Rethinking international insolvency: The neglected role of choice-of-law rules and theory

Stanford Journal of International Law

Volumn 36, Issue 1, 2000, Pages 23-71

  Buxbaum, Hannah L ^a,b,c,d  

^a INDIANA UNIVERSITY   (United States)

^b UNIVERSITY OF HEIDELBERG   (Germany)

^c MIT Sloan School of Management   (United States)

^d Department of Obstetrics Gynecology   (United States)

Author keywords

[No Author keywords available]

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EID: 0034421416     PISSN: 07315082     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (283)

1. Initiatives in the area have included bilateral and multilateral treaties (e.g., the Council of Europe's Convention on Certain International Aspects of Bankruptcy (the "Istanbul Convention") and the draft treaty between the United States and Canada); model laws (e.g., the Model International Insolvency Cooperation Act and the Model Law on Cross-Border Insolvency discussed herein); a bar initiative (the Cross-Border Insolvency Concordat); and the American Law Institute's ongoing North American Transnational Insolvency Project. For an overview of these various initiatives and their reception, see Charles D. Booth, Recognition of Foreign Bankruptcies: An Analysis and Critique of the Inconsistent Approaches of United States Courts, 66 AM. BANKR. L. J. 135 (1992); Donald T. Trautman et al., Four Models for International Bankruptcy, 41 AM. J. COMP. L. 573 (1993); and Jay Lawrence Westbrook, Creating International Insolvency Law, 70 AM. BANKR. L.J. 563 (1996). In 1997, the European Union adopted the first full-fledged convention addressing cross-border insolvencies within the Union. See Manfred Balz, The European Union Convention on Insolvency Proceedings, 70 AM. BANKR. L.J. 485 (1996); Eberhard Schollmeyer, The New European Convention on Insolvency, 13 BANKR. DEV. J. 421 (1997). Surveying over a century's worth of attempts to create a coherent regime recently prompted a commentator to characterize international bankruptcies as an insoluble problem. See generally Donna McKenzie, International Solutions to International Insolvency: An Insoluble Problem?, 26 BALT. L. REV. 15 (1997).
2. Initiatives in the area have included bilateral and multilateral treaties (e.g., the Council of Europe's Convention on Certain International Aspects of Bankruptcy (the "Istanbul Convention") and the draft treaty between the United States and Canada); model laws (e.g., the Model International Insolvency Cooperation Act and the Model Law on Cross-Border Insolvency discussed herein); a bar initiative (the Cross-Border Insolvency Concordat); and the American Law Institute's ongoing North American Transnational Insolvency Project. For an overview of these various initiatives and their reception, see Charles D. Booth, Recognition of Foreign Bankruptcies: An Analysis and Critique of the Inconsistent Approaches of United States Courts, 66 AM. BANKR. L. J. 135 (1992); Donald T. Trautman et al., Four Models for International Bankruptcy, 41 AM. J. COMP. L. 573 (1993); and Jay Lawrence Westbrook, Creating International Insolvency Law, 70 AM. BANKR. L.J. 563 (1996). In 1997, the European Union adopted the first full-fledged convention addressing cross-border insolvencies within the Union. See Manfred Balz, The European Union Convention on Insolvency Proceedings, 70 AM. BANKR. L.J. 485 (1996); Eberhard Schollmeyer, The New European Convention on Insolvency, 13 BANKR. DEV. J. 421 (1997). Surveying over a century's worth of attempts to create a coherent regime recently prompted a commentator to characterize international bankruptcies as an insoluble problem. See generally Donna McKenzie, International Solutions to International Insolvency: An Insoluble Problem?, 26 BALT. L. REV. 15 (1997).
3. Initiatives in the area have included bilateral and multilateral treaties (e.g., the Council of Europe's Convention on Certain International Aspects of Bankruptcy (the "Istanbul Convention") and the draft treaty between the United States and Canada); model laws (e.g., the Model International Insolvency Cooperation Act and the Model Law on Cross-Border Insolvency discussed herein); a bar initiative (the Cross-Border Insolvency Concordat); and the American Law Institute's ongoing North American Transnational Insolvency Project. For an overview of these various initiatives and their reception, see Charles D. Booth, Recognition of Foreign Bankruptcies: An Analysis and Critique of the Inconsistent Approaches of United States Courts, 66 AM. BANKR. L. J. 135 (1992); Donald T. Trautman et al., Four Models for International Bankruptcy, 41 AM. J. COMP. L. 573 (1993); and Jay Lawrence Westbrook, Creating International Insolvency Law, 70 AM. BANKR. L.J. 563 (1996). In 1997, the European Union adopted the first full-fledged convention addressing cross-border insolvencies within the Union. See Manfred Balz, The European Union Convention on Insolvency Proceedings, 70 AM. BANKR. L.J. 485 (1996); Eberhard Schollmeyer, The New European Convention on Insolvency, 13 BANKR. DEV. J. 421 (1997). Surveying over a century's worth of attempts to create a coherent regime recently prompted a commentator to characterize international bankruptcies as an insoluble problem. See generally Donna McKenzie, International Solutions to International Insolvency: An Insoluble Problem?, 26 BALT. L. REV. 15 (1997).
4. Initiatives in the area have included bilateral and multilateral treaties (e.g., the Council of Europe's Convention on Certain International Aspects of Bankruptcy (the "Istanbul Convention") and the draft treaty between the United States and Canada); model laws (e.g., the Model International Insolvency Cooperation Act and the Model Law on Cross-Border Insolvency discussed herein); a bar initiative (the Cross-Border Insolvency Concordat); and the American Law Institute's ongoing North American Transnational Insolvency Project. For an overview of these various initiatives and their reception, see Charles D. Booth, Recognition of Foreign Bankruptcies: An Analysis and Critique of the Inconsistent Approaches of United States Courts, 66 AM. BANKR. L. J. 135 (1992); Donald T. Trautman et al., Four Models for International Bankruptcy, 41 AM. J. COMP. L. 573 (1993); and Jay Lawrence Westbrook, Creating International Insolvency Law, 70 AM. BANKR. L.J. 563 (1996). In 1997, the European Union adopted the first full-fledged convention addressing cross-border insolvencies within the Union. See Manfred Balz, The European Union Convention on Insolvency Proceedings, 70 AM. BANKR. L.J. 485 (1996); Eberhard Schollmeyer, The New European Convention on Insolvency, 13 BANKR. DEV. J. 421 (1997). Surveying over a century's worth of attempts to create a coherent regime recently prompted a commentator to characterize international bankruptcies as an insoluble problem. See generally Donna McKenzie, International Solutions to International Insolvency: An Insoluble Problem?, 26 BALT. L. REV. 15 (1997).
5. Initiatives in the area have included bilateral and multilateral treaties (e.g., the Council of Europe's Convention on Certain International Aspects of Bankruptcy (the "Istanbul Convention") and the draft treaty between the United States and Canada); model laws (e.g., the Model International Insolvency Cooperation Act and the Model Law on Cross-Border Insolvency discussed herein); a bar initiative (the Cross-Border Insolvency Concordat); and the American Law Institute's ongoing North American Transnational Insolvency Project. For an overview of these various initiatives and their reception, see Charles D. Booth, Recognition of Foreign Bankruptcies: An Analysis and Critique of the Inconsistent Approaches of United States Courts, 66 AM. BANKR. L. J. 135 (1992); Donald T. Trautman et al., Four Models for International Bankruptcy, 41 AM. J. COMP. L. 573 (1993); and Jay Lawrence Westbrook, Creating International Insolvency Law, 70 AM. BANKR. L.J. 563 (1996). In 1997, the European Union adopted the first full-fledged convention addressing cross-border insolvencies within the Union. See Manfred Balz, The European Union Convention on Insolvency Proceedings, 70 AM. BANKR. L.J. 485 (1996); Eberhard Schollmeyer, The New European Convention on Insolvency, 13 BANKR. DEV. J. 421 (1997). Surveying over a century's worth of attempts to create a coherent regime recently prompted a commentator to characterize international bankruptcies as an insoluble problem. See generally Donna McKenzie, International Solutions to International Insolvency: An Insoluble Problem?, 26 BALT. L. REV. 15 (1997).
6. Initiatives in the area have included bilateral and multilateral treaties (e.g., the Council of Europe's Convention on Certain International Aspects of Bankruptcy (the "Istanbul Convention") and the draft treaty between the United States and Canada); model laws (e.g., the Model International Insolvency Cooperation Act and the Model Law on Cross-Border Insolvency discussed herein); a bar initiative (the Cross-Border Insolvency Concordat); and the American Law Institute's ongoing North American Transnational Insolvency Project. For an overview of these various initiatives and their reception, see Charles D. Booth, Recognition of Foreign Bankruptcies: An Analysis and Critique of the Inconsistent Approaches of United States Courts, 66 AM. BANKR. L. J. 135 (1992); Donald T. Trautman et al., Four Models for International Bankruptcy, 41 AM. J. COMP. L. 573 (1993); and Jay Lawrence Westbrook, Creating International Insolvency Law, 70 AM. BANKR. L.J. 563 (1996). In 1997, the European Union adopted the first full-fledged convention addressing cross-border insolvencies within the Union. See Manfred Balz, The European Union Convention on Insolvency Proceedings, 70 AM. BANKR. L.J. 485 (1996); Eberhard Schollmeyer, The New European Convention on Insolvency, 13 BANKR. DEV. J. 421 (1997). Surveying over a century's worth of attempts to create a coherent regime recently prompted a commentator to characterize international bankruptcies as an insoluble problem. See generally Donna McKenzie, International Solutions to International Insolvency: An Insoluble Problem?, 26 BALT. L. REV. 15 (1997).
7. See Jay Lawrence Westbrook, Theory and Pragmatism in Global Insolvencies: Choice of Law and Choice of Forum, 65 AM. BANKR. L. J. 457, 460-61 (1991) [hereinafter Theory and Pragmatism].
8. See Lynn M. LoPucki, Cooperation in International Bankruptcy: A Post-Universalist Approach, 84 CORNELL L. REV. 696, 698-99 (1999).
9. See Theory and Pragmatism, supra note 2, at 460-61; Robert K. Rasmussen, A New Approach to Transnational Insolvencies, 19 MICH. J. INT'L L. 1, 17-18 (1997).
10. See Theory and Pragmatism, supra note 2, at 460-61; Robert K. Rasmussen, A New Approach to Transnational Insolvencies, 19 MICH. J. INT'L L. 1, 17-18 (1997).
11. In 1888, John Lowell observed that "in the present state of commerce and communication, it would be better in nine cases out of ten that all settlements of insolvent debtors with their creditors should be made in a single proceeding and generally at a single place." John Lowell, Conflicts of Law as Applied to Assignments for Creditors, 1 HARV. L. REV. 259, 264 (1888).
12. See LoPucki, supra note 3, at 700-701 (identifying the growing acceptance even among universalists of solutions that incorporate territorial elements).
13. See infra Part II.B.2.a for a discussion of the Bankruptcy Reform Act of 1999.
14. See infra Part II.B.2.b for a discussion of extraregulatory decisionmaking.
15. See Jay Lawrence Westbrook, Universal Priorities, 33 TEX. INT. L.J. 27, 43 (1998) [hereinafter Universal Priorities].
