recent trends in international chapter 11 cases: pragmatic

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145 Recent Trends in International Chapter 11 Cases: Pragmatic Reorganizations MARK HOOGLAND ABSTRACT Mark Hoogland’s note examines the recent Avianca and Yukos bankruptcy cases. Both cases involved international companies with extensive non-U.S. commercial operations that nevertheless sought bankruptcy protection exclusively within the United States. Together, Avianca and Yukos offer a glimpse into the evolution of international bankruptcy law, as practiced by U.S. courts. International companies have motivations for filing in the United States, and prudence may be the only constraint on the international jurisdiction of U.S. bankruptcy judges. The recent addition of Chapter 15 to Title 11 may alleviate some of the problems considered, but the jurisprudential questions linger. SUMMARY I. INTRODUCTION.......................................................................................................... 146 II. THE EVOLUTION OF U.S. INTERNATIONAL BANKRUPTCY LAW ................................. 150 A. The “Ancillary” Versus “Parallel” Distinction................................................ 151 B. Cases Beyond Section 304 ................................................................................ 151 C. The Ease of Filing a U.S. Proceeding ............................................................... 151 D. Exceptionally Broad Grants of Jurisdiction...................................................... 152 III. MAIN PROCEEDINGS IN THE UNITED STATES: PLENARY QUICKSAND........................ 152 A. Avianca ............................................................................................................. 153 1. Avianca’s Asset Distribution ..................................................................... 153 2. United Airline’s Theories for Dismissal and the Court’s Analysis ............ 154 a. The Section 305(a)(1) Theory ............................................................. 154 b. The Section 305(a)(2) Theory ............................................................. 155 c. The Section 1112(b) Theory ................................................................ 158 d. The “Unseemly” Theory ..................................................................... 158 3. The Result: A Pragmatic, Troubling Decision ........................................... 159 B. Yukos ................................................................................................................ 160 1. Yukos’ Asset Distribution.......................................................................... 160 2. Deutsche Bank’s Theories for Dismissal and the Court’s Analysis ........... 161 a. Section 109(a) ..................................................................................... 161 b. Forum Non Conveniens ...................................................................... 161 Mark Hoogland is a 2006 J.D. candidate at the University of Texas School of Law. The author would like to thank Professors Engle and Westbrook for their indispensable advice and guidance throughout the production of this note. The author would also like to thank Doug Keller, Michael Cecchini, and John Hoogland for their time and editorial assistance.

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Page 1: Recent Trends in International Chapter 11 Cases: Pragmatic

145

Recent Trends in International Chapter 11 Cases: Pragmatic Reorganizations

MARK HOOGLAND†

ABSTRACT Mark Hoogland’s note examines the recent Avianca and Yukos

bankruptcy cases. Both cases involved international companies with extensive non-U.S. commercial operations that nevertheless sought bankruptcy protection exclusively within the United States. Together, Avianca and Yukos offer a glimpse into the evolution of international bankruptcy law, as practiced by U.S. courts. International companies have motivations for filing in the United States, and prudence may be the only constraint on the international jurisdiction of U.S. bankruptcy judges. The recent addition of Chapter 15 to Title 11 may alleviate some of the problems considered, but the jurisprudential questions linger.

SUMMARY

I. INTRODUCTION.......................................................................................................... 146

II. THE EVOLUTION OF U.S. INTERNATIONAL BANKRUPTCY LAW................................. 150 A. The “Ancillary” Versus “Parallel” Distinction................................................ 151 B. Cases Beyond Section 304 ................................................................................ 151 C. The Ease of Filing a U.S. Proceeding ............................................................... 151 D. Exceptionally Broad Grants of Jurisdiction...................................................... 152

III. MAIN PROCEEDINGS IN THE UNITED STATES: PLENARY QUICKSAND........................ 152 A. Avianca ............................................................................................................. 153

1. Avianca’s Asset Distribution ..................................................................... 153 2. United Airline’s Theories for Dismissal and the Court’s Analysis............ 154

a. The Section 305(a)(1) Theory ............................................................. 154 b. The Section 305(a)(2) Theory ............................................................. 155 c. The Section 1112(b) Theory................................................................ 158 d. The “Unseemly” Theory ..................................................................... 158

3. The Result: A Pragmatic, Troubling Decision ........................................... 159 B. Yukos ................................................................................................................ 160

1. Yukos’ Asset Distribution.......................................................................... 160 2. Deutsche Bank’s Theories for Dismissal and the Court’s Analysis........... 161

a. Section 109(a) ..................................................................................... 161 b. Forum Non Conveniens ...................................................................... 161

† Mark Hoogland is a 2006 J.D. candidate at the University of Texas School of Law. The author would like

to thank Professors Engle and Westbrook for their indispensable advice and guidance throughout the production of this note. The author would also like to thank Doug Keller, Michael Cecchini, and John Hoogland for their time and editorial assistance.

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c. Comity .................................................................................................162 d. Act of State Doctrine ...........................................................................163 e. Section 1112(b) ...................................................................................163

3. The Only Decision?....................................................................................164

IV. PRAGMATISM’S EASY RATIONALIZATIONS OF EXTRATERRITORIALITY .....................164 A. Why Are Cases Like Avianca a Problem? .........................................................165

1. Unseemly Application of U.S. Law ...........................................................165 2. Avianca Opens the Door for Cases Like Yukos..........................................167 3. Avianca’s Pragmatic Reasoning Is Counterproductive ..............................167 4. Pragmatic Administration Hinders International Predictability .................168

B. Does the Passage of the Bankruptcy Reform Bill Moot this Analysis? .............168

V. CONCLUSION .............................................................................................................169

I. INTRODUCTION

[T]here is a profound and intimate correlation between insolvency—whether individual or corporate—and the very wellsprings of policy and social order from which national law ultimately draws its inspiration. For this reason, despite numerous general resemblances, national insolvency laws and procedures differ from one another almost infinitely in ways both great and small.1

Some bankruptcies are simple. U.S. courts efficiently dispatch the vast majority of consumer bankruptcies, which seldom raise difficult questions. Business bankruptcies, though they offer complexities galore and are much more likely to incur ruinous delays, are also generally handled adroitly. Sometimes, however, a company’s assets, agents, headquarters, creditors, and customers are spread across multiple countries. In these international bankruptcies—sometimes called cross-border insolvencies or transnational bankruptcies2—the courts of multiple countries must decide hideously complicated questions of law and forum. Since the bankruptcy laws of different countries differ in myriad ways, U.S. and foreign courts regularly find themselves in an international conundrum. Sometimes courts agree to defer decision-making to a single court;3 sometimes courts “cooperate” while maintaining separate proceedings;4 other times courts bicker and threaten sanctions.5 Potential solutions abound, but no method for predictably deciding international cases has been consistently applied.

Courts must address two key issues in every international bankruptcy case: (1) choice of forum and (2) choice of law.6 These issues are encountered and decided in a variety of ways and distinguishing between them can be tricky.7 In an ideal world, once the proper

1. IAN FLETCHER, INSOLVENCY IN PRIVATE INTERNATIONAL LAW: NATIONAL AND INTERNATIONAL

APPROACHES 4 (1999). 2. These three terms are used interchangeably. Throughout this Article, I will use “international bankruptcy.” 3. See, e.g., In re Culmer, 25 B.R. 621 (Bankr. S.D.N.Y. 1982). 4. See, e.g., In re Maxwell Communication Corp., 170 B.R. 800 (Bankr. S.D.N.Y. 1994), aff’d, 186 B.R. 807

(S.D.N.Y. 1995). 5. See, e.g., Felixstowe Dock & Ry. v. U.S. Lines Inc., [1989] Q.B. 360. 6. Jay L. Westbrook, The Lessons of Maxwell Communication, 64 FORDHAM L. REV. 2531, 2532 (1996). 7. ELIZABETH WARREN & JAY L. WESTBROOK, LAW OF DEBTORS AND CREDITORS: TEXT, CASES AND

PROBLEMS 1008 (4th ed. 2001) (“[C]hoice of forum and choice of law are closely intertwined issues in the

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forum is determined, that forum would apply local law. In practice, however, international bankruptcy cases proceed along a variety of paths. For example, a U.S. court might choose to administer a primary proceeding8 in the United States while a parallel primary proceeding takes place in a different country. Alternatively, a U.S. court might be asked—or decide, sua sponte—to cede control of U.S. assets to a foreign primary proceeding (by way of an ancillary U.S. proceeding). Lastly, a U.S. court might decide that the United States is the ideal forum and request cooperation from foreign courts. 9

Two theoretical camps offer different answers to the choice of forum and choice of law questions. Historically, most countries have developed a territorial “grab rule,”10 where each country claims plenary power over whatever assets are located within its borders.11 Territorial bankruptcy schemes favor local creditors, who are most familiar with local laws and well positioned to take advantage of them.12 The major advantage of territorialism is the relative ease with which forum and law can be decided: for a U.S. asset, territorialism would demand that a U.S. forum apply U.S. law. For a Colombian asset, Colombian law would govern a Colombian proceeding. Complications—such as airplanes leased in one country and operating across five other countries—invariably make determinations of forum and law more difficult. Still, territorialism proves a tempting option due to its procedural simplicity.

Unfortunately, strict territorial schemes disregard any pretense of equitable cross-border asset distribution, divvying the scraps between local favorites instead. Most legal experts oppose territorialism because of these shortcomings.13 Territorialism also makes business reorganizations more difficult,14 as do international territorial regimes—primarily the cooperative territorialism advocated by Professor Lynn LoPucki.15 While conceding the shortcomings of the current international system, however, LoPucki worries about the

bankruptcy field and the analyst must keep them sharply distinct while simultaneously remaining aware of their close interaction—a difficult business at best.”).

