Trikona Advisers Limited v. Chugh
Filing
OPINION, the district court judgment is affirmed, by JMW, DC, RJL, FILED.[1949285] [14-975]
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14‐975‐cv
Trikona Advisers Limited v. Chugh, et al.
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In the
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United States Court of Appeals
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For the Second Circuit
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________
AUGUST TERM, 2016
ARGUED: AUGUST 22, 2016
DECIDED: JANUARY 18, 2017
No. 14‐975‐cv
TRIKONA ADVISERS LIMITED,
Plaintiff‐Appellant,
v.
RAKSHITT CHUGH, individually, and as Trustee of the RC Family Trust,
PEAK XV CAPITAL ADVISERS LLC, PEAK XV CAPITAL LLC, PEAK XV
GP LLC, ARC CAPITAL LLC, PEAK XC FUNDAMENTAL VALUE LIMITED
PARTNERSHIP,
Defendants‐Appellees.*
________
Appeal from the United States District Court
for the District of Connecticut.
No. 11 Civ. 2015 – Stefan R. Underhill, Judge.
________
Before: WALKER, CHIN, and LOHIER, Circuit Judges.
________
*
The Clerk of the Court is directed to amend the caption as shown.
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No. 14‐975‐cv
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Plaintiff Trikona Advisers, Ltd. (“TAL”) appeals from a
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decision of the district court for the District of Connecticut (Stefan R.
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Underhill, J.) granting summary judgment in favor of defendants
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Rakshitt Chugh, ARC Capital LLC, and other related corporate
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entities (the “Chugh Defendants”). TAL’s complaint alleged
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breaches of fiduciary duty by Chugh, a former partner and fifty‐
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percent owner of TAL, and the other defendants. The district court
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held that TAL’s claims had previously been determined in Chugh’s
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favor in a proceeding in the Cayman Islands, and that TAL was
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collaterally estopped from asserting them in the Connecticut action.
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On appeal, TAL argues that the district court incorrectly applied the
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doctrine of collateral estoppel and further argues that Chapter 15 of
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the United States Bankruptcy Code prevents the district court from
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giving preclusive effect to the Cayman court’s factual findings. We
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find TAL’s arguments meritless and therefore AFFIRM the
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judgment of the district court.
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________
ANDREW B. BOWMAN, Westport, CT, for Plaintiff‐
Appellant.
JOHN G. BALESTRIERE (Stefan Savic, on the brief),
Balestriere Fariello LLP, New York, NY, for
Defendants‐Appellants.
________
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No. 14‐975‐cv
JOHN M. WALKER, JR., Circuit Judge:
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Plaintiff Trikona Advisers, Ltd. (“TAL”) appeals from a
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decision of the district court for the District of Connecticut (Stefan R.
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Underhill, J.) granting summary judgment in favor of defendants
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Rakshitt Chugh, ARC Capital LLC, and other related corporate
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entities (the “Chugh Defendants”). TAL’s complaint alleged
8
breaches of fiduciary duty by Chugh, a former partner and fifty‐
9
percent owner of TAL, and the other defendants. The district court
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held that TAL’s claims had previously been determined in Chugh’s
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favor in a proceeding in the Cayman Islands, and that TAL was
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collaterally estopped from asserting them in the Connecticut action.
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On appeal, TAL argues that the district court incorrectly applied the
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doctrine of collateral estoppel and further argues that Chapter 15 of
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the United States Bankruptcy Code prevents the district court from
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giving preclusive effect to the Cayman court’s factual findings. We
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find TAL’s arguments meritless and therefore AFFIRM the
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judgment of the district court.
BACKGROUND
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I.
Factual Background
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TAL is an investment advisory company. Its two beneficial
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owners, Chugh and Aashish Kalra, formed the company in 2006 as a
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vehicle for helping foreign investors invest in Indian real estate and
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infrastructure. Each man held a fifty percent equity stake in TAL
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through entities controlled by them. Chugh’s shares were owned by
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ARC Capital LLC (“ARC”) and Haida Investments (“Haida”), and
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Kalra’s shares were owned by Asia Pacific Investments, Ltd. (“Asia
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Pacific”). At the same time, the two men formed Trinity Capital Plc.,
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a closed‐end fund listed on the London Stock Exchange, through
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which they solicited investments. Kalra and Chugh managed Trinity
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through TAL. Trinity paid TAL a fee for its management services,
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calculated at two percent of Trinity’s net asset value plus a
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performance fee.