16. This is not to say that the choice-of-law implications of cross-border bankruptcies have been ignored. See, e.g., John D. Honsberger, Conflict of Laws and the Bankruptcy Reform Act of 1978, 30 CASE W. RES. L. REV. 631 (1980);
17. Kurt Nadelmann, The Bankruptcy Reform Act and Conflict of Laws: Trial-and-Error, 29 HARV. INT'L L. J. 27 (1988);
18. Theory and Pragmatism, supra note 2;
19. Jay Lawrence Westbrook & Donald T. Trautman, Conflict of Laws Issues in International Insolvencies, in CURRENT DEVELOPMENTS IN INTERNATIONAL AND COMPARATIVE CORPORATE INSOLVENCY LAW (Jacob S. Ziegel ed., 1994) [hereinafter CURRENT DEVELOPMENTS]. I point out only that such discussions use the language of universality and territoriality rather than that of traditional conflicts theory.
20. See PHILIP R. WOOD, PRINCIPLES OF INTERNATIONAL INSOLVENCY 228 (1995) ("The bankruptcy applies to all the debtor's assets globally and not just local assets.").
21. In a less pure incarnation of universality, the forum court would require the assistance of courts in other countries at the enforcement stage. Commentators have defined the terms "unity" and "universality" somewhat flexibly. See, e.g., Ian F. Fletcher, The European Union Convention on Insolvency Proceedings: Choice-of-Law Proceedings, 33 TEX. INT'L L.J. 119, 121 (1998); Hans Hanisch, "Universality" Versus Secondary Bankruptcy: A European Debate, 2 INT'L INSOL. REV. 151, 151-53 (1993); and LoPucki, supra note 3, at 704. The Reporter's Notes to the American Law Institute's Transnational Insolvency Project describe "unity" as involving a choice of forum, where "universality" involves the choice of a single legal regime. See AMERICAN LAW INSTITUTE, TRANSNATIONAL INSOLVENCY PROJECT: INTERNATIONAL STATEMENT OF UNITED STATES BANKRUPTCY LAW: TENTATIVE DRAFT 139, n.226 (1997). Professor Dalhuisen, however, suggests that universality assumes the full international effect of local bankruptcy adjudications on the basis of unity of the debtor's estate and unity of the creditor group. J.H. DALHUISEN, DALHUISEN ON INTERNATIONAL INSOLVENCY AND BANKRUPTCY 2.03[3] (1986).
22. In a less pure incarnation of universality, the forum court would require the assistance of courts in other countries at the enforcement stage. Commentators have defined the terms "unity" and "universality" somewhat flexibly. See, e.g., Ian F. Fletcher, The European Union Convention on Insolvency Proceedings: Choice-of-Law Proceedings, 33 TEX. INT'L L.J. 119, 121 (1998); Hans Hanisch, "Universality" Versus Secondary Bankruptcy: A European Debate, 2 INT'L INSOL. REV. 151, 151-53 (1993); and LoPucki, supra note 3, at 704. The Reporter's Notes to the American Law Institute's Transnational Insolvency Project describe "unity" as involving a choice of forum, where "universality" involves the choice of a single legal regime. See AMERICAN LAW INSTITUTE, TRANSNATIONAL INSOLVENCY PROJECT: INTERNATIONAL STATEMENT OF UNITED STATES BANKRUPTCY LAW: TENTATIVE DRAFT 139, n.226 (1997). Professor Dalhuisen, however, suggests that universality assumes the full international effect of local bankruptcy adjudications on the basis of unity of the debtor's estate and unity of the creditor group. J.H. DALHUISEN, DALHUISEN ON INTERNATIONAL INSOLVENCY AND BANKRUPTCY 2.03[3] (1986).
23. In a less pure incarnation of universality, the forum court would require the assistance of courts in other countries at the enforcement stage. Commentators have defined the terms "unity" and "universality" somewhat flexibly. See, e.g., Ian F. Fletcher, The European Union Convention on Insolvency Proceedings: Choice-of-Law Proceedings, 33 TEX. INT'L L.J. 119, 121 (1998); Hans Hanisch, "Universality" Versus Secondary Bankruptcy: A European Debate, 2 INT'L INSOL. REV. 151, 151-53 (1993); and LoPucki, supra note 3, at 704. The Reporter's Notes to the American Law Institute's Transnational Insolvency Project describe "unity" as involving a choice of forum, where "universality" involves the choice of a single legal regime. See AMERICAN LAW INSTITUTE, TRANSNATIONAL INSOLVENCY PROJECT: INTERNATIONAL STATEMENT OF UNITED STATES BANKRUPTCY LAW: TENTATIVE DRAFT 139, n.226 (1997). Professor Dalhuisen, however, suggests that universality assumes the full international effect of local bankruptcy adjudications on the basis of unity of the debtor's estate and unity of the creditor group. J.H. DALHUISEN, DALHUISEN ON INTERNATIONAL INSOLVENCY AND BANKRUPTCY 2.03[3] (1986).
24. In a less pure incarnation of universality, the forum court would require the assistance of courts in other countries at the enforcement stage. Commentators have defined the terms "unity" and "universality" somewhat flexibly. See, e.g., Ian F. Fletcher, The European Union Convention on Insolvency Proceedings: Choice-of-Law Proceedings, 33 TEX. INT'L L.J. 119, 121 (1998); Hans Hanisch, "Universality" Versus Secondary Bankruptcy: A European Debate, 2 INT'L INSOL. REV. 151, 151-53 (1993); and LoPucki, supra note 3, at 704. The Reporter's Notes to the American Law Institute's Transnational Insolvency Project describe "unity" as involving a choice of forum, where "universality" involves the choice of a single legal regime. See AMERICAN LAW INSTITUTE, TRANSNATIONAL INSOLVENCY PROJECT: INTERNATIONAL STATEMENT OF UNITED STATES BANKRUPTCY LAW: TENTATIVE DRAFT 139, n.226 (1997). Professor Dalhuisen, however, suggests that universality assumes the full international effect of local bankruptcy adjudications on the basis of unity of the debtor's estate and unity of the creditor group. J.H. DALHUISEN, DALHUISEN ON INTERNATIONAL INSOLVENCY AND BANKRUPTCY 2.03[3] (1986).
25. A single bankruptcy administration would avoid the costs of multiple simultaneous pro-ceedings. In addition, the value of the debtor corporation, both in liquidation and in reorganization, would be better preserved if all assets were under the control of a single court. See WOOD, supra note 11, at 228; Theory and Pragmatism, supra note 2, at 461.
26. See Theory and Pragmatism, supra note 2, at 466; see also LUCIAN ARYE BEBCHUK & ANDREW T. GUZMAN, AN ECONOMIC ANALYSIS OF TRANSNATIONAL BANKRUPTCIES (1998) (arguing that universality also promotes a more efficient allocation of capital).
27. See Theory and Pragmatism, supra note 2, at 466; see also LUCIAN ARYE BEBCHUK & ANDREW T. GUZMAN, AN ECONOMIC ANALYSIS OF TRANSNATIONAL BANKRUPTCIES (1998) (arguing that universality also promotes a more efficient allocation of capital).
28. See WOOD, supra note 11, at 228.
29. See id.
30. See Universal Priorities, supra note 9, at 29 (describing "the realities of a world of modified territorialism").
31. See Hanisch, supra note 12, at 156.
32. id.
33. See id.
34. The European Union Convention on Insolvency Proceedings adopts a secondary bankruptcy system. For a description of the Convention, see Fletcher, supra note 12; Balz, supra note 1; and Schollmeyer, supra note 1.
35. See Bankruptcy Reform Act of 1978, 11 U.S.C. §§ 101-1330 (1994).
36. See infra Part III.B.1.a for a discussion of legislative history.
37. See, e.g., 11 U.S.C. § 304(c)(2), (4) (1994).
38. See 11 U.S.C. § 541(a) (1994). Of course, the effect of this provision outside the United States depends on whether the law of the country in which the property is located recognizes the authority of the U.S. bankruptcy court to administer the assets.
39. See 11 U.S.C. §§ 502, 507 (1994).
40. See 11 U.S.C. § 101(23), (24) (1994).
41. See 11 U.S.C. § 303(b)(4) (1994). Such a proceeding would then be conducted concurrent with the proceeding pending abroad.
42. See 11 U.S.C § 305(a)(2) (1994).
43. Any proceeding brought pursuant to Section 303, 304 or 305 of the Bankruptcy Code is commonly referred to as a "Section 304" proceeding, and this Article adopts that convention.
44. See Thomas C. Given & Victor A. Vilaplana, Comity Revisited: Multinational Bankruptcy Cases Under Section 304 of the Bankruptcy Code, 1983 ARIZ. ST. L. J. 325, 330 (1983). By seeking the injunctive relief permitted by Section 304(b)(1), however, a foreign representative can achieve substantially the same relief with respect to property of the bankruptcy estate located in the United States as that provided by Section 362(a) of the Bankruptcy Code.
45. See id. at 328.
46. Section 304(b) provides that a court may: (1) enjoin the commencement or continuation of - (A) any action against - (i) a debtor with respect to property involved in such foreign proceeding; or (ii) such property; or (B) the enforcement of any judgment against the debtor with respect to such property, or any act or the commencement or continuation of any judicial proceeding to create or enforce a lien against the property of such estate; (2) order turnover of the property of such estate, or the proceeds of such property, to such foreign representative; or (3) order other appropriate relief. 11 U.S.C. § 304(b)(1994).
47. The legislative history clarifies the intent of Congress in this regard: Section 304 was enacted to enhance the efficiency of foreign bankruptcy representatives in marshaling and distributing the assets of the debtor. See Stuart A. Krause et al., Relief Under Section 304 of the Bankruptcy Code: Clarifying the Principal Role of Comity in Transnational Insolvencies, 64 FORD. L. REV. 2591, 2594-95 (1996) (characterizing Congressional intent as "encouraging courts to lean toward a universality approach by giving greater deference to the foreign proceeding"). There is no intention that the local proceeding would compete with the foreign one.
48. 11 U.S.C. § 304(c)(1994).
49. See infra Part IV.B for a description of the effect of unpredictability on commercial lending. See also LoPucki, supra note 3, at 728 (suggesting that this flexibility therefore sacrifices the advantages claimed by the universality approach).
50. See DALHUISEN, supra note 12, at § 1.07[2], 3-96.14 ("[T]here is usually no freedom for the rendering court but to apply its own bankruptcy law in its entirety . . . ."). Courts may, of course, choose to apply the law of another jurisdiction to particular aspects of the bankruptcy administration. They may, for instance, apply foreign law to determine whether a creditor has secured status. But the law applied to the core issues of priority among creditors and distribution of assets will be forum law. See LoPucki, supra note 3, at 12.
51. See Theory and Pragmatism, supra note 2, at 471 (identifying the general failure to distinguish between the two and then arguing that the forum court should apply its own bankruptcy law to the greatest extent possible); see also Westbrook & Trautman, supra note 10, at 668 ("Because it is traditional that the bankruptcy court applies its local law, there is no choice of law process as such to deal with important issues that vary from country to country.").
52. See text accompanying supra note 12 for a description of unity.
53. See text accompanying supra note 16 for a discussion of territoriality.
54. While Section 304 only provides for an injunction against the commencement or continuation of a case, Section 305 provides that such a case may be dismissed. Another alternative open to the foreign representative would be to petition the court for a local concurrent bankruptcy proceeding pursuant to Section 303(b)(4). See Honsbergcr, supra note 10, at 653.
55. See In re Lines, 81 B.R. 267 (Bankr. S.D.N.Y. 1988) (seeking to enjoin the continuation of efforts by a U.S. creditor to attach assets of the debtor located in the United States).
56. See Interpool v. M/V Venture Star, 102 B.R. 373 (Bankr. D.N.J. 1988) (moving to dismiss competing bankruptcy proceedings filed under Chapter 7 against the debtor by U.S. creditors).
57. A court might also dismiss a competing local bankruptcy proceeding under Section 305, which provides that the U.S. court may dismiss a bankruptcy proceeding if a foreign proceeding is pending and the Section 304(c) factors warrant dismissal. See 11 U.S.C. § 305(a).
