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In re Irish Bank Resolution Corporation Ltd.

United States District Court, D. Delaware

September 27, 2019

IN RE IRISH BANK RESOLUTION CORPORATION LIMITED, Debtors.
v.
KIERAN WALLACE and EAMONN RICHARDSON, Appellees. PADDY MCKILLEN, ANTHONY LEONARD, and CLARENDON PROPERTIES LIMITED, Appellants,

         Chapter 15

          MEMORANDUM.

          HONORABLE LEONARD P. STARK JUDGE

         I. INTRODUCTION

         Pending before the Court is an appeal (D.I. 1) by Paddy McKillen, Anthony Leonard, and Clarendon Properties Limited (together, "Appellants" or the "Clarendon Parties") from the Bankruptcy Court's October 31, 2018 Order (B.D.I. 659) ("Order") denying Appellants' motion (B.D.I. 633)[1] ("Stay Relief Motion") which sought (i) a determination that the automatic stay under Section 362 of the Bankruptcy Code did not bar their prospective adversary complaint against Kieran Wallace and Eamonn Richardson, in their individual capacity ("Appellees"), or alternatively, (ii) relief from the automatic stay in order to file an adversary complaint. The complaint alleged that Appellees, who were appointed as foreign representatives (the "Foreign Representatives") of Irish Bank Resolution Corporation Limited (In Special Liquidation) ("IBRC" or the "Debtor"), have violated rules under Chapter 15 and United States law, and those violations must be redressed in the Bankruptcy Court. The Order denied the Stay Relief Motion for the reasons set forth on the record at the October 31, 2018 hearing. (B.D.I. 661) ("Hr'g Tr.") For the reasons that follow, the Court will affirm the Order.

         II. BACKGROUND

         IBRC is an Irish incorporated company located in Dublin, Ireland. See In re Irish Bank Resolution Corp. Ltd., 2014 WL 9953792, at *7-8 (Bankr. D. Del. Apr. 30, 2014), aff'dsub nom. Flynn v. Wallace (In re Irish Bank Resolution Corp. Ltd.), 538 B.R. 692 (D. Del. 2015). IBRC holds the remaining assets and liabilities of both Anglo Irish Bank Corporation Limited ("Anglo"), a distressed financial institution nationalized by the Irish government following the global financial crisis of 2008, and Irish Nationwide Building Society, another distressed financial institution previously nationalized by the Irish government. See Id . at *5. As the effects of the global financial crisis continued to impair the Irish economy, the Irish government determined that it was necessary to wind down IBRC. See Id . Accordingly, on February 7, 2013 the Irish Parliament passed the Irish Bank Resolution Corporation Act of 2013 ("IBRC Act"), which was signed into law immediately thereafter. See Id . The Irish Minister for Finance (the "Finance Minister"), acting pursuant to the authority granted under the provisions of the IBRC Act, issued the Special Liquidation Order on February 7, 2013, commencing IBRC's pending liquidation proceeding in Ireland (the "Irish Proceeding") and appointing the Foreign Representatives as special liquidators (the "Special Liquidators") for IBRC. See Id . at *7. The Special Liquidators have a duty to maximize the value of IBRC's assets for the benefit of all creditors. See Id . at *13.

         On December 18, 2013, the Bankruptcy Court issued an order recognizing the Irish Proceeding (B.D.I. 187) (the "Recognition Order"), which was subsequently affirmed on appeal by this Court on August 4, 2015. See Irish Bank Resolution Corp., 538 B.R. at 692. Appellants had been Anglo clients for many years, having borrowed large sums from the bank to help fund their extensive property portfolio, including a property portfolio valued in excess of $350, 000, 000 in the United States. (D.I. 11 at 5)

         On July 13, 2018, Appellants filed the Stay Relief Motion, seeking entry of an order determining that the automatic stay does not apply or, alternatively, granting relief from the automatic stay in order to file the complaint. (B.D.I. 633) A draft complaint naming Wallace and Richardson, individually, as defendants was filed as an exhibit to the Stay Relief Motion. (B.D.I. 633-3) The complaint did not name the Debtor, IBRC, or any other parties as defendants.

         The complaint alleges claims that relate to certain facility letters (collectively, the "Facility Letters") issued by Anglo, dated July 10, 2008, July 17, 2008, and January 5, 2009, as well as a loan sale deed (the "Loan Sale Deed"). (See B.D.I. 633-3 ¶¶ 56, 64, 66, 95) The complaint alleges that the Facility Letters related to certain loans provided by Anglo to fund the purchase of Anglo's outstanding shares, with the acquired shares to be held in escrow by or on behalf of Anglo. (Id. ¶ 41) The complaint asserts that the Foreign Representatives, in their capacity as Special Liquidators, must treat McKillen as an unsecured creditor and/or potential beneficiary of the estate in liquidation, and - due to McKillen's status - the Special Liquidators owe McKillen absolute duties of loyalty, candor, disclosure, due care, impartiality, good faith, and fair dealing. (Id. ¶¶ 73-74)

