Forge Group Power Pty Ltd.

Filing 42

ORDER on Bankruptcy Appeal. ***Civil Case Terminated. Signed by Judge Phyllis J. Hamilton on 2/12/2018. (pjhlc3, COURT STAFF) (Filed on 2/12/2018)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 In re: 8 Case No. 17-cv-02045-PJH FORGE GROUP POWER PTY LTD., 9 10 MARTIN JONES, in his capacity as Foreign Representative and Liquidator of Forge Group Power Pty Ltd., 11 United States District Court Northern District of California Bankr. Case No. 17-30008-DM Debtor in Foreign Proceeding. 12 ORDER ON BANKRUPTCY APPEAL Appellant, 13 v. 14 APR ENERGY HOLDINGS LIMITED, et al., 15 16 Appellees. 17 18 Martin Jones appeals from the March 22, 2017, order of the bankruptcy court 19 denying the petition for recognition of a foreign proceeding under Chapter 15 of the 20 Bankruptcy Code. For the reasons set forth below, the order denying recognition is 21 VACATED and the case is REMANDED to the bankruptcy court for further proceedings. 22 23 BACKGROUND I. Factual Summary1 Appellant and petitioner Martin Jones (“Jones”) is the liquidator and foreign 24 25 26 27 28 1 The summary of facts is taken primarily from the representations of the Chapter 15 Petition for Recognition of a Foreign Proceeding (“Pet.”) filed January 3, 2017, by Martin Bruce Jones. Bankr. Case No. 17-30008-DM, Doc. No. 1 (Jones Appx., Ex. 1). The court will refer to the filings in the record by the bankruptcy court docket entry numbers as applicable. 1 representative of the debtor, Forge Group Power Pty Ltd. (“Forge Power” or “debtor”), an 2 Australian company which has been in liquidation proceedings in Australia since 3 February 2014. Forge Power conducted its business almost exclusively in Australia. 4 According to Jones, Forge Power did not conduct any business in the United States and 5 had limited if any connection to the United States. Jones Decl. ISO Pet. ¶ 8 (Bankr. doc. 6 no. 3). Forge Power, formerly known as CTEC Pty Ltd, was acquired by Forge Group 7 8 Limited (“FGL”) in 2012; Forge Power is a wholly owned subsidiary of FGL. FGL and 36 9 of its subsidiaries, collectively referred to as the “Forge Group,” are involved in engineering, procurement, and construction of mining and oil/gas projects. The Forge 11 United States District Court Northern District of California 10 Group has four key divisions—power, construction, asset management, and 12 minerals/resources—with operations in Australia, New Zealand, North America, Asia, and 13 Africa. 14 On January 23, 2013, Forge Power entered into a Design Build Operate and 15 Maintain Contract with Horizon Power, a state-owned public utility in Western Australia, 16 under which Forge Power was to design a power station, and supply, test, and 17 commission all required equipment. On March 5, 2013, Forge Power entered into an 18 agreement with General Electric International, Inc. (“GEI”) under which Forge Power 19 agreed to lease four mobile gas turbine generator sets (the “lease agreement” for the 20 “turbines”). In September 2013, Forge Power took possession of the turbines at GEI’s 21 facility in Houston, Texas, and shipped them to the power plant site at Port Hedland in 22 Western Australia. Walter Decl. ISO Opp. ¶ 8 (Bankr. doc. no. 41-1; APR Appx. 1139). 23 In October 2013, GEI sold its power rental business to appellee APR Energy 24 Holdings Ltd. (“APR”), resulting in APR becoming the owner of the membership interests 25 in several newly-formed GEI subsidiaries, including appellees Power Rental Asset Co. 26 Two, LLC (“APR AssetCo”) and Power Rental Op Co. Australia, LLC (“APR OpCo”). 27 Appellees’ Br. (doc. no. 31) at 6. APR AssetCo was the owner of the turbines, and APR 28 2 1 OpCo was the assignee of the lease agreement and received the rental payments for the 2 turbines. Id. 3 A. Australian Liquidation Proceeding 4 In February 2014, the directors of the Forge Group companies, including debtor 5 Forge Power, concluded that each of the companies of the Forge Group in Australia was 6 likely to become insolvent, and that each of the companies should enter administration 7 under Australian law. On February 11, 2014, each of the companies in the Forge Group 8 in Australia commenced a voluntary administration proceeding by appointing Jones and 9 two others to serve as administrators pursuant to section 436A of the Australian Corporations Act 2001. Pet. ¶ 19. At the time Forge Power entered into voluntary 11 United States District Court Northern District of California 10 administration in February 2014, the turbines were located on Horizon Power’s land in 12 Port Hedland, Australia. Jones Decl. ISO Pet. ¶ 22. On March 18, 2014, the creditors of each of the Forge Group companies subject to 13 14 voluntary administration, including Forge Power, resolved that each company should be 15 wound up and immediately placed into liquidation. Jones was appointed to serve as a 16 liquidator of debtor Forge Power and is currently its sole acting liquidator. Pet. ¶ 20. 17 B. Florida Litigation and Interim Arrangement Deed 18 On or about April 16, 2014, APR OpCo, APR AssetCo, and GEI filed a lawsuit in 19 the Middle District of Florida (C-14-0445-TJC) against Forge Power and other named 20 defendants,2 seeking to recover the four turbines. Among other things, the plaintiffs 21 alleged that the voluntary administration was an event of default under the lease 22 agreement. 23 24 25 26 27 28 2 The Florida action was also brought against Australia and New Zealand Banking Group Limited (“ANZ”) which became the Forge Group’s principal financier on July 2, 2013, according to the Chapter 15 petition. On or about the same date, certain companies within the Forge Group, including Forge Power, entered into security agreements and other finance documents with ANZ. Pet. ¶ 7. On February 11, 2014, the day Forge Power commenced the administration, ANZ appointed receivers and managers who took possession and control over Forge Power’s principal assets, including the turbines. Appellees’ Br. at 8 n.3. 3 1 On July 22, 2014, the receivers of Forge Power entered into an Interim 2 Arrangement Deed (“IAD”) with APR OpCo, APR AssetCo and GEI (the “APR parties”), 3 which purported to resolve the manner in which the dispute regarding the turbines would 4 be decided. The parties agreed that the question of who had superior title to the turbines 5 would be determined by a court in Australia. The APR parties agreed to discontinue the 6 Florida proceeding, and agreed that they would “not bring, or pursue, nor procure that 7 any third party bring or pursue, any [c]laim against Forge . . . in any jurisdiction in respect 8 of any matter the subject of or relating to the allegations in the [Florida proceeding].” 