58. See Donald T. Trautman, Foreign Creditors in American Bankruptcy Proceedings, 29 HARV. INT'L L. J. 49, 51 (1988).
59. Most notably Section 304(c)(4), which provides that the distribution of proceeds under foreign law should be "substantially in accordance" with the order of distribution dictated by the Bankruptcy Code. 11 U.S. C. § 304(c)(4) (1994). See infra Part V.B.2 for a discussion of cases in which Section 304(c)(4) has been applied in a protectionist fashion.
60. Section 304(c)(1) suggests a universal approach, pursuant to which all creditors - wher-ever located - would be treated equally. See 11 U.S. C. § 304(c)(1) (1994); Trautman, supra note 45, at 52.
61. There is also nothing to prevent courts from considering additional factors. See Honsberger, supra note 10, at 655. Some courts, far from attempting to balance the factors, have viewed at least one of the guidelines (Section 304(c)(4)) as an individual test that must be passed in order for a foreign proceeding to be recognized. See Melissa S. Rimel, American Recognition of International Insolvency Proceedings: Deciphering Section 304(c), 9 BANKR. DEV. L. J. 453, 481 (1992); see also In re Toga Manufacturing, 28 B.R. 165, 168 (Bankr. E.D. Mich. 1983) (finding that since distribution would not take place substantially in accordance with U.S. distribution rules, the court need not defer to the foreign proceeding). Similarly, the many decisions relying on considerations of comity often turn on that single factor alone. The use of the comity guideline is discussed more extensively infra Part III.B.1.
62. Given & Vilaplana, supra note 31, at 331.
63. See, e.g., In re Culmer, 25 B.R. 621, 628-629 (Bankr. S.D.N.Y. 1982) (noting that the Bahamas had a greater interest in the liquidation of the debtor, since "neither the United States nor the State of New York has any governmental or public interest in [its] liquidation"); In re Maxwell Communication Corporation, 170 B.R. 800, 816 (Bankr. S.D.N.Y. 1994) (examining the contacts each jurisdiction involved has with the controversy); In re Koreag, 961 F.2d 341, 350 (2d Cir. 1992) ("The goal of this analysis is to evaluate the various contacts each jurisdiction has with the controversy, and determine which jurisdiction's laws and policies are implicated to the greatest extent.").
64. See, e.g., In re Toga, 28 B.R. 165 (Bankr. E.D. Mich. 1983); Interpool v. M/V Venture Star, 102 B.R. 373 (Dist. N.J. 1988). These cases are critiqued in Krause et al., supra note 34, at 2601-03.
65. am unaware of any comprehensive empirical study of international bankruptcy decisions in U.S. courts, but believe cases such as In re Toga, 28 B.R. 165 (Bankr. E.D. Mich. 1983) and Interpool v. M/V Venture Star, 102 B.R. 373 (Bankr. D.N.J. 1988) to be exceptions to the prevalent approach. See Lore Unt, International Relations and International Insolvency Cooperation: Liberalism, Institutionalism and Transnational Legal Dialogue, 28 LAW & POL'Y INT L BUS. 1037, 1074 (1997) (describing the "increasing tendency to defer to and assist the primary bankruptcy").
66. H.R. 833, 106th Cong. (1999) [hereinafter "Reform Act"]. H.R. 833 was passed by the House of Representatives on May 5, 1999; a parallel bill, S. 625, is pending in the Senate. Title IX of the Reform Act incorporates the provisions of the Model Law on Cross-Border Insolvency ("Model Law") in its new Chapter 15, which addresses ancillary and cross-border cases. The Model Law was drafted by the United Nations Commission on International Trade Law ("UNCITRAL") and was adopted at UNCITRAL's 30th session in May of 1997. UNCITRAL Model Law on Cross-Border Insolvency: Report of UNCITRAL on the Work of its Thirtieth Session, U.N. GAOR, 52d Sess., Annex I, at 68-78, U.K. Doc. A/52/17 (1997), reprinted in André J. Berends, UNCITRAL Model Law on Cross-Border Insolvency, 6 TUL. J. INT'L & COMP. L. 309, 401 (1998) [hereinafter Model Law]. See also The Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency, [1997] 28 Y.B. Int'l Trade L. Comm'n, at pt.3, § 2, U.N. Doc. A/CN.9/442, reprinted in Berends [hereinafter Guide to Enactment]. Id. at 419. For a discussion of the process leading to the adoption of the Model Law, see Thomas M. Gaa & Paula E. Garzon, International Creditors'Rights and Bankruptcy, 31 INT'L LAW. 273 (1997).
67. H.R. 833, 106th Cong. (1999) [hereinafter "Reform Act"]. H.R. 833 was passed by the House of Representatives on May 5, 1999; a parallel bill, S. 625, is pending in the Senate. Title IX of the Reform Act incorporates the provisions of the Model Law on Cross-Border Insolvency ("Model Law") in its new Chapter 15, which addresses ancillary and cross-border cases. The Model Law was drafted by the United Nations Commission on International Trade Law ("UNCITRAL") and was adopted at UNCITRAL's 30th session in May of 1997. UNCITRAL Model Law on Cross-Border Insolvency: Report of UNCITRAL on the Work of its Thirtieth Session, U.N. GAOR, 52d Sess., Annex I, at 68-78, U.K. Doc. A/52/17 (1997), reprinted in André J. Berends, UNCITRAL Model Law on Cross-Border Insolvency, 6 TUL. J. INT'L & COMP. L. 309, 401 (1998) [hereinafter Model Law]. See also The Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency, [1997] 28 Y.B. Int'l Trade L. Comm'n, at pt.3, § 2, U.N. Doc. A/CN.9/442, reprinted in Berends [hereinafter Guide to Enactment]. Id. at 419. For a discussion of the process leading to the adoption of the Model Law, see Thomas M. Gaa & Paula E. Garzon, International Creditors'Rights and Bankruptcy, 31 INT'L LAW. 273 (1997).
68. 53 H.R. 833, 106th Cong. (1999) [hereinafter "Reform Act"]. H.R. 833 was passed by the House of Representatives on May 5, 1999; a parallel bill, S. 625, is pending in the Senate. Title IX of the Reform Act incorporates the provisions of the Model Law on Cross-Border Insolvency ("Model Law") in its new Chapter 15, which addresses ancillary and cross-border cases. The Model Law was drafted by the United Nations Commission on International Trade Law ("UNCITRAL") and was adopted at UNCITRAL's 30th session in May of 1997. UNCITRAL Model Law on Cross-Border Insolvency: Report of UNCITRAL on the Work of its Thirtieth Session, U.N. GAOR, 52d Sess., Annex I, at 68-78, U.K. Doc. A/52/17 (1997), reprinted in André J. Berends, UNCITRAL Model Law on Cross-Border Insolvency, 6 TUL. J. INT'L & COMP. L. 309, 401 (1998) [hereinafter Model Law]. See also The Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency, [1997] 28 Y.B. Int'l Trade L. Comm'n, at pt.3, § 2, U.N. Doc. A/CN.9/442, reprinted in Berends [hereinafter Guide to Enactment]. Id. at 419. For a discussion of the process leading to the adoption of the Model Law, see Thomas M. Gaa & Paula E. Garzon, International Creditors'Rights and Bankruptcy, 31 INT'L LAW. 273 (1997).
69. 53 H.R. 833, 106th Cong. (1999) [hereinafter "Reform Act"]. H.R. 833 was passed by the House of Representatives on May 5, 1999; a parallel bill, S. 625, is pending in the Senate. Title IX of the Reform Act incorporates the provisions of the Model Law on Cross-Border Insolvency ("Model Law") in its new Chapter 15, which addresses ancillary and cross-border cases. The Model Law was drafted by the United Nations Commission on International Trade Law ("UNCITRAL") and was adopted at UNCITRAL's 30th session in May of 1997. UNCITRAL Model Law on Cross-Border Insolvency: Report of UNCITRAL on the Work of its Thirtieth Session, U.N. GAOR, 52d Sess., Annex I, at 68-78, U.K. Doc. A/52/17 (1997), reprinted in André J. Berends, UNCITRAL Model Law on Cross-Border Insolvency, 6 TUL. J. INT'L & COMP. L. 309, 401 (1998) [hereinafter Model Law]. See also The Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency, [1997] 28 Y.B. Int'l Trade L. Comm'n, at pt.3, § 2, U.N. Doc. A/CN.9/442, reprinted in Berends [hereinafter Guide to Enactment]. Id. at 419. For a discussion of the process leading to the adoption of the Model Law, see Thomas M. Gaa & Paula E. Garzon, International Creditors'Rights and Bankruptcy, 31 INT'L LAW. 273 (1997).
70. That is, it embraces the goals of universality, but provides for local proceedings in certain circumstances. See supra Part II.A.1 for a discussion of modified universality.
71. See Guide to Enactment, supra note 53, at 419.
72. See Reform Act, supra note 53, § 1515(b), (c). The documents required amount to proof from a foreign court that the representative has been duly appointed. Section 1516(b) provides further that the court to which those documents are submitted is entitled to rely on their authenticity. Reform Act, supra note 52, § 1516(b).
73. See Reform Act, supra note 53, § 1517(a) (providing that "an order recognizing a foreign proceeding shall be entered" if the procedural requirements are met) (emphasis added). Section 1517(c) indicates that the application for recognition must be considered as quickly as possible. Id. § 1517(c).
74. In this respect, the Reform Act is more generous to foreign representatives than the existing provisions of the Bankruptcy Code, as the initiation of a Section 304 proceeding does not result in the creation of an automatic stay. See Given & Vilaplana, supra note 31, at 330.
75. See Reform Act, supra note 53, § 1520(a) (stay in "main" proceedings) and § 1521(a) (stay in "non-main" proceedings). Additionally, Section 1519 provides that a temporary stay may be imposed, pending recognition, upon successful petition by the foreign representative. Id. § 1519. See infra Part III.B.1.b for a discussion of the distinction between "main" and "non-main" proceedings.
76. See Reform Act, supra note 53, § 1521. Section 1521 permits the court, for instance, to order the turnover of assets located in the United States to the foreign representative.
77. See Reform Act, supra note 53, § 1522. Section 1522 speaks directly to relief granted in the discretion of the court, under Section 1519 and Section 1521, and not to the relief granted automatically under Section 1520 to foreign main proceedings. But see Reform Act Section 1520(b), whose counterpart in the Model Law was intended to provide that even the automatic relief granted upon recognition of a foreign main proceeding could be modified by the local court. See Berends, supra note 53, at 374.
78. This provision applies in connection with the turnover of assets to the foreign representative. Reform Act, supra note 53, § 1521(b). See also Reform Act, supra note 53, § 1522(a) (providing that "the interests of the creditors. . . [must be] sufficiently protected" for relief to be granted under Sections 1519 or 1521).
79. This referral to preexisting bankruptcy analysis limits the scope of the Reform Act, rendering it more procedural than substantive.
80. See discussion supra Part II.B.1.
81. See, e.g., Reform Act, supra note 53, § 1529(2) (providing that if a local proceeding is commenced after recognition of the foreign representative, any stay imposed pursuant to Section 1519, 1520 or 1521 "shall be modified or terminated if inconsistent with" the local proceeding); see also Berends, supra note 53, at 388 ("the basic rule of [Model Law] Article 29 is that there is a pre-eminence of the local proceeding over the foreign proceeding").
82. It may be that this latent territorialism reflects a political compromise necessary to ensure the adoption of UNCITRAL's Model Law by member countries, and that the further step of substantive change is one that will take place in the future. As it stands now, however, it represents an acceptance of territoriality.