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The 2008 economic crisis took its toll on TAL and soured the
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relationship between Chugh and Kalra. Trinity’s shareholders began
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pressuring the Trinity board to sell the company’s assets and
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distribute capital which, while it might benefit the shareholders,
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would reduce TAL’s management fees by lowering Trinity’s net
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asset value. Chugh and Kalra differed on how to respond to the
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Trinity board’s proposed asset sale: Kalra opposed the move, while
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Chugh wanted to be more conciliatory to the shareholders. TAL
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tried to prevent the sell‐off by acquiring the shares of QVT, one of
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Trinity’s main shareholders, but the deal collapsed when TAL could
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not secure the necessary financing. Frustrated, Kalra advocated
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taking legal action against QVT for breach of contract, but was
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ultimately dissuaded from that course by Chugh and outside legal
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counsel.
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At the same time that the QVT deal collapsed, TAL also
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engaged in a series of ill‐fated transactions with a German fund
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manager called SachsenFonds Holdings GmbH. At Kalra’s behest,
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SachsenFonds agreed to invest £45 million in three of Trinity’s
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existing real estate investments, and to co‐invest a further £45
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million with Trinity in five additional real estate acquisitions. The
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latter agreement failed to gain the approval of Trinity’s second‐
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largest shareholder, which was still pressing Trinity to sell assets
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and did not want the company investing in new property
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acquisitions. To further this goal, Trinity ousted Chugh and another
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TAL‐affiliated director from Trinity’s board and replaced them with
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directors who favored the selloff. Trinity then began liquidating its
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assets, resulting in a decline in its net asset value and a
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corresponding reduction in TAL’s fees. In early 2009, SachsenFonds
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itself became a victim of the global credit crunch and was unable to
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perform its remaining contractual obligations to Trinity. In an
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attempt to avoid liability for its default, SachsenFonds brought suit
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against Trinity and TAL, as well as Chugh and Kalra individually,
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alleging that they had fraudulently induced it to invest in Trinity.
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The wide‐ranging financial and legal fallout from TAL’s
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unsuccessful deal with SachsenFonds further soured the relationship
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between TAL and Trinity. In December of 2009, Trinity cited the
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failed transaction as a breach of TAL’s management agreement and
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terminated its contractual relationship with TAL. TAL responded by
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commencing an arbitration with Trinity, which the parties settled.
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With the collapse of the SachsenFonds deal, TAL essentially
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ceased to function as a going concern and made no serious attempts
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to enter into any new business or investment relationships. Kalra
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and Chugh blamed each other for the collapse of TAL’s business,
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and by 2009 their relationship had deteriorated to the point that they
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could no longer work together. They each used portions of TAL’s
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assets, along with customer information, to establish new, separate
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companies, Peak XV (Chugh) and Duranta (Kalra), so that each
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could attempt to build new real estate investment businesses. The
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souring of Kalra and Chugh’s relationship culminated on January
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11, 2012, when, with no notice to Chugh, TAL’s board of directors
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voted to remove him as a director. This left Kalra exclusively in
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charge of TAL. Thereafter, Kalra proceeded to treat TAL and its
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assets as his own and Chugh was excluded from further
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involvement in the business.
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II.
Procedural History
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TAL’s collapse spawned a number of legal proceedings in the
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United States and abroad, two of which are relevant here: a wind‐up
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proceeding in the Cayman Islands and the federal civil suit in
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Connecticut that is the subject of this appeal.
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A. The Wind‐Up Proceeding
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On February 13, 2012, ARC and Haida, which held Chugh’s
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TAL shares and were controlled by Chugh, filed a petition in the
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Grand Court of the Cayman Islands, seeking to “wind up” TAL, a
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Cayman corporation. The suit sought to liquidate the business and
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divide its assets between Chugh and Kalra. Asia Pacific, which held
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Kalra’s TAL shares and was controlled by Kalra, opposed Chugh’s
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petition. Under Cayman Islands law, a court may order a company
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to be wound up if it is “of opinion that it is just and equitable” to do
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so. Cayman Islands Companies Law V.92 (2013 Revision). Chugh
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argued to the Cayman court that it would be just and equitable to
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liquidate the company because: (1) TAL had experienced a “loss of
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substratum,” i.e. a loss of its ability to “carry on the business for
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which it was established,” due to its dire financial condition and the
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complete breakdown in trust between Kalra and Chugh; (2) Kalra
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had wrongfully caused Chugh to be removed from TAL’s board and
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thereby deprived Chugh of his “legitimate expectation of being
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involved in [TAL’s] management”; and (3) after he had removed
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Chugh from the board, Kalra proceeded to misuse TAL’s assets for
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his sole benefit.
