Court-to-Court Communication and Letters of Request in Cross-Border Litigation and Asset Tracing

Rick Antonoff and Evan Jason Zucker

An increasingly global economy and the ease with which money and other property is transferred across national borders has led to more cross-border litigation and a call for greater cooperation and communication between foreign courts. But the ability for courts to communicate across borders has its limits. Recently, in In re Zetta Jet USA, Inc.,1 a chapter 7 trustee asked a U.S. bankruptcy court to authorize sending a letter from the U.S. court to an Australian court, under 28 U.S.C. § 1781, asking the Australian court to continue an injunction against moving a vessel located in Australia pending the resolution of an avoidance action in the United States against the vessel’s purported owner. The U.S. court refused to issue such a letter after concluding that a letter from a U.S. court requesting the Australian court to continue an injunction would be an unwarranted interference by the U.S. court in the Australian proceeding, and would offend principles of international comity by suggesting how the Australian court should rule on the injunction as well as preempting the Australian court’s consideration of whether to vacate the injunction.2

Background

Zetta Jet USA, Inc. (“Zetta US”) and Zetta Jet PTE (“Zetta Singapore,” and together with Zetta US, collectively, the “Zetta Entities”) operated an international luxury travel business that fell into financial distress largely due to allegedly fraudulent activity of its principal, Geoffrey Owen Cassidy. On September 15, 2017, Zetta US and Zetta Singapore each filed a voluntary petition for relief under chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Central District of California (the “U.S. Bankruptcy Court”). The cases were subsequently converted to chapter 7 cases and Jonathan King (the “Trustee”) was appointed the chapter 7 trustee.

In connection with his investigation into the assets and affairs of the Zetta Entities, the Trustee discovered that Cassidy misappropriated company funds and fraudulently transferred company property, including a yacht named Dragon Pearl. The Trustee alleges that Cassidy systematically transferred ownership of the vessel through multiple holding companies to place the vessel beyond the reach of the Zetta Entities and their creditors. In late 2017, the Trustee learned that the Dragon Pearl was docked in Australian waters.

On October 13, 2017, the Trustee initiated a proceeding in the Australian court against several defendants seeking to recover the Dragon Pearl and have the vessel arrested. The Australian court issued an injunction appointing an admiralty marshal to take the Dragon Pearl into custody pending resolution of the yacht’s ownership. In June 2018, the proceeding was dismissed due to the Trustee’s inability to present his case. Thirty minutes after the proceeding was dismissed and the injunctive was terminated, the Dragon Pearl was again sold to another holding company, Linkage Access Ltd. (“Linkage”), for one dollar (USD).

Immediately after the transfer to Linkage, the Trustee commenced another proceeding in Australia seeking to arrest the vessel and enjoin further transfer of the Dragon Pearl. The Australian court denied the Trustee’s request for the injunction and dismissed the proceeding, finding that it was barred by res judicata. An Australian appellate court granted leave to appeal on the basis that the Trustee intended to seek avoidance of the transfer of the Dragon Pearl to Linkage under Australian law, and imposed an injunction preventing the transfer of title or changing the location of the Dragon Pearl until the appeal was resolved. The Trustee also commenced an action in the U.S. Bankruptcy Court to avoid the transfer to Linkage under U.S. law. Linkage moved to dismiss the Australian avoidance action and terminate the injunction.

Trustee’s Request for Court-to-Court Communication

Prior to the Australian court’s ruling on Linkage’s motion to dismiss, the Trustee filed a motion in the U.S. Bankruptcy Court requesting that it establish direct communications with the Australian court and recommend in a formal letter that the Australian court continue the injunction until the avoidance action in the U.S. Bankruptcy Court is resolved. The Trustee filed the motion under the fear that if the Australian avoidance action was dismissed during the pendency of the U.S. avoidance action, the injunction in Australia could be terminated, thereby allowing ownership of the Dragon Pearl to be further transferred and its location to be moved.

New Transport Investments Limited (“NT”), which claims an interest in the Dragon Pearl, objected to the Trustee’s motion. NT argued that the Trustee’s request is inappropriate because 1) letters of request are limited to requests for evidence or service of process on a person in a foreign jurisdiction, and 2) the Trustee is able to appear himself before the Australian court and argue that the injunction should not be vacated pending a resolution of the U.S. avoidance action.