         The complaint alleges that, in or about early 2009, the Irish government passed legislation "mandatorily transferring all Anglo shares to the Irish Minister for Finance, " effectively nationalizing the bank. (Id. ¶ 67) The crux of the complaint arises from a lawsuit (the "Irish Recovery Action") commenced by the Foreign Representatives, in their capacity as Special Liquidators of IBRC, in the Irish High Court against McKillen on July 16, 2014. (B.D.I. 633-3, ¶ 102) The complaint alleges that McKillen was served with a summons in the Irish Recovery Action in July 2015. (Id.) The complaint further alleges that the Irish Recovery Action seeks repayment of certain outstanding loan amounts under the Facility Letters, in addition to interest and costs associated therewith. (Id.) The complaint does not allege that the Foreign Representatives have any relationship with the Appellants outside of their role as Foreign Representatives and Special Liquidators of IBRC; nor does the complaint allege that the Foreign Representatives have taken any action within the United States that have impacted the Appellants. Instead, the complaint focuses solely on actions taken by the Foreign Representatives in Ireland, which Appellants allege have impacted and injured Appellants' business interests in the United States. (Id. ¶¶ 102-13) The complaint asserts claims for breaches of fiduciary duty, fraud, misrepresentation, negligent misrepresentation, and other misconduct against Wallace and Richardson - all of which, Appellants assert, represent breaches of common law duties of care and violations of the Bankruptcy Code and rules. By the complaint, Appellants seek: (1) a monetary judgment against Wallace and Richardson arising out of their personal misuse of the Chapter 15 process; and (2) a modification of the Bankruptcy Court's Recognition Order to terminate the recognition of Wallace and Richardson as foreign representatives under Chapter 15. (B.D.I. 633-3)

         Appellants asserted that they filed the Stay Relief Motion, seeking confirmation that the automatic stay did not apply to the complaint, out of an abundance of caution and as a safeguard against the severe penalties that might be imposed if they were seen to be willfully violating the automatic stay or the Barton doctrine (which is explained further below). (B.D.I. 633) In the Stay Relief Motion, Appellants argued that there is no stay violation because they did not seek to litigate any claims against the Debtor or its assets. (Id. at 1) Appellants did not believe that they were required to seek stay relief to file the complaint, as § 362(a) of the Bankruptcy Code only stays actions against a debtor or its assets and may not be invoked by non-debtor third parties absent unusual circumstances in which the debtor could be considered the real party in interest. (Id. at 1, 4) In the alternative, Appellants sought relief from the automatic stay "for cause" under section § 362(d)(1). Appellants argued that the Debtor would not suffer any great prejudice if the Bankruptcy Court granted stay relief, whereas "imposing the automatic stay to preclude the filing and litigation of the Adversary Complaint would deprive the Movants of any protections they enjoy with respect to the overreach of the Foreign Representatives whose post-petition actions have significantly damaged the Movants' business interests in the United States." (Id. at 8-9) Appellants argued that it was unlikely that a claim against IBRC for damages arising from the misconduct of Appellees as foreign representatives would be allowed in the Irish Proceeding, and that there was no guaranty that such a proceeding would fully compensate Appellants for their damages. (Id. at 9)

         Appellees objected to Stay Relief Motion on September 14, 2018. (B.D.I. 651) On October 24, 2018, Appellants filed a reply brief in further support of relief. (B.D.I. 656) On October 31, 2018, the Bankruptcy Court held a hearing on the Stay Relief Motion. No testimony or documentary evidence was offered into the record. (B.D.I. 658, 661) Following argument, the Bankruptcy Court ruled from the bench. (Hr'g Tr. at 29-35) For purposes of the Barton doctrine, the Bankruptcy Court determined that it was not the "appointing court." (Id. at 32) Rather, "the appointing authority is Ireland . . . and under Barton, that's where the Plaintiffs should proceed." (Id. at 33) However, the Bankruptcy Court did not rest its decision to deny the Stay Relief Motion on this determination, stating its belief that to do so "would be a very expansive application oi Barton." (Id. at 34) (noting court was unable to find any U.S. case applying Barton doctrine to insulate or protect trustees or representative appointed by foreign entity or government)) Although it was a "close call, " the Bankruptcy Court determined that the automatic stay extended to the adversary proceeding. (Hr'g Tr. at 29-30) The Bankruptcy Court found "a significant identity of interests" between the Debtors and the Foreign Representatives, based on (a) indemnification obligations, and (b) the role of the Foreign Representatives in IBRC's liquidation. (Id. at 29) Finally, based on a weighing of relevant factors, including the parties' respective harms and likelihood of success on the merits, the Bankruptcy Court determined not to grant Appellants relief from the stay. (Id. at 30-32, 34-35)

         Appellants timely appealed. (D.I.I) The merits of the appeal are fully briefed. (D.I. 11, 17, 18) No party requested oral argument. The Court did not hear oral argument because the facts and legal arguments are adequately presented in the briefs and record and the decisional process would not be significantly aided by oral argument.

         III. JURISDICTION AND STANDARD OF REVIEW

         Appeals from the Bankruptcy Court to this Court are governed by 28 U.S.C. § 158. Pursuant to § 158(a), district courts have mandatory jurisdiction to hear appeals "from final judgments, orders, and decrees." In conducting its review of the issues on appeal, this Court reviews the Bankruptcy Court's findings of fact for clear error and exercises plenary review over questions of law. See Am. Flint Glass Workers Union v. Anchor Resolution Corp.,197 F.3d 76, 80 (3d Cir. 1999). The Court must "break down mixed questions of law ...


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