9 The APR parties also agreed to provide Forge Power with a standby letter of credit in the amount of $44 million (the “LOC”), with the understanding that Forge Power would 11 United States District Court Northern District of California 10 call on the LOC only if it prevailed in the Australian proceeding. The LOC was issued by 12 Bank of America, N.A., from a branch in San Francisco, California, to a branch of Bank of 13 America, N.A. in Sydney, Australia, and was payable to Forge Power upon presentation 14 of required documentation to the Bank of America branch office in Sydney. For its part, 15 Forge Power agreed to allow the APR parties to re-lease the turbines. Under the IAD, 16 the turbines were returned to the APR parties. The Florida action was dismissed with 17 prejudice. 18 C. Australian Litigation 19 On August 1, 2014, in accordance with the IAD, the receivers brought an action on 20 behalf of Forge Power in the Supreme Court of New South Wales, Australia, against APR 21 OpCo, APR AssetCo, and GEI. This litigation concerned whether Forge Power or the 22 APR parties had superior title to the turbines under Australian law. On February 11, 23 2016, the Australian court issued a decision that under the Australian Personal Property 24 Securities Act 2009 (the “PPSA”), APR AssetCo’s unperfected security interest vested in 25 Forge Power immediately prior to the appointment of the voluntary administrators on 26 February 11, 2014. This decision rendered APR AssetCo a general unsecured creditor 27 of Forge Power. The APR parties appealed the decision and the appeal was heard on 28 September 23, 2016. The Court of Appeal affirmed the lower court’s decision on 4 1 February 6, 2017. On March 1, 2017, the APR parties filed a petition with the High Court 2 for special leave to appeal the decision of the Court of Appeals; the Australian High Court 3 declined review and dismissed the petition on June 15, 2017. 4 D. Texas Litigation 5 On July 12, 2016, APR, as a creditor of APR AssetCo and APR OpCo, filed 6 another lawsuit against Forge Power, this time in a Texas state court, seeking a ruling 7 that the APR parties—not Forge Power—own the turbines. Forge Power did not respond 8 to the complaint, and after entry of default, the Texas court entered partial default 9 judgment as to liability only, ordering that the transfers to Forge Power of the turbines “are hereby avoided as fraudulent transfers in accordance with the Texas Uniform 11 United States District Court Northern District of California 10 Fraudulent Transfer Act.” APR Energy v. Forge Group Power, No. 2016-46548 (Tex. 12 Dist. Ct., Nov. 3, 2016) (Bankr. doc. no. 5-1). But in December 2016, before the Texas 13 court entered a final judgment, Forge Power filed a special appearance to request 14 dismissal for lack of personal jurisdiction. 15 After holding a hearing, the Texas court granted Forge Power’s special 16 appearance, held that it did not have personal jurisdiction over Forge Power, and 17 dismissed the case. The Texas court vacated all prior orders, including the default 18 judgment against Forge Power as to liability. APR moved for rehearing or new trial, 19 which was denied on May 5, 2017. On May 8, 2017, APR filed a notice of appeal from 20 the Texas court ruling. Jones represents that oral argument in the Texas state court 21 matter is set for March 7, 2018. Doc. no. 41. 22 E. Other Proceedings 23 On June 20, 2017, the APR parties filed a request for arbitration with the London 24 Court of International Arbitration (“LCIA”). In that request, the APR parties sought 25 arbitration to resolve the question of superior right and title to, and interest in, the turbines 26 and power generation facility, thereby seeking to relitigate the dispute that was subject to 27 the final judgment in the Australian proceeding. The APR parties sought arbitration on 28 the ground that the parties to the IAD amended the arbitration provision of the original 5 1 lease agreement for the turbines, to submit the dispute to arbitration under certain 2 conditions precedent to arbitration, which the APR parties asserted had been satisfied. 3 Specifically, the APR parties represented that the IAD creates a right and obligation to 4 arbitrate if an Australian court, as defined in the IAD, is unwilling to hear the matter or if 5 the court declines jurisdiction to resolve the claim. The APR parties asserted that the 6 High Court of Australia declined to exercise appellate jurisdiction over the decision of the 7 court of appeals, thereby triggering their right to arbitration. On June 21, 2017, APR AssetCo filed a complaint in San Francisco Superior 8 9 Court, against Forge Power, its receivers, and Bank of America. That action was removed to the district court on June 23, 2017, as Case No. C-17-3621 RS.3 In that 11 United States District Court Northern District of California 10 action, APR AssetCo filed an application for a temporary restraining order and for an 12 order to show cause why a preliminary injunction should not issue enjoining Forge Power 13 from drawing on the $44 million LOC and prohibiting the bank from making payment of 14 any of the LOC proceeds to Forge Power until conclusion of the LCIA arbitration. After 15 holding a hearing on the matter, the court denied APR AssetCo’s application. 16 Subsequently, APR AssetCo voluntarily dismissed the action without prejudice.4 17 II. Procedural History in Bankruptcy Court 18 On January 3, 2017, before the Texas court had dismissed APR’s fraudulent 19 transfer lawsuit for lack of personal jurisdiction, Jones filed a Chapter 15 petition for 20 recognition of a foreign proceeding, in the United States Bankruptcy Court for the 21 Northern District of California. Jones sought recognition by the bankruptcy court that 22 Forge Power’s voluntary liquidation is a “foreign main proceeding” and that he is a 23 “foreign representative” under Chapter 15 of the Bankruptcy Code. 24 [Jones] seeks chapter 15 recognition of the Australian Proceeding, and the entry of related provisional relief, to 25 26 3 27 28 Forge Power sought judicial consideration whether the removed action was related to the present bankruptcy appeal; the court determined that the cases were not related. 4 The current status of the APR parties’ request for arbitration with the LCIA is not before the court. 6 prevent creditors from continuing litigation efforts in the United States designed to frustrate the Australian Proceeding contrary to principles of comity and international standards of fair play and justice. Absent chapter 15 relief and the grant of provisional relief, individual unsecured creditors of the Debtor, who have commenced litigation in the United States with respect to the very same transactions and occurrences that their affiliates are litigating in Australia, stand to improperly “jump ahead” of other secured and unsecured creditors in violation of Australian law. These actions offend the very notion of chapter 15, which, among other things, is intended to facilitate the centralization of disputes in cross-border insolvency cases before the courts sitting in the jurisdiction of a debtor’s center of main interests. The Debtor’s property interest under Australian law in assets located in Australia is a core issue to the Australian Proceeding. Chapter 15 was enacted precisely to prevent aggrieved creditors from pursuing a worldwide race to the courthouse against international debtors and their property. 