id. at 998; 11 U.S.C. §
541, The bankruptcy was initiated in the
United States and the Australian
Claimants participated in the action. It is
noted that the release and injunction
provisions [of the Joint Plan] do not apply
to the Australian courts but to the
participants in the bankruptcy proceedings,
- specifically, the Debtor, Dow Australia and
the Australian Claimants. The discharge
provision of the Bankruptcy Code, 11 U.S.C
§ 524, does not apply to courts outside of
the United States but to those creditors
who enjoyed the benefits of participating in
the United States bankruptcy. In re Simon,
153 F.3d at 999. The release and iujunction
provisions in this case do not conflict with
* *
App. 63
the sovereignty of [**15] the Australian
courts since those provisions do not apply
to the Australian courts but to those who
participated in the bankruptcy action, such
as the Australian Claimants. It is further
noted that there is no competing
bankruptcy proceeding in Australia at this
time, therefore, there is no _ conflict
regarding the bankruptcy laws at issue.
The Australian Claimants are therefore
bound by the Court's orders because they
participated in the bankruptcy action.
*
Without a release and injunction,
the Shareholders would not have agreed to
a plan at the funding level of the current
Plan or one that involved the Shareholders'
rights to hundreds of millions of dollars of
insurance proceeds. . . The Debtor, alone,
would have been unable to fund the Plan at
its current level -without the insurance
proceeds and would have had to stay in
bankruptcy. The Shareholders and the
subsidiaries/affiliates would each have
potential contribution and indemnity
claims against the Debtor if litigation over
the Debtor's products were asserted against
the non-debtors and would have no interest
in relinquishing any right to the insurance.
As noted by the Bankruptcy Court and the
Sixth Circuit, claims for [**16]
indemnification and contribution would
affect the size of the estate and the length
of time the bankruptcy proceedings will be
sending, as well as Dow Coming's ability to
resoive its liabilities and proceed with
App. 64
reorganization. See, In re Dow Corning
Corp., 244 B.R. 721, 745 (Bankr. E.D-Mith.
1999); In re Dow Corning Corp., 86 F.3d
482, 494.
The Debtor has_ consistently
maintained that the main reason the
Debtor filed for bankruptcy was because of
the thousands of pending lawsuits against
it claiming its silicone gel products caused
injury and disease. The Joint Plan
submitted by the Debtor and the Tort
Claimants' Committee was to resolve the
pending litigation against the Debtor, its
Shareholders and its subsidiaries and
affiliates . . . The injunction and release
provisions are essential to the Joint Plan
and to both the consenting and non-
consenting creditors.
Dow Corning, 287 B.R. at 411-13.
The fallacy of the defendants’ arguments is clear
when one examines the cases. In Interbulk Lid. v. Louis
Dreyfiis Corp. (In re Interbulk, Ltd.), 240 B.R. 195
(Bankr. S.D.N.Y. 1999), Chief Judge Tina Brozman
distinguished [**17] her opinion in Maxwell, 170 B.R. 800
(Bankr. S.D. AT. 1994), holding that Section 547 might be
invoked to address a transfer hi the form of an
attachment obtained against an American debtor by an
American corporation in a foreign [*782] court, and stated
that such a transfer was not extraterritorial:
. . .What Dreyfus fails to realize is
that there are critical distinctions between
the facts of Maxwell and those present
here.
App. 65
In Maxwell, there were parallel
bankruptcy proceedings in England and the
United States for the debtor, an English
corporation. See Maxwell, 186 B.R. 807, 813
(S.D.N.Y. 1995). The joint administrators
appointed by the high court in London and
the examiner appointed by this court
entered into a procedural protocol (the
"Protocol") to coordinate their efforts to
administer the two cases as a single estate.
Id. The Protocol provided for the creation of
a single pool of assets in which creditors
from both countries could share by filing
claims in either jurisdiction. Jd. Three
foreign (to the United States) creditors (the
"Creditors") had received transfers
overseas from the debtor within 90 days of
the debtor's bankruptcy [(**18] filings. Id,
All three filed claims in England, but not
here. Cognizant that the administrators
contemplated suit in the United States to
recover the preferences from them, the
Creditors sought unsuccessfully, in
England, to enjoin the administrators from
commencing suit under section 547 of the
Code. The administrators then filed
adversary complaints in this court to
recover the transfers from the Creditors.
Id. at 814. The Creditors promptly moved
for dismissal, pursuant to Fed. R. Civ. P.
12(6)(6), for failure to state a claim upon
which relief could be granted. Id. The
Creditors argued that the transfers were
extraterritorial in nature and
considerations of comity prevented the use
of section 547 to avoid them. Id. I concluded
that section 547 was not meant by Congress
to apply extraterritorially and_ that
App. 66
inasmuch as the center of gravity of these
transfers was indeed extra‘erritorial, they
could not be avoided. I alternatively
concluded that principles of international
comity dictated that the avoidance actions
had to be dismissed. Whereas my decision
was affirmed on both grounds in the
district court, in the [**19] further appeal
to the circuit court, only the alternative
holding was reached and my decision was
affirmed on that ground alone. The circuit
court did not rule on the question of first
impression - whether the U.S. preference
laws are extraterritorial in their reach.
Interbulk, 240 B.R. 195,198-- 99.
Grandote Country Club, 252 F.3d 1146 (10th Cir.
2001), another case cited by the defendants, is equally
inapposite to the facts of the instant case as was Maxwell.
Grandote was a choice of law decision which, like
Maxwell, involved parallel or duplicate insolvency
proceedings pending in this country and overseas. The
- trustee in a Japanese bankruptcy case brought an
ancillary action in this country under Section 304 to avoid
the tax sale of a Japanese-owned golf course in Colorado
as a fraudulent conveyance. The question raised was
whether to apply the law of Japan or of this country to a
proceeding brought in this country by a foreign national
relating to land located in this country. The bankruptcy,
district and circuit courts discounted questions of comity
- and applied the Colorado Uniform Fraudulent Transfer
' Act, holding that the tax [**20] sale in question did not
effect a fraudulent transfer. 252 F.3d at 1150-52,
The instant complaint was brought by the
involuntary debtor's bankruptcy trustee in a proceeding
filed in this country to determine the rights of the debtor
App. 67
in property located outside of this country which she
allegedly transferred to insiders, namely her children, for
no consideration [*783] and which she failed to disclose to
her creditors.
The fact that there is no parallel or duplicative
insolvency proceeding now pending in the Bahamas is an
important factor in this Court's determination to deny the
motion to dismiss. The defendants claim that Bahamian
law controls the interest of the debtor in property located
_ there. However, having conveyed the property to the
clefendant transferees, it is obvious that considerations of
‘comity with the Bahamas are not implicated here. Under
Bahamian law, the debtor has no further interest in the
property conveyed and according to the defendants, the
transfer to them cannot be avoided.
This fact, if true, means that granting the motion
to dismiss will most certainly result in prejudice to the
clebtor's American creditors, whose interests are
represented here by [**21] the trustee.
Professor Jay Lawrence Westbrook, Benno C.
Schmidt Chair of Business Law at the University of
Texas School of Law, who was appointed amicus curiae
by Chief Judge Brozman in the Maxwell case, rendered
his opinion regarding the proper choice of law to be
epplied in such a straight-forward case as the instant
one:
App. 68
... Ina case like Maxwell, a particularized
choice-of-law analysis may be unavoidable.