8. For a discussion of parallel and ancillary proceedings, see Jay L. Westbrook, A Global Solution to Multinational Default, 98 MICH. L. REV. 2276, 2300 (2000) (“The proceeding in the debtor’s home country, often called the ‘main’ proceeding . . . will always be a full bankruptcy under its domestic law. The judicial proceedings in other countries may be ordinary lawsuits, ancillary proceedings, or parallel proceedings . . . [a]n ancillary proceeding is designed primarily to aid the ‘main’ proceeding in the debtor’s home country . . . [b]y contrast, a ‘parallel’ proceeding is a full bankruptcy under domestic law.”) (citation to authority omitted).

9. Practically speaking, however, a creditor with substantial U.S. contacts usually complies—regardless of the foreign court’s position—because of the potential repercussions should it defy a U.S. court. See, e.g., In re McLean Indus., 68 B.R. 690, 693 (Bankr. S.D.N.Y. 1986) (where bankruptcy court issued order that, among other things, restrained a Liechtenstein creditor with a New Jersey office—who was aware of a debtor’s having filed a reorganization petition in a U.S. court—from commencing in rem admiralty proceedings in foreign courts against the debtor’s vessels and property).

10. Jay L. Westbrook, Choice of Avoidance Law in Local Insolvencies, 17 BROOK. J. INT’L L. 499, 513 (1991).

11. Westbrook, supra note 6, at 2532. 12. Westbrook, supra note 10, at 513. But see Westbrook, supra note 6, at 2532 (suggesting that

sophisticated international corporations may be able to claim local status in many jurisdictions, thus undermining the favorable treatment given to local entities).

13. Ian Fletcher succinctly states the problem with territoriality: “[I]t provides an unsatisfactory foundation for approaching the special problems generated by a cross-border insolvency.” FLETCHER, supra note 1, at 12.

14. See AMERICAN LAW INSTITUTE, TRANSNATIONAL INSOLVENCY: COOPERATION AMONG THE NAFTA COUNTRIES: PRINCIPLES OF COOPERATION AMONG THE NAFTA COUNTRIES 12–14 (2003) [hereinafter ALI, PRINCIPLES OF COOPERATION].

15. Westbrook, supra note 8, at 2309–10 (“Territorialism is even less efficient if we consider only reorganization. Reorganization requires a high level of cooperation to administer and rescue a financially distressed multinational company . . . . Professor’s LoPucki’s convention would . . . make it extremely difficult to achieve a reorganization.”).

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impact of revolutionary reforms. In advocating “cooperative territorialism,” he recently warned that:

[T]he universalist guerrillas who exhort bankruptcy judges to surrender local assets today to “home country” courts that will distribute them differently inject uncertainty and injustice without advancing the cause of reform . . . . [I]f they are not more cautious, they may destroy the territorial system in which they now practice before the foundations of a viable new system are in place.16

For LoPucki, the devil you know is preferable to the one you do not. The major theoretical alternative, the devil to which LoPucki alludes, is

universalism.17 Universalism “advances the claim that [one proceeding should] enjoy worldwide—hence, ‘universal’—effect over all property and interests of the debtor wheresoever these may be found.”18 Professor Jay L. Westbrook recently summarized the argument in support:

Universalism . . . is necessarily the correct long-term solution. Bankruptcy is one of those laws that cannot perform its function unless it is symmetrical to the market in which it operates. Virtually all theorists share this view and it is reflected in the nearly unanimous practice of nations, including the United States.19

Substantial economic data support the universalist position,20 and the potential benefits are considerable: increased, more efficient international investment and greatly improved predictability, among others.21 Reorganizations of international companies are in particular need of the “one court, one law” approach offered by universalism: “Only a system that conclusively resolves all the stakeholders’ legal rights can produce a financial restructuring that gives existing and future parties, including financiers, investors, and employees, a sufficient guarantee of legal certainty.”22

Much like territorialism, however, universalism has a glaring defect:

Nearly all the putative advantages of universalism depend on the assumption that each multinational company has a single home country that will not change over time. The arguments for universalism fail because no universalist scholar

16. See Lynn M. LoPucki, The Case for Cooperative Territoriality in International Bankruptcy, 98 MICH. L.

REV. 2216, 2251 (2000). 17. Contractualism, a theoretical alternative advanced by Robert Rasmussen, proposes that corporations

contract around such problems by specifying, in their corporate charter, the governing law should the company become insolvent. This neatly avoids questions of both choice of forum and choice of law. See generally Robert K. Rasmussen, A New Approach to Transnational Insolvencies, 19 MICH. J. INT’L L. 1 (1998). There are some questions about whether domestic courts would honor such contractual decisions, but “the general [U.S.] rule is that, provided the chosen law has a reasonable relation to the transaction, it is enforceable.” Emil Arca, How to Think About Bankruptcy Risk in Cross-Border Future Flow Transactions After the Avianca Case, 10 J. STRUCTURED FIN. 55, 61 (2005). Contractualism is certainly a viable—though almost wholly theoretical—possibility, but this Article will largely ignore it as a potential solution.

18. FLETCHER, supra note 1, at 11. 19. Westbrook, supra note 8, at 2277. 20. See generally Lucian Arye Bebchuk & Andrew T. Guzman, An Economic Analysis of Transnational

Bankruptcies, 42 J.L. & ECON. 775 (1999); Andrew T. Guzman, International Bankruptcy: In Defense of Universalism, 98 MICH. L. REV. 2177 (2000).

21. See ALI, PRINCIPLES OF COOPERATION, supra note 14, at 13–14. 22. Westbrook, supra note 8, at 2285.

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has yet proposed a workable test or method for identifying that country. Without such a method, universalism cannot be implemented.23

LoPucki argues that the resulting uncertainty will precipitate massive forum shopping.24 This is a valid concern, but universalists remain optimistic and universalism is spreading.25

The United States has chosen a cooperative and generally universalist path, as this paper will explore in Part II. However, a recent series of international cases chart a course inconsistent with both territorialism and universalism. International conglomerates—with tenuous links to the United States—are filing main bankruptcy proceedings exclusively in the United States. This short-circuits a universalist home country test because the United States has no such test.26 Territorial theory is also frustrated since, at least initially, the U.S. courts assert jurisdiction over the debtor’s assets throughout the world.27

The breezy passage of the Bankruptcy Reform Act28—in particular Chapter 1529—significantly changes any analysis of the limitations of U.S. extraterritorial jurisdiction. Chapter 15’s potential impact has already been discussed at length.30 However, its impact on foreign corporations31 filing main proceedings solely in the United States remains uncharted territory. I argue that Chapter 15 will limit the extraordinary discretion currently granted U.S. bankruptcy courts in such cases. However, the new statutory construction will introduce a modified set of analyses and pressure points.

Part II of the article briefly examines the evolution of international bankruptcy law in the United States. Part III discusses two recent international cases: Avianca32 and Yukos.33 In both cases, the debtor was a corporation with a non-United States center of main interests. Both debtors nevertheless chose to file solely in the United States. Part IV explores the current parameters of extraterritorial application of U.S. bankruptcy law in light of these cases. The article argues that this expansion of U.S. jurisdiction stops short of imperialism and is pragmatically defensible. The article also argues this same expansion is unseemly and, in light of U.S. policy goals, ultimately counterproductive. Finally, in Part V, the article assesses the probable impact of Chapter 15 on these concerns and hazards hypotheses and hopes for the near future.

23. LoPucki, supra note 16, at 2223–24. 24. Id. at 2229. 25. See LYNN M. LOPUCKI, COURTING FAILURE 214–17 (2005). 26. But see Jay L. Westbrook, Universalism and Choice of Law, 23 PENN. ST. INT’L L. REV. 625, 635–37

(2005) (suggesting that the definition of “foreign proceeding” in 11 U.S.C. § 101(23) can be used as a test; note, however, that this would only apply to deference under § 304).

27. See 11 U.S.C. § 541(a) (2000). 28. Bankruptcy Abuse Prevention and Consumer Protection Act, Pub. L. No. 109-8, 119 Stat. 23 (2005). 29. See id. § 1510. 30. See, e.g., Jay L. Westbrook, Multinational Enterprises in General Default: Chapter 15, The ALI

Principles, and the EU Insolvency Regulation, 76 AM. BANKR. L.J. 1 (2002); Paul L. Lee, Ancillary Proceedings Under Section 304 and Proposed Chapter 15 of the Bankruptcy Code, 76 AM. BANKR. L.J. 115 (2002).

31. By foreign corporation, I mean a corporation with a non-U.S. center of main interests. This concept will be revisited throughout this Article. For a discussion of the term as used in the EU Convention, see FLETCHER, supra note 1, at 260–63.

32. In re Aerovias Nacionales de Colombia S.A. Avianca, 303 B.R. 1, 8 (Bankr. S.D.N.Y. 2003). 33. In re Yukos Oil Co., 321 B.R. 396 (Bankr. S.D. Tex. 2005).

