Ema Garp Fund, L.P. et al v. Banro Corporation et al
Filing
40
OPINION AND ORDER re: 28 MOTION to Dismiss the First Amended Complaint filed by John A. Clarke, Banro Corporation. For the reasons stated in this Opinion, Defendants' motion to dismiss is GRANTED. The Clerk of Court is directed to terminate all pending motions, adjourn all remaining dates, and close this case. SO ORDERED. (Signed by Judge Katherine Polk Failla on 2/21/2019) (anc) Transmission to Orders and Judgments Clerk for processing.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
EMA GARP FUND and LAWRENCE LEPARD,
:
Individually and on Behalf of All Others
:
Similarly Situated,
:
:
Plaintiffs,
:
:
v.
:
:
BANRO CORPORATION and JOHN A. CLARKE, :
:
Defendants.
:
:
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18 Civ. 1986 (KPF)
OPINION AND ORDER
KATHERINE POLK FAILLA, District Judge:
The complaint in this case alleges false and misleading statements, as
well as material omissions of fact, in communications from Banro Corporation,
Inc. (“Banro,” or the “Company”), and its former CEO, John A. Clarke, to
Banro’s shareholders. Plaintiffs, who are Banro shareholders, seek
compensatory damages for violations of Sections 10(b) and 20(a) of the
Securities and Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b),
78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Banro
has recently undergone a restructuring proceeding in the Canadian court
system, and Defendants have moved to dismiss this action based on that
proceeding. For the reasons set forth in the remainder of this Opinion,
Defendants’ motion to dismiss Plaintiffs’ claims on the grounds of international
comity is granted.
BACKGROUND 1
A.
The Banro CCAA Proceeding
Banro is a public corporation headquartered in Canada and incorporated
under Canadian law. (FAC ¶ 7). On December 22, 2017, Banro commenced a
reorganization proceeding (the “Banro CCAA Proceeding”) in the Ontario
Superior Court of Justice pursuant to Canada’s Companies’ Creditors
Arrangement Act, R.S.C. 1985, c. C-36 (the “CCAA”). (Dietrich Decl. ¶¶ 2, 44).
The Court pauses to provide background information on CCAA proceedings
generally, after which it will return to the details of the Banro CCAA
Proceeding.
During a CCAA proceeding, the CCAA court appoints a licensed
insolvency trustee as a monitor (the “Monitor”), to act with fiduciary duties to
all stakeholders. (Dietrich Decl. ¶ 15). The debtor company’s management
team and board of directors generally remain in place, and the board retains
power to approve the disposition of assets, or the restructuring of the company,
subject to oversight by the Monitor. (Id. at ¶ 9). The CCAA court has the
power to grant a stay of proceedings in favor of the debtor for an initial period
of 30 days, and subsequently to extend the stay on a showing that the debtor
1
The facts set forth herein are drawn from Plaintiffs’ First Amended Complaint (the “FAC”
(Dkt. #13)), and as well a declaration submitted by Jane Dietrich in support of
Defendants’ motion to dismiss (“Dietrich Decl.” (Dkt. #31)), which declaration provides
information about Banro’s Canadian bankruptcy proceeding. The Court takes judicial
notice of the contents of the Dietrich declaration pursuant to Federal Rule of Civil
Procedure 44.1. See Fed. R. Civ. P. 44.1; see also, e.g., Oui Fin. LLC v. Dellar, No. 12
Civ. 7744 (RA), 2013 WL 5568732, at *1-2 (S.D.N.Y. Oct. 9, 2013). For convenience, the
Court will refer to Defendants’ memorandum in support of their motion to dismiss as
“Def. Br.” (Dkt. #29), Plaintiffs’ memorandum in opposition as “Pl. Opp.” (Dkt. #36), and
Defendants’ reply as “Reply Br.” (Dkt. #37).