In most transnational cases, however, the
home country of the debtor-transferor of an
alleged preference will be beyond serious
argument. I continue to believe application
of a home-country rule in those cases
makes the most sense.
Jay Lawrence Westbrook, The Lessons of Maxwell ©
Communication, Fordham Law Review, May 1996,
2531,2541.
Regardless of the fact that the land in question is
located in the Bahamas, it is property of the estate within
the subject matter jurisdiction of this Court pursuant to
Section 54l(a). This Court enjoys primary jurisdiction
over the subject property because there is no competing
insolvency proceeding involving the debtor now pending
in the Bahama Islands. Cf. Stonington Partners, Ine. v.
Lernout & Hauspie Speech Products, N. V., 310 F.3d 118
(3d Cir. 2002) [**22] (U.S. Bankruptcy Court erroneously
entered "“anti-suit" injunction against pending Belgian
insolvency proceeding according to the Maxwell analysis);
and Official Committee of Unsecured Creditors v.
Transpacific Corp. Ltd. (In re Commodore Intern., Ltd.),
242B.R. 243 (Bankr. S.D.N.Y, 7 P9P,) (Bahamian
insolvency proceedings were given deference under the
principle of comity, where a competing insolvency
proceeding was pending in the Bahamas).
This Court has personal jurisdiction as well over
the parties, including the defendants, both of whom are
domiciliaries of the United States who were properly
served. As the debtor's children, the defendant-
transferees are insiders of the debtor. This matter is a
core proceeding over which this Court is exercising in rem
jurisdiction. 28 U.S. C. § 157(b)(2)(F) and (H).
App. 69
For all these reasons, the defendants' motion to
clismiss will be DENIED.
ORDER ACCORDINGLY.
SO ORDERED
Dated October 07, 2003
ORDER DENYING THE DEFENDANTS'
MOTION TO DISMISS
Based upon the memorandum opinion filed
simultaneously herewith, the defendants’ motion to
clismiss is [**23] hereby DENIED.
App. 70
JUDGMENT
Filed: February 14, 2006
[ENTERED: February 14, 2006]
UNITED STATES COURT OF APPEALS
for the
Fourth Circuit
No. 05-1054
CA-04-1947-WMN
In Re: BETTY I. FRENCH
Debtor
RANDY LEE FRENCH; DONNA MARIE SHAKA
Appellants
we
GEORGE W. LIEBMANN
Trustee - Appellee
Appeal from the United States District Court for the
District of Maryland at Baltimore
In accordance with the written opinion of this
Court filed this day, the Court affirms the judgment of
the District Court.
A certified copy of this judgment will be provided
to the District Court upon issuance of the mandate. The
judgment will take effect upon issuance of the mandate.
/s/ Patricia S. Connor
CLERK
App. 71
11 U.S.C. § 541:
(a) The commencement of a case under section 301, 302,
or 303 of this title creates an estate. Such estate is
comprised of the following property, wherever located and
by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of
this section, all legal or equitable interests of the
debtor in property as of the commencement of the
case.
KKKKE
(3) Any interest in property that the trustee recovers
under section 329(b), 363(n), 543, 550, 553, or 723 of
this title.
App. 72
11 U.S.C. § 544:
(b)(1) Except as provided in paragraph (2), the trustee
may avoid any transfer of an interest of the debtor in
property or any obligation incurred by the debtor that is
voidable under applicable law by a creditor holding an
unsecured claim that is allowable under section 502 of
this title or that is not allowable only under section 502(e)
of this title.
App. 73
11 U.S.C. § 547
(b) Except as provided in subsection (c) of this section,
the trustee may avoid any transfer of an interest of the
debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by
the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the
filing of the petition; or
(B) between ninety days and one year before the
date of the filing of the petition, if such creditor at
the time of such transfer was an insider; and ;
(5) that enables such creditor to receive more than
such creditor would receive if—
(A) the case were a case under chapter 7 of this
title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to
the extent provided by the provisions of this title.
App. 74
11 U.S.C. § 548:
(a)(1) The trustee may avoid any transfer of an interest
of the debtor in property, or any obligation incurred by
the debtor, that was made or incurred on or within one
year before the date of the filing of the petition, if the
debtor voluntarily or involuntarily —
(A) made such transfer or incurred such obligation
with actual intent to hinder, delay, or defraud any
entity to which the debtor was or became, on or after
the date that such transfer was made or such
obligation was incurred, indebted; or
(B) received less than an equivalent value in-exchange
for such transfer or obligation; and
(ii) (JD was insolvent on the date that such transfer
was made or such obligation was incurred, or
became insolvent as a result of such transfer or
obligation;
(IJ was engaged in business or a transaction,
or was about to engage in business or a
transaction, for which any property remaining
with the debtor was an unreasonably small
capital; or |
(III) intended to incur, or believed that the
debtor would incur, debts that would be beyond
the debtor’s ability to pay as such debts matured.
App. 75
(d)(1) For the purposes of this section, a transfer is made
when such transfer is so far perfected that a bona fide
purchaser from the debtor against whom applicable law
permits such transfer to be perfected cannot acquire an
interest in the property transferred that is superior to the
interest in such property of the transferee, but if such
(transfer is not so perfected before the commencement of
the case, such transfer is made immediately before the
late of the filing of the petition.
App. 76
11 U.S.C. § 550:
(a) Except as otherwise provided in this section, to the
extent that a transfer is avoided under section 544, 547,
548, 549, 553(b), or 724(a) of this title, the trustee may
recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such |
property, from —
(1) the initial transferee of such transfer or the entity
for whose benefit such transfer was made; or
(2) any immediate or mediate transferee of such
initial transferee.
App. 77
28 U.S.C. § 1334:
(e) The district court in which a case under title 11 is
commenced or is pending shall have exclusive jurisdiction
of all of the property, wherever located, of the debtor as of
the commencement of such case, and of the property of
the estate. |
App. 78
[1932] 4 D.LR. 529, *; 1932 D.LR. LEXIS 649, **
(C) The Cartwright Group Ltd., 2006
DUKEKet al. v. ANDLER et al.
[1932] 4 D.LR. 529; 1932 D.LR. LEXIS 649
CASE-HISTORY: Reversing [1932] 2 D.L.R. 19: Varying
in part [1931] 3 D.L.R.561
Supreme Court of Canada
JUDGES: Duff, Rinfret, Lamont, Smith and Cannon, JJ.
October 11, 1932
KEYWORDS-1: Conflict of Laws I A — Jurisdiction of
foreign Court in personam -Title to land in another
country.
KEYWORDS-2: Judgments and Orders IV A — Foreign
judgments based on fraud --Purporting to have effect in
rem — Recognition -- Conclusiveness — Whether
supplementary enforcement.