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II. THE EVOLUTION OF U.S. INTERNATIONAL BANKRUPTCY LAW

Prior to the reforms of 1978, there were no specific legislative provisions in force within the USA to enable the courts to deal with international cases in an effective way. Moreover, the legacy of past case law together with much of the doctrinal writings from the previous century showed a strong preference for a territorial approach and a resistance to the idea that the bankruptcy laws of foreign countries might produce effects within the USA . . . .34

In the mid-1970s, the liquidation of the massive German Herstatt bank precipitated a series of U.S. lawsuits by creditors trying to seize Herstatt’s considerable U.S. assets.35 These suits were necessary because of the territorial bankruptcy system then in place; however, it was obvious to many experts that such suits were horribly inefficient. In the aftermath, Professor Stephen Riesenfeld lobbied Congress to include sections 303(b)(4), 304, 305(b), and 306 in the 1978 Bankruptcy Reform Act.36 These sections facilitate the cooperation of U.S. bankruptcy courts with the home country proceedings in foreign courts.37 The results have been gradual, but “little short of revolutionary.”38 Under section 304, U.S. bankruptcy courts can cooperate with foreign courts by stopping U.S. lawsuits and turning U.S. assets over to foreign control.39 Section 305(b) allows foreign representatives to request U.S. courts to abstain by either dismissing or suspending U.S. proceedings, and section 306 limits the appearance of foreign administrators to preclude potential counterclaims.40

Whether Congress intended sections 303(b), 304, 305, and 30641 to expand into powerful tools of universalism and international cooperation is a matter of continuing debate.42 Regardless of legislative intent, the bankruptcy courts have been “surrendering U.S. assets for distribution by foreign bankruptcy courts, and universalist commentators . . . [have] cheered them on.”43 Universalism has been gradually adopted by U.S. bankruptcy courts in a hodgepodge, but nonetheless effective, fashion. This piecemeal evolution has created, over time, unplanned backwaters and loopholes in U.S. law and procedure.

34. FLETCHER, supra note 1, at 201. 35. WARREN & WESTBROOK, supra note 7, at 994; FLETCHER, supra note 1, at 202 n.45. 36. Bankruptcy Reform Act of Nov. 6, 1978, Pub. L. No. 95-598, 92 Stat. 2549. 37. WARREN & WESTBROOK, supra note 7, at 994. 38. FLETCHER, supra note 1, at 201. 39. WARREN & WESTBROOK, supra note 7, at 994. 40. Id. at 994–95. 41. The sections are generally referred to collectively as “304.” Id. 42. See FLETCHER, supra note 1, at 206 (“The universalist spirit which permeates section 304 is one to which,

in most instances, bankruptcy courts in the USA have responded in a positive and constructive manner.”). But see LOPUCKI, supra note 25, at 213 (“Read literally, section 304 clearly limits authority to surrender U.S. assets to situations in which the foreign court will distribute them in substantially the same way a U.S. court would. But the universalists, many of whom were themselves bankruptcy judges, chose not to read section 304 as written. Instead, they claimed that section 304 authorized turnover of assets to foreign courts that would distribute the assets substantially differently, as long as the foreign country had a bankruptcy law ‘of the same sort generally as [the United States].’”).

43. LOPUCKI, supra note 25, at 213.

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A. The “Ancillary” Versus “Parallel” Distinction

Section 304 deals with international bankruptcies in an “ancillary,” as opposed to a “parallel,” manner. The distinction is subtle, but crucial. Ancillary proceedings are designed to aid the “‘main’ proceeding in the debtor’s home country”; they do “not contemplate a full administration and distribution of the debtor’s local assets.”44 Parallel proceedings, by contrast, are “full bankruptc[ies] under domestic law. The court in a parallel proceeding administers the debtor’s local assets in parallel with the administration in the main proceeding.”45 The main difference is the level of control of the cooperating court. Ancillary courts frequently defer to the home country court almost entirely, while parallel courts retain direct control of local assets. Not surprisingly, some overlap exists between the universalism/territorialism dichotomy and the ancillary/parallel dichotomy because “a country inclined toward universalism might be more likely to use ancillary proceedings, while a country inclined toward territorialism might prefer parallel proceedings.”46 Unfortunately, this convenient summation fails to reliably aid evaluation of different international bankruptcy systems. The European Union (EU) Regulation—generally considered a cooperative territorialist accord—prefers parallel proceedings but “requir[es] significant deference to the main proceeding.”47 United States bankruptcy law, through judicial interpretation of section 304, has opted for an ancillary/universalist approach whenever there is a main country proceeding outside the United States. In such cases, a well-established balancing test determines whether the U.S. bankruptcy court should cooperate and on what terms.48 However, the flexible parameters of section 304 do not encompass all contingencies.

B. Cases Beyond Section 304

Section 304 only applies in cases when the United States is being asked to cooperate with a main proceeding in a foreign court. As with many statutes, however, things are not always as they appear. Section 305(a)(2) brings the balancing test of section 304(c) into play whenever “there is pending a foreign proceeding.”49 If there is no foreign proceeding, the court is free to dismiss or suspend the case after a determination that “the interests of creditors and the debtor would be better served by such dismissal or suspension.”50 The statute offers no guidance on how to make such a determination. Thus, bankruptcies filed exclusively in the United States can, arguably, escape the universalist provisions of section 304.

C. The Ease of Filing a U.S. Proceeding

The restrictions on filing bankruptcy cases in the United States are lax. Section 109(a) permits such a filing by “a person that resides or has a domicile, a place of business, or property in the United States.”51 The bankruptcy courts have gradually construed the

44. ALI, PRINCIPLES OF COOPERATION, supra note 14, at 9. 45. Id. 46. Id. at 9–10. 47. Id. at 10. 48. 11 U.S.C. § 304(c) (2000). 49. Id. § 305(a)(2)(A). 50. Id. § 305(a)(1). 51. Id. § 109(a). The Code definition of a “person” includes a corporation. Id. § 101(41).

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“property” requirement “with respect to foreign corporations and individuals . . . [to be] satisfied by even a minimal amount of property located in the United States.”52 Bankruptcy courts have found several thousand dollars in a local bank account, and the unearned retainers of local counsel, to be sufficient “property” for a U.S. filing.53 With such minimal filing requirements, nothing stops foreign corporations from quickly establishing a local bank account, making a minimal deposit, hiring local counsel with the necessary retainers, and filing a petition.54

D. Exceptionally Broad Grants of Jurisdiction

The Bankruptcy Code asserts jurisdiction over the debtor’s assets “wherever located.”55 Did Congress really intend to give bankruptcy courts jurisdiction over the foreign-based assets of the debtor’s estate? The answer seems to be yes. Even LoPucki, a staunch opponent of such extraterritoriality, concedes as much.56 Similarly broad grants of jurisdiction are also found in the bankruptcy provisions of Australia—“whether situate[d] in Australia or elsewhere”—and Canada—“wherever situated.”57 Such language undoubtedly aids the “one court, one law” aims of universalism, provided the courts of other countries cooperate with the main proceeding. The potential for mischief is enormous. The ease of a U.S. filing coupled with the broad jurisdictional grant of section 541(a) means corporations with tenuous ties to the U.S. nevertheless have U.S. bankruptcy law at their disposal.

A U.S. provision determining the proper location for the main proceeding is needed. Without one, U.S. courts are not statutorily constrained from asserting jurisdiction in cases where, clearly, the main proceeding should take place somewhere else. Such provisions are included in the laws of other countries, the UNCITRAL Model Law on Cross-Border Insolvency,58 the European Union Regulation,59 and the American Law Institute Principles.60 A growing international consensus supports the flexible center of main interests test, and the proposed Chapter 15 includes such a provision for all international bankruptcies involving the United States.61 Hopefully, the modification will alleviate the current quagmire illustrated by the following cases.

III. MAIN PROCEEDINGS IN THE UNITED STATES: PLENARY QUICKSAND

This part focuses on two recent bankruptcy cases filed exclusively in the United States: (1) Avianca, the reorganization of the Colombian national airline;62 and (2) Yukos, the attempted reorganization of the titanic Russian oil company.63 Both cases featured

52. In re Aerovias Nacionales de Colombia S.A. Avianca, 303 B.R. 1, 8 (Bankr. S.D.N.Y. 2003). 53. In re Global Ocean Carriers, 251 B.R. 31, 36 (Bankr. D. Del. 2000). 54. Indeed, that seems to be precisely what the debtors in Global Ocean Carriers did with great success. See

id. 55. 11 U.S.C. § 541(a). 56. LOPUCKI, supra note 25, at 187. 57. FLETCHER, supra note 1, at 70–71 (emphasis omitted). 58. United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border

Insolvency, G.A. Res. 52/158, Annex, art. 10, U.N. Doc. A/RES/52/158 (Jan. 30, 1998). 59. Council Regulation 1346/2000, 2000 O.J. (L 160) (EC). 60. ALI, PRINCIPLES OF COOPERATION, supra note 14. 61. 11 U.S.C. § 1517(b) (2005); see id. § 1502. 62. In re Aerovias Nacionales de Colombia S.A. Avianca, 303 B.R. 1 (Bankr. S.D.N.Y. 2003). 63. In re Yukos Oil Co., 321 B.R. 396 (Bankr. S.D. Tex. 2005). Note that Yukos had attempted to obtain

protection from several other entities, including the European Court of Human Rights. Id. at 411.

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corporations with non-U.S. “centers of main interests,”64 and both corporations, not surprisingly, satisfied the property requirement of section 109(a). In each case, a lone creditor challenged the right of the U.S. court to administer the reorganization. Both courts applied a “totality of the circumstances” analysis: in Avianca, the court refused to dismiss and allowed the U.S. reorganization to continue; in Yukos, after allowing the case to proceed past an initial jurisdictional hearing, the court dismissed with prejudice.

A. Avianca

On March 21, 2003, Aerovias Nacionales de Colombia S.A. Avianca (Avianca), the national airline of Colombia, filed for Chapter 11 protection in the Southern District of New York.65 Avianca’s U.S. subsidiary filed a separate petition.66 A sole creditor, United Aerospace (UA), filed motions to dismiss under several theories: (1) that Avianca had not filed a case in its “home court”; (2) Avianca’s business was not centered in the United States; (3) the foreign creditors outnumbered the U.S. creditors (“at least in number”); and (4) that it was “unseemly” for a U.S. court to administer the case.67 The Bankruptcy Court examined Avianca’s asset distribution and ties to the United States, evaluated UA’s theories for dismissal, and ultimately retained jurisdiction. Avianca subsequently reorganized entirely in a New York court under U.S. law.