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Kalra opposed the wind‐up by asserting the affirmative
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defense that Chugh had breached his fiduciary duty to TAL in
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several ways, and that his removal from the board was therefore
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justified. Specifically, Kalra argued that: (1) Chugh intentionally
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sabotaged TAL’s attempt to acquire QVC’s shares in Trinity and had
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“caused” TAL to pay QVT £2 million for covenants of “extremely
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limited value”; (2) Chugh had later “prevented” TAL from bringing
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suit against QVT for breach of contract, over Kalra’s objections; (3)
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Chugh “forced” Kalra to agree to an unfavorable settlement with
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Trinity in the breach of contract arbitration arising out of the failed
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SachsenFonds deal; and (4) Chugh “stole” TAL’s assets and
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customer information for use in establishing Peak XV and interfered
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in the distribution of payments due to Kalra. Kalra framed these
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arguments as jurisdictional defenses, arguing that if any one of these
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allegations were true, Chugh would be precluded from invoking the
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Cayman court’s equitable jurisdiction under the doctrine of unclean
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hands.
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The Cayman court tried the wind‐up proceeding over seven
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days in January of 2013. At the trial’s conclusion, the court granted
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Chugh’s petition. It found that “each of” Chugh’s allegations was
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supported by evidence, and that these allegations “taken together”
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supported a finding that it was just and equitable to wind up TAL. It
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also rejected each of Kalra’s affirmative defenses, concluding that
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there was “no merit whatsoever in the allegations made against Mr.
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Chugh.” Kalra appealed this judgment, first to the Court of Appeal
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of the Cayman Islands, and then to the Judicial Committee of the
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Privy Council in London. Both tribunals affirmed the judgment.
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B. The District Court Proceeding
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On December 28, 2011, two months before the commencement
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of the wind‐up proceeding in the Caymans, Kalra, through Asia
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Pacific, sued the Chugh Defendants in the district court in
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Connecticut. After TAL’s board removed Chugh, TAL was
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substituted as plaintiff. TAL’s Third Amended Complaint, the
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operative complaint in the district court proceeding, asserts eleven
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causes of action against the Chugh Defendants sounding in breach
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of fiduciary duty, aiding and abetting breach of fiduciary duty,
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unfair competition, theft of trade secrets, civil conspiracy,
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conversion, statutory theft, unjust enrichment, and abuse of process.
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TAL alleged that Chugh breached his fiduciary duty by: (1)
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undermining TAL’s negotiating positions in the QVT and
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SachsenFonds deals; (2) causing TAL to enter into an unfavorable
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settlement of its claims against Trinity; (3) interfering with payments
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due to Kalra; and (4) misappropriating TAL’s customer information
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and assets in the course of founding Peak XV to unfairly compete
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with TAL. These claims substantially reprised the allegations Kalra
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asserted as affirmative defenses to Chugh’s wind‐up petition in the
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Caymans.
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Following the ruling of the Cayman court in the wind‐up
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proceeding in January of 2013, the Chugh Defendants moved for
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summary judgment in the district court based on collateral estoppel.
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They argued that in deciding the petition the Cayman court had
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already made findings of fact in Chugh’s favor on all of Chugh’s
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assertions regarding TAL’s collapse, and that Kalra was therefore
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collaterally estopped from relitigating those factual disputes. The
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district court agreed, and on March 6, 2014 granted the Chugh
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Defendants’ motion for summary judgment.
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On April 3, 2014, TAL moved for reconsideration pursuant to
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Federal Rule of Civil Procedure 59(e). TAL argued that the district
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court improperly gave preclusive effect to the Cayman court’s
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findings because each finding of fact on which the Cayman court
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had relied constituted an independent ground for granting Chugh’s
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petition for winding up. As a result, no single finding of fact was
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“essential” to the Cayman court’s holding in the wind‐up
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proceeding as required by Connecticut law. See Lyon v. Jones, 291
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Conn. 384, 406 (2009).