SUMMARY-2: Courts of a foreign country have no
jurisdiction to adjudicate in rem upon the title to any
immovable not situate in that country. Thus, when the
defendant is resident within the territory of a foreign
Court and has in alleged fraud of the plaintiff obtained
title to land situated in another country, a judgment of
the foreign Court purporting to deal with the title to that
land does not affect the title as such and can be enforced
merely in personam. Such a judgment cannot be
recognized by the Courts of the country of the situs as
binding between the parties and will not be enforced
——
App. 79
against the defendant there by a supplementary
judgment in rem. :
APPEAL by the defendant from the judgment of the
3ritish Columbia Court of Appeal, [1932] 2 D.L.R. 19, 45
3.C.R. 96, reversing in part [1931] 3 D.L.R. 561, 43
~ B.C.R. 549. Reversed. G. F. Henderson, K.C., and D. K.
MacTavish, for appellants.
A. Bull, K.C., for respondents. JUDGMENT-BY: DUFF,
3.
SMITH, J.
JUDGMENT: DUFF, J.:—The appeal should be allowed,
and the action dismissed, with costs to defendants
throughout, for the reasons given by Smith, J.
RINFRET and LAMONT, JJ,, concur with SMITH, J.
SMITH, J.:—On September 25, 1925, the appellant
George E. Duke, entered into a contract with Josephine
Promis, Augusta Col, Sophia Promis, Mary Giflespie, and
Oscar Promis for the purchase of certain real estate in
the City of Victoria, in the Province of British Columbia.
The contract reads:--
We the undersigned (naming the above vendors) have
this day granted, transferred, sold and conveyed to G. E.
Duke the following described real property situated in
Victoria City, B.C., Dominion of Canada.
Then follows the particular description, the price,
$55,000, payable $10,000 cash and a note for $45,000 to
be secured by a mortgage on certain property in the City
of Berkeley, in California, "the said mortgage to be
App. 80
subject to an existing encumbrance now of record in the
sum of $22,150 as a first lien on the property."
There is then the following provision:--
Upon evidence of good merchantable title being vested
in G. E. Duke, he will immediately cause to be paid in
to the Alameda County Title Insurance Company the
sum of ten thousand ($10,000.00) dollars U. S. lawful
money, together with note and mortgage to be
delivered to the vendors.
All the parties to the contract were, at the time, residents
of California, and the survivors and executors of the two
vendors, who died shortly after the date of the contract,
have continued to be residents of that state.
This contract or another conveyance was placed in the
hands of the Alameda County Title Ins. Co., it is claimed
in escrow, which company handed over the contract or the
other conveyance to the defendant G. E. Duke, who
registered same and thus became the registered owner of
the Victoria property, which he conveyed to his wife, the
defendant Margaret E. Duke, who mortgaged it for
$30,000.
The vendors brought action in the Superior Court of the
State of California in and for the County of Alameda,
against the defendants, to rescind and cancel the contract
and the mortgage, and to require the defendants to re-
convey to the plaintiffs the Victoria property, alleging
that G. E. Duke obtained possession of the conveyance
without the knowledge of the plaintiffs and without
complying with the terms of the agreement, and in
violation of the escrow agreement, "in this," that he
delivered the mortgage stipulated for subject to an
encumbrance of $9,605 in addition to the encumbrance of
$22,150 mentioned in the agreement.
App. 81
The defence to the complaint about the $9,605
ancumbrance, stated shortly, was that the vendors falsely
represented to defendant G. E. Duke that the Victoria
property was then producing net earnings of $6,775 per
year, and that the then tenants were ready and anxious
to obtain new leases on the same terms as the existing
leases, whereas in fact the net earnings were not greater
than $3,903 per year, and the then tenants were
unwilling to renew their leases on the same terms, but
were preparing to quit unless extensive repairs were
made, and that, to retain them, repairs costing $11,525
had to be made, which sum defendant G. E. Duke claimed
as damages: for false representations inducing him to
make the contract, and which he was entitled to set off
against the $9,605 encumbrance.
The defence further alleged that the Alameda County
Title Ins. Co. was authorized by the plaintiff to cause the
deed to be recorded, vesting the title to the Victoria
property in defendant G. E. Duke before any part of the
consideration therefor was to be paid or delivered by the
defendant to the plaintiffs, "all in conformity to said
contract." .
I take it that this means that such is the proper
construction to be put on the terms of the contract.
The learned trial Judge in the California Court found
that defendant G. E. Duke agreed to deliver the $45,000
mortgage free and clear of the $9,605 encumbrance before
taking title to the Victoria property, and that there were
no false representations, and no set-off, as alleged.
He also finds that defendant G. E. Duke got possession of
the deed without paying the $10,000, though there is no
such claim in the plaintiffs' pleadings, the only non-
compliance with the terms of the agreement alleged being
that referred to above.
‘App. 82
The judgment entered in the Superior Court of California,
omitting the style of cause, is as follows; —
The Court having made and filed its Findings of Fact and
Conclusions of Law herein, now, therefore, in accordance
therewith,
It is Ordered, Adjudged and Decreed that the defendants
G. E. Duke and Margaret E, Duke, execute, acknowledge
and deliver, and cause to be recorded and registered
according to the forms and laws of British Columbia,
Dominion of Canada, within 30 days of notice of entry
hereof, a deed of conveyance of said Victoria Property' to
Josephine Promis, Augusta Col, Mary Glliespie, A. G. Col
and Josephine Andler, plaintiffs herein, and vesting in
them the title thereto, subject to an encumbrance of $
30,000 now of record, and subject to no other iiens or
encumbrance whatsoever, and to do and perform, or
cause to be done or performed such other act or acts as
may be necessary or proper in the premises, to the end
that the plaintiffs may be restored to the ownership and
possession of said Victoria Property’ - - which said
‘Victoria Property’ is described as follows, to wit:
Ail and singular these certain parcels or tracts of land
and premises situate, lying and being Lots Three and
Four, Block Seventy-five, Victoria City, recorded in
Absolute Fees Book Fol. 22, Vol. 22, (Date of Registration
May 10, 1904, 11.10 a.m.).
Lots 11 and 12, block 75, map 219, Victoria City; recorded
in Absolute Fees Book Fol. 30, Vol: 23. (Date of
Registration, February 21, 1906, 10 a.m.).
Together with all improvements thereon,
It is further Ordered and Adjudged that in the event of
the failure or refusal of G. E. Duke and/or Margaret E.
App. 83
Duke, defendants herein, to so convey said ‘Victoria
}roperty' within said time, George E. Gross, Clerk of this
(Court, be, and he is hereby, appointed as Commissioner
of this Court; and said George E. Cross, as such
(Commissioner, is hereby ordered and empowered to
make, execute and deliver such deed, and cause the same
0 be so recorded and registered, and to do and perform
any and ali other acts as may be necessary or proper, to
effect and perfect a conveyance of said ‘Victoria Property’
to the plaintiffs herein named, as and for said G. E. Duke
and Margaret E. Duke, defendants herein, as their act
and deed.
It is further Ordered Adjudged and Decreed that that
certain instrument in writing designated as ‘contract of
sale’ dated September 25, 1925, and attached to
Plaintiffs' complaint herein as ex. ‘A,’ wherein and
whereby Josephine Promis, Augusta Col, Sophia Promis,
Mary Gillespie and Oscar Promis, agreed to grant,
transfer, sell and convey to G. E. Duke, one of the
defendants herein, the said ‘Victoria Property' for certain
considerations therein mentioned, be, and the same is
hereby, cancelled and rendered null and void and of no
effect whatsoever.