83. The lack of systemwide predictability remains troubling, however, in terms of transaction costs.
84. In reviewing several recent bankruptcies, one commentator notes that the judges presiding over the proceedings view their function "as creating international legal cooperative structures in the field of international insolvency." Unt, supra note 52, at 107374.
85. For an analysis of the case, see Jay Lawrence Westbrook, The Lessons of Maxwell Communication, 64 FORDHAM L. REV. 2531 (1996).
86. For a thorough discussion of the harmonization process, see Evan D. Flaschen & Ronald J. Silverman, The Role of the Examiner as Facilitator and Harmonizer in the Maxwell Communication Corporation Insolvency, in CURRENT DEVELOPMENTS, supra note 10, at 621.
87. See, e.g., In re Maruko, 200 B.R. 876 (Bankr. S.D. Cal. 1996); In re Nakash, 190 B.R. 763 (Bankr. S.D.N.Y. 1996); In re Everfresh Beverages, 238 B.R. 558 (Bankr. S.D.N.Y. 1995). The Reform Act includes provisions intended to foster - indeed, to require - this sort of cooperation. See Reform Act, supra note 53, §§ 1525-1527.
88. They also take full advantage of technological advances and arguably simply adjust the level of cooperation to what is now technically feasible. See E. Bruce Leonard, The Way Ahead: Protocols in International Insolvency Cases, 17 AM. BANKR. INST. J. 12 (1999).
89. Interestingly, Section 304 itself was adopted partially in response to exactly such a situation: the 1975 failure of the Herstatt bank, which revealed the insufficiency of the existing regulations. See Honsberger, supra note 10, at 674 ("The settlement that ended the Herstatt litigation was characterized as a cry of despair for the lack of any rational procedure."). See generally Kurt H. Nadelmann, Rehabilitating International Bankruptcy Law: Lessons Taught by Herstatt and Company, 52 N.Y.U. L. REV. 1 (1977). That the participants in cross-border bankruptcy adjudications perceive the current regulatory framework as inadequate is in itself troubling. Furthermore, it seems possible that ad-hoc methods of resolution do not protect all participants in a bankruptcy to the same extent that the regulatory regime might. In addition, these proceedings raise some concerns regarding the source of authority for U.S. courts to modify their jurisdiction over property of the debtor. See Robert B. Chapman, Judicial Abstention in Cross-Border Insolvency Proceedings: Recent Protocols in Simultaneous Plenary Cases, 7 INT'L INSOLVENCY REV. 1 (1998).
90. Interestingly, Section 304 itself was adopted partially in response to exactly such a situation: the 1975 failure of the Herstatt bank, which revealed the insufficiency of the existing regulations. See Honsberger, supra note 10, at 674 ("The settlement that ended the Herstatt litigation was characterized as a cry of despair for the lack of any rational procedure."). See generally Kurt H. Nadelmann, Rehabilitating International Bankruptcy Law: Lessons Taught by Herstatt and Company, 52 N.Y.U. L. REV. 1 (1977). That the participants in cross-border bankruptcy adjudications perceive the current regulatory framework as inadequate is in itself troubling. Furthermore, it seems possible that ad-hoc methods of resolution do not protect all participants in a bankruptcy to the same extent that the regulatory regime might. In addition, these proceedings raise some concerns regarding the source of authority for U.S. courts to modify their jurisdiction over property of the debtor. See Robert B. Chapman, Judicial Abstention in Cross-Border Insolvency Proceedings: Recent Protocols in Simultaneous Plenary Cases, 7 INT'L INSOLVENCY REV. 1 (1998).
91. See LoPucki, supra note 3, at 742.
92. In addition to unilateralism and multilateralism, prevailing approaches to conflicts theory include substantivism and party expectations. See Gene R. Shreve, Choice of Law and the Forgiving Constitution, 71 IND. L. J. 271, 271 (1996). As discussed below, the relationship between universality and territoriality in bankruptcy correlates loosely with the larger conflicts systems of multilateralism and unilateralism.
93. See Friedrich K. Juenger, A Page of History, 35 MERCER L. REV. 419 (1984); see also MATHIAS REIMANN, CONFLICT OF LAWS IN WESTERN EUROPE 106-07 (1995).
94. See Friedrich K. Juenger, A Page of History, 35 MERCER L. REV. 419 (1984); see also MATHIAS REIMANN, CONFLICT OF LAWS IN WESTERN EUROPE 106-07 (1995).
95. The Restatement (Second) of Conflict of Laws, for instance, has been described as adopting an eclectic approach, incorporating both unilateralist and multilateralist elements. See generally Willis L. M. Reese, The Second Restatement of Conflict of Laws Revisited, 34 MERCER L. REV. 501 (1983).
96. See Juenger, supra note 76, at 427 (describing the unilateralist approach as "divining the spatial reach of substantive rules").
97. Many unilateralists, including Brainerd Currie and Albert Ehrenzweig, adhered to this notion of forum preference. See generally ALBERT A. EHRENZWEIG, TREATISE ON THE CONFLICT OF LAWS 326 (1962). Other unilateralists have attempted to make the approach less forum preferring. See, e.g., Russell J. Weintraub, A Defense of Interest Analysis in the Conflict of Laws and the Use of that Analysis in Products Liability, 46 OHIO ST. L. J. 493, 501-02 (1985); Robert A. Sedlar, Reflections on Conflict-of-Laws Methodology, 32 HASTINGS L. J. 1628, 1630-31 (1981). But see LEA BRILIMAYER, CONFLICT OF LAWS 18 (1995) (suggesting that forum preference is the inevitable outcome of the unilateral approach) and REIMANN, supra note 76, at 108 (reaching the same conclusion).
98. Many unilateralists, including Brainerd Currie and Albert Ehrenzweig, adhered to this notion of forum preference. See generally ALBERT A. EHRENZWEIG, TREATISE ON THE CONFLICT OF LAWS 326 (1962). Other unilateralists have attempted to make the approach less forum preferring. See, e.g., Russell J. Weintraub, A Defense of Interest Analysis in the Conflict of Laws and the Use of that Analysis in Products Liability, 46 OHIO ST. L. J. 493, 501-02 (1985); Robert A. Sedlar, Reflections on Conflict-of-Laws Methodology, 32 HASTINGS L. J. 1628, 1630-31 (1981). But see LEA BRILIMAYER, CONFLICT OF LAWS 18 (1995) (suggesting that forum preference is the inevitable outcome of the unilateral approach) and REIMANN, supra note 76, at 108 (reaching the same conclusion).
99. Many unilateralists, including Brainerd Currie and Albert Ehrenzweig, adhered to this notion of forum preference. See generally ALBERT A. EHRENZWEIG, TREATISE ON THE CONFLICT OF LAWS 326 (1962). Other unilateralists have attempted to make the approach less forum preferring. See, e.g., Russell J. Weintraub, A Defense of Interest Analysis in the Conflict of Laws and the Use of that Analysis in Products Liability, 46 OHIO ST. L. J. 493, 501-02 (1985); Robert A. Sedlar, Reflections on Conflict-of-Laws Methodology, 32 HASTINGS L. J. 1628, 1630-31 (1981). But see LEA BRILIMAYER, CONFLICT OF LAWS 18 (1995) (suggesting that forum preference is the inevitable outcome of the unilateral approach) and REIMANN, supra note 76, at 108 (reaching the same conclusion).
100. Many unilateralists, including Brainerd Currie and Albert Ehrenzweig, adhered to this notion of forum preference. See generally ALBERT A. EHRENZWEIG, TREATISE ON THE CONFLICT OF LAWS 326 (1962). Other unilateralists have attempted to make the approach less forum preferring. See, e.g., Russell J. Weintraub, A Defense of Interest Analysis in the Conflict of Laws and the Use of that Analysis in Products Liability, 46 OHIO ST. L. J. 493, 501-02 (1985); Robert A. Sedlar, Reflections on Conflict-of-Laws Methodology, 32 HASTINGS L. J. 1628, 1630-31 (1981). But see LEA BRILIMAYER, CONFLICT OF LAWS 18 (1995) (suggesting that forum preference is the inevitable outcome of the unilateral approach) and REIMANN, supra note 76, at 108 (reaching the same conclusion).
101. Another way of viewing the approach is to note that unilateralism recognizes the concept of "concurrent legislative jurisdiction", since it is not concerned by the possibility that another forum may simultaneously choose to apply its law to the same dispute. William S. Dodge, Extraterritoriality and Conflict-of-Laws Theory: An Argument for Judicial Unilateralism, 39 HARV. INT'L L. J. 101, 107 (1998).
102. See REIMANN, supra note 76, at 106.
103. FRIEDRICH CARL VON SAVIGNY, A TREATISE ON THE CONFLICT OF LAWS 133 (William Guthrie trans., 2d ed. 1880). See also FRIEDRICH K. JUENGER, CHOICE OF LAW AND MULTISTATE JUSTICE 10-27 (1993) [hereinafter MULTISTATE JUSTICE] (describing Savigny's theory).
104. FRIEDRICH CARL VON SAVIGNY, A TREATISE ON THE CONFLICT OF LAWS 133 (William Guthrie trans., 2d ed. 1880). See also FRIEDRICH K. JUENGER, CHOICE OF LAW AND MULTISTATE JUSTICE 10-27 (1993) [hereinafter MULTISTATE JUSTICE] (describing Savigny's theory).
105. See REIMANN, supra note 76, at 106.
106. See David F. Cavers, A Critique of the Choice-of-Law Problem, 47 HARV. L. REV. 173, 177 (1933).
107. See MULTISTATE JUSTICE, supra note 82, at 36-40.
108. Lex loci delicti was one of the most enduring multilateral rules. See id. at 37 (noting the rule's history).
109. See REIMANN, supra note 76, at 110-11 for a discussion of substance neutrality.
110. This distinction is often characterized as the difference between "conflicts justice" and "substantive justice." See REIMANN, supra note 76, at 160. See also MULTISTATE JUSTICE, supra note 82, at 69.
111. Even Savigny, for instance, recognized that the application of foreign law could not be used to avoid the application of mandatory law of the forum. See SAVIGNY, supra note 82, at 38.
112. See infra Part IV.B.2 for a discussion of the public policy exception. Critics of multilateralism note the development of other devices used by courts to manipulate the choice-of-law decision. Such devices include characterization (which ensures the application of local law by characterizing a particular issue as procedural rather than substantive) and renvoi (which permits the forum to apply foreign conflicts law - rather than substantive law - when that conflicts law would in turn lead back to the choice of the substantive law of the forum). See Cavers, supra note 84, at 182-187.
113. "Territorial" in this context is not to be confused with "territoriality" as a theory of international bankruptcy law, under which a forum court will automatically apply the law of its own jurisdiction.
114. Interest analysis, a unilateralist method, considers the content of potentially applicable law in that it seeks to locate underlying policies in connection with the choice-of-law decision. But that analysis is undertaken to decide whether the law is in fact applicable to the particular case, not to determine what the result of that application will be. See Shreve, supra note 75, at 284.
115. Indeed, as discussed supra at text accompanying notes 45-59, international bankruptcy law seems to have developed without explicit adoption of any particular choice-of-law method.
116. Justice Joseph Story, whose 1834 treatise initiated the multilateralist movement in the United States, justified the assignment of a dispute to a foreign jurisdiction by reference to principles of comity - the notion that although a nation has no obligation to recognize within its own borders the laws or judgments of another, it might nonetheless choose to offer such recognition on the basis of the mutual interest of nations in an effective international system. See JOSEPH STORY, COMMENTARIES ON THE CONFLICT OF LAWS 7-8 (reprinted 1972) [hereinafter STORY].
