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Oak Point Partners, Inc v. Dr. Holger Lessing


April 19, 2013


The opinion of the court was delivered by: Lucy H. Koh United States District Judge


Before the Court is Defendant's motion to dismiss on grounds of international comity

("Mot."), and Defendant's unopposed motion to file an amended answer. See ECF Nos. 60; 65. 23

The Court DENIES Defendant's motion to dismiss, and GRANTS Defendant's unopposed motion 24 to file an amended answer. 25




This case arises from the efforts of Plaintiff Oak Point Partners, Inc. ("Oak Point") to 28 collect on a debt allegedly owed by the German company, Exodus GmbH ("Exodus Germany"), to its ultimate parent company, the U.S. corporation EXDS, Inc. ("EXDS"). Specifically, Plaintiff 2 alleges that on or about October 1, 2000, Exodus Germany and EXDS executed a promissory note 3 Germany. See Compl. ¶¶ 13-17, Ex. 2, Ex. 3. The Promissory Note contains a California choice of 5 law provision, and a provision by which the parties submitted to the jurisdiction of this Court and 6 waived venue objections. Id. ¶ 10, Ex. 2. 7

In early 2002, Exodus Germany initiated bankruptcy proceedings in Germany, and Dr. Holger ("Promissory Note"), representing a $23,725,634.00 unsecured loan from EXDS to Exodus 4

In September, 2001, EXDS filed for relief under Chapter 11 of the Bankruptcy Code, 11

U.S.C. § 101, et seq., in the United States Bankruptcy Court for the District of Delaware. Id. ¶ 3. 9

Lessing was appointed insolvency administrator, charged with managing and disposing of Exodus

Germany's assets. Id. ¶ 7. In that capacity, Dr. Lessing is authorized to sue and be sued on behalf of and in connection with claims by and against Exodus Germany. Id. 13

In 2007, Oak Point purchased all of EXDS's remaining assets from EXDS's Bankruptcy

Plan Administrator. Id. ¶ 5. Oak Point, a U.S. "private investment firm specializing in the 15 purchase of residual assets including those at the tail end of commercial bankruptcy cases," paid 16

$29,320.00 for EXDS's remaining assets, including the Promissory Note. See id. and Ex. 1; Decl. 17 of Peter M. Bransten, ECF No. 55, ¶ 2, Ex. A. 18

In October, 2010, Oak Point made the first attempt to present a creditor's claim on the basis

19 of the Promissory Note, filing a claim with Dr. Lessing for the full amount due. Compl. ¶ 22. Dr. 20

Lessing, as the insolvency administrator, objected to Oak Point's claim, in part because EXDS had 21 never presented a creditor's claim despite knowing of Exodus Germany's bankruptcy proceedings 22 since "as early as 2002." Id. ¶ 24; Mot. at 3. On July 7, 2011, Oak Point commenced this instant 23 action against Dr. Lessing in his capacity as the insolvency administrator. Mot. at 1. The 24 complaint alleges breach of the promissory note by Exodus Germany, and asks this Court to 25 establish the validity of Oak Point's claim, as well as to issue an order directing Defendant to 26 include Oak Point's claim in Exodus Germany's insolvency table. Id. at 6. 27

B. Procedural History

2 default judgment against Defendant on November 15, 2011. ECF Nos. 16, 17. On September 18, 3

2012, this Court set aside the default judgment, finding that Defendant's default was due to 4 excusable neglect. ECF No. 46 at 8. 5

6 this Court, a "final distribution report" was filed in Exodus Germany's insolvency case. Decl. of 7

(a) have foreign judgments recognized or (b) have a claim determined on the merits must be 9 commenced within two weeks of the filing of the final distribution report. In compliance with this 10 requirement, Oak Point timely initiated a German proceeding against Dr. Lessing in the Regional

Defendant failed to timely respond to the complaint, and the Clerk entered default and

On June 6, 2012, while Defendant's motion to set aside default judgment was pending in

Janice A. Alwin ("Alwin Decl."), ECF No. 35, ¶ 10. Under German law, actions by a creditor to 8

Court of Frankfurt ("Regional Court"). Alwin Decl. ¶ 10. Oak Point asked the Regional Court to recognize this Court's default judgment or, in the alternative, to determine Oak Point's claim on 13 the merits and to order Defendant to include Oak Point's claim in Exodus Germany's insolvency 14 table. Id. Oak Point subsequently withdrew the former motion in light of this Court's order setting 15 aside the default and default judgment. See Decl. of Caludia Ufer ("Ufer Decl."), ECF No. 71, ¶ 6. 16

Issues currently pending before the Regional Court include whether the Regional Court has