2
has acted diligently and in good faith. (Id. at ¶ 12). The Monitor is required to
publish notice of the proceedings in the Canadian newspapers, to send notice
to every known creditor, and to make certain information about the proceeding
publicly available on a website devoted to the case. (Id. at ¶¶ 16, 19). The
Monitor also makes publicly available information about the debtor’s state of
business and financial affairs, as well as the Monitor’s advice on the
reasonableness and fairness of any proposed restructuring, the latter of which
the Canadian courts refer to as a plan of “compromise” or “arrangement.” (Id.
at ¶ 29). CCAA proceedings also have an established “E-Service Protocol” to
effect service of documents on interested stakeholders. (Id. at ¶ 20). Typically,
the CCAA court will issue a claims procedure order providing that creditors
with claims against either the debtor, or its directors and officers, must file
proof of claims by a specified date (the “Bar Date”), or the potential claims may
be extinguished. (Id. at ¶ 23). The CCAA court will then hold a creditor
meeting where the plan of compromise or arrangement must be approved by a
vote, whereupon it may be approved, or “sanctioned,” by the court. (Id. at
¶ 30).
CCAA proceedings have particular rules for equity claims. “[C]reditors
having equity claims are to be in the same class of creditors in relation to those
claims unless the court orders otherwise and may not, as members of that
class, vote at any meeting unless the court orders otherwise.” CCAA § 22.1.
Under the CCAA, an “equity claim means a claim that is in respect of an equity
interest, including a claim for, among others … a monetary loss resulting from
3
the ownership, purchase or sale of an equity interest or from the rescission, or,
in Quebec, the annulment, of a purchase or sale of an equity interest[.]” Id.
§ 2(1). No plan may be sanctioned by the CCAA court if it provides for the
payment of any equity claims before all non-equity claims are paid in full. See
id. § 6(8). Shareholder claims are equity claims, even where based on
allegations of fraudulent misrepresentation. (Dietrich Decl., Ex. 9).
CCAA proceedings also explicitly provide for claims against the individual
directors of the debtor company. See CCAA § 5.1(1) (“A compromise or
arrangement made in respect of a debtor company may include in its terms
provision for the compromise of claims against directors of the company that
arose before the commencement of proceedings under this Act and that relate
to the obligations of the company where the directors are by law liable in their
capacity as directors for the payment of such obligations.”). Finally, CCAA
proceedings provide mechanisms for appeal. (Dietrich Decl. ¶ 38).
Returning to the specifics of the Banro CCAA Proceeding, on
December 22, 2017, the CCAA court issued an initial order staying all claims.
(Dietrich Decl. ¶¶ 44, 45). The stay was ultimately extended until May 3, 2018.
(Id. at ¶ 45). Meanwhile, the CCAA court issued a Bar Date deadline of
March 6, 2018, for the filing of any claims against Banro. (Id. at ¶ 59). No
claims were received from Plaintiffs (or any others) by the March 6, 2018 Bar
Date. (Id. at ¶ 63). The CCAA court then considered a proposed reorganization
plan that, among other things, exchanged secured debt for equity and
extinguished the interests of Banro’s current equity holders. (Id. at ¶ 65). The
4
reorganization plan also provided releases for both the Banro debtors and their
directors and officers. (Id. at ¶ 67). The Banro debtors held two meetings of
creditors, at which the creditors overwhelmingly approved the proposed
reorganization plan. (Id. at ¶ 55). The CCAA court then issued a sanction
order (the “Sanction Order”) approving the reorganization plan on March 27,
2018, specifically finding that the releases provided for the Banro directors and
officers were fair and reasonable. (Id. at ¶¶ 57, 68).
B.
Plaintiffs’ Awareness of the Banro CCAA Proceeding
Plaintiffs concede that they were aware of the CCAA Proceeding. (Def.
Br. 9; FAC ¶ 99). However, rather than participate in that proceeding, they
commenced this action by filing a complaint on March 5, 2018, one day prior
to the Bar Date deadline. (Dkt. #1). Plaintiffs maintain that they “did not
discover the facts which gave rise to their claims until the eve of the filing, and
immediately filed the action in this Court without delay and prior to the claims
deadline in the CCAA proceeding as a courtesy to the Canadian court.” (Pl.
Opp. 24 (underscoring in original)). Defendants reply that, at the time
Plaintiffs commenced this action on March 5, 2018, there was still time to
participate in the CCAA Proceeding. (Def. Reply 4).
