In Re: Platinum Partners Value Arbitrage Intermediate Fund Ltd.

Filing 21

OPINION AND ORDER....The June 12, 2018 motion for a stay pending appeal of the bankruptcy courts April 17, 2018 Order is denied. (Signed by Judge Denise L. Cote on 6/29/2018) (gr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------X
:
In Re: PLATINUM PARTNERS VALUE
:
ARBITRAGE FUND L.P. (IN OFFICIAL
:
LIQUIDATION), et al.
:
:
Debtors in Foreign :
Proceedings.
:
:
--------------------------------------- :
:
COHNREZNICK LLP,
:
:
:
Appellant,
:
:
-v:
:
FOREIGN REPRESENTATIVES OF PLATINUM
:
PARTNERS VALUE ARBITRAGE FUND L.P. (IN :
OFFICIAL LIQUIDIATION) and FOREIGN
:
REPRESENTATIVES OF PLATINUM PARTNERS
:
VALUE ARBITRAGE FUND (INTERNATIONAL)
:
LIMITED (IN OFFICIAL LIQUIDATION),
:
:
Appellees.
:
:
--------------------------------------- X

OPINION AND ORDER

18cv5176 (DLC)

APPEARANCES:
For the appellant:
David M. Cheifetz
James Lawrence Bernard
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
For appellee Foreign Representatives of Platinum Partners Value
Arbitrage Fund (International) Limited (In Official
Liquidation):
Bruce R. Grace
Jack B. Gordon
Lewis Baach Kaufmann Middlemiss PLLC
1899 Pennsylvania Ave., NW, Suite 600
Washington, DC 20006

For appellee Foreign Representatives of Platinum Partners Value
Arbitrage Fund L.P. (In Official Liquidation):
Warren E. Gluck
Barbra R. Parlin
Holland & Knight LLP
31 West 52nd Street
New York, New York 10019
DENISE COTE, District Judge:
This appeal arises out of the liquidations of a hedge fund
incorporated in the Cayman Islands, Platinum Partners Value
Arbitrage Fund L.P. (the “Master Fund”) and its feeder funds,
Platinum Partners Value Arbitrage Fund (International) Limited
(the “International Fund”), and Platinum Partners Value
Arbitrage Fund Ltd. (“Intermediate Fund,” and, collectively, the
“Funds”).

A former auditor of the Funds, CohnReznick LLP

(“CohnReznick”), has made a motion under Rule 8007(b), Fed. R.
Bankr. P., for a stay pending appeal of an order of the
bankruptcy court requiring its compliance with a subpoena in a
Chapter 15 bankruptcy proceeding.

For the following reasons,

the motion for a stay pending appeal is denied.
The facts of this appeal are exhaustively discussed in the
bankruptcy court’s thorough and well-reasoned opinion, In re
Platinum Partners Value Arbitrage Fund L.P. (In Official
Liquidation), 583 B.R. 803 (Bankr. S.D.N.Y. 2018) (“April
Order”), and therefore this decision describes only those facts
particularly relevant here.

Each of the three Funds is

organized under the laws of the Cayman Islands and was managed
2

by Platinum Management (NY) LLC (“Platinum Management”), which
is headquartered in New York.

In August 2016, following their

failure to honor redemption requests from investors in a timely
manner, the Master Fund and International Fund were placed into
liquidation by order of the Grand Court of the Cayman Islands.
On October 18, 2016, two months after the liquidations
began, the court-appointed liquidators of the Master Fund and
International Fund (“Liquidators”) sought recognition of the
Cayman Islands liquidation proceedings for the two Funds in this
district’s bankruptcy court as foreign main proceedings under
Chapter 15 of the Bankruptcy Code.

The bankruptcy court

consolidated the two cases on October 25, 2016, and on November
22, 2016, without objection, granted recognition of the two
liquidations as foreign main proceedings.1
On December 14, 2016, a federal grand jury in the Eastern
District of New York indicted certain senior executives of
Platinum Management on charges of conspiracy, securities fraud,
investment advisor fraud, and wire fraud in connection with
their management of the Funds.

On December 19, 2016, the

Securities and Exchange Commission (“SEC”) filed a complaint

The Intermediate Fund was placed into liquidation in the Cayman
Islands in 2017. Its Chapter 15 proceeding was consolidated
with the other Platinum Partners proceedings on September 7,
2017, and its Cayman Islands liquidation was recognized as a
foreign main proceeding on October 12, 2017.
1

3

against Platinum Management and the indicted individuals seeking
relief for their allegedly fraudulent activities.

