Document Type
Research Memorandum
Publication Date
2012
Abstract
(Excerpt)
Chapter 15 of the Bankruptcy Code allows courts in the United States to recognize the judgments of foreign courts on the basis of comity. Chapter 15's “public policy” exception, however, prevents recognition of such judgments if they are “manifestly contrary to the public policy of the United States.” In re Toft is one of the few cases to deny relief on the basis of the public policy exception. While courts will continue to apply this exception narrowly, In re Toft shows that the public policy exception can be a powerful impediment to requests for aid in foreign insolvency proceedings.
With In re Toft, the Bankruptcy Court for the Southern District of New York (“S.D.N.Y. Bankruptcy Court”) joined the short list of courts to deny relief on the basis of Chapter 15’s public policy exception. The court refused to enforce a German bankruptcy court order that would have allowed the foreign representative unfettered access to emails of the chapter 15 debtor that were being stored on internet servers in the United States. The court in the underlying German case had granted the foreign representative a Mail Interception Order (“the German order”) on an ex parte basis. The German order, which was also recognized by the English High Court of Justice Chancery Division in Bankruptcy (“the English order”), allowed the foreign representative to intercept the debtor’s postal and electronic mail without giving any notice to the debtor, Dr. Toft. The S.D.N.Y. Bankruptcy Court held that ex parte recognition and enforcement is not normally available to U.S. bankruptcy trustees. “Effectuation of the relief sought might subject the Foreign Representative, or his U.S. agents and possibly an [internet service provider] disclosing the debtor’s e-mails, to U.S. criminal liability.” Furthermore, the requested relief would also violate the Electronic Communications Privacy Act in disclosing e-mails by internet service providers and the Wiretap Act by constituting an unlawful interception of electronic communications in transit. Recognition was thus denied as manifestly contrary to U.S. public policy pursuant to § 1506 of the Bankruptcy Code.
Part I of this memorandum discusses the relevant U.S., U.K., German, and other international statutory provisions. Part II discusses and compares application of the public policy exception. Part III contrasts and analyzes the approaches taken by the S.D.N.Y. Bankruptcy Court and the English and German courts. This memorandum concludes that the S.D.N.Y. Bankruptcy Court’s ruling, while useful for understanding the limits of comity in U.S. courts, will not expand the reach of the public policy exception.