The record bears out Defendants’ position. On March 6, 2018, Plaintiffs’
counsel informed the Banro Monitor that Plaintiffs had commenced the present
action in this Court. (Dietrich Decl. ¶ 77, Ex. 23). Banro’s bankruptcy counsel
then told Plaintiffs’ counsel that a hearing on the reorganization plan pending
before the CCAA court had been rescheduled for March 27, 2018, providing
5
Plaintiffs an additional opportunity to participate in the Banro CCAA
Proceeding. (Id. at ¶ 80, Ex. 26). Nonetheless, Plaintiffs did not appear in the
CCAA Proceeding. (Id. at ¶ 83). Plaintiffs assert that both the Banro Monitor
and Banro wrote to tell Plaintiffs that their letter dated March 6, 2018, was
“improper and advis[ed] Plaintiffs they would have to engage Canadian counsel
to appear in the action.” (Pl. Opp. 25; see also Dietrich Decl. ¶ 77, Ex. 26).
On March 27, 2018, the CCAA court issued the Sanction Order, which
released all equity claims, including Plaintiffs’ claims. (Dietrich Decl. ¶¶ 57,
84-85). Specifically, the CCAA court extinguished Plaintiffs’ claims against
Banro as pre-petition equity claims, and extinguished Plaintiffs’ claims against
Clarke as “barred … because of non-compliance with the Claims Procedure
Order.” (Id. at Ex. 18 ¶ 11(g); Def. Reply 6). On May 3, 2018, the CCAA court
terminated the stay. (Dietrich Decl. ¶¶ 45, 58).
C.
The Instant Motion
On May 18, 2018, Defendants moved to dismiss this action on the basis
of comity. (Dkt. #28). Plaintiffs filed their opposition on July 8, 2018 (Dkt.
#36), and Defendants replied on July 16, 2018 (Dkt. #37).
DISCUSSION
A.
Applicable Law
1.
Motions to Dismiss Under Federal Rule of Civil Procedure
12(b)(1)
In considering a Rule 12(b)(1) motion to dismiss, “the court must take all
facts alleged in the complaint as true and draw all reasonable inferences in
favor of plaintiff.” Natural Res. Def. Council v. Johnson, 461 F.3d 164, 171 (2d
6
Cir. 2006). The Court “may consider affidavits and other materials beyond the
pleadings to resolve [a] jurisdictional issue[.]” J.S. ex rel. N.S. v. Attica Cent.
Sch., 386 F.3d 107, 110 (2d Cir. 2004); see also Kramer v. Time Warner, Inc.,
937 F.2d 767, 774 (2d Cir. 1991) (observing that “courts routinely take judicial
notice of documents filed in other courts”); Lefkowitz v. Bank of N.Y., 676 F.
Supp. 2d 229, 249 (S.D.N.Y. 2009) (“Judicial notice may encompass the status
of other lawsuits, including in other courts, and the substance of papers filed
in those actions.”). Sister courts in this District have considered discretionary
motions to dismiss on international comity grounds under Rule 12(b)(1). See,
e.g., Duff & Phelps, LLC v. Vitro S.A.B. de C.V., 18 F. Supp. 3d 375, 377
(S.D.N.Y. 2014); United States v. Portrait of Wally, No. 99 Civ. 9940 (MBM),
2002 WL 553532, at *6 (S.D.N.Y. Apr. 12, 2002).
2.
Deference to International Bankruptcy Proceedings
International comity is “the recognition which one nation allows within
its territory to the legislative, executive or judicial acts of another nation,
having due regard both to international duty and convenience, and to the
rights of its own citizens or of other persons who are under the protection of its
laws.” Hilton v. Guyot, 159 U.S. 113, 164 (1895). In Allstate Life Insurance
Company v. Linger Group Limited, the Second Circuit affirmed the dismissal, on
international comity grounds, of two actions for violations of the U.S. federal
securities laws. 994 F.2d 996, 998 (2d Cir. 1993). In its opinion, the Second
Circuit also provided guidance for district courts in determining when such
dismissals are proper.