117. Hilton v. Guyot, 159 U.S. 113, 163-64 (1895).
118. See Joel R. Paul, Comity in International Law, 32 HARV. INT'L L. J. 1 (1991).
119. Conversely, the court may cite protection of citizens in justifying its exercise of one of the escape mechanisms to apply forum law when the choice-of-law rule has led to foreign law.
120. See Paul, supra note 96, at 2-5.
121. Although the traditional formulations of comity contain within them both reasons to defer to foreign courts and reasons not to defer, the doctrine has been construed largely as an obligation to defer. See Paul, supra note 96, at 44.
122. See 11 U.S.C. § 304(c)(5) (1994).
123. See REPORT OF COMMISSION ON BANKRUPTCY LAWS OF UNITED STATES, H.R. DOC. NO. 93-137, pt. 2 (1983). See Stacy Allen Morales & Barbara Ann Deutcsh, Bankruptcy Code Section 304 and U.S. Recognition of Foreign Bankruptcies: The Tyranny of Comity, 39 BUS. LAW. 1573, 1586-1588 (1984) and Nadelmann, supra note 10, at 38-41 for a description of the legislative history of the section.
124. Statement of Representative Don Edwards, 124 CONG. REC. H. 11089, reprinted in 1978 U.S.C.C.A.N. 5787, 6442 (emphasis added).
125. See, e.g., In re Papeleras Reunidas, S.A., 92 B.R. 584, 594 (Bankr. E.D.N.Y. 1988) ("[I]t is best to equally consider all of the variables of § 304(c) in determining the appropriate relief in an ancillary proceeding."); Morales & Deutcsh, supra note 101, at 1588 ("[C]omity is to be considered in addition to the other section 304 factors on a coequal basis at most.").
126. See Krause et al., supra note 34, at 2594-95; see also In re Axona International Credit & Commerce, 88 B.R. 597, 608 (Bankr. S.D.N.Y. 1988).
127. This focus is reflected in the preamble's focus on "economical and expeditious administration of the bankruptcy estate." 11 U.S.C. preamble.
128. Canada S. Ry. v. Gebhard, 109 U.S. 527, 539 (1883).
129. Disconto Gesellschaft v. Umbreit, 208 U.S. 570, 578 (1908).
130. See Cunard S.S. v. Salen Reefer Servs., 773 F.2d 452, 456 (2d Cir. 1985) ("It is clear that the drafters. . . did not intend to overrule in foreign bankruptcies well-established principles based on considerations of international comity."). The Commentary to the Bankruptcy Reform Act of 1978 seems instead to consider the specific provisions of Section 304 as a means to implement comity, noting that "principles of international comity . . . suggest that the court be permitted to make the appropriate orders under all of the circumstances of each case, rather than being provided with inflexible rules." H.R. REP. No. 95-595, at 325 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6281.
131. See Krause et al., supra note 34, at 2609-10.
132. See, e.g., In re Culmer, 25 B.R. 621, 629 (Bankr. S.D.N.Y. 1982) (noting that comity is to be granted "as long as the laws and public policy of the forum state are not violated," and then stating that "[t]his Court will look to the other relevant factors enumerated in Section 304(c) to determine whether [application of foreign law] would be wicked, immoral, or violate American law and public policy"). See Morales & Deutcsh, supra note 101, at 1593, for a critical review of this decision.
133. See, e.g., Victrix S.S. Co. v. Salen Dry Cargo A.B., 825 F.2d 709, 714 (2d Cir. 1987) ("Under general principles of comity as well as the specific provisions of section 304, federal courts will recognize foreign bankruptcy proceedings provided the foreign laws comport with due process and fairly treat claims of local creditors.").
134. See, e.g., Triton Container Int'l, Ltd. v. Cinave, S.A., 1997 U.S. Dist. LEXIS 16075.
135. One court, in comparing the distribution schemes pursuant to the Section 304(c)(4) guideline, noted that "deference to foreign proceedings is warranted under principles of comity when they . . . provide . . . a sure scheme for differentiation between secured and unsecured creditors." In re Hourani, 180 B.R. 58, 69 (Bankr. S.D.N.Y. 1995). See also Allstate Life Insurance v. Linter Group, Ltd., 994 F.2d 996, 999 (2d Cir. 1993), in which the court folded into its comity analysis a consideration of such factors as whether creditors of the same class were treated equally, whether creditors had the right to appeal denial of claims, and whether creditors' meetings were provided for.
136. See, e.g., Remington Rand Corp. v. Business Systems Inc., 830 K2d 1260, 1271 (3d Cir. 1987) ("[S]ection 304 . . . expresses Congressional recognition of an American policy favoring comity for foreign bankruptcy proceedings.").
137. This is because the property is located in the United States and a U.S. creditor is involved.
138. See BRAINERD CURRIE, SELECTED ESSAYS ON THE CONFLICT OF LAWS 119 (1963). In Currie's terminology, this is a "true conflict."
139. See supra Part II.B.1 for a discussion of the connection between choice of forum and choice of law. See also Given & Vilaplana, supra note 31, at 339 (stating that Section 304 "require[s] recognition of the foreign law absent a demonstration to the contrary"). US Under the Bankruptcy Code, "foreign proceeding" includes proceedings initiated in the country in which the debtor's domicile, residence, principal place of business, or principal assets are located. See 11 U.S.C. § 101(23) (1994). Because Section 304 does not reserve relief for specific categories of proceedings falling within that definition, the representative of any such proceeding - whether a "full" proceeding opened in the home jurisdiction of the debtor or some sort of secondary or ancillary proceeding opened, for instance, in the home jurisdiction of a creditor - is entitled to the same treatment in a U.S. court. See 11 U.S.C. § 304 (1994).
140. Reform Act, supra note 53, § 1502(4). Section 1516(c) establishes the presumption that the state of the debtor's incorporation is the center of its main interests. See id. § 1516(c). These definitions were also adopted in the European Union Convention on Insolvency Proceedings of 1995, which has been ratified by all members of the European Union other than Great Britain. Article 3 of that Convention provides that the "principal case" may be opened by "courts of the Contracting State within the territory in which the centre of a debtor's main interests is situated." See Schollmeyer, supra note 1, at 425.
141. See Reform Act, supra note 53, § 1521.
142. See id. § 1520(a)(1).
143. C.f. Trautman, supra note 45, at 55. The Reform Act also creates a disincentive to the initiation of multiple proceedings regarding the same debtor, since most of those (all that are opened in jurisdictions other than that in which the debtor has its center of main interests) will be entitled only to the reduced relief afforded to "non-main" proceedings. See Gaa & Garzon, supra note 53, at 276.
144. Again, additional provisions of the Reform Act permit a territorial result despite this universalist inclination. Section 1520(c) goes on to provide that local bankruptcy proceedings can be initiated against a foreign debtor even following the recognition of a foreign main proceeding. While this arrangement does operate as a concession to territoriality, though, it does not undermine the impact of the initial recognition. See Reform Act, supra note 53, § 1520(c).
145. Note that in other jurisdictions the view of these exceptions might be slightly different. In civil code countries, for instance, a somewhat more mechanistic approach is favored. Even there, however, the concept of ordre public serves a similar function. See Paul, supra note 96, at 30-35.
146. SAVIGNY, supra note 82, at 77.
147. STORY, supra note 94, at 37.
148. RESTATEMENT OF THE LAW (SECOND) OF CONFLICT OF LAWS § 90 (1971) [hereinafter RESTATEMENT (SECOND)].
149. Consequently, comity has not traditionally functioned as a choice-of-law rule. It provides courts with a reason either for applying foreign law or for denying such an application in favor of local law, but it contains no mechanism that aids courts in making the decision.
150. It bears repeating, though, that it is only at this stage that the substance of the chosen law is reviewed; the first step remains a pure jurisdictional analysis. See MULTISTATE JUSTICE, supra note 82, at 79-80 (noting that with few exceptions, scholars have viewed public policy as an exception to the choice-of-law rule rather than as part of the choice-of-law process itself).
151. See supra text accompanying notes 109-114.
152. See, e.g., Remington Rand Corp. v. Business Sys. Inc., 830 F.2d 1260, 1267 (3d Cir. 1987) ("Comity should be withheld only when its acceptance would be prejudicial to the interest of the nation called upon to give it
153. This is the case even when one of the specific Section 304(c) guidelines relates directly to the particular concern. In Interpool v. In Interpool v. M/V Venture Star, 102 B.R. 373, 380 (Bankr. D.N.J. 1988), for instance, the court noted that the foreign bankruptcy law did not recognize the doctrine of equitable subordination or provide adequate procedural protections. Rather than resting its decision not to defer on Section 304(c)(4), however, it went on to conclude that applying foreign law would therefore violate "[b]oth the laws and the public policy of the United States." Id. Other cases have involved local policies that do seem important enough to outweigh international interests. In Overseas Inns v. United States, the "inexpugnable public policy that favors payment of lawfully owed federal income taxes" was served by a refusal to defer to foreign law. Overseas Inns v. United States, 911 F.2d 1146, 1149 (5th Cir. 1990). In another case, the court refused to defer to certain debt negotiations in order to protect "the strong interest [of the United States] in ensuring the enforceability of valid debts under the principles of contract law." Pravin Banker Assocs. v. Banco Popular del Peru, 895 F. Supp. 660, 665 (S.D.N.Y. 1995) (internal citation omitted).
154. See Reform Act, supra note 53, § 1506 ("Nothing in this chapter prevents the court from refusing to take an action governed by this chapter if the action would be manifestly contrary to the public policy of the United States.").
155. See infra Part V.B.2 where I make the argument that the one (improper) exception to this analytical approach is the preemptive use of Section 304(c)(4).
156. See supra Part II.B.2 for a discussion of these developments.
157. See supra Part III.A for a description of multilateralism.
158. Preventing dismemberment of the estate is, of course, one of the goals of Section 304 and the case law thereunder. Many courts have recognized the need to prevent a race to the (local) courthouse by local creditors seeking an advantage over their foreign counterparts who have been subjected to a stay. See, e.g., In re Rukavina, 227 B.R. 234, 242 (Bankr. S.D.N.Y. 1998); Victrix S.S. v. Salen Dry Cargo, 825 F.2d 709, 714 (2d Cir. 1987).
159. See CURRIE, supra note 116, at 181-83.
160. id.
161. See, e.g., Dodge, supra note 80.
162. Russell J. Weintraub, The Extraterritorial Application of Antitrust and Securities Laws: An Inquiry into the Utility of a "Choice-of-Law" Approach, 70 TEX. L. REV. 1799, 1818 (1992).
163. A.D. NEALE & M.L. STEPHENS, INTERNATIONAL BUSINESS AND NATIONAL JURISDICTION 10 (1988) (placing antitrust law, on this basis, in the category of "penal jurisdiction"). See also Harold G. Maier, Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Private International Law, 76 AM. J. INT'L L. 280, 289 (1982).
164. A.D. NEALE & M.L. STEPHENS, INTERNATIONAL BUSINESS AND NATIONAL JURISDICTION 10 (1988) (placing antitrust law, on this basis, in the category of "penal jurisdiction"). See also Harold G. Maier, Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Private International Law, 76 AM. J. INT'L L. 280, 289 (1982).
165. See text accompanying supra notes 78-80 for a discussion of unilateralism and the applicability of forum law.
166. See Dodge, supra note 80, at 151.
167. See Maier, supra note 142, at 289 ("[T]ransnational regulatory cases always decide the correlative rights of governments.").
168. There are, of course, exceptional cases in which the United States is a party to the bankruptcy proceeding or related litigation. See, e.g., Overseas Inns v. United States, 685 F. Supp. 968, 975 (N.D. Tex. 1988) (declining to recognize a foreign bankruptcy decree that adversely affected the tax claims of the U.S. government).