1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 Pet. at 3. Jones alleged that Forge Power was a “debtor” as defined in 11 U.S.C. § 109(a) 14 because Forge’s principal asset in the United States was an undrawn $100,000 retainer 15 in California with Alston & Bird LLP, counsel for Forge Power in connection the Chapter 16 15 case. Pet. ¶ 6. Section 109(a) of the Bankruptcy Code states that “notwithstanding 17 any other provision of this section, only a person that resides or has a domicile, a place of 18 business, or property in the United States, or a municipality, may be a debtor under [the 19 Bankruptcy Code].” 11 U.S.C. § 109(a); see 11 U.S.C. § 1502(1) (defining debtor for 20 purposes of Chapter 15). The petition represented that the funds were being held in an 21 interest-bearing client trust account with Wells Fargo Bank N.A. in San Francisco, 22 California. Jones further argued that because § 109 is a nominal threshold requirement, 23 this retainer would be more than sufficient to establish Forge Power as a “debtor” under 24 the Bankruptcy Code. Mem. ISO Pet. at 3 (Bankr. doc. no. 2). 25 Upon filing the Chapter 15 petition on January 3, 2017, Jones also filed an 26 emergency motion for provisional relief and temporary stay of any actions against Forge 27 Power and its assets in the United States, including a stay of the Texas state court action 28 which was set for a hearing on January 6, 2017. Bankr. doc. no. 5. On January 5, 2017, 7 1 APR filed an opposition and the bankruptcy court held a hearing on the emergency 2 motion. The court denied the request to stay the Texas state court action, but entered an 3 order temporarily enjoining APR from enforcing any judgment against Forge Power, and 4 enjoining Forge Power from demanding payment under the LOC. Bankr. doc. no. 16. On February 9, 2017, APR filed an opposition to the Chapter 15 petition, and 5 Jones filed a reply on February 27, 2017. The bankruptcy court held a hearing on the 7 petition for recognition on March 16, 2017, and issued an order denying the petition for 8 the reasons stated at the hearing. At the hearing, Bankruptcy Judge Montali denied the 9 petition “because in my mind the retainer . . . is property in a technical sense . . . but it’s 10 illusory because there is a string attached to it if the lawyer ceases to represent[,] and as 11 United States District Court Northern District of California 6 the lawyer does work, the retainer is consumed.” Jones Appx., Ex. 15 (“Tr.”) at 73. He 12 added, 13 17 [P]roperty suggests something more than depositing money with a law firm and then filing. . . . I’m going to say that when the sole property in the U.S. is money delivered to an attorney to qualify for property, that simply won’t work. . . . I don’t think it’s property in the traditional sense that the debtor has unfettered use of it. . . . Handing it to a lawyer, it is either consumed as the lawyer does work or it’s subject to the lawyer’s right to a reasonable fee as he or she does work. 18 Tr. at 73-74. Jones filed a notice of appeal on April 5, 2017, and filed his opening brief on 19 June 14, 2017. The court granted the request of amici curiae to file a brief in support of 20 Jones. Appellees APR, APR AssetCo and APR OpCo filed a responsive brief, and Jones 21 filed a reply. The court determines that no oral argument is necessary; the matter is fully 22 briefed and submitted. 14 15 16 ISSUES PRESENTED 23 24 I. Whether the eligibility requirements of 11 U.S.C. § 109(a) apply to a foreign debtor 25 that seeks recognition of its foreign insolvency proceeding under Chapter 15 of the 26 Bankruptcy Code. 27 II. 28 eligibility as a debtor under 11 U.S.C. § 109(a). Whether an attorney retainer is sufficient “property in the United States” for 8 STANDARD OF REVIEW 1 The court reviews questions of law de novo. In re Chang, 163 F.3d 1138, 1140 2 3 (9th Cir. 1998). DISCUSSION 4 5 I. Applicability of Section 109 to Chapter 15 Proceedings 6 The question whether § 109(a) applies to a debtor seeking recognition of a foreign 7 proceeding under Chapter 15 presents an issue of statutory construction that is reviewed 8 de novo. In re Rodriguez Mendez, 367 B.R. 109, 113 (9th Cir. B.A.P. 2007). A. 9 Chapter 15 Framework Chapter 15, entitled “Ancillary and Other Cross-Border Cases,” was added to the 10 United States District Court Northern District of California 11 Bankruptcy Code with the enactment of the Bankruptcy Abuse Prevention and Consumer 12 Protection Act of 2005 (the 2005 Act), replacing former 11 U.S.C. § 304 to govern cases 13 of cross-border insolvency.5 Chapter 15 incorporates the Model Law on Cross-Border 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 Former 11 U.S.C. § 304 (repealed 2005) provided as follows: (a) A case ancillary to a foreign proceeding is commenced by the filing with the bankruptcy court of a petition under this section by a foreign representative. (b) Subject to the provisions of subsection (c) of this section, if a party in interest does not timely controvert the petition, or after trial, the 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. (c) In determining whether to grant relief under subsection (b) of this section, the court shall be guided by what will best assure an economical and expeditious administration of such estate, consistent with-(1) just treatment of all holders of claims against or interests in such estate; (2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding; (3) prevention of preferential or fraudulent dispositions of property of such estate; 9 1 Insolvency6 (the “Model Law”), which was promulgated by the United Nations 2 Commission on International Trade Law in 1997, to encourage cooperation between the 3 United States and foreign countries with respect to transnational insolvency cases. 4 House Report No. 109-31, Pt. 1, 109th Cong., 1st Sess. 105-106 (Apr. 8, 2005) (“H. 5 Rep.”), reprinted in 2005 U.S.C.C.A.N. 88, 169. The 2005 Act amended section 103 of 6 the Bankruptcy Code to clarify the provisions of the Code that apply to chapter 15: 7 Chapter 1, sections 307, 362(n), 555 through 557, and 559 through 562. 11 U.S.C. 8 § 103(a). See H. Rep. at 118. 9 Chapter 15 provides a procedural framework by which, as relevant here, a “foreign representative” may seek assistance in the United States in connection with a “foreign 11 United States District Court Northern District of California 10 proceeding,” as those terms are defined in section 101(23) and (24). 