7
To start, the party seeking dismissal bears the burden of proving that
comity is appropriate. 994 F.2d at 999. The Allstate Court observed that
“comity is particularly appropriate where, as here, the court is confronted with
foreign bankruptcy proceedings.” Id. (internal citation and quotation marks
omitted). Courts considering whether a foreign bankruptcy proceeding
warrants comity should first undertake a multi-factor analysis to determine
whether the foreign court satisfies fundamental standards of procedural
fairness. See id. If it does, courts should then determine whether affording
comity would “violate any laws or public policies of the United States.” Id. at
1000. Where “the granting of comity to a Foreign bankruptcy proceeding
enables the assets of a debtor to be dispersed in an equitable, orderly, and
systematic manner, rather than in a haphazard, erratic or piecemeal fashion,
comity has long been recognized as appropriate.” Id. (internal citation and
quotation marks omitted).
Of course, discretionary dismissal on grounds of international comity has
its limits, which are especially clear in contexts other than foreign bankruptcy
proceedings. For example, in Royal & Sun Alliance Insurance Company of
Canada v. Century International Arms, Inc., the Second Circuit vacated the
dismissal of an action on international comity grounds where the foreign
proceeding at issue was not a bankruptcy proceeding, and where it concerned
a different (though affiliated) defendant. 466 F.3d 88, 91, 94-95 (2d Cir. 2006).
The Second Circuit explained that comity abstention “is not an imperative
obligation of courts but rather is [] discretionary,” and the “mere existence of
8
parallel foreign proceedings does not negate the district courts’ ‘virtually
unflagging obligation ... to exercise the jurisdiction given them.’” Id. at 92
(quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800,
817 (1976)). In that same opinion, however, the Second Circuit
recognized one discrete category of foreign litigation that
generally requires the dismissal of parallel district court
actions — foreign bankruptcy proceedings. A foreign
nation’s interest in the equitable and orderly
distribution of a debtor’s property is an interest
deserving of particular respect and deference, and
accordingly we have followed the general practice of
American courts and regularly deferred to such actions.
Id. at 92-93 (internal citation and quotation marks omitted); see also JP
Morgan Chase Bank v. Altos Hornos de Mex., S.A. de CV, 412 F.3d 418, 424 (2d
Cir. 2005) (“[The Second Circuit has] repeatedly held that U.S. courts should
ordinarily decline to adjudicate creditor claims that are the subject of a foreign
bankruptcy proceeding…. In such cases, deference to the foreign court is
appropriate so long as the foreign proceedings are procedurally fair and … do
not contravene the laws or public policy of the United States.”); Victrix S.S. Co.,
S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 713 (2d Cir. 1987) (“American
courts have long recognized the particular need to extend comity to foreign
bankruptcy proceedings.”).
B.
Analysis
1.
The Court Dismisses Plaintiffs’ Claims Against Banro
Defendants argue that the Court should dismiss this action, on the
grounds of international comity, because it was filed during the Banro CCAA
Proceeding. (Def. Br. 1-2). The Court agrees. Applying the standard that the
9
Second Circuit first articulated in Allstate, and later reaffirmed in Royal & Sun
Alliance and JP Morgan Chase, the Court begins by considering whether the
Banro CCAA Proceeding satisfied fundamental standards of procedural
fairness.
a.
The Banro CCAA Proceeding Satisfied Fundamental
Standards of Procedural Fairness
The Second Circuit has instructed courts considering deference to
international bankruptcy proceedings to assess “several factors as indicia of
procedural fairness,” including:
(1) [W]hether creditors of the same class are treated
equally in the distribution of assets; (2) whether the
liquidators are considered fiduciaries and are held
accountable to the court; (3) whether creditors have the
right to submit claims which, if denied, can be
submitted to a bankruptcy court for adjudication;
(4) whether the liquidators are required to give notice to
the debtors’ potential claimants; (5) whether there are
provisions for creditors’ meetings; (6) whether a foreign
country’s insolvency laws favor its own citizens;
(7) whether all assets are marshalled before one body
for centralized distribution; and (8) whether there are
provisions for an automatic stay and for the lifting of
such stays to facilitate the centralization of claims.