The indicted

individuals have apparently asserted their Fifth Amendment
rights when questioned in proceedings concerning Funds-related
matters.
Under Cayman Islands law, the Liquidators are obligated to
collect, realize, and distribute the assets of the Funds, and
are empowered to investigate the promotion, business, dealings,
and affairs of the Funds, including the causes of their failure.
Pursuant to the bankruptcy court’s November 22, 2016 recognition
order, the Liquidators were authorized to “examine witnesses,
take evidence, and seek the production of documents within the
territorial jurisdiction of the United States concerning the
assets, affairs, rights, obligations or liabilities of the
[f]unds, the [f]unds affiliates and the [f]unds subsidiaries.”
Appellant CohnReznick is a New York City firm that provides
accounting, assurance, tax, and business advisory services.
CohnReznick was engaged to provide audit services to the Funds
for their last two full years of activity: 2014 and 2015.
CohnReznick provided an audit letter for the 2014 year, but its
services were terminated prior to the completion of the 2015
audit.

CohnReznick was responsible for auditing roughly $1.2

billion in assets managed by the Funds.

4

The engagement letters between each Fund and CohnReznick
contain an arbitration clause (“Arbitration Clause”), which
reads in relevant part:
Any dispute, controversy, or claim arising out of or
relating to the services or the performance or breach
of the Agreements (including disputes regarding the
validity or enforceability of this Agreement) or in
any prior services or agreements between the parties
shall be finally resolved by arbitration in accordance
with the International Institute for Conflict
Prevention and Resolution (“IICPR”) Rules for NonAdministered Arbitrations . . . . Such arbitration
shall be binding and final. In agreeing to
arbitration, the parties acknowledge that in the event
of any dispute (including a dispute over fees) the
parties are giving up the right to have the dispute
decided in a court of law before a judge or jury and
instead the parties are accepting the use of
arbitration for resolution.
(Emphasis supplied.)

The engagement letters also provide that

they are to be governed by New York law.
As part of the investigation into the affairs of the Funds,
the Liquidators sought documents from CohnReznick regarding its
work for the Funds.

Although CohnReznick produced some

documents (described as the property of the Funds), it did not
provide others, including its workpapers for the engagement.
August 31, 2017, the International Fund liquidators served a
subpoena upon CohnReznick.2

The subpoena sought, among other

things, engagement documents, communications, representations,

The Master Fund Liquidators consented to the issuance of the
subpoena by the International Fund Liquidators.
2

5

On

invoices, and workpapers (collectively, “Workpapers”).

After

negotiations over the scope of the subpoena failed, on January
25, 2018, the International Fund Liquidators filed a motion to
compel, in which the Master Fund Liquidators joined.

The

bankruptcy court, after full briefing and oral argument, issued
the April Order granting the motion to compel on April 17, 2018.
583 B.R. 803.
On May 1, CohnReznick timely filed a notice of appeal.

In

its May 15 Statement of Issues on Appeal, CohnReznick asserts
that the “central” issue is:
Whether a foreign debtor’s representatives can use
chapter 15 for wide-ranging discovery to investigate
potential claims against a U.S. entity where the
foreign representatives
(i) are bound by the debtor’s agreements with the U.S.
entity to arbitrate any such claims under rules
providing for only limited discovery and
(ii) lack the power under the laws of their home
jurisdiction to take the requested discovery.
At a conference on May 23, which followed another round of
briefing and oral argument, the bankruptcy court denied motions
by CohnReznick to stay the April Order and to certify the order
for direct appeal to the Second Circuit.

In re Platinum

Partners Value Arbitrage Fund L.P., No. 16-12925-SCC, Dkt. 88
(Bankr. S.D.N.Y. May 23, 2018) (“Stay Opinion”).
were memorialized in two orders dated May 31.

6

Those rulings

In the Stay Opinion, the bankruptcy court addressed the
four factors relevant to whether a stay should be granted
pending appeal. On irreparable harm, the bankruptcy court found
“that any potential harm to CohnReznick in proceeding with
discovery while its appeal is pending fails to overcome the
weight of the other three factors,” and that, “as a practical
matter, this circumstance is no different from many other
situations in which a stay is requested to free a party from
doing something it maintains it should not be required to do or
to be affected by.”