11 U.S.C. 12 § 1501(b)(1). In particular, a “foreign proceeding” is defined in § 101(23) as “a collective 13 judicial or administrative proceeding in a foreign country” in which “the assets and affairs 14 of the debtor are subject to control or supervision by a foreign court, for the purposes of 15 reorganization or liquidation.” As stated in the legislative history, cases brought under 16 Chapter 15 are intended to be ancillary to cases brought in a debtor’s home country, 17 unless a full United States bankruptcy case is brought under another chapter. H. Rep. at 18 106. Section 1508 provides that in interpreting Chapter 15, “the court shall consider its 19 international origin, and the need to promote an application of this chapter that is 20 consistent with the application of similar statutes adopted by foreign jurisdictions.” 11 21 U.S.C. § 1508. 22 23 24 25 26 27 28 (4) distribution of proceeds of such estate substantially in accordance with the order prescribed by this title; (5) comity; and (6) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns. 6 The Model Law and current version of the accompanying Guide to Enactment and Interpretation (rev. 2013) are available at uncitral_texts/insolvency/1997Model.html. 10 1 Section 1502 provides definitions for use in Chapter 15 only, including the term 2 “debtor” to mean “an entity that is the subject of a foreign proceeding.” 11 U.S.C. 3 § 1502(1). The legislative history explains, “‘Debtor’ is given a special definition for this 4 chapter. This definition does not come from the Model Law, but is necessary to eliminate 5 the need to refer repeatedly to ‘the same debtor as in the foreign proceeding.’” H. Rep. 6 at 107. 7 Section 1504 establishes that “[a] case under this chapter is commenced by the 8 filing of a petition for recognition of a foreign proceeding under section 1515.” By 9 providing that a petition for recognition commences a “case” under title 11, this section “invokes a number of other useful procedural provisions.” H. Rep. at 108 (citing 28 11 United States District Court Northern District of California 10 U.S.C. § 1334). For Chapter 15 cases, 28 U.S.C. §§ 157 and 1334 provide for 12 jurisdiction and procedures, and 28 U.S.C. § 1410 governs venue. 13 Section 1515(a) provides that a foreign representative applies to the court for 14 recognition by filing a petition for recognition of a foreign proceeding; sections 1515(b)-(d) 15 establish the procedural requirements for a petition for recognition and accompanying 16 documentation. 11 U.S.C. § 1515. See H. Rep. at 112 (“This section follows article 15 of 17 the Model Law with minor changes.”). Under Section 1517, an order of recognition shall 18 be entered if the following requirements are satisfied: (1) the proceeding is either a 19 foreign main proceeding, pending in the country where the debtor has the center of its 20 main interests, or a foreign nonmain proceeding, pending in the country where the debtor 21 has an establishment, as defined by § 1502; (2) the foreign representative is a person or 22 body; and (3) the petition meets the requirements of § 1515. 11 U.S.C. § 1517(a). See 23 H. Rep. at 113. 24 Upon recognition of a foreign main proceeding, § 1520 implements the automatic 25 stay provisions of § 362, subject to certain exceptions, and other protections with respect 26 to the debtor and the debtor’s property within the territorial jurisdiction of the United 27 States. Section 1521 further authorizes the court to “grant any appropriate relief” at the 28 request of the foreign representative upon recognition of a foreign proceeding, where 11 1 necessary to effectuate the purpose of Chapter 15 and to protect the debtor’s assets or 2 the creditors’ interests. 3 B. Section 109 Eligibility Requirements 4 Jones appeals from the bankruptcy court’s holding that the debtor eligibility 5 requirements under § 109(a) apply to a debtor seeking recognition of a foreign 6 proceeding under Chapter 15. In the absence of controlling Ninth Circuit authority, the 7 bankruptcy court followed the holding of In re Barnet, 737 F.3d 238, 246 (2d Cir. 2013). 8 There, the Second Circuit held that before a bankruptcy court may grant recognition of 9 the foreign proceeding, the debtor that is the subject of the foreign proceeding must meet 10 United States District Court Northern District of California 11 the requirements of § 109(a). In In re Barnet, the foreign representatives and liquidators of Octaviar 12 Administration Pty Ltd (“OA”), an Australian company under liquidation, filed a Chapter 15 13 petition for recognition of the Australian proceeding as a foreign main proceeding 14 pursuant to § 1515. Before filing the Chapter 15 petition in the bankruptcy court, the 15 foreign representatives had commenced a lawsuit in Australia against affiliates of the 16 debtor to recover assets for the benefit of OA’s creditors. The defendants in the 17 Australian litigation objected to the Chapter 15 petition on several grounds, including that 18 OA had no domicile, place of business or property in the United States as required by 19 § 109(a). The bankruptcy court issued an order granting recognition, from which the 20 objectors appealed, and granted a motion for discovery filed by the foreign 21 representatives. The Second Circuit granted the parties’ joint application for direct 22 appeal from the bankruptcy court’s order of recognition and stayed discovery pending 23 resolution of the appeal. 24 In re Barnet presented the Second Circuit with an issue of first impression: 25 whether § 109(a) applies to a debtor in a Chapter 15 proceeding. The Second Circuit 26 interpreted the plain language of the statute in straightforward fashion to hold that § 109 27 applies to Chapter 15 cases: 28 12 1  relevant here, Chapter 1 “of this title ... appl[ies] in a case under chapter 15.” 2 3 Section 103(a) of Title 11 provides that, other than for an exception not  Section 109(a) creates a requirement that must be met by any debtor: 4 “Notwithstanding any other provision of this section, only a person that resides 5 or has a domicile, a place of business, or property in the United States, or a 6 municipality, may be a debtor under this title.” 7 8 9  Section 109 is within Chapter 1 of Title 11 and so, by the plain terms of the statute, it applies “in a case under chapter 15.” In re Barnet, 737 F.3d at 247. The Second Circuit concluded that a foreign representative petitioning for recognition of a foreign proceeding under § 1517 must show 11 United States District Court Northern District of California 10 that the debtor satisfies the requirements of § 109(a) before a bankruptcy court may grant 12 recognition. The court held that recognition was granted in error and remanded the case 13 because the foreign representatives made no attempt to establish that the debtor had a 14 domicile, place of business, or property in the United States. 737 F.3d at 247. 