1. Avianca’s Asset Distribution

Avianca’s administrative offices were located in Santa Fé de Bogotá, Colombia, but it also maintained offices in the United States. At the time it filed its petition, Avianca flew a total of twenty-eight routes, but the only U.S. flights were to/from Miami and New York. The airline leased its entire fleet of thirty-one aircraft and sixteen spare engines from “lessors located or doing business in the United States.”68 Avianca employed 4153 Colombians, 28 Americans, and 148 employees of other nationalities.

Avianca’s debt structuring was even more scattered. The airline had been struggling financially for years and had entered into restructuring agreements with all of its major creditors except the Bank of New York, whose noteholders held secured claims totaling $20 million.69 Avianca’s employees had secured claims totaling over $98 million—almost exclusively pension claims—through a $140 million trust established in Colombia. Avianca also claimed to owe $290 million to its aircraft lessors, located primarily in the United States. Other debts included $15 million to miscellaneous U.S. creditors ($9.5 million of which was an Avianca, Inc. obligation), and $12 million to non-U.S. and non-Colombian creditors. The court concluded, “There is some uncertainty as to the exact amounts, but there is no dispute that substantial debt is held by creditors in both the United States and Colombia, although it is probable that Colombian creditors hold more fixed debt

64. Neither court attempted a center of main interests analysis, but the non-U.S. nature of the companies is

obvious from the facts, as we shall see. 65. Avianca, 303 B.R. at 3. 66. Id. 67. Id. at 3, 17. 68. Id. at 3. 69. The Bank of New York issued notes under a Master Trust Agreement for an original amount of

$75,000,000. Under the agreement, Avianca sold the Trust all rights, title, and interest in its U.S. credit card receivables. Id. at 4–5.

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and U.S. creditors would hold more debt if the aircraft leases were rejected and damages were payable under the agreements.”70

Avianca had substantial ties with the United States. The asset breakdown, location of administrative offices, and country of incorporation, however, established Avianca as a Colombian company with a Colombian center of operations. Any court would be forced to conclude that Avianca possessed a Colombian center of main interests. The bankruptcy court conceded as much,71 but ultimately decided to administer the case in the United States.

2. United Airline’s Theories for Dismissal and the Court’s Analysis

United Airlines, the party advocating dismissal in Avianca, relied on section 305(a) of the Bankruptcy Reform Act and argued:

First, citing § 305(a)(1), movants contend the interests of creditors and the Debtors would be better served by dismissal or suspension of this case. With respect to § 305(a)(2), they recognize that a foreign proceeding involving Avianca is not pending as required by the terms of the subsection, but they argue that in order to carry out the statute’s purpose, the court should in effect impose an obligation on a foreign debtor to file in its “home” jurisdiction and then consider whether a plenary filing here is appropriate.72

The court evaluated each argument individually.

a. The Section 305(a)(1) Theory

Section 305(a)(1) grants U.S. courts broad discretionary power to dismiss or suspend any case where “the interests of creditors and the debtor would be better served by such dismissal or suspension.”73 The court’s analysis revolved around the insufficiency and untested nature of Law 55074 (the Colombian counterpart to Chapter 11):

Law 550[] is only four years old and relatively untested, particularly in large cases. It has no provision that permits a debtor to reject a burdensome lease, and the undisputed evidence at the hearing on the motion was that a lessor can apply to terminate the reorganization, repossess its property, and force the debtor into liquidation, if the debtor does not cure defaults within 90 days from the filing.75

Citing the relevant test as emphasizing that both the creditors and the debtors must be better served,76 and noting that such a dismissal or suspension has been deemed “extraordinary relief,”77 the court quickly concluded that Avianca had “demonstrated that it would not be

70. Id. at 5. 71. Avianca, 303 B.R. at 17. 72. Id. at 9. 73. 11 U.S.C. § 305(a)(1) (2000). 74. Ley 550, de 30 Diciembre de 1999, D.O. de 19.03.2000 (Colombia) (effective date extended until

12/31/2006 by operation of Article 1 of Ley 922, de 29 Diciembre de 2004, D.O. de 29.12.2004 (Colombia)). 75. Avianca, 303 B.R. at 10. 76. See In re Eastman, 188 B.R. 621, 624–25 (B.A.P. 9th Cir. 1995). 77. Avianca, 303 B.R. at 9 (quoting In re RCM Global Long Term Capital Appreciation Fund, Ltd., 200 B.R.

514, 524 (Bankr. S.D.N.Y. 1996)).

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‘better served’ by dismissal of this case and, presumably, the filing of a proceeding under Law 550.”78

The lease argument is worth examining. The court was convinced that dismissing the case and forcing Avianca to file for protection under Law 550 would be tantamount to condemning the airline to a corporate liquidation proceeding; “Avianca’s reorganization might have been over long ago if it had no effective means of gaining jurisdiction over its lessors and either rejecting or renegotiating its burdensome leases.”79 Given the pronounced U.S. policy preference for reorganization over liquidation,80 and the happiness of the majority of the creditors (U.S. and Colombian),81 the court reached a pragmatic conclusion. It is, however, disturbing that such a large component of the reasoning turned solely on the perceived inadequacies of Colombian law. Dismissing Law 550 as “relatively untested” and bemoaning the debtor’s inability to reject burdensome leases would make a great deal more sense if Avianca was a U.S. company and the assets were primarily located in the United States.82 The reality of this strange situation was that a U.S. court was criticizing a Colombian company’s inability to reorganize predominantly Colombian assets under Colombian law.

The language of section 305(a)(1) encourages, perhaps requires, rigorous analysis of foreign insolvency law by U.S. judges. How else will the court determine what “better serve[s]” the interests of creditors and debtors? A further complication arises from the section 304(c)(2) language compelling consideration of the “protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding.”83 It seems probable that courts muddle these concerns (section 305(a)(2) directly invokes the section 304(c) factors), especially since sections 303, 304, and 305 are treated collectively.84 These dual concerns will, at least sometimes, sharply conflict. One can imagine a situation, for example, where the interests of the company and the majority of the creditors are better served by a foreign proceeding, but the U.S. creditors would experience “prejudice and inconvenience.” As the statute is written, however, without a foreign proceeding pending, the court need not consider the section 304(c) balancing test. The Avianca court relies heavily on this distinction in the subsequent section 305(a)(2) analysis.

b. The Section 305(a)(2) Theory

Under section 305(a)(2), a court may dismiss or suspend U.S. proceedings if: (1) there is a pending foreign proceeding and (2) the factors specified in section 304(c) support such dismissal.85 The problem for UA was the lack of any pending foreign proceeding. As

78. Id. at 10. 79. Id. 80. DAVID A. SKEEL, JR., DEBT’S DOMINION: A HISTORY OF BANKRUPTCY LAW IN AMERICA 61–63 (2001). 81. Avianca, 303 B.R. at 10–11. 82. Asset location was not a point of major contention since the court decided to administer the entire

proceeding in the United States. However, should parallel proceedings have taken place, jurisdiction over the leased airplanes would have been tricky. The airplane lessors knew they were leasing to a Colombian company—any surprise over the provisions of Colombian law would reveal rank obtuseness. On the other hand, the airplanes were leased from U.S. creditors and linked to the United States; there is a strong argument that, at least for the airplanes, U.S. law makes the most sense. Since any reorganization would require jurisdiction over the airplanes, the U.S. court would have been able to dramatically impact any parallel Colombian proceeding. This point will be revisited in Part IV.

83. 11 U.S.C. § 304(c)(2) (2000). 84. See WARREN & WESTBROOK, supra note 7, at 994–95. 85. 11 U.S.C. § 305(a)(2).

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supporting authority, UA emphasized Spanish Cay, a case in which a U.S. bankruptcy court dismissed an involuntary Chapter 11 filing involving real property in The Bahamas.86 The Spanish Cay Court concluded: (1) The Bahamas had the greatest interest in liquidating the assets of a domestic business entity, (2) the law of the situs of the property should control in a real estate case, and (3) Bahaman law was entitled to section 305(a)(2)(B) recognition.87 After citing similar cases, the court quickly distinguished Avianca:

The facts here bear no resemblance to those of the cited cases. Most important, in view of the language of section 305(a)(2)(A), there is no foreign proceeding pending. Moreover, it would be unwarranted to impose an obligation on Avianca to file a proceeding in its “home” court, or to assume that if such a proceeding were filed it would justify suspension or dismissal of the U.S. case.88

Under section 304, the existence of a main proceeding in Colombia would force the U.S. court to at least consider granting section 304 relief, if properly requested.

The court also concluded that Avianca’s significant contacts with the United States supported “maintenance of a plenary case in the United States.”89 The leased airplanes, a substantial subsidiary (Avianca, Inc.), U.S. credit card receivables, rights to airport facilities, and interline agreements were all “centered in the United States, particularly the leases . . . .”90 Since “the efficacy of a bankruptcy depends on a court’s ability to control and marshal the debtor’s assets,”91 the court found that Avianca’s asset distribution supported maintaining the plenary proceeding in the U.S. The reasoning is particularly revealing, however: “Today, especially in a reorganization, the presence of creditors in a jurisdiction, the power of a court to exert judicial power over them, and the willingness of other creditors to submit to the jurisdiction of the court, is often a more important factor than the presence of assets . . . .”92

The Avianca Court cited the recent Enron case as an example of the importance of creditor proximity.93 Enron was an international company with its corporate headquarters in Texas. Despite the downtown Houston location of the “Enron Building,” Enron filed for Chapter 11 protection in the Southern District of New York.94 Several creditors in Enron filed a motion, joined by the attorney general of Texas, to move the proceeding to Texas. The Enron court refused, finding New York to be the optimal venue primarily because of New York’s proximity and convenience to Enron’s creditors.95

86. In re Spanish Cay Co., 161 B.R. 715, 719 (Bankr. S.D. Fla. 1993). 87. Id. at 723–27. 88. In re Aerovias Nacionales de Colombia S.A. Avianca, 303 B.R. 1, 12 (Bankr. S.D.N.Y. 2003). 89. Id. at 12. 90. Id. 91. Id. (citing In re Rimsat, Ltd., 98 F.3d 956, 961–62 (7th Cir. 1996)). 92. Id. (citing In re Enron Corp., 274 B.R. 327, 347–48 (Bankr. S.D.N.Y. 2002)). 93. Id. at 13 (citing Enron, 274 B.R. 327). 94. Enron, 274 B.R. at 327. Enron’s corporate headquarters, the “Enron Building” in downtown Houston,

was seven blocks from the United States Bankruptcy Court for the Southern District of Texas. See LOPUCKI, supra note 25, at 12. LoPucki has suggested Enron’s behavior constituted a blatant example of forum shopping and, potentially, worse. See id. at 12–14.