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In its Rule 59(e) ruling, the district court agreed with TAL that
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the Cayman court’s findings of fact regarding Chugh’s arguments
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for winding up could not be preclusive, because each argument
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constituted an independent ground for granting the petition, and
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thus none alone was essential to the judgment. The district court
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nevertheless denied the motion to reconsider. It held that while the
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arguments that Chugh made to the Cayman court in favor of
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winding up TAL could not support collateral estoppel, the
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arguments that Kalra had advanced against winding up TAL could
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perform that function. Because Kalra had framed his assertions
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against Chugh as a jurisdictional defense based on unclean hands,
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he had effectively argued that the Cayman court was required to
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dismiss Chugh’s petition for lack of jurisdiction if that court
11
accepted any of his claims as true. Because success on any single
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claim of fiduciary breach by Chugh would necessitate a finding of
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unclean hands and thus bar the petition, the Cayman court’s
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findings on these claims were “essential” to the outcome of the
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petition. The district court concluded that because the factual
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assertions Kalra made in defending the petition were fundamentally
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the same as the factual assertions that TAL made in its Third
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Amended Complaint, collateral estoppel still applied under
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Connecticut law and summary judgment was thus appropriate.
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TAL now timely appeals both the district court’s grant of
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summary judgment and its denial of TAL’s motion for
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reconsideration.
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DISCUSSION
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We review a district court’s grant of summary judgment de
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novo. Abdu‐Brisson v. Delta Air Lines, Inc., 239 F.3d 456, 465 (2d Cir.
4
2001). The district court’s judgment may be affirmed “on any
5
ground fairly supported by the record.” Id. at 466. We also review a
6
district court’s application of the doctrine of collateral estoppel “de
7
novo, accepting all factual findings of the district court unless clearly
8
erroneous.” Chartier v. Marlin Mgmt., LLC, 202 F.3d 89, 93 (2d Cir.
9
2000). A district court’s denial of a motion for reconsideration,
10
however, is reviewed for abuse of discretion. RJE Corp. v. Northville
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Indus. Corp., 329 F.3d 310, 316 (2d Cir. 2003) (per curiam).
12
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district court was precluded by Chapter 15 of the United States
14
Bankruptcy Code from applying collateral estoppel to the findings
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of fact from the wind‐up proceeding; 2) that the district court
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incorrectly gave preclusive effect to the Cayman court’s findings of
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fact because those findings were not “essential” to its judgment;
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3) that the Cayman court’s findings of fact cannot have preclusive
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effect in the district court because the wind‐up proceeding was an in
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rem proceeding, while the district court proceeding is in personam; 4)
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that TAL and the respondents in the wind‐up proceeding are not in
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privity with each other; and 5) that the district court erred in
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granting comity to the judgment of the Cayman court because doing
TAL makes five separate arguments on appeal: 1) that the
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so was contrary to United States national policy. We address each of
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these arguments in turn.
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I.
Chapter 15 of the United States Bankruptcy Code
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Chapter 15 of the United States Bankruptcy Code, 11 U.S.C. §
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1501 et seq., requires that under certain circumstances, before foreign
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liquidation proceedings may be recognized in United States courts, a
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bankruptcy court in the United States must approve an application
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for recognition from a “foreign representative” appointed in
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connection with that foreign proceeding. 11 U.S.C. § 1515. TAL
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argues that because no application for recognition was ever made in
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connection with the Cayman Island wind‐up proceeding, that
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judgment cannot be recognized in the district court. As a result, TAL
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argues that the findings of fact made by the Cayman court in the
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wind‐up proceeding cannot be given preclusive effect and therefore
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cannot support the district court’s granting of summary judgment in
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favor of the defendants on collateral estoppel grounds.
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Chapter 15 do not apply here. Chapter 15, enacted by Congress in
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2005, incorporated into United States law the Model Law on Cross‐
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Border Insolvency drafted by the United Nations Commission on
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International Trade. 11 U.S.C. § 1501. The statute’s primary purpose
22
was to facilitate the consolidation of multinational bankruptcies into
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one single proceeding. In re ABC Learning Centres Ltd., 728 F.3d 301,
We agree with the district court that the requirements of
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305–06 (3d Cir. 2013). Chapter 15 addressed a persistent problem in
2
cross‐border liquidations: creditors would initiate multiple
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bankruptcy proceedings to recover assets from a debtor in
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jurisdictions other than the site of the principal liquidation. Id. at
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305. This caused administrative inefficiency and also allowed
6
creditors to bypass the priority restraints of the main bankruptcy
7
proceeding and attempt to recover more than their fair share of the
8
debtor’s assets. Id. In the interests of uniformity and efficiency,
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Chapter 15 provides for the coordination of domestic and foreign
10
proceedings into a single bankruptcy and, with specific relevance to
11
the issue raised by TAL, allows foreign representatives appointed in
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connection with foreign proceedings to seek recognition of those
13
proceedings in United States courts as a means of requesting United
14
States assistance in administering the main liquidation. Id. at 306.