169. See Maier, supra note 142, at 289 ("[In nonregulatory] cases the issue is which of two or more conflicting governmental policies shall be applied to private persons, none of whom functionally serves as a government surrogate.").
170. [T]he body of case law developed in regulatory areas, particularly regarding antitrust law, is inapposite to international insolvency analysis. Laws regulating conduct enforced by government agencies are the expression of sovereign policies. Conflicts among such bodies of regulatory law are governed by Section 403 of the Restatement of Foreign Relations . . . . The private disputes that characterize most insolvency cases do not revolve around compliance legislation, and conflicts of law in this area are governed by private international law. 6A Norton on Bankruptcy 152:14.
171. The argument for unilateralism in the regulatory arena is based on the public nature of the state interest involved. If public interests are implicated even in a nonregulatory area, then the argument favoring unilateralism might be extended to that field.
172. In the landmark case addressing whether Article HI of the U.S. Constitution bars Congress from establishing legislative courts to resolve bankruptcy issues, the Supreme Court considered the distinction between private rights and public rights in bankruptcy. The Court suggested that many rights to be adjudicated by bankruptcy judges were private rights, noting that "a matter of public rights must at a minimum arise 'between the government and others'" and that "the liability of one individual to another under the law as defined' is a matter of private rights." Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 69-70 (1982). The Court recognized, however, the possibility that the general "restructuring of debtor-creditor relations" might be a public right. Id. at 71. In a later case, the Court retreated somewhat from this suggestion, citing criticism of the notion that public rights might be implicated. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 56 (1989).
173. For example, in Cunard the public policy behind an efficient distribution of assets worldwide is seen to outweigh the policy of freedom of contract. See Cunard S.S. v. Salen Reefer Servs., 773 F.2d 452, 459 (2d Cir. 1985). In another case, the court found that comity outweighed the choice of venue clause contained in a contract between the plaintiff and the debtor. See Kenner Prods. Co. v. Societe Fonciere, 532 F. Supp. 478, 479-480 (S.D.N.Y. 1982) ("While such clauses are prima facie valid, they are not enforceable if such enforcement would be 'unreasonable.' Public policy [here, the policy of deferring to foreign bankruptcy proceedings] is a key factor in making a determination of 'reasonableness.'") (citations omitted). But see Rasmussen, supra note 4, at 29 (proposing that choice of insolvency law itself should be subject to contractual agreement).
174. See, e.g., Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 714 (2d Cir. 1987) ("[Different concerns bear on a case such as this one, which takes on a public character by virtue of [the debtor's] insolvency and the institution of the Swedish bankruptcy proceeding."); In re Rukavina, 227 B.R. 234, 243 (Bankr. S.D.N.Y. 1998).
175. In re Maxwell Communication Corp., 93 F.3d 1036, 1047 (2d Cir. 1996). C.f. Norton, supra note 148.
176. See Timothy E. Powers, The Model International Insolvency Cooperation Act: A Twenty-First Century Proposal for International Insolvency Co-Operation, in CURRENT DEVELOPMENTS, supra note 10, at 689 ("Insolvency is perceived in most societies as substantially a private law matter, not one that requires governmental intervention beyond providing local proceedings to settle the affairs of a local debtor or creditor.").
177. For instance, the policy of granting priority to fishermen. See 11 U.S.C. § 507(a) (1994).
178. See Reform Act, supra note 53, § 1501 (a).
179. Some courts have recognized these two levels of policy, and have spoken of deferral as a realization of the international interest. See, e.g., Victrix S.S. Co. v. Salen Dry Cargo, 825 F.2d 709, 714 (2d Cir. 1987) (referring to "the public policy of ensuring equitable and orderly distribution of local assets of a foreign bankrupt"). See also Jay Lawrence Westbrook, Extraterritoriality, Conflict of Laws, and the Regulation of Transnational Business, 25 TEX. INT'L L. J. 71, 77 n. 20 (1990) (noting the importance of "viewing international values as an aspect of local self-interest").
180. Interestingly, mechanisms used to resolve purely domestic bankruptcies suggest that the "local" policies that are described in cross-border cases as nearly sacrosanct may in fact be of a lesser order. In the course of a purely domestic reorganization proceeding, for instance, the interests of secured creditors can be impaired. The freedom to contract that the Bankruptcy Code protects by preserving the rights of secured creditors in bankruptcy is not complete: The terms of such contracts may be changed, through the cramdown process, equitable subordination, or otherwise. That is, those interests are susceptible of being weighed against another domestic interest, the facilitation of reorganizations. If that is true, it is difficult to construct an argument under which they cannot be weighed against the "international" policy of deferring to foreign proceedings. As the policy of reorganization can be effectuated over the policy of protecting secured creditors, so too can the policy reflected in Section 304.
181. See Given & Vilaplana, supra note 31, at 332 (characterizing these policies as the "twin foundations" of U.S. bankruptcy law). As discussed above, a universality approach is necessary both to secure equality of treatment of all creditors and to enable the reorganization of a corporate debtor, two of the underlying policies behind the Bankruptcy Code. This should not be confused with a different point, which is whether the law of a foreign jurisdiction that does not permit reorganization is consistent with U.S. public policy. This only means to state that, in general, a universal approach is necessary for reorganization to be a viable possibility.
182. See Theory and Pragmatism, supra note 2, at 466 ("[E]quality of distribution is a central principle of default management in every country. . . ."). In Germany, this transposition of a domestic policy to the international arena has been made explicit. One commentator notes that "[t]he principle of crossborder equality of distribution is . . . part of the German public policy." Schollmeyer, supra note 1, at 428.
183. See In re Davis, 191 B.R. 577, 585 (Bankr. S.D.N.Y. 1996) ("[W]e will facilitate . . . an equitable distribution of assets to all creditors. That . . . is consistent with the underlying policy of equality of distribution of assets to similarly situated creditors, which is promoted in the Bankruptcy Code."). This principle is of course limited by the public policy exception discussed infra Part IV.B. If the foreign bankruptcy proceeding did not in fact serve this overarching goal of equality of distribution, it would not be recognized.
184. Professor Westbrook has also made what he calls the "Rough Wash" argument, noting that domestic creditors who are disadvantaged by application of foreign law in a particular case may gain in the next bankruptcy, when U.S. law is applied to all creditors. Theory and Pragmatism, supra note 2, at 465. Local creditors would in any event be protected against outright discrimination in the foreign proceeding. See discussion infra Part V.B.1.a.
185. In Drexel Burnham Lambert Group v. Galadari, No. 84 CIV. 2602, 1987 U.S. Dist. LEXIS 5030, at *1 (S.D.N.Y. 1987), the court approved such a result. After noting that the "central theme of bankruptcy proceedings in the United States is 'equality of distribution,'" it concluded that "[e]ven if provisions of [the foreign bankruptcy law] did modify the rights of some creditors . . . the adoption of provisions having such an effect would be entirely consistent with legislative and constitutional principles in the United States." Id. at 50, 53. It is also, of course, consistent with our approach to the outward effects of domestic bankruptcies. Under Sections 502 and 507 of the Bankruptcy Code, the equal distribution contemplated in the Code is extended to all creditors, wherever located. See discussion supra Part II.A.1.
186. See MULTISTATE JUSTICE, supra note 82, at 73-74.
187. Ernest Lorenzen wrote that the presence of the public policy exception to comity "ought to have been a warning that there was something the matter with the reasoning upon which the rules to which it is the exception were supposed to be based." ERNEST G. LORENZEN, SELECTED ARTICLES ON THE CONFLICT OF LAWS 13-14 (1947).
188. On this view, the exception is not a tool used to avoid a truly unjust outcome, but an excuse that courts can resort to in choosing forum law over the foreign law selected through application of the mechanical choice-of-law rules. See Cavers, supra note 84, at 183.
189. This function of public policy as a reason not to abide by a multilateralist rule is one of the primary bases on which unilateralists and other conflicts theorists attack multilateralism. In discussing the escape devices that are part of multilateralist methodologies, Currie noted that "[t]he tensions that are induced by imposing such [devices] on a setting of conflict introduce a very serious element of uncertainty and unpredictability, even if there is fairly general agreement on the rules themselves." CURRIE, supra note 116, at 181. Other critics of multilateralism have voiced similar concerns regarding the existence of such fundamentally unregulatable exception clauses. See MULTISTATE JUSTICE, supra note 82, at 79-80.
190. I argue at the beginning of this Part that it is an appropriate theoretical approach, given the primarily private-right aspect of bankruptcy and the particular goals of international bankruptcy law.
191. In some sense, criticisms of the exception simply reveal the underlying difference in philosophy between unilateralists and multilateralists. As one commentator has pointed out, the multilateralist method cannot guarantee complete uniformity, but in aiming for uniformity is more likely to achieve it than the forum-preference approach. See REIMANN, supra note 76, at 108.
192. See DALHUISEN, supra note 12, at § 2.01[4], 3-125 ("[B]ankruptcy is both a procedural and substantive law device, touching in turn on many other parts of the law [such as] personal law, company law, property law, the law of securities, contract law, and sometimes even criminal and public law . . . .") Bankruptcy has also been described as a "meta-law" that modifies other branches of national legal systems. See Balz, supra note 1, at 486 (describing the "hybrid character of bankruptcy law as both procedural and substantive").
193. See SAVIGNY, supra note 82, at 260-261.
194. See STORY, supra note 94, at 340. Others have noted that certain aspects of the bankruptcy proceeding are in fact quasi in rein. See DALHUISEN, supra note 12, at § 3-102-3.
195. This raises the improper use of characterization as a means of avoiding the choice-of-law result under a multilateralist rule. The choice of a foreign law is the choice of substantive law. If a particular issue can be characterized as procedural, however, the forum court might be able to avoid the choice-of-law result in favor of local law. This distinction is reflected in the Model International Insolvency Cooperation Act, which advocates that in ancillary proceedings the court apply its own procedural law, while deferring to the substantive insolvency law of the (foreign) jurisdiction in which the primary proceeding is being conducted. See Todd Kraft & Allison Aranson, Transnational Bankruptcies: Section 304 and Beyond, 1993 COLUM. BUS. L. REV. 329, 351-56 (1993).
196. See Westbrook & Trautman, supra note 10, at 669.
197. Savigny posited two classes of "true" policies: positive, mandatory laws and legal institutions of a foreign state not recognized in the forum state. See SAVIGNY, supra note 82, at 77-78. The first class includes policies pertaining primarily to moral issues such as marital laws excluding polygamy; the second includes policies relating to institutions, such as slavery, that will not be accorded recognition in a foreign jurisdiction that does not observe similar practices. See id. Other efforts include the attempt to separate ordre public into three categories: ordre public interne, ordre public international, and ordre public universel. For a discussion of this taxonomy, see David Clifford Burger, Transnational Public Policy as a Factor in Choice of Law Analysis, 5 N.Y.L. SCH. J. INT'L & COMP. L. 367, 374-387 (1984). Others have argued that the public policy category should be reserved for fundamental social policies, excluding mere legislative policies reflected in statutes. See Holly Sprague, Choice of Law: A Fond Farewell to Comity and Public Policy, 74 CAL. L. REV. 1447, 1450-51 (1986). The Guide to Enactment notes the separation between "the notion of public policy as it applies to domestic affairs, and the notion of public policy as it is used in matters of international cooperation." It suggests that the public policy exception is to be used more restrictively in the latter context. See Guide to Enactment, supra note 53, at 444.
