December 1, 2007
Japanese Bankruptcy Court Authorizes Sale of Hotel in Hawaii
Iida v. Kitahara (In re Iida) ---- B.R. ---- (9th Cir. BAP September, 2007)
Issue: Can a trustee appointed by a Japanese court pursuant to a Japanese bankruptcy proceeding order the sale of real property in the US without getting permission from a US bankruptcy court first?
Judge Robert Faris, Hawaii
Dunn, Klein, Smith
Opinion by Dunn
This is a chapter 15 case. Iida is a debtor in a bankruptcy case in Japan. Kitahara is the trustee. Iida has no creditors in the US. The Japan bankruptcy case was apparently similar to a chapter 7 in the US. Iida owned several Hawaiian corporations which owned significant properties in Hawaii. The trustee took control of the Hawaiian corporations, via Hawaiian state law corporate procedures, and obtained an order of the Japanese court permitting sale of some of the real properties located in Hawaii. Iida then sued the trustee in Hawaii for declaratory relief arguing that he was still in control of the Hawaiian corps because the Japanese trustee did not obtain consent of US courts before taking the actions he took. After that, the trustee sought an order of the Japanese court making it clear that he had the power to do what he was doing, apparently to use as a defense to the declaratory relief complaint. The Japanese court granted the order.
The trustee then filed a chapter 15 petition in Bankruptcy Court in Hawaii. The BAP opinion called this a “petition for recognition.” The debtor opposed the petition saying that the trustee should have done that before taking the actions he already took. The Bankruptcy Court granted the petition and the trustee removed the state court dec relief action to the Bankruptcy Court and then filed a motion to dismiss it. The Bankruptcy Court dismissed the adversary proceeding saying that the trustee was authorized to do what he did and that he did it properly under Japanese, US and Hawaiian law.
The BAP affirmed saying “nothing in either the Bankruptcy Code or Hawaii state law requires the [Japanese trustee] to obtain a further order from a court within the United States recognizing his authority as trustee before exercising ownership rights.” “[W]hen activity by a foreign representative in the United States is not a subject of controversy, the courts historically have had no occasion to become involved, it being a basic premise of American constitutional law that courts decide only cases and controversies. Measures taken by a foreign representative in the United States that do not require invoking the machinery of the courts and that all counterparties accept as legitimate do not present a controversy and are presumptively valid. If, however, the foreign representative’s authority or capacity is challenged, then there is a controversy that would be appropriate for judicial application of principles of comity.” “Chapter 15 is fundamentally procedural in nature and does not constitute a change in the basic approach of United States law, which, as we have explained, has long been one of honoring principles of comity.” “Nothing in the statute requires prior judicial permission for acts that do not implicate matters of comity or cooperation by courts.”
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Posted by: Mike Smith | Dec 21, 2007 6:26:46 AM