It is further Ordered, Adjudged and Decreed, that the
plaintiffs herein named do have and recover of and from
the defendants G. E. Duke and Margaret E. Duke the
sum of $16,804.11, together with plaintiffs' costs and
disbursements incurred herein, taxed in the sum of $
Dated this 30th day of July, 1928,
(Sgd.) John J. Allen, Judge.
The defendants refused to execute a conveyance, as
ordered by this judgment, and a conveyance was executed
in their name by George E. Gross, County Clerk and
App. 84
Commissioner of the Superior Court, pursuant to the
terms of the judgment.
The plaintiffs then brought the present action in the
Supreme Court of British Columbia, [1931] 3 D.L.R. 561,
for a declaration that, by virtue of the conveyance
referred to, or, alternatively, by virtue of the conveyance
and of the judgment referred to, and in the further
alternative by virtue of the judgment alone, the plaintiffs
are the owners of and entitled to be registered as owners
in fee simple of the Victoria property in question, subject
to the mortgage of $30,000 and interest, mentioned
above.
There is the further claim that the Court, in the exercise
of its jurisdiction to implement the judgment of the
Superior Court of the State of California, do vest the
property in the plaintiffs.
Judgment was given, declaring that, by virtue of the
judgment of the Superior Court of California and of the
conveyance made in pursuance of it, the plaintiffs are the
owners of the property in Victoria subject to the $ 30,000
mortgage and a certain registered lease, and that the
property vest in the plaintiffs, subject to these charges.
On appeal, the Court of Appeal of British Columbia,
[1932] 2 D.L.R. 19, 45 B.C.R. 96, by a majority of three to
one, varied this judgment by striking out the first
adjudicating paragraph and substituting a paragraph in
different language, vesting the property in the plaintiffs,
McPhillips, J.A., dissenting, would have allowed the
appeal and dismissed the action. From this judgment of
the majority, the present appeal is taken. |
The question involved is whether or not the judgment of
the foreign Court on the question of title and ownership
of this real property situate in British Columbia is to be
App. 85
recognized as final and to be enforced by the Courts of
}3ritish Columbia,
The general rule that the Courts of any country have no
jurisdiction to adjudicate on the right and title to lands
not situate in such country is not disputed.
(Considering the operation of foreign law in regard to real
and immovable property, Story on Conflict of Laws, 8th
ad., at p. 591, says:—
And here the general principle of the common law is,
that the laws of the place where such property is
situate, exclusively govern in respect to the rights of
the parties, the modes of transfer, and the solemnities
which should accompany them. The title therefore to
real property can be acquired, passed, and lost only
according to the lex rei sitae. This is generally,
although (as we shall presently see) not universally,
admitted by courts and by jurists, foreign as well as
domestic.
Then, at p. 757, para. 543, dealing with the jurisdiction of
a nation over a person in its domain, there is the
following: —
A suit cannot, for instance, be maintainable against
him, so as absolutely to bind his property situate
elsewhere; and, a fortiori, not so as absolutely to bind
his rights and titles to immovable property situate
elsewhere,
Dicey's Conflict of Laws, 5th ed., at p. 395, citing Story on
Conflict of Laws, 8th ed., and Piggott's Foreign
Judgments & Jurisdiction, 3rd ed., has the following:—
The Courts of a foreign country have no jurisdiction —
App. 86
(1) to adjudicate upon the title, or the right to the
possession, of any immovable not situate in such
country; or
(2) (semble) to give redress for any injury in respect of
any immovable not situate in such country.
The undoubted rule, in short, is that, if a Court
pronounce a judgment affecting land out of the
jurisdiction, the Courts of the country where it is situated
— and, it is presumed, also the Courts of any other
country -- are justified in refusing to be bound by it, or to
recognize it; and this even if the judgment proceed on the
lex loci rei sitae.
This rule is merely an application of a more general
principle that no Court ought to give a judgment the
enforcement whereof lies beyond the Court's power, and
especially if it would bring the Court into conflict with the
admitted authority of a foreign sovereign, or what is the
same thing, the jurisdiction of a foreign Court.
There is, however, a long line of cases in which it has
been held that English Courts will enforce rights
affecting real estate in foreign countries if such rights are
based on contract, fraud or trust, and the defendant
resides in England.
An early case of this kind is Penn v. Lord Baltimore, 1
Ves. Sen. 444, 27 E.R. 1132, where an agreement in
reference to lands in Pennsylvania made in England was
sought to be enforced, the residence of the parties being
in England. It was held that there was jurisdiction. The
Lord Chancellor says, at p. 447: —
The conscience of the party was bound by this
agreement; and being within the jurisdiction of this
App. 87
court .which acts in personam, the court may properly —
decree it as an agreement, if a foundation for it.
See also Deschamps v. Miller, [1908] 1 Ch. 856, at p. 863.
Jn numerous decisions, however, besides Penn v. Lord
Baltimore, it has been pointed out that, in exercising
jurisdiction in such cases, the Courts act in personam.
{n the case of Lord Cranstown v. Johnston, 3 Ves. 170, 30
@.R, 952, defendant, being a creditor of the plaintiff,
obtained judgment in the Island of St. Christopher, and
at the sale under the execution, of which the plaintiff had
ao notice, purchased the plaintiff's interest in lands of
plaintiff there at much less than the value. Both parties
residing in England, it was held there was jurisdiction,
and the defendant was ordered to reconvey on payment of
the amount owing.
In Norton v. Florence Land & Public Wks. Co. (1877), 7
Ch. Div. 332, Jessel, M.R., states that the decision in
Lord Cranstown v. Johnston must be understood as
limited to jurisdiction in personam.
In Paget v. Ede (1874), L.R. 18 Eq. 118, it was held that
an equity of redemption is not an estate but merely a
right, and that a decree of foreclosure, being a decree in
personam, could be made in England as the mortgagor
and mortgagee resided in England, though the lands were
noi in England.
In Ex p. Pollard, Re Thomas Courtney & George
Courtney (1840), Mont. & Ch. 239, at p. 250, there is the
following passage in the judgments-
It is true that in this country contract for sale, or
(whether expressed or implied) for charging lands, are
in certain cases made by the courts of equity to
App. 88
operate in rem; but in contracts respecting lands in
countries not within the jurisdiction of these courts
they can only be enforced by proceedings in personam,
which courts of equity here are constantly in the habit
of doing; not thereby in any respect interfering with
the lex loci rei sitae.
In Angus v. Angus (1736-7), West temp. Hard. 23, "to a
bill brought for possession of lands in Scotland, and for
discovery of the rents and profits," and of deeds and fraud
in obtaining them, it was pleaded that the matter was out
of the jurisdiction.
The Lord Chancellor says (pp. 23-4):--
This court acts upon the person as to the fraud and
discovery, therefore the plea must be overruled. To have
made this a good plea, there ought to have been a farther
averment, that the defendant was resident in Scotland.
This had been a good bill as to fraud and discovery if the
land had been in France, if the persons were resident
here; for the jurisdiction of this court as to frauds, is upon
the conscience of the party.
I am in doubt as to parts of the bill for relief; for I cannot
give the plaintiff possession any other way than by
compulsion on the defendant's person, whilst it is within
the jurisdiction of the court.