Id. at 96-97.

On potential harm to other

parties, the bankruptcy court said that “[w]ere a stay to be
imposed, the Liquidators’ ability to timely administer the
liquidation of the Funds would be affected,” and that
CohnReznick’s arguments for lack of harm to the Liquidators were
either “patently untrue” or “without any basis of fact.”
97-98.

Id. at

It further found that “the Master Fund Liquidators have

a need for CohnReznick’s audit workpapers in pursuing their
wide-ranging investigation into the alleged one-billion-dollar
fraud involving approximately one billion dollars in assets that
were audited by CohnReznick directly before the commencement of
the Funds’ liquidation proceedings.”

Id. at 99.

On substantial

probability of success on appeal, the bankruptcy court concluded
that CohnReznick “has failed to demonstrate a substantial
possibility of success on appeal.”

7

Id. at 102.

Finally, with

respect to the public interest, the bankruptcy court decided
that “[t]he public interest here is best served by requiring
compliance with the discovery order and permitting the
Liquidators to continue their investigation unfettered so that
they may pursue timely claims on behalf of creditors of the
funds prior to the running of applicable statutes of
limitations.”

Id. at 103-04.

The bankruptcy court declined to

set a schedule for production, however, “because CohnReznick was
not given notice” of the Liquidators request, and because the
bankruptcy court did not “want to be perceived as in any way
pressuring the decision of whatever court you go to next.”
The appeal from the April Order was assigned to this Court
on June 8.

A June 11 Order set a briefing schedule, requiring

all briefing on the merits appeal to be completed by July 16.
On June 12, the parties each filed letters addressing a
contemplated motion to stay the effect of the April Order
pending appeal.

A June 13 Order directed the filing of

simultaneous briefs on June 18 and set oral argument on the
motion to stay for June 20.3
At the June 20 conference, the parties agreed to further
expedite briefing on the appeal on the merits from the April

No motion has been made in this Court for certification of a
direct appeal to the Second Circuit Court of Appeals.
3

8

Order.

The briefing on the merits is fully submitted today and

an Order of today denies the appeal.
At the June 20 conference, the Court ordered CohnReznick
immediately to begin to prepare for production of the Workpapers
so that there would be no delay should the bankruptcy court set
a deadline for that production.

CohnReznick represented that a

partial production could begin immediately and the production
could be substantially complete within two weeks of the June 20
conference.

Pursuant to the parties’ submissions to the

bankruptcy court on June 21 and June 22, 2018, the bankruptcy
court recently set a deadline of July 16, 2018 for the
production of the Workpapers.
DISCUSSION
The legal standard for granting a stay pending appeal of a
bankruptcy court order requires application of the familiar
four-factor test:
(1) whether the stay applicant has made a strong
showing that he is likely to succeed on the merits;
(2) whether the applicant will be irreparably injured
absent a stay;
(3) whether issuance of the stay will substantially
injure the other parties interested in the proceeding;
and
(4) where the public interest lies.
Nken v. Holder, 556 U.S. 418, 426 (2009); see also In re
World Trade Center Disaster Site Litig., 503 F.3d 167, 170

9

(2d Cir. 2007).

The Second Circuit has held that these

criteria should be applied “somewhat like a sliding scale
. . . more of one excuses less of the other.”

Thapa v.

Gonzales, 460 F.3d 323, 334 (2d Cir. 2006) (citation
omitted).4

The burden of establishing entitlement to a stay

rests with the appellant.

Nken, 556 U.S. at 433-34.

Each

of the Nken factors will be addressed in turn.
I.

Likelihood of Success on the Merits
CohnReznick has not shown that it is likely to succeed on

its appeal from the April Order, much less made a strong showing
of a likelihood of success.5

The Bankruptcy Court acted well

within its authority in granting the Liquidators’ motion to
compel production of the CohnReznick Workpapers.