15
Consistent with its limited purpose, 11 U.S.C. § 1501(b)
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specifies four circumstances in which Chapter 15 applies. These are
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cases in which:
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(1) assistance is sought in the United States by a foreign
court or a foreign representative in connection with a
foreign proceeding;
(2) assistance is sought in a foreign country in
connection with a case under this title;
(3) a foreign proceeding and a case under this title with
respect to the same debtor are pending concurrently; or
(4) creditors or other interested persons in a foreign
country have an interest in requesting the
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commencement of, or participating in, a case or
proceeding under this title.
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11 U.S.C. § 1501(b). These scenarios assume that (1) a United States
5
court is being asked either to assist in the administration of a foreign
6
liquidation proceeding or to administer a liquidation proceeding
7
itself, or (2) a foreign court is being asked to assist in administering a
8
liquidation proceeding in the United States.
1
2
9
Moreover, 11 U.S.C. § 1515 does not apply generally to
10
parties, but, by its terms, requires only “foreign representatives” to
11
apply for recognition of a foreign judgment in bankruptcy. A
12
“foreign representative” is defined in 11 U.S.C. § 101(24) as “a
13
person or body… authorized in a foreign proceeding to administer
14
the reorganization or the liquidation of the debtorʹs assets or affairs
15
or to act as a representative of such foreign proceeding.”1
16
No party to the district court proceeding is a “representative”
17
of a “foreign proceeding,” as those terms are defined in 11 U.S.C. §§
18
101(24) and (23). And no party to the district court proceeding is
19
seeking the assistance of the district court in enforcing or
20
administering a foreign liquidation proceeding, 11 U.S.C. §
The same section defines “foreign proceeding” as “a collective judicial or administrative
proceeding in a foreign country, including an interim proceeding, under a law relating to
insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor
are subject to control or supervision by a foreign court, for the purpose of reorganization
or liquidation.” 11 U.S.C. § 101(23).
1
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1501(b)(1); nor is any party seeking the assistance of a foreign
2
country, 11 U.S.C. § 1501(b)(2); nor does the case involve a
3
proceeding under the Bankruptcy Code pending concurrently with a
4
foreign liquidation proceeding, 11 U.S.C. § 1501(b)(3); nor are
5
foreign creditors seeking to commence an action under the
6
Bankruptcy Code, 11 U.S.C. § 1501(b)(4). The instant non‐
7
bankruptcy action, brought in the District of Connecticut and
8
governed by Connecticut law, is unconnected to any foreign or
9
United States bankruptcy proceeding. Even assuming, arguendo, that
10
the wind‐up proceeding is the type of case that Chapter 15 would
11
ordinarily cover, Chapter 15 does not apply when a court in the
12
United States simply gives preclusive effect to factual findings from
13
an otherwise unrelated foreign liquidation proceeding, as was done
14
here.2
In a Rule 28(j) letter, TAL provided a copy of an order of the Superior Court of
Connecticut, Judicial District of Hartford, dated May 31, 2016, holding that a complaint
by ARC against Asia Pacific could only be enforced through Chapter 15. See ARC Capital
LLC v. Asia Pacific Ltd., et al., No. HHD‐CV‐15‐5040236‐S (Conn. Super. Ct. May 31, 2016).
Even assuming, arguendo, that the Superior Court’s order was correctly decided, the facts
here are distinguishable. In the state court proceeding, ARC sought the assistance of the
Superior Court of Connecticut in enforcing an order that the Cayman court issued in
connection with the wind‐up proceeding, which awarded attorneys’ fees to ARC and
Haida Investments, Ltd. Because ARC requested the direct assistance of a court within
the United States in enforcing an order issued in connection with a foreign liquidation
proceeding, this is a scenario that arguably falls within the scope of Chapter 15. Here, by
contrast, the Chugh Defendants argue only that the findings of fact made in the wind‐up
proceeding should be given preclusive effect. They do not seek the assistance of the
District of Connecticut in enforcing any judgment of the Cayman court.
2
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II.