198. Savigny posited two classes of "true" policies: positive, mandatory laws and legal institutions of a foreign state not recognized in the forum state. See SAVIGNY, supra note 82, at 77-78. The first class includes policies pertaining primarily to moral issues such as marital laws excluding polygamy; the second includes policies relating to institutions, such as slavery, that will not be accorded recognition in a foreign jurisdiction that does not observe similar practices. See id. Other efforts include the attempt to separate ordre public into three categories: ordre public interne, ordre public international, and ordre public universel. For a discussion of this taxonomy, see David Clifford Burger, Transnational Public Policy as a Factor in Choice of Law Analysis, 5 N.Y.L. SCH. J. INT'L & COMP. L. 367, 374-387 (1984). Others have argued that the public policy category should be reserved for fundamental social policies, excluding mere legislative policies reflected in statutes. See Holly Sprague, Choice of Law: A Fond Farewell to Comity and Public Policy, 74 CAL. L. REV. 1447, 1450-51 (1986). The Guide to Enactment notes the separation between "the notion of public policy as it applies to domestic affairs, and the notion of public policy as it is used in matters of international cooperation." It suggests that the public policy exception is to be used more restrictively in the latter context. See Guide to Enactment, supra note 53, at 444.
199. See text accompanying supra notes 88-89.
200. See Jacob S. Ziegel, Preferences and Priorities in Insolvency Law: Is There a Solution?, 39 ST. LOUIS U. L.J. 793, 796 (1995); see also Theory and Pragmatism, supra note 2, at 466 (noting that "every country honors equality of distribution primarily in the breach").
201. See Jacob S. Ziegel, Preferences and Priorities in Insolvency Law: Is There a Solution?, 39 ST. LOUIS U. L.J. 793, 796 (1995); see also Theory and Pragmatism, supra note 2, at 466 (noting that "every country honors equality of distribution primarily in the breach").
202. See 11 U.S.C. § 725 (1994). Creditors hold secured claims if they have a valid security interest in particular property of the bankruptcy estate. They are entitled to recover the value of their allowed claims up to the value of the collateral. See 11 U.S.C. § 506(a) (1994).
203. See 11 U.S.C. §§ 726, 507 (1994).
204. See 11 U.S.C. § 726 (1994).
205. See id. For a discussion of claim classes and order of priority generally, see Selinda A. Melnik, Creditor Priorities and Preferences Under United States Bankruptcy Law, in INTERNATIONAL BANKRUPTCIES: DEVELOPING PRACTICAL STRATEGIES, 225, 271-303 (1992).
206. See John K. Londot, Handling Priority Rules Conflicts in International Bankruptcy: Assessing the International Bar Association's Concordat, 13 BANKR. DEV. J. 163, 168 (1996) ("[C]ountries tend to make the rules of distribution reflect public policy choices."); see also Ziegel, supra note 177, at 796. The bases on which these judgments as to relative importance are made may vary from case to case, as the decision to accord priority to a certain type of creditor can involve political support as well as independent value judgments. The provision for fishermen, for instance, has been described as "special interest legislation of the most naked kind." DOUGLAS G. BAIRD & THOMAS H. JACKSON, CASES, PROBLEMS, AND MATERIALS ON BANKRUPTCY 1310 (2d ed. 1990).
207. See John K. Londot, Handling Priority Rules Conflicts in International Bankruptcy: Assessing the International Bar Association's Concordat, 13 BANKR. DEV. J. 163, 168 (1996) ("[C]ountries tend to make the rules of distribution reflect public policy choices."); see also Ziegel, supra note 177, at 796. The bases on which these judgments as to relative importance are made may vary from case to case, as the decision to accord priority to a certain type of creditor can involve political support as well as independent value judgments. The provision for fishermen, for instance, has been described as "special interest legislation of the most naked kind." DOUGLAS G. BAIRD & THOMAS H. JACKSON, CASES, PROBLEMS, AND MATERIALS ON BANKRUPTCY 1310 (2d ed. 1990).
208. See Ziegel, supra note 177, at 796.
209. The goal of securing equality of distribution to all creditors is common to virtually all bankruptcy systems. But the other fundamental goal of U.S. bankruptcy law - permitting the debtor a fresh start (in the case of a corporate debtor, reorganization) - is not shared by all systems. See Rasmussen, supra note 4, at 15 (noting that other countries do not share the U.S. "bias toward reorganization").
210. Under South African bankruptcy law, for example, as under U.S. bankruptcy law, secured claims are paid first, followed by "preferent" (priority) claims. However, the priority class is made up of different claimants: In South Africa, first priority goes to funeral expenses (a category not recognized in the United States), and certain categories of claimants granted priority in the United States (e.g., grain producers) are not recognized. See Richard A. Gitlin & Timothy B. DeSieno, Bankruptcy Laws of South Africa, 17 N.Y.L. SCH. J. INT'L & COMP. L. 283, 293 (1997).
211. I do not address here systems that are procedurally flawed or that are arbitrary in their application even with respect to domestic creditors.
212. See supra Part IV.A.3 for a discussion of this convergence of local and international policy goals.
213. One might consider, by way of analogy, the issue of preventing fraudulent or preferential transfers. Section 304(c)(3) provides that one of the factors to be considered by a domestic court in deciding whether or not to defer to a foreign proceeding is whether the bankruptcy law of the foreign jurisdiction prevents such transfers. 11 U.S.C. § 304(c)(3) (1994). Generally, however, it is sufficient that the foreign law includes provisions intending to accomplish that goal; it is not necessary that the provisions mirror the approach of the Bankruptcy Code. See, e.g., In re Gee, 53 B.R. 891, 90-04 (Bankr. S.D.N.Y. 1985) (noting that the British Companies Act provides protections similar to those in the Bankruptcy Code); Ulrich Huber, Creditor Equality in Transnational Bankruptcies: The United States Position, 19 VAND. J. TRANSNAT'L L. 741, 753 (1986) ("[T]he prerequisite of subsection (c)(3) is met if the law governing the main proceeding provides for the prevention of fraud and preference, even if those provisions do not reach as far as do their United States counterparts.").
214. See, e.g., Overseas Inns v. United States, 911 F.2d 1146 (5th Cir. 1990) (stating that the application of foreign law would have implicated the public policy, unrelated to bankruptcy, favoring payment of income taxes).
215. See In re Hourani, 180 B.R. 58, 69 (Bankr. S.D.N.Y. 1995) ("Deference to foreign proceedings is warranted under principles of comity when they provide, inter alla, a sure scheme for differentiation between secured and unsecured creditors, whether or not the terms are uniform with those of the Code . . . . However, a system that does not clearly distinguish at all is suspect.")
216. See In re Toga, 28 B.R. 165, 168 (Bankr. E.D. Mich. 1983) (refusing to defer to a foreign proceeding in which a local creditor was recognized as holding a secured claim under U.S. law but would be an "ordinary" (unsecured) creditor under foreign law).
217. In addition, one might query whether a U.S. court faced with such a creditor would be willing to engage in this rather fine analytical line drawing.
218. Simplification of the judicial task is of course another choice-of-law goal, and complex policy escape clauses detract significantly from the simplicity of analysis.
219. See generally SAVIGNY, supra note 82.
220. See RESTATEMENT(SECOND), supra note 127, § 145(1).
221. See supra text accompanying notes 88-89.
222. An analogy to this framework can be found in the resolution of mass tort disputes. Mass torts present similar pool problems and similar issues of collective action as contrasted with the rights of individual litigants. As in the international insolvency area, judges and commentators considering mass torts have had difficulty formulating coherent choice-of-law approaches. See generally Russell J. Weintraub, Methods for Resolving Conflict-of-Laws Problems in Mass Tort Litigation, 1989 U. ILL. L. REV. 129 (1989).
223. That is, assigning heightened priority to one creditor necessarily decreases the priority level of others. The rules under which trustees in bankruptcy may avoid certain prebankruptcy transactions operate similarly: The avoidance of any single transaction will affect not only the relationship between the debtor and the creditor whose interest was avoided, but the position of all other creditors as well.
224. This is consistent with the analysis of many courts addressing international bankruptcy cases, who recognize that any action taken on behalf of local creditors will necessarily affect all other creditors with an interest in the proceedings. See, e.g., In re Rukavina, 227 B.R. 234, 243 (Bankr. S.D.N.Y. 1998).
225. By contrast, the newly adopted European Union Convention does seek to implement a set of fixed choice of law rules.
226. See supra Part III.B.1.b for a discussion of comity's role as a conflicts principle.
227. See Canada S. Ry. v. Gebhard, 109 U.S. 527 (1883). The Gebhard Court stated the following: [E]very person who deals with a foreign corporation impliedly subjects himself to such laws of the foreign government, affecting the powers and obligations of the corporation with which he voluntarily contracts . . . . To all intents and purposes, he submits his contract with the corporation to such a policy of the foreign government . . . . Id. at 537-38.
228. See, e.g., Cornfeld v. Investors Overseas Servs., 471 F. Supp. 1255, 1261 (S.D.N.Y. 1979) (noting that the local creditor "voluntarily associated himself with the Canadian debtor corporation). "Legal home" in the sense used in Gebhard of course means the jurisdiction of incorporation. As discussed above, commentators have observed that this is not the only conceivable choice.
229. See Reform Act, supra note 53, § 1502(4), (5).
230. See Reform Act, supra note 53, § 1520. See text accompanying supra notes 120-121 for a discussion of the different forms of relief available in "main" ana "non-main" proceedings.
231. Reform Act, supra note 53, § 1528. The only requirement is that the debtor must have assets located in the United States. There is no restriction at all on the opening of local proceedings before the foreign proceeding is recognized. See Berends, supra note 53, at 383. In contrast to this approach, the European Union Convention provides that local proceedings can be opened only in jurisdictions in which the debtor maintains an establishment. See Schollmeyer, supra note 1, at 426.
232. In addressing the situation in which the foreign main proceeding has already been recognized, and a local proceeding is opened, Section 1529(2) provides that "any relief in effect under sections 1519 or 1521 shall be reviewed by the court and shall be modified or terminated if inconsistent with the case in the United States," such relief including, if the foreign proceeding is a main proceeding, the automatic stay. Reform Act, supra note 53, § 1529(2)(A). This provision in effect refers the court back to pre-Reform Act analysis: If the sorts of considerations included in the Section 304(c) guidelines suggest that the court should defer to the foreign proceeding, it may do so; otherwise, it may permit the local proceeding to continue.
233. It is in these provisions that the Reform Act reveals itself as primarily a procedural rather than a substantive mechanism. It simplifies the process by which the representative of a foreign bankruptcy proceeding may obtain recognition in and assistance of courts in the United States, but does not prevent those courts from choosing a territorial approach to the resolution of the debtor-creditor relationships themselves.
234. As discussed supra Part IV.B, this analysis would still be subject to the implementation of the public policy exception.
235. Of course, creditors could include in their financing documents a covenant preventing such an action.
236. See Kurt H. Nadelmann, A Reflection on Bankruptcy Jurisdiction: News from the European Common Market, the United States and Canada, 27 MCGILL L.J. 541, 551 (1982) (discussing the draft bankruptcy convention between the United States and Canada).
237. See European Union Convention, art. 3. Article 3 provides further that the location of the debtor's registered office will be presumed to be the center of its main interests. See Schollmeyer, supra note 1, at 426.
238. See Model International Insolvency Cooperation Act (Int'l Bar Ass'n 1989) reprinted in John A. Barret & Timothy E. Powers, Proposal for Consultative Draft of Model Insolvency Co-Operation Act for Adoption by Domestic Legislation With or Without Modification, 17 INT' BUS. L. 323 (1989). The Official Comment to the Act suggests that jurisdiction should be determined based on "greater contacts with the debtor and its estate." See Powers, supra note 154, at 696.