In British South Africa Co. v. Companhia de
Mocambique, [1893] A.C. 602, it was held by the Queen's
Bench Division that the Courts in England had no
jurisdiction to entertain an action for a declaration of title
to lands in South Africa; and by the House of Lords, no
jurisdiction to entertain an action for damages in such
lands. Herschell, L.C, at p. 624, says:--
App. 89
No nation can execute its judgments, whether against
persons or movables or real property, in the country of
another. On the other hand, if the Courts of a country
were .to claim, as against a person resident there,
jurisdiction to adjudicate upon the title to land in a
foreign country, and to enforce its adjudication in
personam, it is by no means certain that any rule of
international law would be violated .
And, at p. 626:--
Whilst Courts of Equity have never claimed to act
directly upon land situate abroad, they have purported to
act upon the conscience of persons living here.
Lord Halsbury, at p. 631, says:--
There is a concurrence of opinion of most jurists, if not
all, as to the difference between what we call realty
and personalty, by whatever words those things are
distinguished in che jurisprudence of foreign
countries, which affects very materially the right to
try. Vattel distinguishes the questions which may
properly be tried where defendant has his settled
place of abode, but always subject to this, that if the
matter relates to an estate in land or to a right
annexed to such an estate (quoting Vattel)
in such a case, inasmuch as property of the kind is to be
held according to the laws of the country where it is
situated, and as the right of granting it is vested in the
ruler of the country, controversies relating to such
property can only be decided in the state in which it
depends.
In Henderson v. Bk. of Hamilton (1894), 23 S.C.R. 716, in
this Court it is pointed out that Courts of Equity held
that where personal equities existed between parties over
App. 90
whom they had jurisdiction, though such equities might
have reference to lands situate without the jurisdiction,
they would give relief by a decree operating not directly
upon the lands, but strictly in personam, and that such
decrees would have been unenforce- able in the foreign
jurisdiction, and might have brought the Courts
decreeing them into collision with the former, within
whose local jurisdiction the lands were situated. British
South Africa Co. v. Companhia de Mocambique,: just
referred to, is cited and relied on.
The title to real property therefore must be determined
by the standard of the laws relating to it of the country
where it is situated. The grounds upon which, and the
circumstances under which a conveyance would be set
aside under the law of California may differ from those
under which it would be set aside under the law of British
Columbia. The conveyance from appellant G. E. Duke to
his wife, the appellant Margaret E. Duke, could only be
set aside in British Columbia by virtue of the statute law
of that Province, and the Courts of one country are not
presumed to know the laws of another country.
In Norris v. Chambres, 29 Beav. 246, 54 E.R. 621, a claim
was made for a lien on real property in Prussia. After
stating a certain manner in which a lien on land may be
acquired in England, the decision proceeds (p. 255);--
Assuming this to be so, this is purely a lex loci which
attaches to persons resident here and dealing with land
in England. If this be not the law of Prussia, I cannot
make it so, because two out of the three parties dealing
_ with the estate are Englishmen, and I have no evidence
before me that this is the Prussian law on this subject,
and if it be so, the Prussian Courts of Justice are the
proper tribunals to enforce these rights.
App. 91
An adjudication as to title to the lands in question, to
have any effect in British Columbia, must be an
adjudication on the basis of British Columbia law relating
to real property applied to the facts.
The objection to accepting the judgment of a foreign
Court as conclusive on a question of title to land is shown
by what is laid down by Cottingham, L.C., in Ex p.
Pollard, cited above, in the satin language (Mont. &
Ch. at pp. 250-1): —
If indeed the law of the country where the land is situate
should not permit or not enable the defendant to do what
the coup might otherwise think it right to decree, it would
be useless and unjust to direct him to do the act, but
when there is no such impediment the courts of this
country, in the exercise of their jurisdiction over contracts
made here, or in administering equities between parties
residing here, act upon their own rules, and are not
influenced by any consideration of what the effect of such
contracts might be in the country where the lands are
situate, or of the manner in which the courts of such
countries might deal with such equities.
The Courts of California therefore must be assumed to
have based their judgments on California law, without
being influenced by any consideration of the effect on the
title, of the contract and of equities arising from it and
what followed, according to the law of British Columbia,
and without any regard to the statute law of British
Columbia bearing on the conveyance from G. E. Duke to
his wife.
It may be that on the facts as found, the Courts of British
Columbia, in applying the laws of British Columbia,
would reach the same conclusion as the California
Courts, but it is to be remembered that findings of fact
may in some cases be based on the particular law to be
App. 92
applied to them. For instance, a finding of fraud depends
on what constitutes fraud under the particular law to be
applied.
In any event, we must deal with the question as a general
proposition, and not merely from the point of view of the
facts in this particular case.
The question at issue here has come before the Supreme
Court of the United States in a number of cases, but it is
to be noted that there is a special clause in the
constitution of the United States dealing with the credit
to be given by the Courts of one state to the judgments of
the Courts of another.
It appears, however, that this clause does not make
judgments of the Courts of one state dealing with lands in
another binding on the Courts of the latter.
In Carpenter v. Strange (1890), 141 U.S.R. 87, the Court
of New York State, where the parties resided, decreed
that a conveyance of land in Tennessee alleged to be
fraudulent was absolutely null and void. The Courts of
Tennessee refused to recognize this part of the judgment,
and were upheld by the Supreme Court. The following is
a passage from the judgment (p. 106): —
The courts of Tennessee were not obliged to surrender
jurisdiction to the courts of New York over real estate in
Tennessee, exclusively subject to its laws and the
jurisdiction of its courts.
Again in Fall v. Eastin (1909), 215 U.S.R. 1, in the —
judgment of the same Court there is the following
passage (p. 9):--
A court of chancery, acting in personam, may well
decree the conveyance of land in any other State, and
App. 93
may well enforce its decree by process against the
defendant. But neither the decree itself nor any
conveyance under it, except by the person in whom
the title is vested, can operate beyond the jurisdiction
of the court.
Respondents put much reliance on the case of Houlditch
v. Donegal, 8 Bli. N.S. 301, 5 E.R. 955, Upon a bill in
chancery in England by creditors a decree was made to
execute the trusts of a deed by which lands in Ireland
were vested in trustees for payment of debts. A receiver
was appointed and an injunction granted, and a bill was
filed in the Court of Chancery in Ireland to carry the
former decree into execution. The Irish Court held that it
had no jurisdiction. It was held, reversing this judgment,
that there was jurisdiction. The basis of this decision was
that a foreign judgment is only prima facie evidence, and
the propriety of the English decree might be enquired
into in the Irish Court,
This doctrine, that a foreign judgment is only prima facie
evidence, and the propriety of the English decree might
be enquired into in the Irish Court.
This doctrine, that a foreign judgment is only prima facie
evidence, is now considered erroneous. Dicey's Conflict of
Laws, 4th ed., at p. 449, and cases there cited.
Martin, 3.A., [19321 2 D.L.R. 19, 45 B.C.R. 96, places
reliance on the cases of Law v. Hansen (1895), 25 S.C.R.
69; Nouvion v. Freeman (1887), 37 Ch. D. 244, and, in the
House of Lords (1889), 15 App. Cas. 1; and a number of
others of similar import.
The remarks that he quotes from these decisions are the
enunciation of the general rule that the judgment of a
foreign Court of competent jurisdiction having the force of
App. 94
res judicata in the foreign country has the like force in
England.