Collateral Estoppel
2
Next we turn to TAL’s contention that the district court
3
misapplied Connecticut’s doctrine of collateral estoppel. The parties’
4
briefs assume that Connecticut state law governs this case, “and
5
such implied consent is … sufficient to establish the applicable
6
choice of law.” Arch Ins. Co. v. Precision Stone, Inc., 584 F.3d 33, 39 (2d
7
Cir. 2009) (quotation marks and citations omitted). Collateral
8
estoppel is a doctrine that “prohibits the relitigation of an issue
9
when that issue was actually litigated and necessarily determined in
10
a prior action between the same parties upon a different claim.”
11
Lighthouse Landings, Inc. v. Conn. Light & Power Co., 300 Conn. 325,
12
343 (2011). An issue decided against a party in a prior proceeding
13
may not be relitigated if: (1) it was “fully and fairly litigated in the
14
first action”; (2) it was “actually decided”; and (3) the decision was
15
“necessary to the judgment.” Id. at 344 (quoting Lyon v. Jones, 291
16
Conn. 384, 406 (2009)). An issue is “necessarily determined” if “in
17
the absence of a determination of the issue, the judgment could not
18
have been validly rendered.” Id. Connecticut adheres to the rule of
19
collateral estoppel articulated in the Second Restatement of
20
Judgments, Restatement (Second) of Judgments § 27 (1982), which,
21
in addition to setting forth the above rule, also provides that “[i]f an
22
issue has been determined, but the judgment is not dependent on
23
the determination of the issue, the parties may relitigate the issue in
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a subsequent action. Findings on nonessential issues usually have
2
the characteristics of dicta.” Lyon, 291 Conn. at 406 (quotation marks
3
and citations omitted).
4
As the district court noted in its ruling on Asia Pacific’s
5
motion for reconsideration, TAL’s affirmative defenses to Chugh’s
6
arguments to the Cayman court would have been dispositive of the
7
wind‐up proceeding. Had the Cayman court found to be credible
8
any one of Kalra’s several assertions that Chugh breached his
9
fiduciary duty, it would have been required to dismiss the petition.
10
Thus, the Cayman court was required to resolve each of Kalra’s
11
arguments in Chugh’s favor before it could proceed to the merits of
12
Chugh’s petition.
13
TAL does not dispute that Kalra’s affirmative defenses in the
14
wind‐up proceeding are based in substance on the same allegations
15
made in its Third Amended Complaint. Because those defenses were
16
necessarily resolved against TAL in the wind‐up proceeding, and
17
because they substantially correspond to the allegations contained in
18
the operative complaint in this case, the district court properly
19
applied the doctrine of collateral estoppel.
20
III.
Preclusive Effect of In Rem Proceedings
21
TAL next contends that findings of fact made by the Cayman
22
court cannot have preclusive effect in the district court proceeding
23
because the wind‐up proceeding was an in rem action, while the
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district court proceeding is an in personam action. This argument is
2
meritless.
3
The Restatement (Second) of Judgments specifies that in rem
4
proceedings do have preclusive effect in subsequent in personam
5
suits where parties to the subsequent suits were represented in the
6
prior in rem proceeding.3 We previously addressed this question in
7
Johnston v. Arbitrium (Cayman Islands) Handels AG, 198 F.3d 342, 348
8
(2d Cir. 1999), where we held that factual findings in an in rem suit
9
in Delaware Chancery Court had preclusive effect under Delaware
10
law on a subsequent in personam suit in federal district court.
11
The cases TAL cites in its briefing do not support its position.
12
TAL argues that the United States Supreme Court’s decision in
13
Myers v. International Trust Co., 263 U.S. 64 (1923) holds that in rem
14
proceedings cannot have a preclusive effect on subsequent in
15
personam suits. But Myers actually stands for the opposite
16
proposition. TAL quotes the following language from Myers: “An
17
adjudication of bankruptcy, or a discharge therefrom, is a judgment
18
in rem and is binding on, and res judicata as to, all the world, only in
19
respect of the status of the bankrupt, and is not conclusive as to the
See Restatement (Second) of Judgments § 30, cmt. d (1982)(“A valid judgment based
only on jurisdiction over a thing is conclusive as to interests in the thing, even as to
nonappearing parties (see Comment a). Such a judgment has no further conclusive effect
except in accordance with the rules of issue preclusion set forth in §§ 27, 28. Under those
rules, parties who have appeared in the action and litigated an issue as adversaries will
normally be precluded from relitigating that issue if its determination was essential to
the judgment.”).