17 exclusive jurisdiction to decide the merit of Oak Point's claim, the validity of Oak Point's claim 18 under the promissory note, choice of law, whether Oak Point's claim is barred by statute of 19 limitation, and the priority of Oak Point's claim. Id. ¶ 7. At a December 4, 2012 hearing before 20 the Regional Court, Oak Point also requested a stay of the German proceeding to have these issues 21 decided by this Court, but the Regional Court declined to immediately rule on the request. Id. ¶ 11. 22

At a hearing before this Court on March 28, 2013 (the "March 28 hearing"), the parties represented 23 that all these issues remain pending before the Regional Court. 24

25 international comity ("Mot."). ECF No. 51. Plaintiff filed an opposition on December 11, 2012 26

Defendant also filed a motion for leave to file a first amended answer, as an alternative to its 28 motion to dismiss. ECF No. 60. Plaintiff does not oppose Defendant's latter motion. ECF No. 65.

On November 13, 2012, Defendant filed the instant motion to dismiss on grounds of

("Opp'n"), to which Defendant replied on December 20, 2012 ("Reply"). ECF Nos. 66, 69. 27

3 recognition which one nation allows within its territory to the legislative, executive or judicial acts 4 of another nation, having due regard both to international duty and convenience, and to the rights 5 of its own citizens or of other persons who are under the protection of its laws." H.K. & Shanghai 6

113, 163-64 (1895)). It is a "voluntary deference to the acts of other governments, undertaken for 8 the common good even though no transnational institution exists to exert any compulsion." In re 9 195 (C.D. Cal. 1989) (quoting 18 Wright, Miller & Cooper, Federal Practice and Procedure § 4473 (1981).


Defendant seeks dismissal of this action on grounds of international comity. Comity is "the

Banking Corp. In re Simon, 153 F.3d 991, 998 (9th Cir. 1998) (quoting Hilton v. Guyot, 159 U.S. 7

Grand Jury Proceedings, Yanagihara Grand Jury, Impanelled, June 13, 1988, 709 F.Supp. 192, 10

13 conflict" between domestic and foreign laws. See In re Simon, 153 F.3d at 999; Sarei v. Rio Tinto, 14

F.3d 822 (9th Cir. 2008). The party requesting comity bears the burden of demonstrating the 16 existence of a true conflict of laws. See In re Grand Jury Proceedings, 40 F.3d 959, 964 (9th Cir. 17

1994) ("A party relying on foreign law to contend that a district court's order violates principles of 18 international comity bears the burden of demonstrating that the foreign law bars compliance with 19 the order.") (citations omitted). If the party fails to produce evidence in support of such a conflict, 20 then he fails to meet his burden on the comity issue, and the district court need not consider it. See 21 id. (citing In re Grand Jury Proceedings (Shams), 873 F.2d 238, 239-40 (9th Cir. 1989)). 22

23 emphasizing the value of the "equitable and orderly distribution of a debtor's property" through a 24 single proceeding, the Second Circuit has held that, even absent a current conflict of laws, "U.S. 25 courts should ordinarily decline to adjudicate creditor claims that are the subject of a foreign 26 bankruptcy proceeding." JP Morgan, 412 F.3d 418 (2nd Cir. 2005) (citations omitted); Allstate 27

Life Ins. Co., 994 F.2d 996, 999 (2nd Cir. 1993). However, the Ninth Circuit has not yet 28 recognized a bankruptcy exception, or any other exception to Simon's "clear statement" that a true

The Ninth Circuit has clearly stated that comity is required only in instances of a "true

PLC, 487 F.3d 1193, 1211-12 (9th Cir. 2007), remanded on other grounds after reh'g en banc, 550 15

Other circuits have recognized exceptions to the conflict of laws requirement. Specifically, conflict of laws is a "predicate" for international abstention. See Sarei, 487 F.3d at 1211-12; 2

June 1, 2010); Mujica v. Occidental Petroleum Corp., 381 F.Supp.2d 1134, 1156 (C.D. Cal. 2005). 4

Indeed, as will be discussed below, the Bankruptcy Appellate Panel of the Ninth Circuit has held 5 that Chapter 15 of the Bankruptcy Code is designed to concentrate in the bankruptcy courts the 6 decision of whether to grant comity to foreign insolvency proceedings. See In re Iida, 377 B.R. 7

If a true conflict of laws exists, courts in the Ninth Circuit must then look to the

9 nonexhaustive standards set forth in Foreign Relations Law Restatement § 403(2).*fn1 See also Sarei, 10

13 this case be dismissed under the principles of international comity. The Court further finds that 14

Chapter 15 of the Bankruptcy Code provides the proper avenue for the Defendant to seek an 15 exercise of comity. In light of Defendant's insistence that this Court dismiss this case because of 16 comity and not because of international abstention, the Court declines to abstain on the basis of the 17