Although there might be some doubt as to whether the Second
Circuit’s sliding-scale approach survives decisions such as Nken
and Winter v. Natural Resources Defense Council, Inc., 555 U.S.
7, 20 (2008), in the related context of motions for a
preliminary injunction, the Second Circuit has reaffirmed the
validity of the sliding-scale approach. See Citigroup Global
Markets, Inc. v. VCG Special Opportunities Master Fund Ltd., 598
F.3d 30, 37-38 (2d Cir. 2010). Because the appellants’ request
fails regardless of the standard to be applied, it is
unnecessary to address this issue further.
4

CohnReznick argues that it need only show a “possibility” of
success on appeal. That standard purports to derive from ACC
Bondholder Gp. v. Adelphia Comm’s Corp., 361 B.R. 337, 346
(S.D.N.Y. 2007), which in turn cites Hirschfeld v. Bd. of Elec.
in City of New York, 984 F.2d 35, 39 (2d Cir. 1993).
Hirschfeld required that a possibility of success on the merits
be “substantial,” and Nken specifically rejects the mere
“possibility” standard. Nken, 556 U.S. at 434-35.
5

10

The relevant provisions of the bankruptcy laws give the
bankruptcy court broad authority to compel discovery in aid of
foreign bankruptcy proceedings.

In 2005, Congress added Chapter

15 to the Bankruptcy Code through the Bankruptcy Abuse
Prevention and Consumer Protection Act.

Pub. L. No. 109-8, §

801, 119 Stat. 23 (codified at 11 U.S.C. §§ 1501-1532).

In

doing so, Congress included an explicit statement of its
purposes:
[t]he purpose of [Chapter 15 of the Bankruptcy Code]
is to incorporate the Model Law on Cross-Border
Insolvency so as to provide effective mechanisms for
dealing with cases of cross-border insolvency with the
objectives of:
(1) cooperation between -(A) courts of the United States, United States
trustees, trustees, examiners, debtors, and
debtors in possession; and
(B) the courts and other competent authorities of
foreign countries involved in cross-border
insolvency cases;
(2) greater legal certainty for trade an investment;
(3) fair and efficient administration of cross-border
insolvencies that protects the interests of all
creditors, and other interested entities, including
the debtor;
(4) protection and maximization of the value of the
debtor’s assets; and
(5) facilitation of the rescue of financially troubled
businesses, thereby protecting investment and
preserving employment.
11 U.S.C. § 1501.

11

In aid of these purposes, Chapter 15 provides for the
recognition of foreign bankruptcy proceedings in United States
courts.

See 11 U.S.C. §§ 1515-1524; see generally In re

Fairfield Sentry Ltd., 714 F.3d 127, 132-33 (2d Cir. 2013).
Upon recognition of a foreign proceeding, and at the request of
the foreign representative, the bankruptcy court is empowered to
allow discovery to be taken.

It can “provid[e] for the

examination of witnesses, the taking of evidence or the delivery
of information concerning the debtor’s affairs, rights,
obligations, or liabilities.”

11 U.S.C. § 1521(a)(4).

Under §

1521(a)(7), the bankruptcy court may also “grant[] any
additional relief that may be available to a trustee,” subject
to exceptions not applicable here.

11 U.S.C. § 1521(a)(7).

Accordingly, it may also authorize foreign representatives to
take discovery pursuant to § 542(e) of the Bankruptcy Code, and
Federal Rule of Bankruptcy Procedure 2004, each of which
provides for discovery of the affairs of a debtor.
The bankruptcy court’s April Order authorizing discovery of
the Workpapers fits comfortably within this broad grant of
powers.

After all, discovery of an auditor’s workpapers and

related documents and communications for the two-year period
immediately preceding a massive business failure of any entity
would be highly relevant.

Moreover, the decision by a court to

allow discovery is a discretionary one.

12

See In re Barnet, 737

F.3d 238, 248 (2d Cir. 2013).

Review of a discovery order is

for abuse of that discretion.

See In re Lyondell Chem. Co., 585

B.R. 41, 52 (S.D.N.Y. 2018).
Finally, Chapter 15 expresses a strong preference for
providing assistance to foreign representatives in appropriate
circumstances.

That congressional preference is not to be

lightly disturbed.6
CohnReznick makes two arguments regarding the merits of the
April Order and its likelihood of succeeding with its appeal
from that order.7

First, it argues that the Arbitration Clause

precludes the discovery the Liquidators seek.

Not so.

The

Arbitration Clause applies to a “dispute, controversy or claim”
between the Funds and CohnReznick.