3
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1
findings of fact or subsidiary questions of law on which it is based
2
…,” but omits the rest of the sentence: “except as between parties to the
3
proceedings or privies thereto.” 263 U.S. at 73 (emphasis added).4
4
5
17 Conn. 500 (1846), from which it extracts the following quotation:
6
15
So, if a judgment operates in the state where it was
rendered only in rem, it will not elsewhere be enforced
in personam. It results conclusively from this principle,
or is rather involved in it, that if a judgment in a state
where it is recovered, has not the effect of binding
personally the defendants . . . in the suit in which it was
rendered, no greater effect will be given to it in any
other state where it is endeavoured to be enforced.
Id. at 506. But Wood simply holds that if a judgment rendered in one
16
state is only binding in rem, then the Full Faith and Credit Clause,
17
U.S. Const., art. IV, sec. 1, does not require other state courts to
18
enforce that judgment in personam, since the Constitution does not
19
require a state to give “greater effect” to an out‐of‐state judgment
20
“than [that judgment] would have in the state where it was
21
rendered.” Wood, 17 Conn. at 504‐05. Wood does not hold that in rem
22
proceedings can never have preclusive effect in a subsequent in
7
8
9
10
11
12
13
14
The only Connecticut case that TAL cites is Wood v. Watkinson,
TAL argues that the exception in Myers only applies when the parties to the prior in rem
suit were also parties to an “actual, distinct, and separate in personam suit” connected to
the liquidation proceeding. BB 43. However, the opinion in Myers does not state such a
limitation. See 263 U.S. at 73‐74. In any event, it is the Connecticut law of collateral
estoppel that governs this suit, and TAL has not cited any Connecticut case in support of
this proposition.
4
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No. 14‐975‐cv
1
personam suit, and indeed does not address the question of issue
2
preclusion at all.
3
IV.
4
TAL also argues that the factual findings of the Cayman court
5
should not be given preclusive effect because the parties to the
6
district court proceeding were not the same as, or in privity with, the
7
parties in the wind‐up proceeding. A party can be estopped from
8
relitigating an issue that was decided adversely to him in a prior
9
litigation only if the issue was litigated by that party, or by a party
10
with substantially similar legal interests. Mazziotti v. Allstate Ins. Co.,
11
240 Conn. 799, 814 (1997). This requirement ensures “that the
12
interests of the party against whom collateral estoppel . . . is being
13
asserted have been adequately represented . . . at the initial
14
proceeding.” Id. at 813 (quoting Aetna Cas. & Sur. Co. v. Jones, 220
15
Conn. 285, 304 (1991)). Under Connecticut law, “[t]here is no
16
prevailing definition of privity to be followed automatically in every
17
case.” Id. A court “focuses on the functional relationships of the
18
parties.” Id. at 814 (noting that privity is, “in essence, a shorthand
19
statement for the principle that collateral estoppel should be applied
20
only when there exists such an identification in interest of one
21
person with another as to represent the same legal rights so as to
22
justify preclusion.”).
Privity
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22
1
No. 14‐975‐cv
TAL’s arguments are unpersuasive. First, TAL suggests that
2
the Chugh Defendants are not “entitled to the benefit” of the wind‐
3
up proceeding because they are not in privity with the parties who
4
filed the wind‐up petition in the Cayman court. This argument is
5
irrelevant. Connecticut has followed most other jurisdictions in
6
abandoning the “mutuality of parties” rule, which held that both
7
parties in a subsequent litigation needed to be the same as, or in
8
privity with, the parties in a prior litigation in order for collateral
9
estoppel to apply. Under current Connecticut law, only the party
10
against whom collateral estoppel is asserted (in this case, TAL) must
11
have been represented in both proceedings. Aetna Cas. & Sur. Co.,
12
220 Conn. at 302.
13
TAL does not make any specific argument to the effect that its
14
interests were not adequately represented in the wind‐up
15
proceeding. Indeed, TAL has not disputed that it is in privity with
16
Asia Pacific, which was a party to the wind‐up proceeding. This
17
concession alone defeats TAL’s privity argument. See id. at 303
18
(“Collateral estoppel may be invoked against a party to a prior
19
adverse proceeding or against those in privity with that party.”)