95. As the court stated:

Most of the entities and individuals expected to be responsible for the financial restructuring and development of a plan of reorganization in this case are located in New York or have ready access to New York, including most of the Debtors’ legal and financial advisors as well as the legal and financial advisors to the Committee and the lenders. Those members of the financial community that provide access to capital necessary to the Debtors’ financial restructuring are located in New York. Furthermore, while the Debtors’ management and operations are predominantly in Houston, New York is a more convenient location for those responsible for negotiating and formulating a plan of

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A domestic venue question is different from an international forum question. Regardless of where Enron was decided in the United States, the U.S. court was going to apply predominantly U.S. law.96 Deciding whether to hear Avianca in the U.S. or Colombia involves a different set of considerations. A U.S. court will not apply Colombian law—or vice versa—to many, if any, of the facets of a case like Avianca.97 Enron and Avianca, taken together, illustrate U.S. courts’ increasing emphasis on the location of and willingness of creditors.98 In Avianca, since all the major creditors, American and Colombian, were willing to submit to U.S. jurisdiction, the court determined New York was an acceptable, perhaps optimal, forum.

The court was careful to note that a “complaint by a Colombian creditor that it was unfairly treated by the application of U.S. bankruptcy principles might have raised different equities and different issues, but there has been no such claim made in this case.”99 Regardless of such a complaint in Avianca, such claims are common in international bankruptcies.100 The Avianca Court left unsettled how a complaint of unfair treatment would impact a U.S. court’s section 305(a) analysis. Would it tip the balance toward dismissal/suspension of the U.S. plenary proceeding? Would the decision depend on how many creditors were unfairly treated and/or how major they were? What if dismissal of the U.S. proceeding doomed the company to liquidation? What if dismissal prejudiced U.S. creditors, as it almost certainly would? The permutations are endless.

reorganization. The Court finds that New York is the more economic and convenient forum for those whose participation will be required to administer these cases.

Enron, 274 B.R. at 349. 96. Under U.K. law, this is a simple analysis: “[A]ll questions of the administration and distribution of the

bankrupt’s estate, including the question of priorities of debts, are for determination in accordance with the law of the forum.” FLETCHER, supra note 1, at 82. In the United States, with the long history of state versus federal law, “the subject of applicable law in bankruptcy matters has long been a live and contentious one . . . .” Id. In essence, it seems theoretically possible that U.S. courts may be more willing to apply a choice of law analysis than their U.K., Australian, and Canadian counterparts. Aside from the evolution of § 304, however, there is little evidence of such a proclivity in the case law.

97. Indeed, in Avianca, the court applied exclusively U.S. law, which is the norm, not the exception. See Hannah L. Buxbaum, Rethinking International Insolvency, 36 STAN. J. INT’L L. 23, 23–25 (2000) (“[I]nternational bankruptcy law has not been analyzed against the backdrop of traditional conflict-of-laws thinking. Instead, the bankruptcy-specific doctrines of universality and territoriality have framed the discussion of choice-of-law issues.”). But see Westbrook, supra note 26, at 10 (suggesting that in “a country with a modern bankruptcy system that has adopted some form of universalism, the court may be required to choose the bankruptcy law of another jurisdiction”).

98. As the Avianca Court noted:

Reorganization is also largely a consensual process. It often depends on the willingness of a debtor’s principal creditors to agree to a reorganization plan (and protect a minority by giving them more than they would get in a liquidation). The fact that many of Avianca’s principal creditors are in this country, and the willingness of major Colombian parties in interest to participate in the proceedings, is one of the most significant factors supporting the filing here.

In re Aerovias Nacionales de Colombia S.A. Avianca, 303 B.R. 1, 13 (Bankr. S.D.N.Y. 2003) (citations omitted). 99. Id. at 14. 100. See, e.g., In re Maxwell Commc’n Corp., 170 B.R. 800 (Bankr. S.D.N.Y. 1994), aff’d, 186 B.R. 807

(Bankr. S.D.N.Y. 1995); In re Cenargo Int’l, PLC, 294 B.R. 571 (Bankr. S.D.N.Y. 2003); Lernout & Hauspie Speech Prod. N.V. v. Stonington Partners, Inc., 268 B.R. 395 (Bankr. D. Del. 2001), rev’d 310 F.3d 118 (3d Cir. 2002).

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c. The Section 1112(b) Theory

United Airlines also argued that Avianca should be dismissed under section 1112(b). A Chapter 11 case can be dismissed “for cause, including (1) continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation, (2) inability to effectuate a plan, and (3) unreasonable delay by the debtor that is prejudicial to creditors . . . .”101 Since Avianca possessed considerable assets in Colombia, UA argued that there was nothing the U.S. court could do to prevent “Colombian creditors from taking action . . . or from imposing improper conditions on its reorganization . . . .”102 When dealing with large international creditors, U.S. bankruptcy courts frequently have no control problems because most mega-creditors have substantial assets and ties to the United States. However, smaller foreign creditors with no U.S. ties can be problematic for the courts.103

The Avianca Court avoided the entire question, content instead to issue platitudes and hopeful statements such as the following:

[D]ebtors frequently conclude workouts with their creditors without exerting direct judicial power over their creditors . . . . It cannot be presumed that these Debtors, which have had much success to date, cannot achieve a reorganization that is fair to all creditors, including those in the United States, without taking express jurisdiction over their Colombian creditors.104

Such optimism was probably warranted, given the consent of every creditor, except UA, to a U.S. reorganization under U.S. law.

d. The “Unseemly” Theory

After evaluating UA’s main arguments, the Avianca Court briefly discussed whether “it is unseemly for the United States courts to take sole jurisdiction over the reorganization of an enterprise with its ‘center of main activities’ abroad.”105 Though willing to concede that such a contention “raises important issues in connection with the development of principles governing international insolvencies,” the court ultimately dismissed such concerns, perfunctorily reasoning:

In an ideal or even in an orderly world, governing law might require a filing in one jurisdiction, presumably the jurisdiction where an international enterprise had its principle place of business or center of main interests. In our present world, and on the record of the instant motions, Avianca’s Chapter 11 case should be sustained, not dismissed. . . . [c]ourts will generally defer to the “center of gravity” of multiple proceedings if one can be ascertained, [but] a court may also choose to proceed jointly with a foreign court or to “exercise its power to the full extent of its jurisdiction in an appropriate case.”106

101. Avianca, 303 B.R. at 16 (citing 11 U.S.C. § 1112(b) (2000)) (internal quotations omitted). 102. Id. 103. See, e.g., In re Cenargo, 294 B.R. at 597. 104. Avianca, 303 B.R. at 17. 105. Id. 106. Id. at 17–18 (citations omitted).

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The current state of international bankruptcy, despite significant progress, remains far from ideal.107 However, the court’s ready rationalization of U.S. jurisdiction fails. Granted, a pragmatist may well end up agreeing with the opinion, but the proffered reasoning does not directly address the “unseemly” circumstances of Avianca. The enunciations of Law 550’s naïveté could easily be interpreted as rationalizations for U.S. legal imperialism. Whether they should be considered imperialist remains a difficult question; I will consider imperialism in Part IV.

3. The Result: A Pragmatic, Troubling Decision

The Avianca decision makes good sense for both the airline and the vast majority of creditors. Aside from UA, all creditors consented to a U.S. proceeding. This, coupled with the difficulties of reorganizing under Law 550,108 led the court to conclude that a U.S. Chapter 11 proceeding was in the best interests of both the debtor and the creditors.

Avianca also raises a series of disconcerting questions, however. First and most important, it begs the question: Why was the Colombian national airline allowed to reorganize in a U.S. court under U.S. law? The pragmatic reasons for the choice of forum are clear, but the policy implications remain muddled. If companies with foreign centers of main interest are allowed to choose U.S. forums whenever it suits them—provided, of course, that foreign creditors can either be persuaded or forced to comply—universalist theory threatens to devolve into using U.S. law (or similarly debtor-friendly legal systems) as de facto universal law.109 Moreover, will U.S. companies be allowed the same freedom to choose an optimal forum if their decision leads them out of the United States? U.S. creditors have excellent arguments for opposing such moves under section 304(c), and it seems doubtful that the bankruptcy courts would allow such forum shopping if it was at all prejudicial to U.S. creditors. Thus, the Avianca decision encourages foreign corporations to select a U.S. forum, provided they are sophisticated enough to file primary proceedings in the U.S. and avoid or survive a section 304(c) analysis (possibly by preventing foreign filings).110

Avianca leaves the limits of U.S. jurisdiction wide open. Without a center of main interests test or reasonable equivalent, the bankruptcy courts have little guidance on how to determine whether to administer reorganizations of foreign companies. Avianca makes clear that at least some courts are willing to construe their jurisdiction extremely broadly, perhaps with pragmatism as the only restraint. The next case finds some limitations on the ability of a U.S. bankruptcy court to administer foreign reorganizations.

