Phyllis Hoffman v. Theo Bullmore , 384 F.3d 959 ( 2004 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-1754
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In re: National Warranty Insurance Risk *
Retention Group, doing business as *
National Warranty Insurance Company *
and National Warranty Insurance Group, *
*
Debtor. *
________________________________ *
*
Phyllis Hoffman, *
*
Appellant, * Appeal from the United States
* Bankruptcy Appellate Panel
v. * for the Eighth Circuit
*
Theo Bullmore; Simon Whicker, *
as Joint Official Liquidators, *
*
Appellees. *
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Submitted: August 26, 2004
Filed: September 24, 2004
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Before BYE, LAY, and RILEY, Circuit Judges.
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BYE, Circuit Judge.
Phyllis Hoffman appeals from the decision of the United States Bankruptcy
Appellate Panel for the Eighth Circuit affirming the injunction of the United States
Bankruptcy Court for the District of Nebraska.1 Ms. Hoffman was one of
approximately 950,000 buyers who hold a Vehicle Service Contract (“VSC”)
guaranteed by National Warranty Insurance Group (“National Warranty”). National
Warranty, a Cayman Islands corporation, operated a risk retention group insuring
group members who were obligated to contract holders that had purchased VSCs
from those group members. National Warranty’s primary place of business was
Lincoln, Nebraska and all of its business and assets were located within the United
States. Following a series of incidents where group members refused to allow their
reserve accounts to be used to pay claims, Ms. Hoffman initiated a lawsuit against
National Warranty, which she hoped to convert into a class action. National
Warranty then transferred 24 million dollars out of bank accounts within the United
States to bank accounts located in the Cayman Islands and filed for liquidation under
Cayman law. National Warranty’s liquidators, Theo Bullmore and Simon Whicker,
filed a petition under 11 U.S.C. § 304 seeking an injunction to stop all proceedings
against the assets involved in the Cayman Island liquidation. Ms. Hoffman, on behalf
of herself and others similarly situated, filed an objection to the requested § 304
relief. After conducting a trial on the merits of the injunction, the bankruptcy court
granted the requested § 304 relief. The bankruptcy appellate panel affirmed the
decision of the bankruptcy court. We affirm the decision of the bankruptcy appellate
panel.
I
We incorporate the background set forth in the opinion of the bankruptcy
appellate panel. See In re Nat'l Warranty Ins. Risk Retention Group, 306 B.R. 614,
617-19 (B.A.P. 8th Cir. 2004).
1
The Honorable Timothy J. Mahoney, Bankruptcy Judge, United States
Bankruptcy Court for the District of Nebraska.
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II
The parties raise numerous issues on appeal, but we agree with the bankruptcy
appellate panel there are three main issues: whether the bankruptcy court had
jurisdiction over the matter; whether injunctive relief was appropriate; and whether
the injunction was too broad. There is also a secondary issue involving the
bankruptcy court’s denial of discovery. We now set out to answer each question.
The first question before us is whether the bankruptcy appellate panel erred in
upholding the bankruptcy court’s decision to exercise ancillary jurisdiction over the
present matter. Congress expressly granted ancillary jurisdiction to bankruptcy courts
to act as local auxiliaries to a foreign bankruptcy proceeding to honor requests from
foreign representatives for the turnover of assets, injunctions and other such requested
relief. See 11 U.S.C. § 304 (2004). Ancillary jurisdiction is triggered by a foreign
representative filing a petition showing the commencement of a foreign proceeding.
Id. Ms. Hoffman challenges the bankruptcy court’s finding the Cayman Islands
liquidation was a “foreign proceeding.” As this challenge implicates the bankruptcy
court’s jurisdiction, we review the matter de novo. Gilbert v. Monsanto Co., 216 F.3d
695, 699 (8th Cir. 2000).
The Bankruptcy Code defines the term “foreign proceeding” as:
a proceeding, whether judicial or administrative and whether or not
under bankruptcy law, in a foreign country in which the debtor's
domicile, residence, principal place of business, or principal assets were
located at the commencement of such proceeding, for the purpose of
liquidating an estate, adjusting debts by composition, extension, or
discharge, or effecting a reorganization.
11 U.S.C. § 101(23). The bankruptcy court found the Cayman Islands proceeding
was a foreign proceeding in National Warranty’s domicile for the purpose of winding
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up and liquidating the corporation. On appeal, the major point of contention is the
meaning of the term “domicile.” The bankruptcy court found, and the bankruptcy
appellate panel agreed, the Cayman Islands is National Warranty’s domicile because
it is its place of incorporation. Ms. Hoffman contends, as a matter of law, the term
“domicile” as used in § 304 applies only to natural-person debtors because corporate
debtors are not generally deemed to have a “domicile.” We reject this argument.