Allstate, 994 F.2d at 999.
Defendants argue that the Banro CCAA Proceeding satisfied fundamental
standards of procedural fairness because it “treat[ed] creditors equally within
separate classes; provide[d] for a Monitor, satisfying the fiduciary requirement;
permit[ted] creditors to submit claims and appeal denials of those claims;
provide[d] for creditors’ meetings; and provide[d] a court-imposed stay[,]” as
well as provided notice to the public of the proceedings. (Def. Br. 14-15;
10
Dietrich Decl. ¶¶ 8-40). Further, Defendants contend that the Banro CCAA
Proceeding was fair as to Plaintiffs specifically because “Plaintiffs had ample
knowledge of: (i) the ongoing nature of the CCAA Proceedings; (ii) the stay
imposed by the Canadian Court; (iii) the claims and Plan objection procedures
available to them; and (iv) the hearing on the Sanction Order, which was to
address the extinguishment of their claims.” (Def. Br. 15 (citing Dietrich Decl.
¶¶ 74, 81)). The Court agrees with Defendants that, for these reasons, the
Banro CCAA Proceeding satisfied fundamental standards of procedural
fairness.
Plaintiffs’ piecemeal approach to rebutting this determination is not
persuasive. To start, Plaintiffs assert that “no parallel proceeding exists at
present and that Plaintiffs’ claim cannot and will not be adjudicated on the
merits in any Canadian proceeding.” (Pl. Opp. 6 (emphasis added)). Relying on
the fact that the Canadian restructuring plan did not mention Plaintiffs or their
claims until after this action was commenced, Plaintiffs conclude that the
Sanction Order extinguishing Plaintiffs’ claims resulted entirely from steps
taken by Defendants after this action had been filed. (Id. at 7, 20). In
Plaintiffs’ estimation, Defendants’ motion effectively seeks “the recognition of
the Sanction Order they obtained in response to this action extinguishing
Plaintiffs’ claims.” (Id. at 8).
In contrast, Defendants insist — correctly — that the Banro CCAA
Proceeding was a parallel proceeding because it was “a forum in which
Plaintiffs could have and should have pursued their claims.” (Def. Reply 4).
11
“[T]he Banro Debtors obtained a Claims Procedure Order, which called for
claims against Banro and its directors and officers to be filed in the CCAA
Proceedings.” (Id. (citing Dietrich Decl. ¶¶ 59-64)). The fact that Plaintiffs
chose not to participate does not alter this conclusion, as complete parity of
parties and issues is not a required condition of extending comity. See, e.g.,
Allstate, 994 F.2d at 999; Royal & Sun Alliance, 466 F.3d at 94 (“For two
actions to be considered parallel, the parties in the actions need not be the
same, but they must be substantially the same, litigating substantially the
same issues in both actions”). Defendants also contest Plaintiffs’ assertion that
the Sanction Order’s bar of Plaintiffs’ claims arose from steps taken by
Defendants after the commencement of this action. As Defendants point out,
Plaintiffs’ claims are pre-petition because they “arise from events predating
Banro’s CCAA filing.” (Def. Reply 6 n.4). And “as pre-petition ‘equity claims,’
[Plaintiffs’] claims against Banro were extinguished under the Plan from the
start.” (Id. at 6). Therefore, the Banro CCAA Proceeding was a parallel
proceeding that extinguished Plaintiffs’ claims independent of any conduct
taken by Defendants after the filing of this action.
Plaintiffs’ next challenge fares no better. Plaintiffs argue that the stay
issued in the Banro CCAA Proceeding did not apply to them because, as they
never filed a claim in that proceeding, the Canadian court lacked personal
jurisdiction over them. (Pl. Opp. 7, 13-14). Plaintiffs note as well that
Defendants “failed to file stay or recognition proceedings of the CCAA
Proceeding in the US[.]” (Id. at 9, 25). Defendants respond, and the Court
12
agrees, that the Canadian court’s lack of personal jurisdiction over Plaintiffs is
irrelevant to this Court’s comity determination. (Def. Reply 5). So too is the
fact that Defendants did not file a recognition proceeding in U.S. court. See,
e.g., Allstate, 994 F.2d at 999; Victrix, 825 F.2d at 714. Defendants were under
no obligation to file anything in U.S. courts in order to earn for the Canadian
courts “the recognition which one nation allows within its territory to the
legislative, executive or judicial acts of another nation.” Hilton, 159 U.S. at
164.