Cross-Border Judicial Communications

There are two statutory provisions addressing court-to-court communication in cross-border cases: 28 U.S.C. § 1781 and 11 U.S.C. § 1525.

First, 28 U.S.C. § 1781(a)(1) authorizes the U.S. State Department to receive letters from foreign tribunals and transmit those letters to U.S. tribunals. Conversely, § 1781(a)(2) authorizes the State Department to receive letters from U.S. tribunals and transmit them to foreign tribunals. More directly, 11 U.S.C. § 1781(b) allows court-to-court communications to occur without State Department involvement.

This section does not preclude:

    1. the transmittal of a letter rogatory or request directly from a foreign or international tribunal to the tribunal, officer, or agency in the United States to whom it is addressed and its return in the same manner; or
    2. the transmittal of a letter rogatory or request directly from a tribunal in the United States to the foreign or international tribunal, officer, or agency to whom it is addressed and its return in the same manner.

A court has broad discretion in deciding whether to issue a letter to a foreign court. The issuance of a letter is appropriate where it provides an efficient means to help litigants in an international proceeding and the requested relief is essential to the foreign litigation. Typically, such letters are in the form of requests to obtain evidence or testimony abroad.3 Courts are cautioned to exercise restraint in dealing with such international matters so that a court only imposes its domestic views in the most critical situations.4

Second, under 11 U.S.C. § 1525, a U.S. bankruptcy court “is entitled to communicate directly with, or to request information or assistance directly from, a foreign court or a foreign representative, subject to the rights of a party in interest to notice and participation.” Communication between courts under section 1525 “may be implemented by any appropriate means, including…communication of information by any means considered appropriate by the court.” 11 U.S.C. § 1527.

Court-to-Court Communication and International Comity

International comity is “concerned with maintaining amicable working relationships between nations, a ‘shorthand for good neighbourliness, common courtesy and mutual respect between those who labour in adjoining judicial vineyards.’” JP Morgan Chase Bank v. Altos Hornos de Mex., S.A. de C.V., 412 F.3d 418, 423 (2d Cir. 2005) (quoting British Airways Bd. v. Laker Airways Ltd., [1984] E.C.C. 36, 41 (Eng. C.A.)). American courts have long recognized the importance of comity in cross-border bankruptcy cases. (See generally In re Atlas Shipping A/S, 404 B.R. 726, 733 (Bankr. S.D.N.Y. 2009); In re Oi Brasil Holdings Cooperatief U.A., 578 B.R. 169, 213 (Bankr. S.D.N.Y. 2017).

In Zetta Jet, the U.S. Bankruptcy Court denied the Trustee’s motion as violating principles of comity. The court found that the Trustee was “essentially seeking to have this Court place its finger on the scales of justice and improperly influence the Australian Court’s decision…regarding the injunction.”5 This type of interference by a U.S. court in a foreign proceeding is improper. This is because the Australian court was already well familiar with the pendency of the cases in the United States and, if not, the parties could easily apprise the Australian court of the status of the litigation in the United States. Thus, the practical effect of having the U.S. Bankruptcy Court send a letter summarizing the status of the cases in the United States and how a ruling by the Australian court would affect the cases in the United States, would be for the U.S. Bankruptcy Court to improperly “weigh in” and influence the Australian court’s decision.6

Conclusion

Zetta Jet is a reminder that despite the growing prevalence of cross-border judicial proceedings, U.S. courts are guided by notions of international comity and will avoid taking actions that can be seen as influencing or pre-empting decisions of foreign courts. Parties requesting U.S. courts to engage in court-to-court communication with foreign courts should be mindful of these limits.


1 Case No. 17-21386 (Bankr. C.D. Calif.).

2 Court’s Tentative Ruling on “Motion for Order Approving Letter of Request and Authorizing Communication” Which was Adopted as the Court’s Final Ruling at the Conclusion of the Hearing, Case No. 17-21386 at ECF. No. 874 (Bankr. C.D. Ca. Nov. 28, 2018) (the “Decision”).

3 22 C.F.R. § 92.54; Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 248 n.1 (2004).

4 48 C.J.S. International Law § 33.

5 Decision at 12.

6 Id. at 11-13.