107. See Westbrook, supra note 8, at 2300–02 (suggesting that territorialism is seriously flawed and

concluding that: “[i]n the meantime, modified universalism is an awkward, interim solution. I hope to show . . . [that] to paraphrase Churchill . . . it is the worst transitional system, except for all the others”).

108. Law 550 contained several provisions making reorganization difficult for Avianca. Under Colombian law, lessors were free to terminate the reorganization, repossess property, and force the debtor into liquidation if all defaults were not cured within ninety days of filing. Avianca testified that it was in default on most of its leases, could not assume payments to all lessors, and needed time to renegotiate the leases to a market rate or reject the agreements. Avianca, 303 B.R. at 10.

109. Of course, this is only true for primary proceedings. The universalist provisions of sections 304 and 305, as we have seen, support deferring to foreign proceedings if: (1) the U.S. proceeding is an ancillary proceeding, or (2) there is a foreign proceeding pending and the section 304(c) analysis favors such a move.

110. In some countries, this will prove difficult or impossible. U.K. law, for example, makes it easy for creditors to file involuntary bankruptcies, thus impeding such blatant forum shopping. See, e.g., In re Cenargo, 294 B.R. at 594.

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B. Yukos

On December 14, 2004, Yukos Oil Company filed a Chapter 11 petition in the Southern District of Texas.111 Yukos sought the protection of U.S. bankruptcy law because of disputes with the Russian government. Mikhail Khodorkovsky, the Chief Executive Officer of Yukos, was arrested on October 25, 2003. Shortly afterwards, the Russian government began assessing staggering retroactive taxes, eventually totaling $27.5 billion.112 Yukos explored several legal options, including a filing with the European Court of Human Rights. However, on November 19, 2004, the Russian government announced the sale of Yukos’ largest subsidiary, Yuganskneftegas.113

The potential loss of the enormously valuable Yuganskneftegas forced Yukos executives to act. Since Yuganskneftegas produced approximately sixty percent of Yukos’ revenue, its loss would have been crippling.114 Yukos Chief Financial Officer (CFO) Bruce Misamore moved to Houston on December 4, 2004 and within a week hired Fulbright and Jaworksi, a Houston-based law firm, with a $1 million retainer. The bankruptcy petition was filed four days later.115 A single creditor, Deutsche Bank AG (DB), sought dismissal of the case under various theories outlined below. The Yukos court evaluated all of the theories but ultimately dismissed the case under a “totality of the circumstances” analysis.

1. Yukos’ Asset Distribution

Yukos’ massive assets sprawl across several continents, and the court recognized the case’s uniqueness relative to prior U.S. bankruptcy filings:

This is a very large case. On the assets identified in the schedules and other pleadings filed in the instant case, it is the largest bankruptcy case ever filed in the United States. However, the debtor is not a United States company, but a Russian company, and its assets are massive relative to the Russian economy, and, since they are primarily oil and gas in the ground, are literally a part of the Russian land.116

Yukos is the parent company of approximately 200 subsidiary legal entities organized under the laws of various countries, including the Russian Federation, Cyprus, the United Kingdom, and the United States.117 The U.S. corporation, Yukos USA, Inc., was incorporated one day before the petition was filed.118 Misamore, the Yukos CFO, testified that “substantially all of the affiliates and subsidiaries of Yukos are Russian companies, that substantially all of the assets of the affiliates and subsidiaries are in Russia, and that Yukos and its subsidiaries and affiliates have approximately 100,000 employees, nearly all of

111. In re Yukos Oil Co., 321 B.R. 396 (Bankr. S.D. Tex. 2005). 112. Id. at 401. 113. Id. 114. Id. at 402. However, Yuganskneftegas was sold for $9.35 billion in late December 2004. See Erin E.

Arvedlund & Steven Lee Myers, An All-but-Unknown Company Wins a Rich Russian Oil Stake, N.Y. TIMES, Dec. 20, 2004, at A1.

115. Yukos, 321 B.R. at 402. 116. Id. at 399. 117. Id. at 400. 118. Id.

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whom live and work in Russia.”119 Non-Russian stockholders own approximately seventeen percent of Yukos shares.120

Thus, although Yukos owns property throughout the world, it is indisputably a Russian company with a Russian center of main interests. Yukos’ ties to the United States are tenuous at best. Aside from the seventeen percent of Yukos stock owned by American and Western European investors,121 Yukos’ ties to the United States consist of several bank accounts opened one day before the filing of the bankruptcy petition and the presence of Yukos CFO Misamore (who had been living in the United States for less than two weeks when the petition was filed). It is a testament to the extreme breadth of section 109(a) that Yukos’ petition was not dismissed in December, immediately after filing.

2. Deutsche Bank’s Theories for Dismissal and the Court’s Analysis

Deutsche Bank argued: (1) that Yukos was not eligible to be a debtor under section 109(a), (2) that the doctrine of forum non conveniens justified dismissal, (3) that the doctrine of international comity prohibited jurisdiction over Yukos, (4) that the Act of State doctrine compelled dismissal, and (5) that the terms of section 1112(b), including the “totality of the circumstances,” compelled dismissal. The court found several of the theories presented to have merit, but ultimately dismissed under section 1112(b); the analysis for each follows.

a. Section 109(a)

Much like the Avianca Court, the Yukos Court had little trouble concluding that Yukos had sufficient property in the United States to qualify as a debtor under section 109(a). The courts have noted that “virtually no formal barrier” prevents federal courts from adjudicating the bankruptcy proceedings of foreign debtors.122 After finding that the prepetition deposit of $480,000 in the Southwest Bank of Texas account was property of Yukos, the court concluded it had subject matter jurisdiction.

b. Forum Non Conveniens

Forum non conveniens allows a court, at its discretion, to “abstain from exercising a jurisdiction which otherwise exists.”123 The Yukos court, however, failed to find any “published opinions on the question of whether the doctrine of forum non conveniens applies with respect to the entirety of a voluntary case.”124 After distinguishing In re Xacur125 and Baumgart v. Fairchild Engine Corp.,126 the cases cited by DB, the court

119. Id. 120. Id. at 401 n.4. 121. Yukos, 321 B.R. at 400. 122. Id. at 407 (citing In re Globo Comunicacoes E Participacoes S.A., 317 B.R. 235 (Bankr. S.D.N.Y.

2004)). 123. FLETCHER, supra note 1, at 47. 124. Yukos, 321 B.R. at 407. 125. 219 B.R. 956 (Bankr. S.D. Tex. 1998). 126. 981 F.2d 824 (5th Cir. 1993).

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“decline[d] to extend either Fairchild Aircraft or Xacur to conclude that the doctrine of forum non conveniens requires dismissal of a voluntary bankruptcy case.”127

Fletcher hypothesizes that the “doctrine of forum non conveniens may . . . be deployed to bring about the dismissal of filings that are abusive or oppressive, or which are perceived to be not in good faith, or which are otherwise inappropriately brought before the American court.”128 He sees this as a necessary counter to the “possible misuse of the broadly-drawn jurisdictional rules” of section 109(a).129 Forum non conveniens dismissals make sense in cases like Yukos. Massive Russian companies obviously have Russian forums at their disposal.130 Because of this, any Russian company should have to make a convincing showing to justify obtaining a U.S. forum, let alone U.S. law. Unless Yukos could make such a showing—perhaps by alleging widespread corruption, with convincing proof—the United States is an inappropriate forum. Because of the breadth of section 109(a), a doctrine like forum non conveniens deserves consideration as a means to oppose cases that belong elsewhere.131

The Yukos Court, after noting the lack of precedent, declined to dismiss the case under the doctrine of forum non conveniens. The court certainly had ample reason to dismiss for alternative reasons. A more sustained forum non conveniens analysis would be helpful, however, to decide future unusual cases like Avianca and Yukos. Because of the special jurisdictional issues encountered when U.S. courts hear international bankruptcy cases filed solely in the United States, Fletcher’s characterization of forum non conveniens as a natural countermeasure to section 109(a) is convincing.

c. Comity

The seminal definition of comity is from Hilton v. Guyot, an international bankruptcy case from 1895:

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.132

The Yukos Court noted the significant precedent for giving effect to “judgments rendered by courts of competent jurisdiction”133 and dismissing proceedings between litigants when a foreign bankruptcy is pending. With language nearly identical to its forum non conveniens analysis, the Yukos Court found no precedent for “dismissing a voluntary bankruptcy case filed in the United States on grounds of international comity.”134

127. Yukos, 321 B.R. at 408. 128. FLETCHER, supra note 1, at 57. 129. Id. 130. In addition, Yukos had other courts available, such as the European Court of Human Rights. See Yukos,

321 B.R. at 401. 131. The breadth of federal power to dismiss cases on forum non conveniens grounds is troubling. After

Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981), federal courts can boot cases for practically any reason. However, the basic analysis of federal forum non conveniens seems perfectly applicable.

132. Yukos, 321 B.R. at 408 (citing Hilton v. Guyot, 159 U.S. 113 (1895)). 133. Id. (citing Hilton, 159 U.S. 113 (1895)); Int’l Transactions, Ltd. v. Embotelladora Agral Regiomontana

S.A. de C.V., 347 F.3d 589, 594 (5th Cir. 2003); Cunard S.S. v. Salen Reefer Services AB, 773 F.2d 452 (2d Cir. 1985); Bank Melli Iran v. Pahlavi, 58 F.3d 1406 (9th Cir. 1995); Ma v. Continental Bank, N.A., 905 F.2d 1073, 1076 (7th Cir. 1990).