The meaning of the term “domicile” and the term’s application to corporate
debtors is well-settled. For years, federal courts interpreting jurisdictional and venue
issues have considered a corporation’s domicile to be its place of incorporation. See,
e.g., United States v. Orshek, 164 F.2d 741, 742 (8th Cir. 1947) (“[A] corporation has
its home, residence, domicile and citizenship where it was originally incorporated and
not elsewhere, regardless of where its principal place of business may be located.”).
Ms. Hoffman argues that jurisdiction and venue cases are inapplicable to bankruptcy
proceedings. However, even within the legal discipline of bankruptcy, a
corporation’s domicile is the place of incorporation. See, e.g., In re Rimsat, Ltd., 98
F.3d 956, 960 (7th Cir. 1996) (citing Bank of Augusta v. Earle, 38 U.S. 519, 588
(1839) (a corporation “must dwell in the place of its creation”)). Moreover, we can
think of no reason to distinguish domicile in jurisdiction cases from domicile in
bankruptcy cases involving § 304. We thus conclude the term “domicile” as used in
§ 304 refers to a corporation’s place of incorporation.
Next, Ms. Hoffman challenges the appropriateness of injunctive relief and the
proper of scope of the injunction. We review the appropriateness of and scope of
injunctive relief for an abuse of discretion. “An abuse of discretion occurs when a
relevant factor that should have been given significant weight is not considered, when
an irrelevant or improper factor is considered and given significant weight, or when
all proper and no improper factors are considered, but the court in weighing those
factors commits a clear error of judgment.” United States v. McNeil, 90 F.3d 298,
300-01 (8th Cir. 1996). A “court's decision will not be disturbed as long as it is
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within the range of discretion afforded to a given determination and is not influenced
by a mistake of law.” Id.
The prospect of obtaining injunctive relief is one reason for filing a petition
under § 304. Section 304(c) provides a list of factors to guide the court in the
determination of whether to grant § 304 relief. These factors are:
(1) just treatment of all holders of claims against or interests in such
estate;
(2) protection of claim holders in the United States against prejudice
and inconvenience in the processing of claims in such foreign
proceeding;
(3) prevention of preferential or fraudulent dispositions of property
of such estate;
(4) distribution of proceeds of such estate substantially in accordance
with the order prescribed by this title;
(5) comity; and
(6) if appropriate, the provision of an opportunity for a fresh start for
the individual that such a foreign proceeding concerns.
We conclude the bankruptcy court properly evaluated the above factors and did
not abuse its discretion in granting injunctive relief. Ms. Hoffman essentially wants
to reargue her case by focusing on the “just treatment of all holders of claims” factor.
Ms. Hoffman argues the Cayman proceeding is not only inconvenient, the proceeding
completely eliminates the rights of American consumers because the Liquidators in
the Cayman Islands currently do not recognize the VSC holders as legitimate
claimants as they hold unliquidated claims. However, as the bankruptcy court found,
Cayman law provides each VSC holder with sufficient opportunity to liquidate their
claim. A class action is unlikely under Cayman law, so each claimant must liquidate
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their claim individually. Liquidating individually may be inconvenient, but we agree
with the bankruptcy court, Cayman law is capable of justly treating all claimants.
As to the other factors, the bankruptcy court focused on the comity factor
stating it respects our sister common law jurisdiction in the Cayman Islands.
Utilizing the testimony of a highly respected barrister from England, the bankruptcy
court concluded the liquidators have the duty and ability to act impartially and
evenhandedly among the different competing interests. The bankruptcy court noted
the Cayman Companies Law was similar to but not exactly the same as the
Bankruptcy Code. All ordinary unsecured creditors are treated the same and local
creditors do not have preference over foreign creditors. Companies Law provides for
the prevention of fraudulent transfers if the payment is made with an improper
motive. The bankruptcy appellate panel also conducted a thorough review of the
bankruptcy court’s analysis concluding the decision was not clearly erroneous. We
find the bankruptcy appellate panel did not abuse its discretion in doing so.
Ms. Hoffman further challenges the broad scope of the injunction.