239. Reform Act, supra note 53, § 1502(4). This language was adopted from the European Union Convention, in which it was chosen partly because "no better definition could be agreed upon." Berends, supra note 53, at 330.
240. While this test attempts to achieve fairness while retaining predictability, critics may suggest that it fails with respect to the latter. If the headquarters of a debtor corporation and its registered office are in Country A, but substantially all of its assets and operations are in Country B, is the presumption in favor of Country A overcome? Would the outcome be different if the corporation s assets and operations were evenly distributed between Countries B and C? See MARTIN N. FLICS & MICHAEL J. IRELAND, BANKRUPTCY AND THE PROBLEMS OF MULTI-JURISDICTIONAL WORKOUTS 280 (1991) for a discussion of similar fact patterns. As the operations of multinational corporations become increasingly international, critics argue, these classification difficulties will multiply.
241. See, e.g., Rasmussen, supra note 4, at 12. But see LoPucki, supra note 3, at 713 (criticizing this assumption).
242. See Berends, supra note 53, at 330.
243. The Restatement (Second) reflects this basic understanding in its use of the phrase "strong public policy" in the recognition of judgments section. RESTATEMENT (SECOND), supra note 127, § 117 (emphasis added). The Comment to that section notes that "enforcement will usually be accorded the judgment except in situations where the original claim is repugnant to fundamental notions of what is decent and just" in the enforcing state. Id.
244. Cornfeld v. Investors Overseas Servs., 471 F. Supp. 1255, 1259 (1979) (citing Intercontinental Hotels Corp. v. Golden, 203 N.E.2d 210, 212 (1964)). One might question whether this formulation is actually useful in international bankruptcy cases, where little rises to the level of inherent viciousness. But see Story's description of a past bankruptcy practice: "[T]hat terrible power (if it ever really existed) under the law of the Twelve Tables, which enabled creditors to cut their debtor's body into pieces, and divide it among them[.]" STORY, supra note 94, at 34. The sense that commercial transactions do not generally implicate issues of morality has led some commentators to suggest that the public policy doctrine may not be applicable at all in areas of commercial law (as opposed to family law, for example). See ALBERT A. EHRENZWEIG & ERIK JAYME, PRIVATE INTERNATIONAL LAW VOL. II SPECIAL PART 82 (1973).
245. Guide to Enactment, note 53, at 444 (discussing Article 6 of the Model Law). For an argument that the public policy exception should be reserved to protect "fundamental principles of law," see Berends, supra note 53, at 336. The Guide to Enactment itself contemplates only "rare" invocation of the exception. See id.
246. See Westbrook & Trautman, supra note 10, at 659. The "hotchpot" rules, under which a creditor who has received payment in one proceeding must count that distribution toward his share in any other proceeding, establish a limited exception to this principle. See id.
247. See Ziegel, supra note 177, at 796. As Ziegel points out, these policy choices may be based on peculiarly local concessions reflecting the political power of certain creditor groups.
248. See Westbrook & Trautman, supra note 10, at 658-659 ("Nothing is more central to the difficulty of international insolvency co-operation than the greatly differing priorities of various jurisdictions. (The constant is the insistence of each government upon preferring itself to most others.)").
249. 11 U.S.C. § 304(c)(2) (1994). In referring to the sufficient protection of the interests of U.S. creditors, the Reform Act too permits a court to deny relief to a foreign representative under these circumstances. See Reform Act, supra note 53, § 1521(b).
250. See, for example, in re Axona, 88 B.R. 597, 612 (Bankr. S.D.N.Y. 1988), in which the court inquired whether Hong Kong law would permit creditors residing outside Hong Kong to submit their proofs of claim. Procedural unfairness might likewise result if the rules of the foreign court did not provide that adequate notice be given to nonlocal creditors. See, e.g., In re Hourani, 180 B.R. 58, 68 (Bankr. S.D.N.Y. 1995).
251. It is best to handle this kind of discrimination as a matter separate from policy concerns. Many courts, however, have imported these procedural concerns into their substantive policy analysis, with the intentional or unintentional result of broadening the application of the public policy exception. In Hourani, for instance, the court engaged in a factor-by-factor analysis of the Section 304(c) guidelines. In the section devoted to a consideration of the comity factor, however, it returned to issues of procedural fairness, concluding that comity should not be granted to Jordanian proceedings that did not promise procedural fairness. In effect, it thus considered the same factor twice. See In re Hourani, 180 B.R. 58, 67-70 (Bankr. S.D.N.Y. 1995).
252. See Londot, supra note 182, at 166. See also KURT H. NADELMANN, CONFLICT OF LAWS: INTERNATIONAL AND INTERSTATE 284 (1972) for a description of rules that provide that no foreign claims will be considered until all local creditors have been satisfied in full.
253. But see Douglass G. Boshkoff, Some Observations on Fairness, Public Policy, and Reciprocity in Cross-Border Insolvencies, in CURRENT DEVELOPMENTS, supra note 10, at 677, 682 ("Favouritism based upon geography is no more objectionable than other instances of special treatment currently found in our bankruptcy law").
254. In Argentina, for example, local creditors automatically receive priority over foreign creditors in certain circumstances. See FLICS & IRELAND, supra note 215, at 424.
255. See Reform Act, supra note 53, § 1513(a); see also Model Law, supra note 53, at art. 13(1).
256. Reform Act, supra note 53, § 1513(b). See also Model Law, supra note 53, at art. 13(2). The comments to that section note that the article "leaves intact the provisions on the ranking of claims in insolvency proceedings, including any provisions that might assign a special ranking to claims of foreign creditors." Guide to Enactment, supra note 53, at 450.
257. The public policy exception would remain available to avoid the rare unjust result. For a suggested model of "cross-priority" in international insolvencies, see Universal Priorities, supra note 9, at 27. Westbrook points out that such a system would "lessen national discrimination while increasing discrimination among classes of creditors." Id. at 31. But discrimination among creditor classes is precisely the point of distribution rules and therefore a legitimate result of application of a particular country's bankruptcy law, whereas "national discrimination" is an exercise in illegitimate distinctions among creditors that further no policy other than territorialism. See also Patrick J. Borchers, Choice of Law Relative to Security Interests and Other Liens in International Bankruptcies, 46 AM. J. COMP. L. 165, 181 (1998) (arguing that all courts seek in any event is reasonable protection for secured creditors and equality of distribution, at least among distinct classes of creditors).
258. See 11 U.S.C. § 304(c)(4) (1994).
259. See supra note 48 and accompanying text.
260. See Interpool v. M/V Venture Star, 102 B.R. 373, 375 (Bankr. D.N.J. 1988).
261. Id. at 378. Hourani, too, discussed the unavailability of equitable subordination without considering its potential for application in the specific case. See In re Hourani, 180 B.R. 58, 67-68 (Bankr. S.D.N.Y. 1995).
262. Interpool v. M/V Venture Star, 102 B.R. 373, 380 (Bankr. D.N.J. 1988) ('"While I do not hold that equitable subordination should be invoked in this case since the substantive issue was not argued before this Court, a trustee in Bankruptcy must consider this issue . . . . The lack of . . . substantive redress . . . could significantly affect creditors' rights.") (emphasis added).
263. This approach may have derived in part from the practice that developed under the original Restatement of Conflict of Laws, which suggested that courts were permitted to reject foreign law on the basis of a "great difference" between the foreign law and forum law. See generally RESTATEMENT OF CONFLICT OF LAWS (1934). The Restatement (Second), however, expressly adopted a narrower version of the escape clause: In discussing enforcement of foreign judgments, for instance, Comment c to Section 117 notes that "enforcement will usually be accorded the judgment except in situations where the original claim is repugnant to fundamental notions of what is decent and just in the State where enforcement is sought." RESTATEMENT (SECOND), supra note 127, § 117cmt. c.
264. See Reform Act, supra note 53 § 1507(b)(4).
265. See text accompanying supra note 63 for a discussion of the point at which the Reform Act necessitates a Section 304-style analysis.
266. STORY, supra note 94, at 37.
267. Id. at 348.
268. Hilton v. Guyot, 159 U.S. 113, 163-64 (1895). See also Krause et al., supra note 34, at 2592.
269. see, for example, Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, 44 F.3d 187 (3d Cir. 1994), in which the court noted the following: [W]e have stated that 'comity should be withheld only when its acceptance would be contrary or prejudicial to the interest of the nation called upon to give it effect.' Thus, a court may, within its discretion, deny comity to a foreign judicial act if it finds that the extension of comity 'would be contrary or prejudicial to the interest of the' United States. 44 F.3d 187, 192 (citing Somportex Ltd. V. Philadelphia Chewing Gum Corp., 453 F.2d 435, 440 (3d Cir. 1971)).
270. See, e.g., Triton Container Int'l, Ltd. v. Cinave, S.A., 1997 U.S. Dist. LEXIS 16075 (1997) (citing Cunard S.S. v. Salen Reefer Services, 773 F.2d 452, 457 (2d Cir. 1985)) ("Comity will be granted to the decision or judgment of a foreign court if . . . the laws and public policy of the foreign state and the rights of its residents will not be violated."). See also Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B., 65 B.R. 466, 468 (Bankr. S.D.N.Y. 1986) ("Before the court extends such deference to the foreign proceeding, it must first satisfy itself that forum creditors will be protected."); Clarkson v. Shaheen, 544 F.2d 624, 629 (2d Cir. 1976) (explaining that comity will be granted as long as "the foreign proceeding has not resulted in injustice to New York citizens, prejudice to creditors' New York statutory remedies, or violation of the laws or public policy of the state").
271. See, e.g., Disconto v. Umbreit, 208 U.S. 570, 579 (1908) ("All civilized nations have recognized and enforced the doctrine that international comity does not require the enforcement of judgments in such wise as to prejudice the rights of local creditors and the superior claims of such creditors to assert and enforce demands against property within the local jurisdiction.")
272. Philadelphia Gear, 44 F.3d at 194.
273. Id.
274. See Morales & Deutcsh, supra note 101, at 1587 for a discussion of the legislative decision not to overturn the "general American rule of conflict of laws" that local creditors had a paramount right to levy on local assets.
275. The notion of reciprocity, for instance, which played a substantial role in Story's conflicts theory, is no longer a major factor in bankruptcy cases. More importantly, courts applying Section 304 have evidenced a growing disinclination toward reflexive protection of U.S. citizens, choosing instead approaches that for the most part favor foreign bankruptcy proceedings. See In re Axona, 88 B.R. 597, 611 (Bankr. S.D.N.Y. 1988) (discussing the "modern need for flexibility in the construction of comity").
276. In other words, the choice of law depends not on the substance of competing laws, but on locating the geographic jurisdiction to which the dispute should be assigned. See text accompanying supra notes 91-92.
277. But see LoPucki, supra note 3, at 723-28 (arguing that a universalist approach does not clearly resolve the issue of jurisdiction). The practical difficulties that arise even today in assigning transnational corporate actors to particular jurisdictions engender much of the criticism of fixed jurisdictional rules. See id.
278. See MULTISTATE JUSTICE, supra note 82, at 160-61 (discussing private international law as a discipline increasingly shaped by "the exigencies of international trade, rather than sovereignty").
279. See supra Part IL.B.2.b for a discussion of these cases.
280. See Flaschen & Silverman, supra note 70, at 630-31.
281. One commentator has indeed suggested that the ad-hoc cooperation evident in the Max-well line of cases will directly influence the development of a harmonized insolvency regime. Thomas M. Gaa, Harmonization of International Bankruptcy Law and Practice: Is It Necessary? Is It Possible?, 27 INT'L LAW. 881, 902 (1993).
282. See MULTISTATE JUSTICE, supra note 82, at 160.
283. Particularly in favor of territoriality, which, like universality, is a sovereignty-based system.