134. Yukos, 321 B.R. at 408.

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However, the court was willing to consider comity “in connection with a determination of whether cause exists for dismissal pursuant to Section 1112 of the Bankruptcy Code.”135

The doctrine of comity, together with advocacy of principles of international cooperation, increasingly influences U.S. courts’ handling of international bankruptcies.136 The evolution of section 304 exemplifies the changes in U.S. law. The Yukos Court was willing to acknowledge comity’s importance, but was unwilling to apply “considerations of comity . . . [as] an independent basis for dismissal . . . .”137

d. Act of State Doctrine

Under the Act of State doctrine, every sovereign state is bound to respect the independence of every other sovereign state, and the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory.138 Yukos disputed whether section 15 of the Federal Arbitration Act139 and the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards140 applied. However, the Yukos Court ultimately determined that “the filing and conduct of this Chapter 11 case does not in itself require that this court sit in judgment on [the acts of the Russian government].”141 The language of the opinion, however, emphasizes that a direct conflict between the decrees of a foreign government and the administration of a bankruptcy would require application of the Act of State doctrine. Especially with cases as large and complicated as Yukos, such considerations can implicate foreign policy questions reserved for the U.S. President.142 Once again, the proposed doctrine did not independently justify dismissal.

e. Section 1112(b)

Section 1112(b) contains a list of considerations for dismissing a case for cause.143 As the Congressional legislative history explains, the list is not exhaustive.144 The Yukos Court used a “totality of the circumstances” analysis, which includes consideration of the debtor’s good faith as determined “on-the-spot” by the bankruptcy court.145 The court focused on several factors that contributed to cause for dismissal: (1) the reorganization contemplated by Yukos was not a financial reorganization; (2) the funds that created jurisdiction were transferred to banks within one week prior to filing and were transferred for the primary purpose of attempting to create jurisdiction; (3) Yukos sought to substitute

135. Id. at 409. 136. See FLETCHER, supra note 1, at 110. 137. Yukos, 321 B.R. at 409. 138. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 416 (1964) (citing Underhill v. Hernandez, 168

U.S. 250, 252 (1897)). 139. Federal Arbitration Act, 9 U.S.C. § 15 (2000). 140. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 84 Stat.

692, 330 U.N.T.S. 4739. 141. Yukos, 321 B.R. at 410. 142. Id. at 409 (citing Banco Nacional de Cuba, 376 U.S. at 416; American Ins. Ass’n v. Garamendo, 539

U.S. 396, 414–15 (2003)). 143. The court can also convert a Chapter 11 case to a Chapter 7 liquidation. 144. Yukos, 321 B.R. at 410 (citing H.R. Rep. No. 95-595, at 405–06 (1978), reprinted in 1978 U.S.C.C.A.N.

6361–62). 145. Id. (citing In re Chaffin, 816 F.2d 1070, 1073 (5th Cir. 1987), modified 836 F.2d 215 (5th Cir. 1988); In

re Elmwood Dev. Co., 964 F.2d 508, 510 n.4 (5th Cir. 1992)).

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U.S. law for Russian law, European Convention law, and/or international law; (4) Yukos has commenced proceedings in other forums and “may have access to a bankruptcy proceeding in the arbitrazh146 courts of Russia”; (5) nothing suggested that the U.S. court was “uniquely qualified, or more able than the other forums, to consider the issues presented”; (6) it was not clear that a U.S. court could “obtain personal jurisdiction of the pertinent parties sufficient to grant” the relief sought; (7) the activities of Yukos would unavoidably “require the continued participation of the Russian government”; and (8) the Act of State doctrine, coupled with the sheer size of Yukos (accounting for twenty percent of Russian oil and gas production), favored “resolution in a forum in which participation of the Russian government is assured.”147

3. The Only Decision?

When the pragmatic considerations of personal jurisdiction and the ongoing relationship between Yukos and the Russian government are considered, the court’s decision to dismiss seems obvious. Indeed, the best question might be: did the court have any other options? Under section 305(a)(1), the Yukos Court could have suspended the case pending the resolution of Yukos’ disputes with the Russian government. Alternatively, under section 305(a)(2), suspension could have been granted pending the resolution of Yukos’ filings before the European Court of Human Rights and/or the Russian arbitrazh courts. If the court had chosen to develop the forum non conveniens doctrine, dismissal could have been conditioned on whether Yukos was able to obtain a more appropriate forum.

Any such suspension would have been pointless. Regardless of how Yukos settled with the Russian government or fared in alternative proceedings, the U.S. court was powerless to grant most of the relief Yukos sought. Automatic stays are good in theory. However, the Russian Federation’s sale of Yuganskneftegas demonstrated the impotence of the U.S. proceeding.148

IV. PRAGMATISM’S EASY RATIONALIZATIONS OF EXTRATERRITORIALITY

Granted that American expansionism is principally economic, it is still highly dependent and moves together with, upon, cultural ideas and ideologies about America itself, ceaselessly reiterated in public. “An economic system,” Kiernan rightly reminds us, “like a nation or religion, lives not by bread alone, but by beliefs, visions, daydreams as well, and these may be no less vital to it for being erroneous.”149

Judicial pragmatism is the thread connecting Yukos and Avianca. Both decisions hinged on the court’s ability, or inability, to administer a foreign reorganization in U.S. courts. In Yukos, the court acknowledged myriad difficulties which combined to make a

146. The arbitrazh courts in Russia deal with business issues. See Doug M. Keller, Comment, Interpreting

Foreign Law Through an Erie Lens: A Critical Look at United States v. McNab, 40 TEX. INT’L L.J. 157, 182 n.240 (2004) (citing Films By Jove, Inc. v. Berov, 250 F. Supp. 2d 156, 166 n.15 (E.D.N.Y. 2003)).

147. Yukos, 321 B.R. at 410–11. 148. See Arvedlund & Myers, supra note 114. Apparently, the Russian government also refused service of

process from the United States Department of State. See Yukos, 321 B.R. at 409–10. 149. EDWARD W. SAID, CULTURE AND IMPERIALISM 289 (1994) (citing V.G. KIERNAN, AMERICA: THE NEW

IMPERIALISM: FROM WHITE SETTLEMENT TO WORLD HEGEMONY 127 (1978)).

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U.S. proceeding virtually impossible. In Avianca, by contrast, an unusual degree of cooperation among most parties made the U.S. reorganization feasible without any official Colombian involvement. Thanks to well-reasoned analysis, both opinions are convincing insofar as they evaluate the feasibility of a U.S. proceeding. However, jurisdictional inquiries should not depend upon pragmatic concerns.

The current structure of international bankruptcy law, as examined in Part I, remains unsettled. Universalism’s “one court, one law” maxim conflicts with the cooperative territorialism espoused by the European Union. Similarly, the ancillary approach favored by the United States differs from the simultaneous parallel proceedings favored by many other countries. Insolvent international corporations roam among these bankruptcy fiefdoms, seeking the bankruptcy regime most conducive to their interests. Part II of this paper traced the evolution, primarily through section 304, of the U.S. ancillary system. If section 304 does not apply, however, the courts are accorded extraordinary jurisdiction over foreign assets. If a primary proceeding is filed in the United States, sections 304 and 305 are usually ignored, unless a foreign proceeding interrupts the U.S. proceeding.150 Thus, in certain situations, foreign corporations can obtain U.S. reorganizations under U.S law. Avianca exemplifies this phenomenon.

A. Why Are Cases Like Avianca a Problem?

The United States has chosen an ancillary/universalist path. Under universalism, a determination of the debtor’s center of main interests151 guides subsequent choice of forum and choice of law decisions. In Avianca, the court acknowledged Avianca’s Colombian center of main interests, but had little difficulty rationalizing a U.S. reorganization. The decision raises four related issues: (1) Avianca’s extraterritorial application of U.S. law appears unseemly, (2) Avianca opens the door to forum-shopping cases like Yukos, (3) Avianca’s pragmatic reasoning is ultimately counterproductive, and (4) Avianca’s pragmatic administration hinders predictability.

1. Unseemly Application of U.S. Law

As evident in Part III, the Avianca Court’s pragmatic assessment found Colombian Law 550 to be untested and lacking crucial lease negotiation provisions. Moreover, the court determined that reorganization was impossible without such provisions, thereby raising the need for a U.S. proceeding. The U.S. policy of preferring reorganization over liquidation proved crucial in obtaining a U.S. forum.152 National bankruptcy regimes seldom express a preference for liquidation bankruptcies. However, the bankruptcy law of non-U.S. regimes frequently makes reorganization much more difficult than it is in the United States. For example, the involuntary bankruptcy provisions of U.K. law make the winding-up of British companies easier to achieve than reorganization.153

150. Of course, § 305(a)(1) does not require a foreign proceeding for suspension or dismissal. However, the

lack of a foreign proceeding will probably be considered evidence of the necessity of the U.S. proceeding. More significantly, § 305(a)(1) does not invoke the § 304(c) balancing test.

151. Or home country—these are different terms, but mean essentially the same thing for my argument here. 152. In the new Chapter 15, this preference is overtly expressed as an “objective” under § 1501(a)(5): the

“facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment.” 11 U.S.C. § 1501 (2000) (emphasis added).

153. The reorganization process under U.K. law does not permit existing management to stay in place, requires a showing of insolvency, and is entirely creditor-controlled. Nathalie Martin, Common-Law Bankruptcy

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This U.S. preference is one of the “beliefs, visions, daydreams”154 that buttress our economic system. Avianca allowed a Colombian airline to circumvent Colombian policy completely. The only acceptable rationale for such a substitution was the informed consent of all parties involved (except UA). The Colombian government or Colombian creditors could have protested, but did not. Everyone but UA was happy with U.S. law.

Even so, the decision was unseemly. United States administration of all the assets with significant ties to the United States (possibly even the airplanes, since they were leased from U.S. companies and would have reverted to the United States after proceedings) would have been acceptable. However, the theories of comity, universalism, territorialism, and forum non conveniens all support the necessity of a Colombian legal proceeding—though this is, to be sure, a murky question.