Specifically, Ms. Hoffman contends the bankruptcy court’s order impermissibly
prohibits discovery by third party non-debtors and disallows a class action to proceed
within the United States where the litigants can more cost effectively pursue their
claims. However, as the bankruptcy appellate panel concluded, the bankruptcy court
did not commit an abuse of discretion by fashioning a broad injunction. Other courts
reviewing the scope of an injunction pursuant to § 304 have determined the court is
free to mold appropriate relief in near “blank check” fashion. In re Culmer, 25 B.R.
621, 624 (Bankr. S.D.N.Y. 1982) (citing H.R. Rep. No. 95-595, 95th Cong., 1st Sess.
324-25 (1977); S. Rep. No. 95-989, 95th Cong., 2d Sess. 35 (1978), U.S.C.C.A.N.
1978, p. 5787). The bankruptcy appellate panel correctly analogized a § 304
injunction to the automatic stay common in nearly all bankruptcy cases. In re Banco
Nacional de Obras y Servicios Publicos, S.N.C., 91 B.R. 661, 664 (Bankr. S.D.N.Y.
1988). The purpose of an automatic stay, and a § 304 injunction, is to prevent a
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chaotic and uncontrolled scramble for the debtor’s estate, thereby permitting a
systematic and equitable distribution. See H.R. Rep. No. 595, 95th Cong., 1st Sess.
340 (1977), U.S.C.C.A.N. 1978, pp. 5787, 6296 (discussing the purpose of the
automatic stay in bankruptcy cases). The bankruptcy court and subsequently the
bankruptcy appellate panel did not abuse their discretion by broadly fashioning the
scope of the injunction to meet this purpose.
Finally, a secondary issue involving discovery remains. Ms. Hoffman contends
the bankruptcy appellate panel failed to rule upon the bankruptcy court’s denial of
discovery regarding National Warranty’s member lists. Bullmore and Whicker claim
this issue is not properly before us on appeal because the Notice of Appeal does not
identify the discovery order among the orders for which the appeal is taken.
Federal Appellate Rules require a notice of appeal to “designate the judgment,
order, or part thereof being appealed.” See Fed. R. App. P. 3(c)(1)(B). We do not
strictly construe the contents of the notice of appeal. Greer v. St. Louis Reg’l Med.
Ctr., 258 F.3d 843, 846 (8th Cir. 2001). We generally permit review where the intent
of the appeal is obvious and the adverse party shows no prejudice. Parkhill v. Minn.
Mut. Life Ins. Co., 286 F.3d 1051, 1058 (8th Cir. 2002). But cf. id. (noting “[o]ur
court previously has held that an appeal from one order does not ‘inherently imply’
an intent to appeal other orders entered in the action”).
The Notice of Appeal indicates Ms. Hoffman appeals from the order of the
bankruptcy appellate panel affirming the decision of the bankruptcy court entered on
August 19, 2003. The bankruptcy appellate panel order and the bankruptcy court’s
August 19, 2003 order represent the final orders of the respective courts. “Ordinarily,
a notice of appeal that specifies the final judgment in a case should be understood to
bring up for review all of the previous rulings and orders that led up to and served as
a predicate for that final judgment.” Greer, 258 F.3d at 846. The obvious intent of
the Notice of Appeal was to appeal all orders, including discovery orders, that led up
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to the courts’ final decisions. Furthermore, Bullmore and Whicker demonstrate no
prejudice in us reviewing the merits of Ms. Hoffman’s claim of error. We will
therefore review the merits of Ms. Hoffman’s claim of error.
Although the bankruptcy appellate panel failed to rule on the denial of
discovery, we find that error without prejudice as the bankruptcy court did not abuse
its discretion by denying discovery. See MacGregor v. Mallinckrodt, Inc., 373 F.3d
923, 934 (8th Cir. 2004) (reviewing the district court’s discovery decision under an
abuse of discretion standard). Ms. Hoffman asserts that if all group members are
United States corporations then the requested information is relevant and necessary
to the determination of whether the convenience of the parties is better served by
litigation in the United States and whether insider treatment and preferences would
have been made known. However, all parties concede all of National Warranty’s
business including its member groups were located in the United States, so the
information would have little impact on the determination of whether the parties are
better served by litigation in the United States. Furthermore, the requested
information is of questionable relevancy in that the ultimate determination does not
hinge on the existence of insider treatment and preferences. Therefore, we are
unwilling to conclude the bankruptcy court abused its discretion in denying the
requested discovery.
III
For the foregoing reasons, we affirm the decision of the bankruptcy appellate
panel.
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