There is no such pending

As the bankruptcy court found, there were other compelling
reasons to grant the Liquidators’ motion to compel, including
that the Funds’ assets were largely U.S.-based and held by U.S.
subsidiaries, the anticipated lack of cooperation by the Funds’
executives in the Liquidators’ investigation, and the alleged
criminal fraud with respect to the Funds. April Order, 583 B.R.
at 821. While each of these factors underscores the soundness
of the bankruptcy court’s exercise of its discretion, even in
their absence CohnReznick has failed to show that the bankruptcy
court abused its discretion.
6

While CohnReznick originally resisted production of its
Workpapers by arguing principally that a Cayman Islands court
would not order them to be produced, and secondarily referred to
the Arbitration Agreement, in support of a stay and on appeal it
relies principally on the existence of the Arbitration
Agreement.
7

13

proceeding brought by the Liquidators against CohnReznick.8

The

bankruptcy court was clear that she was doing “nothing” to take
away CohnReznick’s right to have a dispute heard in an arbitral
forum.9

Stay Opinion at 25.

In its submission of June 25,

CohnReznick admits as much.10
The subpoena was a request for production of documents from
a witness.

The Liquidators seek the Workpapers to investigate

the affairs of the Funds and in connection with any and all
claims that the Funds’ estates may have against any and all
third parties.

As the bankruptcy court observed, “CohnReznick

and its employees are among the most significant witnesses” in
connection with the bankruptcy proceeding and its Workpapers
“are directly material” to that work.

Stay Opinion at 99.

It is telling that CohnReznick did not show below that in the
event there were an arbitration between the Liquidators and
CohnReznick, any specific category of documents covered by the
April Order would not be required to be produced. It is
difficult to imagine how the Workpapers would not be
discoverable in any arbitrated dispute between CohnReznick and
the Funds.
8

If a claim were filed by the Liquidators against CohnReznick,
then a bankruptcy court would likely apply the pending
proceeding rule. See In re Enron Corp., 281 B.R. 836, 840
(Bankr. S.D.N.Y. 2002) (“the well-recognized rule [is] that once
an adversary proceeding or contested matter is commenced,
discovery should be pursued under the Federal Rules of Civil
Procedure and not by Rule 2004.”). Through that mechanism, the
bankruptcy and arbitration regimes are, in the words of the
Liquidators, “harmonized.” Stay Opinion at 54.
9

As CohnReznick’s June 25 brief acknowledges, “To be sure, the
[April] Order does not prevent CohnReznick from having any
claims by the Liquidators heard in an arbitral forum.”
10

14

Taken to its logical conclusion, if CohnReznick’s argument
prevailed, an accountant’s workpapers would never be
discoverable when the accountant’s engagement letter contained
an arbitration clause.

Unsurprisingly, CohnReznick cites no

support for that sweeping proposition.

As the Liquidators

observe, an arbitration clause does not immunize a witness from
civil discovery.

Again, the bankruptcy court was entirely

correct when it observed that its discovery order did not
violate the Arbitration Clause.

Stay Opinion at 23.

CohnReznick’s primary response is to urge this Court to
follow In re Daisytek, Inc., 323 B.R. 180 (N.D. Tex. 2005).
Daisytek does not alter the preceding analysis.
In Daisytek, a bankruptcy trustee sought an examination of
Ernst & Young (“E&Y”), the debtor’s auditor, explaining that the
examination might support future claims against E&Y for
accounting malpractice.

Id. at 183.

E&Y resisted, arguing that

such discovery would circumvent the arbitration provisions in
its engagement agreement with the debtor.

The district court

remanded the case with instructions to the bankruptcy court to
determine whether the trustee was seeking to bring state-law
accounting malpractice claims based on pre-petition conduct or
an action to avoid preferential and fraudulent transfers.

It

reasoned that the former could be brought in a forum other than
a bankruptcy court, and the latter derived exclusively from the

15

Bankruptcy Code.

If the proceeding derived exclusively from the

Bankruptcy Code, the bankruptcy court would have discretion to
refuse to enforce an arbitration agreement and order discovery.
By contrast, if the claim was a state law claim, the arbitration
clause would govern, and discovery related to those claims would
have to proceed in accordance with an arbitration.
88.

Id. at 187-

The approach taken in Daisytek is not persuasive and has

been criticized,11 but it is in any event inapposite.

The

Liquidators’ request here is not analogous to the trustee’s
request in Daisytek.

It seeks the documents pursuant to Chapter

15 and to investigate the affairs of the Funds and any claims
the Liquidators might bring against any third parties.
CohnReznick makes one more attempt to show that it may
succeed in overturning the April Order.