15 16 1. Plain Language of Statute Jones contends that In re Barnet was wrongly decided because the statutory 17 language gives rise to more than one reasonable interpretation and the Second Circuit 18 failed to find the interpretation that is “most harmonious with its scheme and with the 19 general purposes that Congress manifested.” Jones Opening Br. at 13 (citing United 20 States v. Koyomejian, 946 F.2d 1450, 1453 (9th Cir. 1991)). This argument overlooks 21 the plain language of the statute. The starting point of statutory interpretation is the 22 language of the statute itself. Consumer Product Safety Comm’n v. GTE Sylvania, Inc., 23 447 U.S. 102, 108 (1980). “Absent a clearly expressed legislative intention to the 24 contrary, that language must ordinarily be regarded as conclusive.” Id. 25 Looking to the contextual setting of Chapter 15, there is no ambiguity in the 26 statutory language of § 103(a) about the applicability of Chapter 1, including § 109(a), to 27 “a case under Chapter 15.” See Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997) 28 (“The plainness or ambiguity of statutory language is determined by reference to the 13 language itself, the specific context in which that language is used, and the broader 2 context of the statute as a whole.”). As In re Barnet noted, “Congress amended Section 3 103 to state that Chapter 1 applies to Chapter 15 at the same time as it enacted Chapter 4 15.” 737 F.3d at 250. “This strongly supports the conclusion that Congress intended 5 Section 103(a) to mean what it says, namely, that Chapter 1 applies to Chapter 15.” Id. 6 See H. Rep. at 118 (“Section 802(a) amends section 103 of the Bankruptcy Code to 7 clarify the provisions of the Code that apply to chapter 15 and to specify which portions of 8 chapter 15 apply in cases under other chapters of title 11.”). In the context of Chapters 1 9 and 15 and the Bankruptcy Code as a whole, the plain language of § 103(a) applying 10 Chapter 1, including the eligibility requirements of § 109(a), to Chapter 15 cases is not 11 United States District Court Northern District of California 1 ambiguous. Where the language is plain and the meaning is clear, the statutory 12 construction does not require further inquiry. United States v. Hoflin, 880 F.2d 1033, 13 1037 (9th Cir. 1989). 14 Jones contends that none of Chapter 15’s provisions expressly refers to § 109(a) 15 or imposes any obligation on a foreign debtor to have property or other assets in the 16 United States, whereas § 1501 expressly provides that Chapter 15 does not apply to an 17 entity identified by exclusion in § 109(b), other than a foreign insurance company. Jones 18 Opening Br. at 14. This direct reference to § 109(b) does not demonstrate any ambiguity 19 in the applicability of § 109(a) to Chapter 15 proceedings. Section 109(b), by its own 20 terms, excludes certain entities from debtor eligibility under Chapter 7 only. By referring 21 to § 109(b), § 1501(c)(1) incorporates into Chapter 15 the exclusion of those same 22 entities that are governed by specialized insolvency regimes, except for foreign insurance 23 companies that would remain eligible for recognition under Chapter 15. See H. Rep. at 24 106. This reference in Chapter 15 to § 109(b)’s debtor exclusions does not render 25 meaningless § 109(a)’s requirements for debtor eligibility, made applicable to Chapter 15 26 by operation of § 103(a). As the court noted in In re Barnet, “if Congress wished to 27 exclude Chapter 15 from the reach of Section 109(a), it did not say as much,” in stark 28 contrast to the express provision in § 1501(c) applying some, but not all, of the Chapter 7 14 1 2 exclusions in § 109(b) to Chapter 15. 737 F.3d at 249. Given the plain, unambiguous language of §§ 103(a) and 109(a), a debtor that is 3 the subject of a foreign proceeding seeking recognition under Chapter 15 must satisfy the 4 debtor eligibility requirement of residing or having a domicile, place of business or 5 property in the United States. 6 2. 7 Debtor Within the Meaning of Section 109(a) Jones alternatively argues that § 109(a) does not apply because the Chapter 15 8 petition does not initiate a plenary bankruptcy case, only an ancillary proceeding, and 9 Forge Power is not a debtor in a plenary bankruptcy case under the Bankruptcy Code. Jones Opening Br. at 15. Jones offers no authority for the proposition that § 109(a) 11 United States District Court Northern District of California 10 should be “correctly interpreted” to limit debtor eligibility requirements only to plenary 12 proceedings under the Bankruptcy Code, or that § 109(a) does not apply to a debtor that 13 is subject to a foreign proceeding. The legislative history reflects that Congress 14 understood that a petition for recognition under Chapter 15 would be ancillary to cases 15 brought in a debtor’s home country, unless a full United States bankruptcy case is 16 brought under another chapter. H. Rep. at 106. Yet Jones identifies nothing in the 17 statutory language or legislative history to suggest that Congress intended that the debtor 18 eligibility requirements under § 109(a) would not apply to Chapter 15 proceedings. To 19 the contrary, Congress amended § 103(a) to provide that Chapter 1, including the debtor 20 eligibility requirement of § 109(a), applies to Chapter 15. H. Rep. at 105. 21 Jones also argues that a debtor in a foreign proceeding does not file the Chapter 22 15 petition; rather, the foreign representative is the petitioning party seeking recognition 23 of a foreign proceeding, such that the requirements of § 109(a) should not govern the 24 foreign debtor. Jones Opening Br. at 15-16. The Second Circuit considered and rejected 25 this argument in In re Barnet, reasoning that “the presence of a debtor is inextricably 26 intertwined with the very nature of a Chapter 15 proceeding, both in terms of how such a 27 proceeding is defined and in terms of the relief that can be granted.” 737 F.3d at 248. 28 First, the definitions of “foreign representative” and “foreign proceeding” expressly refer to 15 1 proceedings involving the reorganization or liquidation of the debtor’s assets or affairs. 2 Id. (citing 11 U.S.C. §§ 101(23) and (24), 1502(1) and (4)). Second, both the automatic 3 and discretionary relief provisions of Chapter 15 are directed towards debtors. Id. (citing 4 11 U.S.C. §§ 1520(a) and 1521). In light of this reasoning, the court adopts the Second 5 Circuit’s assessment of Jones’ identical argument that the debtor eligibility requirements 6 of § 109(a) do not apply to a Chapter 15 case because the foreign debtor does not 7 appear before the bankruptcy court on a Chapter 15 petition for recognition: “It stretches 8 credulity to argue that the ubiquitous references to a debtor in both Chapter 15 and the 9 relevant definitions of Chapter 1 do not refer to a debtor under the title that contains both 10 chapters.” In re Barnet, 737 F.3d at 248. Jones suggests that the requirements to commence a proceeding under Chapter United States District Court Northern District of California 11 12 15 are entirely self-contained within Chapter 15 itself, at §§ 1504, 1515 and 1517, and 13 that only the requirements of § 1517 are required to attain recognition, without reference 14 to the debtor eligibility requirements of § 109. Reply Br. at 16-17. However, § 1504 15 expressly provides that the filing of a Chapter 15 petition for recognition commences a 16 “case” under Chapter 15, which, regardless of its ancillary nature, is a case under Title 17 11. This is reflected in the legislative history of § 1504, which indicates that 28 U.S.C. 18 § 1334(a), giving exclusive jurisdiction of all cases under title 11 to the district courts, 19 determines the “competent court” having jurisdiction of Chapter 15 cases. H. Rep. at 95. 