Comity requires some “recognition [of] the legislative, executive or judicial acts of another nation.”155 Avianca fails on all counts; the only recognition accorded Colombian law was an assessment of its shortcomings.

Universalism requires a determination of the debtor’s home country. Avianca acknowledged Colombia as the “center of main interests” but administered the case in the United States.

Territorialism requires each country to administer the assets within its borders. Avianca had the United States administer all the assets, which were primarily located in Colombia.

The forum non conveniens analysis is complicated. Comparisons to the doctrine as applied in federal court are treacherous. If the circumstances of Avianca are altered slightly (e.g., if it were an international tort case), a federal court could find the United States to be an inappropriate forum largely because of the existence of a Colombian forum. As discussed in Part IV, such a broad application of the doctrine is inappropriate for international bankruptcy cases. Although the courts can go too far, pragmatism and pragmatic decisions are necessary. However, the prongs of a forum non conveniens analysis can be applied to international bankruptcy cases with some tempering. Under the facts of Avianca, a forum non conveniens analysis should have stopped short of dismissal, but it also should have considered all the factors in favor of a Colombian forum. One possible result would have been for the U.S. court to assert jurisdiction over the U.S. assets but suspend the case pending a Colombian proceeding. Such a result might have allowed for judicial negotiation between the two courts, which Westbrook believes may be the key to solving complicated international bankruptcies.156 Avianca needed input from a Colombian court. Such a two-court resolution would fly in the face of universalist theory. Avianca as decided, however, is dangerously close to imperialism.

Systems: Similarities and Differences, 11 AM. BANKR. INST. L. REV. 367, 397 (2003). By comparison, involuntary winding-up is automatic if a debtor’s business cannot obtain a repayment agreement with the majority of its creditors, does not require a showing of insolvency, and may be ordered for payment of unsecured debts exceeding the relatively minor sum of £750. Richard H.W. Maloy, Comparative Bankruptcy, 24 SUFFOLK TRANSNAT’L L. REV. 1, 36–37 (2000).

154. See SAID, supra note 152, at 289. 155. Hilton v. Guyot, 159 U.S. 113, 163–64 (1895). 156. See generally Jay Lawrence Westbrook, International Judicial Negotiation, 38 TEX. INT’L L.J. 567

(2003); Jay L. Westbrook, The Duty to Seek Cooperation in Multinational Insolvency Cases, in ANNUAL REVIEW OF INSOLVENCY LAW 187-98 (Janis P. Sarra ed., 2005). For a discussion of whether courts should be able to certify foreign law questions to the relevant foreign high court, see Keller, supra note 146, at 183–84.

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2. Avianca Opens the Door for Cases Like Yukos

Extraterritorial application of U.S. law under the Bankruptcy Code did not begin with Avianca. Before Avianca, however, reorganizing an obviously foreign company in the United States without any foreign proceedings was, at best, a theoretical possibility. The Yukos filing was a natural offshoot of Avianca, despite the vastly different circumstances surrounding each proceeding.

Avianca was nearly the perfect case for U.S. jurisdiction; Yukos was close to the worst. Future cases should fall in the middle of the spectrum, and the corresponding judicial analysis will be more difficult. Under the worst-case scenario, sophisticated corporations would file exclusively in the United States, U.S. courts would find jurisdiction, and foreign corporations would be reorganized under U.S. law. This would be a boon for the bankruptcy lawyers of New York and Delaware.157 In Courting Failure, LoPucki suggests bankruptcy judges are willing to hear inappropriate cases because of the benefits: publicity and increased activity for their courts.158 This is largely an extension of his book-length argument that inappropriate forum shopping and corruption plague the U.S. bankruptcy courts. If LoPucki’s charges have merit on the international level, corporations with tenuous ties to the United States may be granted U.S. reorganizations in the near future. Yukos’ result and the passage of Chapter 15 ease such concerns, but do not eliminate them.

3. Avianca’s Pragmatic Reasoning Is Counterproductive

The United States has embraced a path of modified universalism. This policy has evolved through the cooperative provisions of section 304, as examined in Part II. Modified universalism seeks to resolve international bankruptcies through a main proceeding in the debtor’s home country—supported, if necessary, by secondary proceedings in other countries. Avianca is a profound deviation from this course. While it satisfies the goals of universalism by resolving the bankruptcy under “one court, one law,” Avianca also allowed the Colombian national airline to evade home country law because of the pragmatic nature of the case. This complicates the initial universalist analysis by offering the possibility of a primary filing outside the country of the debtor’s center of main interests. Over the long term, these complications make achieving a worldwide universalist system more difficult.

For proponents of cooperative territorialism, of course, Avianca is a disaster. The country with the lesser amount of assets nonetheless decides the distribution of all the assets. In this case, and similar cases, some of the tenants of cooperative territorialism should be adopted. While the ideal “one court, one law” maxim of universalism remains attractive, the conditions of Avianca make its application suspect.

157. See LOPUCKI, supra note 25, at 13–24. 158. Id. at 19–24. I find LoPucki’s forum-shopping argument to have merit on a national level—within the

United States—though his blunderbuss-style accusations of a corrupt bankruptcy system also sound conspiratorial. When he expands his argument to include international cases in Chapters 7 and 8, however, I am unconvinced. As I have argued, individual cases may be vulnerable to criticism of overreaching pragmatism. Widespread charges of corruption—unless more evidence is introduced—deserve skepticism.

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4. Pragmatic Administration Hinders International Predictability

Avianca, as decided, was the easiest solution to reorganizing the Colombian airline. However, as this paper has examined, administering the reorganization of a Colombian company in the United States defies logic, at least at first glance. Without a clear method for determining where such international cases should be centrally administered, unpredictability abounds. Creditors and debtors do not know which law will govern in the case of bankruptcy, or in what country the proceedings will take place. The intuitive choice may prove wrong. Such uncertainty encourages forum shopping.

On the other hand, why should debtors and creditors be precluded from consenting to counterintuitive reorganization administrations? The problem is twofold: (1) the wrangling permitted under the current wide-open system allows costly litigation, gobbling up precious resources that could be better spent paying creditors or facilitating reorganization efforts; and (2) without the predictability guaranteed by definite choice-of-law/choice-of-forum procedures, there is probably a chilling effect on investments in international companies, especially when two drastically different bankruptcy systems are both potential forums. The ready consent of all or almost all parties in cases like Avianca is encouraging. Under slightly different circumstances, however, it is easy to envision dueling parallel proceedings.

B. Does the Passage of the Bankruptcy Reform Bill Moot this Analysis?

How will passage of Chapter 15 in the recent U.S. Bankruptcy Reform Act affect the outcome in international bankruptcy cases? The Avianca loophole still exists. Corporations filing exclusively in the United States may escape the law of the country of their center of main interests if no other proceedings are filed. Once a foreign proceeding is filed, however, several new provisions take effect. Upon application by a foreign representative,159 U.S. courts must evaluate the interests of the debtor and determine where the debtor’s center of main interests lies.160 If the court determines that a foreign proceeding is the main proceeding—that the debtor’s center of interest lies in the foreign country—U.S. courts must, in essence, follow the old section 304 path of deferring to the foreign proceeding, subject to the restrictions of section 304(c).161 The incredible flexibility of sections 304 and 305 will be constrained; Chapter 15 should alleviate concerns of overreaching by pragmatic U.S. courts. In the absence of a foreign proceeding, however, the tensions present in Avianca and Yukos are likely to reappear.

Because of the debtor-friendly nature of Chapter 11, U.S. primary proceedings will continue to appeal to foreign corporations.162 Depending on the involuntary bankruptcy provisions of the country where the debtor’s main interests are centered, commencing a foreign proceeding may prove difficult or impossible for concerned creditors. In such a scenario, foreign corporations may still be able to choose U.S. law. Bankruptcy judges will continue to exercise broad discretion in these cases. The trends I have identified will persist, even after Yukos and the passage of Chapter 15.

159. 11 U.S.C. § 101(24) (2000) defines “foreign representative” as a “duly selected trustee, administrator, or

other representative of an estate in a foreign proceeding.” 160. Id. § 1502 (4)–(5). 161. Id. § 1520(a) (indicating the applicability of 11 U.S.C. §§ 361–63, 549, 542). 162. See LOPUCKI, supra note 25, at 184–85 (“The U.S. bankruptcy system offers the companies’ lawyers

and managers—the people who pick the courts—the best deal.”).

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V. CONCLUSION

International bankruptcy is at the crossroads. The recent passage of bankruptcy reform legislation in the EU, Mexico, the United States, and other countries indicates a worldwide awareness of the special problems posed when international companies become insolvent. The field is poised to enter a new era of cooperation, which would encourage international investment as well as treat all creditors more equitably. I have chronicled two cases that, in tandem, illustrate some of the special problems presented by the complexities of U.S. law.

Chapter 15 should alleviate some of the concerns I raise. For cases filed exclusively in the United States by foreign corporations, however, these concerns will be revisited by future cases. I hope Chapter 15’s center of main interests test will aid resolution of these thorny dilemmas. An expansion of bankruptcy forum non conveniens analysis—though not to the extent currently practiced in the federal courts—may be helpful in aiding the analysis of bankruptcy judges.

International bankruptcies present exquisitely complicated legal problems. Bankruptcy judges, masters of common sense jurisprudence, will continue to decide such cases pragmatically, as they should. I argue that decisions such as Avianca, even if pragmatically defensible, appear unseemly. Moreover, they hinder the worldwide development of cooperative international bankruptcy law. Consequently, U.S. judges should exhaust all alternatives before administering the reorganizations of foreign companies solely within the United States.

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