Nor is the Court persuaded by Plaintiffs’ argument that dismissal would
cause them undue prejudice because “it would deprive them of any avenue for
relief of their claims in any forum whatsoever.” (Pl. Opp. 19). Plaintiffs assert
that the reason they are barred from seeking relief in Canada “is Defendants’
actions in response to the filing of this action.” (Id. at 20). On that basis,
Plaintiffs conclude that the balance of equities favors this Court’s exercise of
jurisdiction over their claims. (Id. at 24).
Plaintiffs’ argument as to prejudice is curious. As Defendants point out,
it was Plaintiffs’ choice not to participate in the Banro CCAA Proceeding. (Def.
Reply 8). The final hearing on the Sanction Order was even adjourned in order
to provide Plaintiffs with additional time to review and object to the
reorganization plan, which they declined to do. (Def. Br. 15). Moreover, the
equities favor Defendants because Plaintiffs have, in effect, engaged in forumshopping by electing to file an action in this Court in lieu of filing a claim in the
Banro CCAA Proceeding. The Court is not convinced by Plaintiffs’ response
13
that they had a right to file this action in a U.S. court, and thus any preference
as to forum should not be deemed an attempt “to end-run anything.” (Pl.
Opp. 20). Plaintiffs had ample opportunity to litigate their claims in the Banro
CCAA Proceeding fully and fairly, and cannot now claim prejudice resulting
from their own choice not to do so.
Finally, Plaintiffs misstate the standard in this Circuit for courts
considering international comity extension in regard to foreign bankruptcy
proceedings. Plaintiffs contend that no “‘exceptional circumstances’ warranting
dismissal in favor of a foreign insolvency proceeding are presented in this
matter[.]” (Pl. Opp. 8). But the “exceptional circumstances” standard applies
when courts consider extending comity to foreign proceedings other than
foreign bankruptcy proceedings. See, e.g., Royal & Sun Alliance, 466 F.3d at
93-94. Here, the Allstate factors apply, which, as stated above, favor dismissal.
The Court is comforted in its analysis by the fact that prior courts in this
Circuit have also found that CCAA proceedings satisfy fundamental standards
of procedural fairness. See, e.g., In re Metcalfe & Mansfield Alternative Invs.,
421 B.R. 685, 698-99 (Bankr. S.D.N.Y. 2010); E&L Consulting, Ltd. v. Doman
Indus. Ltd., 360 F. Supp. 2d 465, 470 (E.D.N.Y. 2005); Tradewell, Inc. v. Am.
Sensors Elecs., Inc., No. 96 Civ. 2474 (DAB), 1997 WL 423075, at *4 (S.D.N.Y.
July 29, 1997). “Canada is ‘a sister common law jurisdiction with procedures
akin to our own,’ and thus there need be no concern over the adequacy of the
procedural safeguards of Canadian proceedings.” Cornfield v. Investors
14
Overseas Servs., Ltd., 471 F. Supp. 1255, 1259 (S.D.N.Y. 1979) (quoting
Clarkson Co., Ltd. v. Shaheen, 544 F.2d 624, 630 (2d Cir. 1976)).
The Court finds that the Banro CCAA Proceeding satisfied fundamental
standards of procedural fairness.
b.
Dismissal of the Action Would Not Violate U.S. Law or
Public Policy
“American courts have consistently recognized the interest of foreign
courts in liquidating or winding up the affairs of their own domestic business
entities.” Allstate, 994 F.2d at 999 (internal citation and quotation marks
omitted). Defendants argue that doing so here would not contravene U.S. law
or public policy. The Court agrees. As Defendants rightly assert, “deference to
foreign proceedings is necessary … to prevent disgruntled members of an outof-the-money constituency from circumventing and contravening the
procedures and rulings of the court overseeing the process in which all other
creditors and claimants are participating.” (Def. Br. 17). 2
The fact that Plaintiffs’ claims arise under U.S. securities law, as opposed
to the U.S. bankruptcy code, does not alter the Court’s analysis. In DiRenzo v.