20 Notably, Congress enacted § 1504 instead of Article 4 of the Model Law7 which was 21 designed for designating the competent court which would exercise jurisdiction under the 22 Model Law. Id. The legislative history indicates that “since the competent court has been 23 determined in title 28, this section [1504] instead provides that a petition for recognition 24 commences a ‘case,’ an approach that also invokes a number of other useful procedural 25 provisions.” Id. Jones’ unsupported argument that Chapter 15 cases should be carved 26 7 27 28 Article 4 of the Model Law, entitled “Competent Court or Authority,” provides, “The functions referred to in this Law relating to recognition of foreign proceedings and cooperation with foreign courts shall be performed by [specify the court, courts, authority or authorities competent to perform those functions in the enacting State].” 16 1 out of § 109(a)’s eligibility requirements is unpersuasive in light of the plain language of 2 § 103(a), applying Chapter 1 to Chapter 15 cases, and § 1504, recognizing that a petition 3 for recognition commences a case under Chapter 15, which necessarily is a case under 4 Title 11. 5 Related to the argument that Chapter 15 is self-contained, Jones also argues that 6 Forge Power is not a debtor under Title 11, as required by § 109(a), but satisfies § 1502’s 7 special definition of debtor applicable under Chapter 15: “For the purposes of this 8 chapter, the term—(1) ‘debtor’ means an entity that is the subject of a foreign 9 proceeding.” 11 U.S.C. § 1502(1). See H. Rep. at 107 (“This definition . . . is necessary to eliminate the need to refer repeatedly to ‘the same debtor as in the foreign 11 United States District Court Northern District of California 10 proceeding.’”). Jones contends that a Chapter 15 debtor is not seeking to declare 12 bankruptcy under Title 11; rather, its foreign representative is only seeking recognition of 13 the foreign proceeding. Jones Opening Br. at 16. Jones argues that Forge Power only 14 needs to meet the special definition of a “debtor” within the meaning of § 1502, and not 15 the debtor eligibility standards in § 109, to obtain recognition under Chapter 15. 16 In re Barnet decidedly rejected this argument because § 109(a) does not purport 17 to define the term “debtor,” but “adds a requirement for the kinds of ‘person’ that ‘may be 18 a debtor under this title.’” 737 F.3d at 249. The Second Circuit compared the definition 19 of the term “debtor” in § 101(13) (“The term ‘debtor’ means person or municipality 20 concerning which a case under this title has been commenced”) with § 1502, which, like 21 § 101, introduces its definition with the phrase “the term—(1) ‘debtor’ means.” 727 F.3d 22 at 249. The court reasoned that “[t]his linguistic parallelism makes clear that Section 23 1502 supplants Section 101—i.e., it supplants the definition of debtor within the context of 24 Chapter 15—but it does not supplant requirements for a ‘debtor under this title’ not 25 included in the definition.” Id. Distinguishing the debtor eligibility requirements of § 109 26 from the definitions of “debtor” in § 101(13) and § 1502(1), In re Barnet articulated that 27 § 109(a) “does not say that the term debtor ‘means’ anything.” Id. 28 17 1 The court adopts the reasoning of In re Barnet to conclude that § 1502’s definition 2 of debtor for purposes of Chapter 15 does not render the debtor eligibility requirements of 3 § 109(a) inapplicable to Chapter 15 cases. 4 3. Consistency Between Section 109 and Chapter 15 5 Jones also argues that requiring a foreign debtor to satisfy the eligibility 6 requirements of § 109 is “fundamentally inconsistent” with the purposes of Chapter 15 7 and the “overall approach of the United States favoring assistance to foreign main 8 proceedings.” Jones Opening Br. at 18-19. See H. Rep. at 104. Jones asserts that 9 “there is no basis in the Model Law to exclude a foreign debtor such as Forge [Power] from ancillary relief,” and that, accordingly, “[t]he fact that Forge [Power] had no assets in 11 United States District Court Northern District of California 10 the United States prior to funding the Retainer should not preclude Appellant—and other 12 foreign representatives of foreign debtors that may be similarly situated—from seeking 13 Chapter 15 relief.” Jones Opening Br. at 19, 23. This is simply an argument that the 14 statute does not say what Jones and Forge Power want it to mean. 15 In re Barnet rejected a similar argument by the foreign representatives seeking 16 recognition there: that the purpose of Chapter 15 would be undermined by application of 17 § 109(a). The Second Circuit determined that the stated purposes of Chapter 15, 18 including international cooperation and fair and efficient administration of cross-border 19 insolvencies, “could all be accomplished with or without imposition of Section 109(a).” In 20 re Barnet, 737 F.3d at 250-51 (citing 11 U.S.C. § 1501(a)). Noting that the Model Law, 21 which was incorporated by Chapter 15, does not contain a debtor eligibility requirement 22 akin to § 109(a), the court pointed out that the Model Law provided that an enacting 23 country “may modify or leave out some of its provisions.” Id. at 251 (quoting Model Law 24 Pt. 2 (Guide to Enactment) [currently ¶ 20]). The court concluded that “the omission of 25 Section 109(a), or its equivalent, from the Model Law does not suffice to outweigh the 26 express language Congress used in adopting Sections 109(a) and 103(a).” Id. The 27 Second Circuit further considered that the foreign representatives seeking discovery in In 28 18 1 re Barnet could seek relief outside of Chapter 15 under other statutory provisions that are 2 not relevant here. Id. at 251 and n.3 (citing 28 U.S.C. § 1782(a)). 3 Appellant Jones and amici assert that In re Barnet was wrongly decided and that 4 Chapter 15 does not require that the debtor eligibility requirements of § 109(a) be 5 satisfied. This is an unsettled question on which bankruptcy courts and commentators 6 disagree. In addition to unpublished oral rulings, Jones cites kindred commentary which 7 states, “Chapter 15 nowhere indicates that debtors in foreign proceedings must meet the 8 section 109(a) criteria that apply to ‘a debtor under this title’ or that foreign proceedings 9 involving debtors who do not meet those criteria cannot be recognized.” 