818 (1976). 19


21 whether a true conflict of laws exists. It is well established that a true conflict between domestic 22 and foreign laws requires more than a mere inconsistency, and that no conflict exists "where a 23 person subject to regulation by two states can comply with the laws of both. Hartford Fire 24

Farhang v. Indian Inst. of Tech., Kharagpur, C-08-02658 RMW, 2010 WL 2228936 (N.D. Cal. 3 243, 256-57 & n.21 (B.A.P. 9th Cir. 2007). 8

487 F.3d at 1212.


United States District Court

For the Northern District of California

Due to the absence of a true conflict of laws, the Court DENIES Defendant's request that

Colorado River doctrine. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 18

A. True Conflict of Laws

As mandated by the Ninth Circuit, the Court begins with the threshold determination of Insurance Co. v. California, 509 U.S. 764, 794-95 (1993). See also Mujica, 381 F.Supp. 2d 1134, 2

1156 (quoting Metro Industries, Inc. v. Sammi Corporation, 82 F.3d 839, 847 n. 5 (9th Cir.1996) 3

United States no longer provides a sufficient basis for finding a conflict between foreign and 5 domestic law.")). 6

7 that German bankruptcy law provides the German court with exclusive jurisdiction to determine 8 whether Oak Point's claim should be allowed on Exodus Germany's insolvency table. Mot. at 14-9

Specifically, under Section 179(1) of the German Insolvency Statute, if an insolvency administrator 11 denies a creditor's claim, the creditor can initiate a legal action to determine the merits of its claim Section 179. Section 180(1) of the German Insolvency Statute further provides that the Local 14

Court where the insolvency proceedings are or were pending "shall have exclusive jurisdiction" 15 over such action, unless the subject-matter falls outside of the jurisdiction of the Local Court, in 16 which case the Regional Court in whose district the Insolvency Court is located shall have 17

"exclusive jurisdiction." See id. In this case, the monetary amount at issue exceeds the € 5,000.00 18 jurisdictional maximum of the Local Court, and thus German law appears to grant "exclusive 19 jurisdiction" to the Regional Court. See Lessing Decl. ¶ 29; Decl. of Dr. Burkhard Hess ("Hess 20

The Court acknowledges that the grant of exclusive jurisdiction over a proceeding to a

22 foreign court would present a "true conflict of laws" with this Court's exercise of diversity 23 jurisdiction under 28 U.S.C. § 1332. See Sarei, 487 F.3d at 1211-12 (finding a foreign act 24 prohibiting the filing of claims in foreign courts was in clear conflict with the statute vesting 25 jurisdiction to hear such claims in the U.S.). However, Plaintiff has argued that the German 26

Steffen Schneider. Both parties have submitted expert declarations to support their respective 28 interpretations of whether the "exclusive jurisdiction" clause is intended to preclude a foreign

("A foreign country's allowing or even encouraging particular conduct which is prohibited in the 4

Defendant has identified only one potential "true conflict of laws." Defendant maintains

15 (citing Section 28 and 174 through 180 of the German Insolvency Statute); Reply at 6-7. 10

against the debtor. See Decl. of Dr. Holger Lessing ("Lessing Decl."), ECF No. 52, ¶ 27, Ex. B, 13

Decl."), ECF No. 53, ¶ 10. 21

Insolvency Statute does not in fact mandate exclusive jurisdiction. See Opp'n at 3-4; Decl. of 27

Court's exercise of jurisdiction . See Decl. of Dr. Peter Von Wilmosky, ECF No. 68; Hess Decl. 2 and Suppl. Decl. of Professor Dr. Burkhard Hess, ECF 70. At the March 28 hearing, the parties 3 informed this Court that the disputed interpretation of "exclusive jurisdiction" is an issue that 4 remains pending before the Regional Court, which has deferred ruling on the issue for further 5 briefing. 6

7 jurisdiction would well serve the principles of international comity. Rather, the Court finds that the 8 open question of the Regional Court's exclusive jurisdiction fails to qualify as a true conflict of 9 laws. See Mujica, 381 F.Supp.2d at 1155; Farhang, 2010 WL 2228936 at *1 (finding no existing 10 conflict when foreign Court had not issued any findings of fact or a final judgment). As a result,

The Court is not persuaded that preempting a foreign court's ruling on the scope of its own

Defendant has failed to meet his burden of proving the propriety of abstention on grounds of international comity. See In re Grand Jury Proceedings, 40 F.3d 959, 965 (9th Cir. 1994). 13

15 of the Bankruptcy Code as a justification for this Court to exercise comity, precedent cited by 16

(9th Cir. BAP 2007). The decision of the Bankruptcy Appellate Panel of the Ninth Circuit cited by 18