Philip Services Corporation, the Second Circuit found that differences between
Canadian and U.S. securities law do not necessarily render Canadian courts
inadequate forums. 232 F.3d 49, 58-60 (2d Cir. 2000), vacated on other
2
Defendants analogize to the issue of enforcement of foreign judgments, which the
Second Circuit has held are “unenforceable as against public policy [only] to the extent
that [they are] repugnant to fundamental notions of what is decent and just in the State
where enforcement is sought.” Ackermann v. Levine, 788 F.2d 830, 841 (2d Cir. 1986)
(internal citation and quotation marks omitted). Granting comity to the Banro CCAA
Proceeding is so far from repugnant that the observation hardly merits comment.
15
grounds, 294 F.3d 21 (2d Cir. 2002). Here, the CCAA Proceeding provided an
adequate forum for Plaintiffs to raise the claims asserted in this action.
In sum, as the Banro CCAA Proceeding was a parallel proceeding that
satisfied fundamental standards of procedural fairness, and as dismissal would
not violate U.S. law or public policy, the Court exercises its discretion to
dismiss Plaintiffs’ claims against Banro on international comity grounds.
2.
The Court Dismisses Plaintiffs’ Claims Against Clarke
Defendants argue as well for dismissal of Plaintiffs’ claims against
Banro’s former CEO, Defendant Clarke, based on principles of international
comity. (Def. Br. 20). Once again, Defendants rely on Allstate, in which the
Second Circuit affirmed the dismissal of securities fraud claims against
individual defendants, reasoning:
[I]t would have been inefficient and inequitable to
permit the individual claims to go forward. Indeed,
since these individuals were sued solely because of their
affiliation with the [bankrupt] companies, to allow these
claims to go forward in the United States despite the
dismissal as to the [bankrupt] companies would defeat
the purpose of granting comity in the first place.
994 F.2d at 1000. Similarly, Defendants argue that, here, “the claims against
Clarke relate to his role as CEO of Banro prior to its insolvency, and should
have been resolved as part of the CCAA Proceedings,” and that “allowing
litigation to proceed against Clarke” would interfere with the implementation of
the CCAA-sanctioned reorganization plan. (Def. Br. 21). Specifically,
Defendants argue that Clarke is “closely intertwined” with the Banro
restructuring because the claims against Clarke and the claims against Banro
16
both involve allegations of statements that Clarke made as Banro’s CEO. (Id.
at 20-21). Further, without the CCAA court’s release of Clarke’s individual
liability, the CCAA reorganization plan would not have been accepted by the
necessary interested parties. (Id. at 22).
The Court agrees with Defendants. The CCAA court established
procedures for filing claims against Clarke, and the restructuring plan that was
voted on, approved, and sanctioned by that court included a release of those
claims. (Dietrich Decl. ¶¶ 52, 60, 61, 68). “[T]hese releases were required
under the terms of the Support Agreement Banro reached with its primary
creditors and were an integral part of the Plan.” (Def. Reply 9). Accordingly,
permitting Plaintiffs’ claims against Clarke to proceed in this Court would
interfere with the outcome of the Banro CCAA Proceeding and defeat the
purpose of granting comity to the Canadian court.