8 RICHARD LEVIN AND HENRY J. SOMMER, 11 United States District Court Northern District of California 10 refers to the intent of the Model Law to determine eligibility based on the attributes of the 12 foreign proceeding, not of the debtor. Id. 13 COLLIER ON BANKRUPTCY ¶ 1501.03 (16th ed. 2017). COLLIER Addressing In re Barnet, COLLIER faults the Second Circuit for failing to mention 14 “the mandate of section 1508 to interpret chapter 15 in light of its international origin and 15 [failing] to follow the suggestion of the legislative history of section 1508 to consult the 16 Guide to Enactment when interpreting chapter 15.” Id. The treatise flatly states, “The 17 Barnet decision should not be followed outside of the Second Circuit.” Id. This criticism 18 is unwarranted. Although In re Barnet did not cite § 1508, the Second Circuit expressly 19 considered the Model Law and consulted the provisions of the Guide to Enactment. 737 20 F.3d at 250-51. The court finds the reasoning and analysis of In re Barnet to be highly 21 persuasive and consistent with the directive of § 1508 to construe Chapter 15 in light of 22 its international origin and stated purpose of incorporating the Model Law. 23 Another commentator suggests that determining the eligibility of a debtor under 24 § 109(a) at the recognition stage is consistent with the purpose of Chapter 15 because 25 without this threshold determination, it would be a futile exercise to recognize a foreign 26 proceeding only to find later that the foreign debtor does not qualify as a debtor under 27 § 109(a) for purposes of the Bankruptcy Code: 28 19 8 The streamlined procedures for granting recognition to a foreign proceeding [under Chapter 15] do not allude to Code § 109(a), nor do they require proof that the foreign debtor qualifies to be a debtor under Code § 109(a) at the recognition stage, nor have any courts addressed this issue.8 On the other hand, it may be a profligate waste of judicial resources for a court to recognize a foreign proceeding under Code § 1517, only later to rule that because the foreign debtor does not have assets or a presence in the U.S. it does not qualify to be a debtor under Code § 109(a). Thus, if in fact Code § 109(a) applies in Chapter 15 cases, as Code § 103(a) mandates and as several commentators have observed, a foreign debtor’s qualifications under Code § 109(a) should be a threshold determination at the recognition stage. 9 8 W ILLIAM L. NORTON III, NORTON BANKR. L. & PRAC. § 154:3 (3d ed. 2017) (updated online 1 2 3 4 5 6 7 10 Jan. 2018). The current edition of NORTON does not address In re Barnet, but is consistent with United States District Court Northern District of California 11 12 that court’s determination that a debtor under Chapter 15 must qualify as eligible debtor 13 under Title 11 in light of the automatic stay and discretionary relief provisions that apply 14 to “the debtor” upon recognition of a foreign proceeding by operation of § 1520. In re 15 Barnet, 737 F.3d at 248 (“11 U.S.C. § 1520(a) applies 11 U.S.C. §§ 361-63, 549 and 552 16 to ‘the debtor,’ ‘the property of the debtor,’ or ‘an interest of the debtor in property,’ as 17 appropriate.”). In other words, Chapter 15 does not operate in a vacuum, but entitles the 18 foreign debtor to relief under certain provisions of Title 11, not least of which is the 19 automatic stay under § 362 which is applicable upon recognition of a foreign main 20 proceeding, by operation of § 1520 and subject to exceptions, with respect to the debtor 21 and the debtor’s property within the territorial jurisdiction of the United States. 11 U.S.C. 22 § 1520(a)(1). Under Chapter 15, the automatic stay takes effect as a matter of right as 23 provided in § 1520, supplanting former § 304, which left injunctive relief to the bankruptcy 24 court’s discretion in cases ancillary to a foreign proceeding. See In re Goerg, 844 F.2d 25 1562, 1568 (11th Cir. 1988) (“That the section 304 debtor is denied the two main benefits 26 accorded the debtor in a full bankruptcy proceeding—automatic stay and discharge— 27 28 8 This commentary, issued April 2013, predates In re Barnet. 20 1 strongly suggests that Congress did not intend that ‘debtor’ eligibility under the Code be a 2 prerequisite to section 304 ancillary assistance.”). In the context of the statutory 3 provisions under Chapter 15, making certain kinds of relief available to a foreign debtor 4 upon recognition of a foreign proceeding, including automatic stay upon recognition of a 5 foreign main proceeding, § 109(a)’s debtor eligibility requirements are entirely consistent 6 with the purposes of Chapter 15. Along the lines of arguing that § 109 is inconsistent with Chapter 15, appellant 7 8 argues that § 109(a) is not applicable to Chapter 15 cases because the debtor eligibility 9 requirements would render superfluous the applicable venue statute, 28 U.S.C. § 1410. Jones Opening Br. at 22-23 (citing TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001)). Jones 11 United States District Court Northern District of California 10 argues that §§ 1410(2) and (3) provide a venue for Chapter 15 cases even when the 12 debtor does not have a place of business or assets in the United States, demonstrating 13 congressional intent to permit Chapter 15 recognition where the foreign debtor does not 14 satisfy § 109(a), which requires that the debtor reside or have a domicile, place of 15 business or property in the United States. The Second Circuit disposed of a similar 16 argument raised in In re Barnet, on the ground that the venue statute is purely procedural 17 and does not control statutory construction of the unambiguous language used in § 103 18 and § 109. 737 F.3d at 250. Appellant’s argument also overlooks the possibility that a foreign debtor, such as 19 20 an individual, may reside in the United States to satisfy § 109(a)’s eligibility requirement, 21 but not have a place of business or assets that would determine venue under § 1410(1). 22 Section 109(a) does not render the venue statute superfluous. The plain language of 23 § 103(a) unambiguously applies § 109(a) to Chapter 15 proceedings. 24 II. 25 Property Requirement Under Section 109(a) Having determined that Forge Power must satisfy the eligibility requirements of 11 26 U.S.C. § 109(a), the court reviews the question whether an attorney retainer is sufficient 27 to satisfy the “property in the United States” requirement for eligibility under § 109(a). 28 21 1 The bankruptcy court’s determination that an attorney retainer, without more, is not 2 sufficient property under § 109(a) as a matter of law is reviewed de novo. 3 Section 109(a) does not set parameters for how much or what kind of “property in 4 the United States” is required for a person to be eligible as a debtor under Title 11. In the 5 absence of controlling circuit authority, the court follows the out-of-circuit bankruptcy 6 courts that have considered this issue and held that under the plain meaning of § 109(a), 7 any amount of property, whether “‘a dollar, a dime or a peppercorn located in the United 8 States,’” satisfies the threshold for debtor eligibility. In re Global Ocean Carriers Ltd., 251 9 B.R. 31 (Bankr. D. Del. 2000) (quoting In re McTague, 198 B.R. 428, 429 (Bankr. W.D.N.Y. 1996)). See In re ABC Learning Centres Ltd., 728 F.3d 301, 308 (3d Cir. 2013) 11 United States District Court Northern District of California 10 (holding that the foreign debtor’s property in the United States was subject to automatic 12 stay upon recognition of an Australian liquidation proceeding, even though the foreign 13 debtor’s assets were “entirely leveraged, leaving nothing for the liquidator to distribute to 14 the unsecured creditors”). 