The question here is whether or not the judgment of the
foreign Court in question, adjudicating on the right and
title to real property in British Columbia, is one of the
exceptions to this general rule.
The numerous decisions referred to above seem to
establish beyond question that such a judgment is in
personam only, and affects the conscience of the parties
within the jurisdiction of the Court, and stands on an
entirely different footing in the Courts of the country
where the land is situated from the ordinary judgment
coming within the general rule, such as a foreign
judgment for debt.
In the present case the plaintiffs sue in British Columbia
to enforce a judgment of the California Courts deciding
that the plaintiffs aréthe owners of the British Columbia
land in question, rather than the defendants, one of
whom is the registered owner. In California, it must be
conceded that that judgment has effect only in personam,
but if the Courts of British Columbia were obliged to
enforce it between the same parties, without question,
there would be no practical difference, in effect, between
such a judgment and a judgment for a debt, and the
distinction so much insisted on in the authorities referred
to would be of no real consequence.
In my opinion the rule stated by Dicey quoted above, that
the Courts of a foreign country have no jurisdiction to
adjudicate upon the title or the right to the possession of
any immovable not situate in such country, and the
statement in the authorities referred to, that
controversies in reference to land can only be decided in
the state in which it depends, and that judgments of
foreign Courts purporting to deal with the title and with
t
App. 95
rights to lands in another country can only be enforced by
proceedings in personam, show that the judgment of the
Court of California here in question does not, in British
Columbia, affect the title to the lands in question, and is
not a judgment that should be enforced by the Courts of
}3ritish Columbia as binding there on the parties.
‘The appeal should be allowed, and the action dismissed,
with costs to defendants throughout.
(SANNON, j., concurs with SMITH, J.
Appeal allowed.
LAW REPORTS
of the incorporated council of law reporting
HOUSE OF LORDS,
JUDICIAL COMMITTEE OF THE PRIVY COUNCIL
AND
PEERAGE CASES
EDITOR - SIR FREDERICK POLLOCK, Bart,
Barrister-at_Law.
Assistant Editor - A. P. STONE, Barrister-at-Law
Reporters
House of Lords - English and Irish Appeals and Peerage
Cases - J. M. Moorsom
House of Lords - Scottish and Divorce Appeals and
Scottish Peerage Cases - Gerald Wheeler, Barrister-at-
Law
Priby Council Appeals (including Appeals from
Eccleciastical Courts) - Herbert Cowell, Barrister-at-Law
1910
LONDON
[HOUSE OF LORDS.]
App. 97
. L. (E.) GALBRAITH Appellant;
And
GRIMSHAW AND ANOTHER Respondents.
Attachment of Debts - Scottish Judgment - Extension to
England -Garnishee Order Nisi - Service on Garnishee -
Subsequent Bankruptcy of Judgment Debtor in Scotland -
Rights of Trustee in Bankruptcy - Bankruptcy Act, 1883
(46 & 47 Vict. c. 52), s. 117.
A judgment for a sum of money which was obtained in
an action in Scotland was extended to England under the
Judgment Extension Act, 1868, and the judgment
creditor served a garnishee order nisi on a firm who owed
a debt in England to the judgment debtor.
After the service of the garnishee order nisi the whole
estate of the judgment debtor was sequestrated under the
Scottish bankruptcy law and transferred wherever
situated to the appellant as trustee for the creditors with
power to recover all estates, debts, or money due to the
judgment debtor. In an interpleader issue in England
between the trustee and the judgment creditor as to their
respective claims to the garnished debt: -
Held, that the judgment creditor had by the service of
the garnishee order nisi obtained an attachment in
England before the date of the sequestration, and that
the Scottish Court had no power to interfere with his
claim.
Decision of the Court of Appeal, [1910] 1 K. B. 339,
affirmed.
App. 98
The facts material to this appeal are states in the
head-note. The dates are as follows: October 23, 1908,
judgment for 311/ and costs in an action in Scotland by
Grimshaw and another against Merrens & Sons; October
26, judgment extended to England; October 27, garnishee
order nisi in respect of 400/ owed to Merrens & Sons in
England served upon the firm in England who owed the
4001; November 12, sequestration in Scotland of the
estate of Merrnes & Sons; December 7, confirmation of
the appellant as trustee of the sequestrated estate.
In the interpleader issue between the appellant and
the respondents (Grimshaw and another) as to their
respective claims to the garnished debt Ridley J. gave
judgment for the appellant. This decision was reversed
by the Court of Appeal (Farwell, Buckley, and Kennedy
L.JJ.), who entered judgment for the respondents. Hence
this appeal.
June 22, 23. Radcliffe, K.C., and Pringle, for the
appellant. The garnishee order nisi did not transfer the
property in the sum garnished from the judgment debtor,
nor did it create a charge. There is in our law no term
which exactly defines the right of a garnishor, which has
been described as a lien or security, it is something like a
distringas on stock. A receiver in a debenture-holders’
action is entitled to precedence over the garnishor,
although appointed after the garnishee order: Norton v.
Yates (1); Geisse v. Taylor (2); Cairney v. Back.l (3) A
garnishee is but a stakeholder. In Rogers v. Whiteley (4)
Lord Watson said: “The effect of an order attaching all
debts . . . . is to make the garnishee custodier for the
Court, of the whole funds attached.” In In re Combined
Weighing and Advertising Machine Co. (5) it washeld that
a garnishee order does not create between garnishor and
garnishee any debt either at law or in equity. Holmes v.
Tutton (6) was like the present case, and the title of the
assigness in bankruptcy prevailed.
App. 99
The Court will recognize and give effect to a foreign
bankruptcy: Sill v. Worswick. (7) In Solomons v. Ross (8)
the title of the administrator of “desolate” estates in
Holland was preferred to that of a person who had, like a
zarnishor, attached money of the bankrupt. A similar
order with respect to Irish property was made in Neale v.
iZottingham (9), referred to in the same note, and in Jollet
». Deponthieu. (10) The question must be decided
according to Scottish and not Erglish law.
Rawlinson, K.C., and H. Dobb, for the respondents.
By the order of the King’s Bench Division the respondents
acquired a lien or charge for the money lodged in Court
by the garnishees, and that charge had priority to the
rights of the appellant. The money was bound in the
hands of the garnishees. The garnishees could not pay
the money due to the bankrupt to any one else than the
respondents. On the order’s becoming absolute the
money attached become the property of the creditors.
Sect. 117 of the Bankruptcy Act, 1888, is only machinery,
and is no authority for introducing English law into a
Scottish bankruptcy. When the garnishee order was
obtained the rights of the Scottish creditors and of the
appellant had not come into existence; they only arose on
November 12, when the petition was presented. There is
no authority for applying the provisions of s. 45 of the
Bankruptcy Act, 1888, which require that an execution or
attachment must be completed in order to prevail over
the trustee’s title, to Scotland. The question must be
decided by English and not Scottish law. In the cases
cited from Henry Blackstone time was the governing
consideration and the title of the assignees in bankruptcy
was prior to the garnishee order. On the effect of an
arrestment, which is the equivalent of a garnishee order,
Lord Deas’ judgment in Goetze v. Aders (1) supports the
respondents.
Radcliffe, K.C., in reply.
App. 100
Lord Loreburn, L.C. My Lords, in this case I think
that the conclusion arrived at by the Court of Appeal
ought to be supported.