20
(emphasis added). Moreover, Asia Pacific’s defenses asserted in the
21
wind‐up proceeding were based entirely on alleged violations of
22
TAL’s rights, and those same purported violations now form the
23
basis of TAL’s Third Amended Complaint. While the parties in the
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No. 14‐975‐cv
1
wind‐up proceeding and the district court proceeding are not
2
identical, they are nearly so, and TAL has made no effort in this case
3
to show that its interests were not identical to those of Asia Pacific.
4
We therefore agree with the district court that TAL is sufficiently
5
aligned with the respondents in the wind‐up proceeding for
6
collateral estoppel to apply.
7
V. Comity
8
Finally, we address TAL’s argument that the district court
9
erred in granting comity to the judgment of the Cayman court
10
because doing so was contrary to United States “national policy.” In
11
a diversity action, state substantive law governs a court’s application
12
of comity principles. See, e.g., Drexel Burnham Lambert Grp. Inc. v.
13
Galadari, 777 F.2d 877, 880 (2d Cir. 1985). Connecticut adheres to
14
“common‐law comity principles,” which “compel” a “rule of
15
deference” to foreign judgments in most cases. Turner v. Frowein, 253
16
Conn. 312, 352 (2000). Judgments “of courts of foreign countries are
17
recognized in the United States because of the comity due to the
18
courts and judgments of one nation from another.” Id. at 352
19
(quoting Litvaitis v. Litvaitis, 162 Conn. 540, 544 (1972)).
20
TAL is correct that a court is not required to grant comity to a
21
foreign judgment where doing so would be contrary to the public
22
policy of the state or nation called upon to give it effect. See Litvaitis,
23
162 Conn. at 544; cf. Cunard S.S. Co., Ltd. v. Salen Reefer Servs. AB, 773
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1
F.2d 452, 457 (2d Cir. 1985). However, TAL’s brief provides no
2
argument, in law or policy, for its contention that comity would be
3
inappropriate here. Other courts have granted comity to Cayman
4
Island judgments. See, e.g., In re Natʹl Warranty Ins. Risk Retention
5
Grp., 384 F.3d 959, 963 (8th Cir. 2004) (affirming bankruptcy court’s
6
recognition of comity with Cayman Islands court administering
7
liquidation proceedings); Cybernaut Capital Mgmt. Ltd. v. Partners
8
Grp. Access Secondary 2008, L.P., No. 13 CIV. 5380 WHP, 2013 WL
9
4413754, at *3 (S.D.N.Y. Aug. 7, 2013) (affording comity to Cayman
10
Islands judgment as not inconsistent with United States public
11
policy). Given the strong presumption in favor of granting comity to
12
foreign judgments, TAL’s threadbare arguments on this point are
13
unavailing.
14
Lastly, TAL unpersuasively argues that Chapter 15 of the
15
Bankruptcy Code preempts the state law doctrine of comity. A
16
federal statute may preempt state law either expressly or by
17
implication. Express preemption occurs when “Congress . . .
18
withdraw[s] specified powers from the States by enacting a statute
19
containing an express preemption provision.” Wurtz v. Rawlings Co.,
20
LLC, 761 F.3d 232, 238 (2d Cir. 2014), cert. denied, 135 S. Ct. 1400
21
(2015) (quoting Arizona v. United States, 132 S. Ct. 2492, 2500‐01
22
(2012)). TAL fails to cite any provision of Chapter 15 that expressly
23
preempts the state law of comity. The one statute TAL does cite, 28
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U.S.C. § 1334(c)(1), concerns the discretionary right of district courts
2
to abstain from hearing core claims under Title 11 in the interest of
3
comity with state courts and is inapposite here. See, e.g., In re Petrie
4
Retail, Inc., 304 F.3d 223, 232 (2d Cir. 2002).
5
A federal statute preempts state law by implication when
6
Congress intends to “occupy the field” and when ”the challenged
7
state law stands as an obstacle to the accomplishment . . . of the full
8
purposes and objectives of Congress.” Crosby v. NFTC, 530 U.S. 363,
9
372‐73 (2000) (quotation mark and internal citations omitted). TAL
10
does not make any specific arguments regarding implied
11
preemption, but such an argument would be unavailing in any case.
12
Given the very narrow purpose of Chapter 15, it is clear that
13
Congress did not intend to completely preempt state law regarding
14
the application of the common law of comity. Such a result would
15
do nothing to advance the stated objectives of the statute.
CONCLUSION
16
17
We have considered TAL’s remaining arguments, and we find
18
them meritless. We therefore AFFIRM the judgment of the district
19
court.
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