15 On the specific issue whether an attorney retainer, deposited for the express 16 purpose of retaining counsel in the United States for Chapter 15 proceedings, would 17 establish eligibility under § 109(a), bankruptcy courts have held that an attorney retainer 18 held by the foreign representative’s counsel provides a sufficient basis for debtor 19 eligibility. In re Ocean Rig UDW Inc., 570 B.R. 687, 699 (Bankr. S.D.N.Y. 2017); In re 20 Inversora Eléctrica de Buenos Aires S.A., 560 B.R. 650, 655 (Bankr. S.D.N.Y. 2016); In 21 re Berau Capital Resources Pte Ltd, 540 B.R. 80, 82 (Bankr. S.D.N.Y. 2015); In re 22 Octaviar Admin. Pty Ltd, 511 B.R. 361, 372-73 (Bankr. S.D.N.Y. 2014) (on remand from 23 In re Barnet). Although appellees correctly point out that the foreign debtors in those 24 cases also owned other property rights such as deposits in a New York bank account, 25 contractual rights in debt instruments or legal claims, those additional property interests 26 were not necessary to the courts’ determination that the retainer qualified as property 27 under § 109(a). 28 22 Given the absence of controlling authority on this issue, the court agrees with the 1 rulings of the bankruptcy courts that are bound by In re Barnet and disagrees with the 3 bankruptcy court’s decision here requiring something more than a retainer to satisfy the 4 property requirement of § 109(a): “When a Chapter 15 is initiated because the person in 5 charge of the proceeding in another country delivers a retainer check to a lawyer who is 6 going to be involved in the Chapter 15, that is not a sufficient identification of property 7 that I believe Congress had in mind.” Tr. at 75. Where the debtor seeks eligibility under 8 § 109(a) based solely on a security retainer deposited by the debtor into a client trust 9 account in the United States, which remains property of the client until applied to fees 10 incurred, the property requirement is satisfied under the plain meaning of § 109(a). “A 11 United States District Court Northern District of California 2 security retainer is generally held as security for payment of fees for future services to be 12 rendered by the attorney. The retainer remains property of the client [ ] until the attorney 13 applies it to charges for services actually rendered. Any unearned funds are returned to 14 the client.” In re Dick Cepek, Inc., 339 B.R. 730, 736 (9th Cir. B.A.P. 2006) (citations 15 omitted). To address appellees’ concerns, shared by the bankruptcy court, that a foreign 16 17 debtor should not be permitted to manufacture eligibility and engage in venue tactics on 18 the eve of filing a Chapter 15 petition, the court concludes that the statutory framework 19 permits such strategic maneuvers to an extent by leaving the term “property in the United 20 States” undefined. The venue statute applicable to Chapter 15 cases also contemplates 21 that a foreign debtor might establish a basis for a particular venue shortly before filing a 22 petition for recognition, in that § 1410 does not require contacts in the United States for 23 the 180-day period before filing the petition, as does § 1408, which is applicable to all 24 other Title 11 proceedings.9 In light of the omission of this 180-day requirement from 25 26 27 28 9 Section 1408, which governs venue of cases under Title 11, except as provided in § 1410, provides that proper venue lies in the district court— (1) in which the debtor’s domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred 23 1 § 1410, an attorney retainer that remains the debtor’s property in the United States at the 2 time of commencing the Chapter 15 case is sufficient property for purposes of debtor 3 eligibility under § 109(a), without requiring something more. The order of the bankruptcy 4 court denying the Chapter 15 petition for recognition is therefore VACATED. 5 Because the bankruptcy court determined as a matter of law that a retainer, 6 standing alone, was not sufficient property for eligibility under § 109(a), it did not reach 7 the question whether Forge Power’s retainer deposit amounted to a security retainer that 8 is recognized as property owned by the client, or some other type of arrangement that 9 would not remain property of the client. See In re Dick Cepek, 339 B.R. at 736. Jones moves to strike appellees’ argument challenging the sufficiency of evidence of the 11 United States District Court Northern District of California 10 retainer. As APR raised its venue challenges before the bankruptcy court and the 12 bankruptcy court expressly noted the lack of evidence concerning the retainer, Jones’ 13 motion to strike is denied. Doc. no. 33. 14 Jones also seeks leave to submit Forge Power’s retainer agreement for the first 15 time on appeal. The court denies leave to supplement the record on the grounds that the 16 bankruptcy court did not reach the factual inquiry into the nature of the retainer to 17 determine proper venue and the matter will be REMANDED for such determination. The 18 interests of justice and efficiency would not be served by considering such evidence for 19 the first time on appeal because it will be more efficient for the bankruptcy court to rule on 20 venue with the other issues concerning the petition for recognition that were disputed by 21 the parties below, such as whether Forge Power’s Australian proceeding qualifies as a 22 foreign proceeding under Chapter 15. 23 24 25 26 27 28 and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period that the domicile, residence, principal place of business [or] principal assets in the United States, of such person were located in any other district; or (2) in which there is pending a case under Title 11 concerning such person’s affiliate, general partner or partnership. 24 CONCLUSION 1 2 For the foregoing reasons, the court holds that the debtor eligibility requirements of 3 11 U.S.C. § 109(a) apply in Chapter 15 cases and that the requirement of “property in the 4 United States” is satisfied by a security retainer that remains the property of the debtor 5 until the funds are applied by the attorney for services actually rendered. The order of 6 the bankruptcy court denying the petition for recognition is VACATED and the case is 7 REMANDED to the bankruptcy court for further proceedings consistent with this order. 8 9 10 United States District Court Northern District of California 11 IT IS SO ORDERED. Dated: February 12, 2018 __________________________________ PHYLLIS J. HAMILTON United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 25

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