To my mind your Lordships would be wise to apply
the rule explained by Lord President Inglis in the case of
Goetze v. Alders. (2) I think that rule is applicable in
England also. The attachment in England will not
prevail against a claim of a foreign trustee in bankruptcy
which is prior in date, provided that the effect of the
bankruptcy is to vest in the trustee the assets in
question. If the attachment is prior in date, ten I do not
think it will affected by the title of the trustee in a foreign
bankruptcy; and the reason is that a foreign law making
the title of the trustee relate back to transactions which
the debtor himself could not have disturbed has no
operation in England, which the English law as to
relation back applied only to cases of English bankruptcy,
and therefore the trustee may find himself (as in this
case) falling between two stools.
I think, my Lords, in each case the question will be
whether the bankrupt could have assigned to the trustee,
at the date when the trustee’s title accrued, the debt or
assets in question situated in England. If any part of
that which the bankrupt could have then assigned is
situated in England, then the trustee may have it; but he
could not have it unless the bankrupt could himself have
assigned it. It follows that the trustee cannot have this
debt free from the garnishee order, because the bankrupt
could only have assigned it on November 12, subject to
the garnishee order.
My Lords, with regard to s. 117 of the Bankruptcy
Act, 1888, I think that affects procedure and does not
enlarge the rule to which I have alludéd. And I am not
prepared to accept and act upon the case which is scantily
reported in the volume of Blackstone’s Reports to which
App. 101
we have been referred. (1) I am not prepared to accept
that case as an authority against the rule — I have
referred to.
I will not say, my Lords, that there may not be
exceptions to that rule; as, for example, if the effect of the
foreign bankruptcy were to transfer to the trustee only
part of the assets of the bankrupt. Such points, to my
mind, ought not to be settled or treated as settled except
after consideration of the cases in which they actually
arose. But I think it is enough to say in the present case
I see nothing that should disturb the rule or the principle
to which I have adverted.
Lord Macnaghten. My Lords, this is rather a singular
case. If the bankruptcy had been an English bankruptcy,
the attachment, being uncompleted, would not have
prevailed against the claim of the judicial factor or the
trustee in bankruptcy. If the attachment, or the process
in Scotland that corresponds more or less with
attachment, had been pending there, the claim of the
judicial factor or the trustee in bankruptcy must have
succeeded. But, as it is, a creditor of the bankrupt having
duly obtained an attachment in England before the date
of the sequestration cannot, I think, be deprived of the
fruits of his diligence.
It may have been intended by the Legislature that
bankruptcy in one part of the United Kingdom should
produce the same consequences throughout the whole
kingdom. But the Legislature has not said so. The Act
does not say that a Scotch sequestration shall have effect
in England as if it were an English bankruptcy of the
same date. It only says that the Courts of the different
parts of the United Kingdom shall severally act in aid of
and be auxiliary to each other in all matters of
bankruptcy. The English Court, no doubt, is bound to
carry out the orders of the Scottish Court, but in the
4
App. 102
absence of special enactment the Scottish Court can only
claim the free assets of the bankrupt. It has no right to
interfere with any process of an English Court pending at
the time of the Scotch sequestration. It must take the
assets of the bankrupt such as they were at that date and
with the liabilities to which they were then subject. The
debt attached by the order nisi was at the date of the
sequestration earmarked for the purpose of answering a
particular claim - a claim which in due course would have
ripened into a right. With this inchoate right the Scottish
Court had no power to interfere, nor has it even
purported to do so. Therefore I think the appeal fails.
Lord James of Hereford. My Lords, I concure.
Lord Dunedin. My Lords, I concur with the opinions
which have been delivered. I think that the general
principle which underlies every bankruptcy system is
that after bankruptcy the bankrupt is no longer really the
owner of his own property, but holds his own property as
trustee for the whole of his creditors for equal division.
That carries with it necessarily the idea that some of his
creditors may already have got security or may have
taken part of the property in execution. And if the matter
went no further that that it is quire clear that both of
those positions would be good as against the bankrupt
himself and consequently as against the rest of his
creditors. It is a very natural development of that in
working out a bankruptcy system that you should
introduce a law of relation back, and that within a certain
period, which will always be an arbitrary period
determined by positive enactment, you should hold that
the security given or the execution affected should have
no effect and that that property should be like the rest of
the property of the bankrupt.
Now so far as the general principle is concerned it is
quite consistent with the comity of nations that it should
App. 103
be 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 allows
steps to be taken in its territory which would interfere
with that process of universal distribution; and that I
take to be the doctrine at the bottom of the cases of which
Goetze v. Aders (1) is only one example. But if you wish to
extend that not only to the question of recognizing a
process of universal distribution but also of introducing
the law of relation back, then it seems to me you at once
get into rather great difficulties, because the question at
once arises, according to which law will you apply the
doctrine of relation back? If you take the law of the
country of the bankruptcy, then the execution or security
in «question may be and often is of a kind which is quite
foreign to the system of law which you are administering
in the Bankruptcy Court. If on the other-hand you take
the law of the country of the attachment, then you have
to administer a law which is quite ignorant of the precise
execution or security with which it has to deal.
Accordingly, to say the least of it, there has been quoted
to us no instance where as a question of international law
a Court has applied the rule of relation back, and
certainly there are dicta of Lord President Inglis which
seem to point completely the other way. Of course that
would not prevent the matter being dealt with in the
United Kingdom by means of positive enactment. I
entirely concur with what fell from the noble and learned
Lord on the woolsack as to the true meaning of s. 117.
Order of the Court of Appeal affirmed and appeal
disinissed with costs.
Lords’ Journals, June 23, 1910
Solicitors: Heath & Hamilton; Julius A. White
App. 104
Case Name:
Stewart Estate v. Cartwright
Between
Eunice Fanny Fantom, Executrix of the Estate of Ellen
Donaldson Stewart, plaintiff, and
Kathleen Cartwright, defendant
(2001) BHS J. No. 60 1999 No. 1375
Bahamas Supreme Court, Equity Side
Longley J.
July 7,2001.
Counsel:
Forbes, for the plaintiff.
Horton, for the defendant.
DECISION
LONGLEY J.:— Having duly considered the
submissions and evidence adduced on behalf of the
respective parties I am unable to conclude, that the
unrecorded deed dated 14th June 1919 on which the
defendant relies to assert her claim to the property was
ever delivered for it to be an effective and effectual
disposition of the purported grant. It is a matter of trite
law that for a deed to: be effective, in law if must be
delivered. Evidence of delivery may be director
circumstantial. The alleged grantor and grantee having
died, and long since so, no direct evidence has been
adduced to establish that the deed was delivered or
intended to be delivered by the grantor. The battle lines
were drawn on the issue as to whether or not the facts
and circumstances which were adduced were in and of
App. 105
themselves sufficient to permit the court to draw the
inference that the deed was delivered.