The Court observes that the Second Circuit has previously affirmed the
dismissal of fraud claims against individual defendants pursuant to a grant of
international comity to a foreign bankruptcy proceeding. See Allstate, 994 F.2d
at 1000. Moreover, in Oui Financing LLC v. Dellar, a sister court in the
Southern District of New York dismissed claims against an individual nondebtor guarantor, on the basis of international comity and deference to a
foreign bankruptcy proceeding, where the individual was president and
shareholder of the entity undergoing restructuring, and where permitting the
plaintiff “to obtain a judgment against him in this Court would very likely
interfere with the implementation of the recently-adopted safeguard plan.” Oui
17
Financing LLC v. Dellar, No. 12 Civ. 7744 (RA), 2013 WL 5568732, at *11
(S.D.N.Y. Oct. 9, 2013). 3
Plaintiffs attempt, unsuccessfully, to distinguish these precedents. As to
Allstate, Plaintiffs seek to distinguish on the basis that, here, failing to grant
comity to the individual corporate officer, Clarke, would not defeat the purpose
of granting comity to the corporate debtor. (Pl. Opp. 23). Plaintiffs go so far as
to argue that not granting comity to Clarke “would have absolutely no impact
on Banro whatsoever.” (Id.). The Court has already rejected this conclusion,
finding instead that permitting claims to proceed against Clarke in this Court
would directly contravene the CCAA reorganization plan, which released those
claims, and thus interfere with the purpose of granting comity in the first
place. As to Oui Financing, Plaintiffs seek to distinguish on the basis that Oui
Financing involved a judgment against a current president of the debtor, and
involved the possibility of only minimal prejudice because the reorganization
plan in that case included repayment of the plaintiffs’ loan and the plaintiffs
had “affirmatively participated in the foreign proceeding.” (Id. at 22). In
contrast, Plaintiffs point out that Clarke is a former CEO of Banro, and contend
that they face substantial prejudice because there is no plan to compensate
them and they did not affirmatively participate in the Banro CCAA Proceeding.
3
The French law at issue in the international proceeding to which the Oui Financing
court deferred “operate[d] to stay actions against individual guarantors as well as the
debtor itself and … [once the reorganization plan was approved,] provide[d] that
creditors may not seek redress against [the individual] outside the plan’s terms.” Oui
Financing LLC v. Dellar, No. 12 Civ. 7744 (RA), 2013 WL 5568732, at *11 (S.D.N.Y.
Oct. 9, 2013). In Oui Financing, dismissal resulted in minimal prejudice to the plaintiff
because the foreign reorganization plan “provide[d] for repayment of its loan.” Id. at
*12.
18
(Id.). Defendants reply, and the Court agrees, that Clarke’s status at the time
of the alleged misconduct is what matters, at which point he was the current
CEO of Banro. (Def. Reply 10). Moreover, Plaintiffs cannot complain of
prejudice that flows from their strategic decision not to participate in the CCAA
Proceeding.
Plaintiffs argue against the dismissal of their claims against Clarke on a
separate basis: They reason that because Clarke is not a party to, and did not
appear in, the Banro CCAA Proceeding, “there is no parallel proceeding in
Canada for the claims asserted in this action against Clarke.” (Pl. Opp. 21).
Plaintiffs contest Clarke’s assertion that, just because their claims against
Banro and Clarke arise from overlapping facts, a failure to dismiss him would
“interfere with the implementation” of the CCAA reorganization plan. (Id.). And
they argue that there is no support for the Court “to find any relationship
between the restructuring of Banro and Clarke.” (Id.). Plaintiffs also repeat
their argument that the Canadian court lacked jurisdiction over their claims
against Clarke, whom Plaintiffs argue is personally liable because his
statements sound in fraud and “fraud is not within the scope of one’s
employment[.].” (Id. at 6). Once again, the Court is not persuaded. That the
claims against Clarke sound in fraud does not alter the fact that the Banro
CCAA Proceeding was the proper, procedurally fair forum for Plaintiffs’ claims.
And permitting the claims to proceed against Clarke in this Court would
undoubtedly interfere with the implementation of the CCAA reorganization plan
because that plan encompassed a release of claims against Clarke.
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For the reasons above, Plaintiffs’ claims against Clarke are dismissed.
CONCLUSION
For the reasons stated in this Opinion, Defendants’ motion to dismiss is
GRANTED. The Clerk of Court is directed to terminate all pending motions,
adjourn all remaining dates, and close this case.
SO ORDERED.
Dated:
February 21, 2019
New York, New York
__________________________________
KATHERINE POLK FAILLA
United States District Judge
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