Defendant found that this Court is precluded from relying on principles of comity until the foreign 19 insolvency proceeding is recognized under Chapter 15 of the Bankruptcy Code. See In re Iidia, 20

Chapter 15 allows a foreign representative of a debtor in a foreign bankruptcy case to 22 petition a U.S. bankruptcy court for an order seeking to have the foreign proceeding recognized as 23 the debtor's "foreign main proceeding." See 11 U.S.C. §§ 1504, 1509, 1515, and 1520(a). Once a 24 foreign main proceeding is recognized, all domestic actions against the debtor and its property are 25 subject to the automatic stay provisions of the Bankruptcy Code,§ 1520(a)(1), and U.S. courts are 26 required to grant comity to the foreign proceeding, § 1509(b). In briefing and at the March 28 27 hearing, Defendant indicated that if this Court declines to stay or dismiss the case, Defendant will 28 initiate an ancillary U.S. bankruptcy case for this very purpose. See Mot. at 9, n.3 (noting that

B. Recognition of Foreign Proceedings Under Chapter 15

Furthermore, while Defendant has emphasized the policy concerns motivating Chapter 15

Defendant supports the opposite conclusion. See Mot. at 7 (citing In re Iida, 377 B.R. 243, 253-54 17

377 B.R. at 257. 21

Defendant had sought to avoid the expense of commencing an ancillary proceeding in the United 2

4 estate, as well as those of the judicial system. However, Defendant's selective citation of In re 5

Iidia omitted a persuasive holding that Defendant must first obtain recognition of the foreign 6 proceedings through the bankruptcy court, before requesting comity from this Court. Examining 7

States solely for the purpose of staying this action).*fn2

The Court is sympathetic to Defendant's desire to conserve the assets of the bankruptcy

Chapter 15 and its legislative history, the Bankruptcy Appellate Panel found that Chapter 15 was 8 designed to "erect[] a structure in which the foreign representative passes through the bankruptcy 9 court for a recognition decision, the specified consequences of which are that . . . all courts in the 10 11 U.S.C. § 1509. The Panel concluded that "Congress specifically intended that control of these

questions be concentrated in the bankruptcy court." Id.*fn3 See also In re Loy, 380 B.R. 154, 163-65 13

The In re Iidia Panel found support for "the primacy of the bankruptcy court's authority"

15 over the question of whether comity or assistance should be granted by other courts in 11 U.S.C. § 16

1509. § 1509 provides that if the bankruptcy court grants recognition of the foreign proceeding, a 17 court in the U.S. "shall grant comity," but if the bankruptcy court denies recognition, the 18 bankruptcy court may "issue any appropriate order necessary to prevent the foreign representative 19 from obtaining comity or cooperation from courts in the United States." 11 U.S.C. § 1509(b) and 20

(d). The section further provides that "[a] request for comity . . . by a foreign representative in a 21court in the United States other than the court which granted recognition shall be accompanied by a 2 certified copy of an order granting recognition under section 1517." 11 U.S.C. § 1509(c). 3

Although no binding authority has explicitly adopted the Bankruptcy Appellate Panel's

4 interpretation, it is clear that Congress has designed a mechanism specifically to address when a 5 grant of comity to foreign insolvency proceedings would be appropriate. In light of the absence of 6 a true conflict of law, the Court finds that Chapter 15 provides the appropriate avenue for 7

Defendant to seek recognition of the foreign proceedings and the exercise of comity by U.S. courts. 8

C. International Abstention

Plaintiff has suggested that the doctrine of international abstention provides a more 10 appropriate mode of analysis for this case, in light of the parallel proceedings before the Regional Court which raise the same issues that are pending before this Court. See Opp'n at 6-7; Colorado

River Water Conservation Dist. v. United States, 424 U.S. 800, 818 (1976). However, while 13 recognizing that abstention is not foreclosed, Defendant has thus far explicitly disclaimed reliance 14 on abstention, both in his briefing and at the March 28 hearing. See Reply at 11 & n.5 ("Here, the 15

Insolvency Administrator seeks dismissal based on the doctrine of international comity, not 16 international abstention"); Transcript of March 28 hearing, ECF No. 73, at 7:5-14 (counsel for 17

Defendant emphasizing that Colorado River abstention "is not the basis of our motion here, and 18 this is really important . . ."). As such, the Court does not abstain pursuant to the Colorado River 19 doctrine. 20


For the foregoing reasons, the Court DENIES Defendant's motion to dismiss on grounds of

22 international comity, and finds that Chapter 15 provides the appropriate avenue for Defendant to 23 pursue a stay of these proceedings. The Court GRANTS Defendant's unopposed motion to file an 24 amended answer. 25


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