In this connection I shall deal with the point
raised by Mr. Horton and referred to in Halsbary. It is
this. That once a document purporting to be a deed Is
sealed delivery may be presumed in the absence of any
evidence that the document was delivered in escrow. A
careful review of the cases cited in support of that
proposition, however, clearly reveal that it is their stated
to broadly. That a document purporting to be a deed has
been sealed is but one of the factors which the court may
take into consideration, having regard to all the
circumstances of the case, to decide whether or not to
draw the inference that the deed was delivered so as to
mailxe it effectual. In Hall and Bainbridge (1843) 12 QB
699 for example which is cited in support of the
proposition which is relied on by counsel for the
defendant, Mr. Horton, it was clear that there were or
existed a multiplicity of factors, including sealing, which
permitted the court or jury to draw the irresistible
inference on the facts and circumstances of that case that
there had been delivery.
No doubt, one of the compelling factors in Hall and
Bainbridge - missing in this case - was the fact that the
deed had been in the hand of the person in whose favour
it was executed. In this case, the source of the deed is
unclear. It was produced by an attorney who deponed in
an affidavit that he had found it among papers belonging
to the defendant’s father. Just how the defendant's
father came in to possession of that deed is unclear and is
not disclosed by the evidence.
However, other more compelling circumstances
militate against the drawing of the inference intended for
by the defendant. The deed itself purports to have been
executed some nine years before the alleged grantor
App. 106
executed her will and some forty years before the grantee
who is the grantor's executor executed his will anc
probated the will of the grantor. Nothing in any of those
documents suggests that the grantor had conveyed the
property in question to the grantee or that the grantee
was cognizant of ownership of such a property. In fact or
the evidence before me there is nothing to suggest giver
what the grantor did many years after purportedly
conveying this properly suggest that she did not stil
consider herself to be the owner of the property as she
purported to make dispositions in her will which were
adverse to the interest supposedly disposed of by the
deed.
The affidavit in support of the application SWOTITI
by Mr. P, L. Adderley bears this out Paragraphs £
through 13 are here set out
"5. The said late Clementina Fanny Andersor
and her husband resided at No. lf
Cumberland Street which was their home
which adjoined to the south the other twc
storey house which was rented and ownec
by the said late Clementina Fanny
Anderson.
6. By an unrecorded document dated the 14tk
June 1919 the said late Clementina Fanny
Anderson purportedly conveyed to hei
husband the said late Charles Osborne
Anderson a "half interest or moiety" in:
"All that lot of land and premises situate ir
Cumberland Street in the city of Nassau in the saic
Island of New Providence and bounded as follows fronting
west on Cumberland Street on the north by land of the
said Clementina Fanny Anderson on the east by land o:
BEST AVAILABLE COPY
App. 107
M. H. Jellicoe and others and on the south by land of
Alexander W. Cunningham",
te
Nine years tater the said late Clementine
Fanny Anderson made her last will dated
the 25th June 1928 by which she made the
following specific devises:
"I will and bequeath to my husband
Charles Osborne Anderson a life interest in
all of which I die possessed.
To my 30n Charles Wakefield Anderson I
will and bequeath to him and his lawful
children should he have any - the property
immediately to the south of and adjoining
the one in which I am now residing. He is |
not to sell mortgage or in any way part
with the property but a portion of the rent
is regularly to be set aside for the upkeep
thereof.
Should he die without lawful Issue then It
is to go to his sister Mary Ida Anderson.
To my daughter Mary Ida Anderson, I will
and bequeath the house In which I am now
residing 19 Cumberland Street she is not to
sell mortgage or In any way part with any -
of the property
To her and her children should she have
any, should she have no children then her
property is to go to her brother. Should
both of them die without lawful Issue then
the whole property is to be divided between
my cousin Hilda Wood at Grand Turk,
App. 108
Turks Island, and my cousin Nellie Stewar!
in New South. Wales, Australia".
not have attended to the other details to ensure that nc
question could arise as to whether or not. the dead hac
ever been delivered. I think there is merit in his
submission.
On the whole of the evidence I am not satisfied
that any inference can be drawn that this deed was
delivered and I would so hold.
In the circumstances, I would have to answer the
question posed in the originating summons in the
affirmative.
Cost to the plaintiffs to be taxed if not agreed.
LONGLEY J.
App. 109
Excerpts from the Bahamas Fraudulent Dispositions Act,
1991
An Act to Amend the Law Relating to Dispositions
made with an Intent to Defraud.
Enacted by the Parliament of the Bahamas.
2. Interpretation.
“creditor” means a person to whom an obligation is
owned.
2K OK A
“intent to defraud” means an intention of a transferor
wil! fully to defeat an obligation owed to a creditor;
“obligation” means an obligation or liability (which
shall include a contingent liability) which existed on or
prior to the date of a relevant disposition and of which the
transferor had notice;
“relevant disposition” means a disposition to which
seci:iion 4(1) applies;
“transferor means the person to whom a relevant
dis}osition is made and shall include any successor in
title;
“undervalue”, in relation to a disposition of property,
means —
(a) the provision of no consideration for the
dis} osition; or
(b) a consideration for the disposition the value of
which in money or
App. 110
money’s worth is significantly less than the value
of the property
the subject of the disposition.
ak RE aK
4. Avoidance of fraudulent dispositions.
4.(1) Subject to the provisions of this Act, ever)
disposition of property made with an intent to defrauc
and at an undervalue shall be voidable at the instance o
a creditor thereby prejudiced.
(2) The burden of establishing an intent to defraud fo:
the purposes of this Act shall be upon the creditor seekins
to set aside the disposition.
(3) No action or proceedings shall be commencec
pursuant to this Act unless commenced within two year:
of the date of the relevant disposition.
App. 111
THE STATUTE LAW
OF
THE BAHAMAS
1799-1987
IN FORCE ON THE
30th June, 1987
As amended by the Statute Law Revision Act, 1987
REVISED EDITION
Prepared under the authority of The Law Reform
and Revision Act, 1975
BY
SIR GORDON BRYCE, C.B.E.
of the Middle Temple, Barrister-at-Law
IN EIGHT VOLUMES AND A SUPPLEMENTARY
VOLUME
VOLUME III
Containing Chapters 91 to 177
PUBLISHED BY THE GOVERNMENT OF THE
COMMONWEALTH OF THE BAHAMAS
PRINTED BY
A Wheaton & Co Ltd. Exeter
1988
App. 112
CHAPTER 175
REGISTRATION OF RECORDS.
AN ACT RELATING TO THE REGISTRATION OF RECORDS.
{26th March, 1928.
[Commencement 2nd July, 1928.
1. This Act may be cited as the Registration o:
Records Act.
2. In this Act, unless the context otherwise requires -
“book” or “book of record” means --
(a) a book in which deeds, documents
or other writings accepted for recorc
are copied; or
(b) a roll of film upon which deeds
documents or other writing acceptec
for record are reproduced by means
of microphotography;
“deed” means documents of title to land under sea.
not otherwise specifically mentioned in section 3 o:
this Act;
“document” means any document other than ¢
deed, or promissory notes and bills of exchange not
under seal, and which is not otherwise specifically
mentioned in section 3 of this Act;
“Registrar” means the Registrar General anc
includes the Deputy Registrar General;
App. 113
“Registry” means the Registrar General’s
Department.
3. (1) The following deeds, documents and other
writings may be recorded upon authentication thereof
being first made as provided by this Act --
Class A. Deeds.
Class B. Documents.
Class C. Freehold and leasehold grants from the
Crown, certificates of naturalization, letters
patent, poor settlers licences and any document
under the Public Seal or the S
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.