It contends that the

Liquidators would be unable to obtain the Workpapers under
Cayman Islands law.

Even if CohnReznick were correct (the

bankruptcy court did not find it necessary to resolve that
issue),12 neither principles of comity nor any foreign
discoverability requirement weigh against granting the

See In re Millennium Lab Holdings II, LLC, 562 B.R. 614, 631
(Bankr. D. Del. 2016); In re Friedman’s, Inc., 356 B.R. 779,
783-84 (Bankr. S.D. Ga. 2005).
11

The bankruptcy court examined with care the parties’
submissions regarding Cayman Islands law and found that it had
“not been provided with evidence sufficient to enable it to
conclude that Cayman law prohibits the discovery sought in the
Subpoena.” April Order, 583 B.R. at 815.
12

16

Liquidators’ motion to compel.

In the analogous context of 28

U.S.C. § 1782 proceedings, the foreign discoverability rule has
been roundly rejected, and this Court declines to impose such a
rule for Chapter 15 proceedings.
291, 303 (2d Cir. 2015).

See Mees v. Buiter, 793 F.3d

The bankruptcy court’s April Order was

issued pursuant to the statutory authorization for discovery
provided in Chapter 15 and the ancillary provisions of the
Bankruptcy Code and Rules.

It did not issue its order pursuant

to Cayman Islands law.
CohnReznick argues that a bankruptcy decision, In re
Hopewell, 258 B.R. 580 (Bankr. S.D.N.Y. 2001), requires
bankruptcy courts to determine whether documents would be
discoverable under foreign law.

Not so.

Hopewell was issued

before the passage of the law creating Chapter 15, which
provided new statutory authority for bankruptcy courts to
authorize discovery in cross-border insolvency cases.

Hopewell

involved a pending arbitration proceeding, and thus implicated
the pending proceeding rule.

Id. at 582.

One of the key

factors undergirding the decision in Hopewell was the
distinction between locating and remitting assets, which is what
the Liquidators seek to do here, and the administration thereof,
which was what the debtor sought to do in Hopewell.
85.

Id. at 584-

As Hopewell notes, even the predecessor to Chapter 15, 11

U.S.C. § 304, “would likely allow the court in an appropriate

17

case to provide discovery in aid of the claim liquidation
efforts of a foreign representative.”

Id. at 585.

And,

Hopewell notes that the law that eventually became Chapter 15
would “specifically permit a recognized foreign representative
to examine witnesses and take evidence regarding the debtor’s
assets, affairs, obligations, or liabilities.” Id. (citation
omitted).13
Even if a Cayman Islands court would not itself order
production of the documents, Cayman Islands courts are receptive
to evidence obtained through U.S. discovery proceedings.
Order, 583 B.R. at 816.

April

Accordingly, CohnReznick has not shown

that it is likely to succeed on the merits of its appeal.
II. Irreparable Injury
CohnReznick has also failed to show irreparable injury in
the event its request for a stay is denied.

For example,

CohnReznick has made no assertion that the documents sought by
the Liquidators are privileged or otherwise protected by the

CohnReznick also relies upon In re Condor Ins. Ltd., 601 F.3d
319, 326-27 (5th Cir. 2010), In re ABC Learning Centers Ltd.,
728 F.3d 301, 306 (3d Cir. 2013), and an article, Allan L.
Gropper, The Curious Disappearance of Choice of Law as an Issue
in Chapter 15 Cases, 9 Brook. J. Corp. Fin. & Com. L. 152
(2014). Neither case is contrary to the result here, but in any
event both involve entirely different contexts. As for the
Gropper article, although CohnReznick cites it for the
proposition that a bankruptcy court in Chapter 15 must apply lex
fori concursus -- the law of the jurisdiction where the main
insolvency proceeding is pending -- the article in fact
concludes that “[n]o U.S. case has so held” that lex fori
concursus governs. Id. at 178.
13

18

trade secret or similar doctrine.

As the bankruptcy court

cogently explained below, a requirement to produce documents, at
least absent a claim of privilege or sensitivity, is not
generally the type of injury that is irreparable.

See Stay

Opinion at 96-97.
Moreover, as discussed above, CohnReznick did not provide
any analysis or evidence to the bankruptcy court demonstrating
that the Workpapers would not be discoverable in an arbitration,
should one ever be conducted, between these parties.

It relies

solely on the uncontroversial observation that discovery in
arbitration is generally more limited than that allowed in
bankruptcy proceedings and is subject to its own set of
procedures.

That unremarkable proposition does not suggest

irreparable injury.

CohnReznick had to demonstrate that

specific categories of documents would not be producible, and
that production of those documents would cause irreparable harm.
It has not.
CohnReznick asserts that it would suffer irreparable injury
because the issuance of a stay would moot its appeal of the
April Order.

This does not constitute irreparable injury.

While the Court of Appeals allows appeals from discovery orders
in Chapter 15 proceedings as an exception of the final order
rule for the reasons explained in In re Barnet, 737 F.3d at 244,
the right to appeal does not require a stay to be issued.

19

A

showing of irreparable harm requires more than the possibility
of mootness, particularly because courts have the ability to
fashion at least some form of relief if a discovery production
order is reversed on appeal.

See United States v. Jicarilla

Apache Nation, 564 U.S. 162, 169 n.2 (2011).
The reversal of discovery orders by the Court of Appeals is
understandably rare, given the broad discretion granted lower
courts in management of discovery.

The issuance of a stay of

discovery pending a decision on appeal is even rarer.
The sole case cited by CohnReznick, In re Barnet, does not
suggest a stay is appropriate here.

In Barnet, the bankruptcy

court certified an appeal and the Court of Appeals stayed the
entirety of the Chapter 15 proceeding while it addressed whether
the debtor was statutorily authorized to proceed under that
chapter.

Barnet, 737 F.3d at 241.

No comparable issue is

implicated by this appeal.
III. Injury to Other Parties
The bankruptcy court correctly found that the
Liquidators would “suffer substantial injury if a stay were
granted.”

Stay Opinion at 97.

The Liquidators are facing

the expiration of certain statutes of limitations in
November 2018, id. at 98, and further delay of the
production of the documents will impair their ability to
investigate and bring claims prior to the expiration of the

20

limitations periods.

Id. at 98-99.

And, because of the

criminal investigations and related proceedings against the
former managers of the Funds, the Liquidators have few
alternatives to obtain documents regarding the financial
condition and affairs of the Funds but to seek documents
from CohnReznick.

Id. at 99.

Among other things, the

Workpapers will assist the Liquidators in linking
transactions that appear in the financial statements with
assets in the management accounts, and reveal witness
statements to the auditors.

Stay Opinion at 21.

Accordingly, this factor weighs strongly against granting a
stay of the bankruptcy court’s order pending appeal.
CohnReznick has no persuasive response to this
analysis.

It observed that the bankruptcy court did not

set a final date for production even though it denied the
motion for a stay.

It nakedly asserts that the

Liquidators’ investigation of others will not be impeded
because the CohnReznick papers reflect its own work and the
Liquidators already have millions of other documents.
These arguments may be swiftly rejected.

The bankruptcy

court repeatedly expressed its belief that a prompt
production of the subpoenaed records was critical.
Stay Opinion at 98-99.

See

The bankruptcy court has now set a

July 16 date for production of the Workpapers.

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IV. The Public Interest
Finally, this Court agrees with the bankruptcy court
that the purposes underlying Chapter 15 and the sound
administration of bankruptcy proceedings weigh firmly
against a stay of the bankruptcy court’s order pending
appeal.

The sound administration of justice in federal

courts counsels against interference with a court’s
discovery orders.

A stay on appeal of discovery orders

delays litigation, adds uncertainty to the proceedings, and
increases the costs of litigation.

Stays are rarely

issued, even in appeals of § 1782 proceedings.

Staying

discovery ordered by the bankruptcy court in a Chapter 15
proceeding should also be a rare outcome.
In the circumstances here, a stay would be
particularly inappropriate.

The U.S. Government

investigations accuse the Funds and their managers of
engaging in a massive fraud.

Liquidators appointed by a

foreign bankruptcy court are seeking assistance from this
nation’s courts.

The Liquidators face imminent expiration

of applicable statutes of limitations.

The bankruptcy

court is vested with broad discretion to grant access to
discovery in order to fulfill the purposes of Chapter 15,
and has exercised that discretion with great care.

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CONCLUSION
The June 12, 2018 motion for a stay pending appeal of the
bankruptcy court’s April 17, 2018 Order is denied.
SO ORDERED:
Dated:

New York, New York
June 29, 2018
__________________________________
DENISE COTE
United States District Judge

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