13 July 2020
As the world’s economy becomes increasingly transnational, and debtors, their assets, and creditors are scattered across multiple jurisdictions, the need for consistency and efficiency in the cross-border administration of insolvency proceedings has become more pressing. Variations among legal systems have resulted in inconsistent, duplicative, time-consuming and costly efforts to recognise and enforce insolvency-related judgments in different jurisdictions, creating legal uncertainty and other complications in the administration of cross-border insolvency proceedings.
The United Nations Commission on International Trade Law (UNCITRAL) attempted to foster international cooperation in the administration of cross-border insolvencies through its Model Law on Cross-Border Insolvency (MLCBI), but there remained an ambiguity in the recognition and enforcement of judgments related to insolvency proceedings, especially where enforcement of the foreign judgment was inconsistent with local law.
The Model Law
As a result, in 2014, UNCITRAL gave a mandate to its Working Group V on Insolvency Law to develop a model law that specifically provides for the recognition and enforcement of insolvency-related judgments. The Working Group collaborated with UNCITRAL’s 60 member states and the representatives of 31 observer states and 34 inter-governmental and non-governmental organisations to develop the Model Law on Recognition and Enforcement of Insolvency-Related Judgments .
On 2 July 2018, UNCITRAL adopted the Model Law, which is designed to address both the gap in international law regarding the cross-border recognition and enforcement of judgments that arise as a consequence of, or are materially associated with, insolvency proceedings; and the uncertainty in interpreting certain provisions of the MLCBI “in terms of providing the necessary authority for such recognition and enforcement as a form of relief available on recognition of a foreign insolvency proceeding.”
How the Model Law works
The Model Law seeks to address these issues through its primary characteristics: harmonisation and flexibility. It offers enacting states a “simple, straightforward and harmonised procedure for recognition and enforcement of insolvency-related judgments” while remaining flexible in its integration into each enacting state’s legal system. Importantly, the Model Law is intended to supplement the MLCBI, and in fact mirrors its provisions and definitions in many respects, as well as the existing legal frameworks of the enacting states.
For example, as international insolvency practitioners, we know the terminology used in insolvency proceedings can vary by jurisdiction. Where a term or expression is likely to vary among enacting states, the Model Law offers more inclusive defined terms, such as “insolvency proceeding” (as opposed to liquidation, reorganisation or bankruptcy) and “insolvency representative” (rather than trustee, foreign representative, liquidator, judicial administrator etc). It also describes terms or expressions in brackets as placeholders for jurisdiction-specific information – like the name of the court, body, or authority designated to perform the specified function – allowing the enacting state’s legislators to use the term specific to that jurisdiction.
Additionally, the Model Law offers optional provisions, such as one allowing the enacting state to refuse the recognition of an insolvency-related judgment when it originates from a state whose “insolvency proceeding” would not be subject to recognition under the MLCBI.
The Model Law also contains two noteworthy exceptions to recognising and enforcing insolvency-related judgments. Enacting states may refrain from taking any action that would be “manifestly contrary” to their public policy. Further, the Model Law enumerates the following specific grounds for the refusal of recognition and enforcement:
- improper notice to the defendant in the proceeding that gave rise to the insolvency-related judgment;
- the judgment was obtained by fraud;
- the judgment is inconsistent with a judgment entered in the enacting state involving the same parties;
- the judgment is consistent with an earlier judgment entered in another state involving the same parties and subject matter;
- recognition and enforcement would interfere with the administration of the debtor’s insolvency proceeding;
- the judgment materially affects the rights of creditors generally and their interests were not adequately protected in the proceeding that led to the judgment; and
- the court issuing the judgment did not have jurisdiction.
Defining an “insolvency-related judgment”
As its name suggests, the Model Law’s distinguishing feature is that it applies to “insolvency-related judgments”, which previously had not been fully addressed by other UNCITRAL insolvency texts. The Model Law provides a broad definition of “judgment” to include any decision, such as a decree, order, or determination of costs and expenses, “issued by a court or administrative authority”. To fall within the Model Law’s scope, an insolvency-related judgment must “arise… as a consequence of or [be] materially associated with an insolvency proceeding”, and be “issued on or after the commencement of that insolvency proceeding”. Importantly, the judgment must have been rendered in a proceeding in a state other than the enacting state in which recognition and enforcement is sought; the location of the insolvencyproceeding to which the judgment relates is immaterial.
The Model Law’s Guide to Enactment provides a non-exhaustive list of judgments that fall within the definition of “insolvency-related judgment”, including judgments dealing with the constitution and disposal of assets in the insolvency estate; judgments determining whether a transaction involving the debtors or assets of its insolvency estate should be avoided because it was a preferential transaction or a transaction at an undervalue; judgments involving director or representative liability for the debtor’s actions while insolvent or in the period approaching insolvency; judgments determining that sums are owed to or by the debtor or the insolvency estate; judgments confirming or varying a plan of reorganisation or liquidation or approving a voluntary or out-of-court restructuring agreement; and judgments for the examination of a director of the debtor, where that director is located in a third jurisdiction.
Decisions or orders commencing insolvency proceedings and interim measures of protection are explicitly excluded from the Model Law’s scope. Further, it is unclear whether insolvency-related arbitral decisions are considered “insolvency-related judgments” under the Model Law, as they may not come from an “administrative authority.”
The Model Law’s impact and success
While it is still too early to evaluate the Model Law’s impact and success, its design as a supplement to the MLCBI and the enacting state’s existing legal structure, rather than an overhaul of existing insolvency frameworks, suggests that it will succeed (at least partially) in making the recognition and enforcement of insolvency-related judgments more consistent and efficient. Moreover, though the Model Law intends to respect the insolvency schemes of the respective enacting states, UNCITRAL cautions against excessively modifying the Model Law and frequently invoking its exceptions. That said, enacting states are still free to make the necessary modifications to protect their own legal processes and domestic creditors, which could result in the very complications the Model Law was intended to eliminate.
The Model Law’s success also depends on the number of states that enact it. By way of comparison, over 45 jurisdictions have adopted the MLCBI, including Australia, Canada, Colombia, Japan, Kenya, Mexico, New Zealand, the Republic of Korea, Singapore, South Africa, the UK, BVI, Gibraltar and the US; however, several European nations have not adopted it and are governed by the separate EU regulation (EC No. 1346/2000) on insolvency proceedings. This same EU regulation provides for the recognition and enforcement of judgments that “derive directly from and are closely linked to… insolvency proceedings”. Because this EU regulation seems to address the recognition and enforcement of insolvency-related judgments, and several European nations have opted to implement its framework and rejected the MLCBI, it is unlikely that these same nations will adopt the Model Law.
Finally, as mentioned above, it is unclear whether insolvency-related arbitral decisions fall within the scope of the Model Law. As the law develops and the Working Group continues to issue guidance on its enactment, practitioners should expect to see developments on this issue.
The Model Law and its accompanying Guide to Enactment are available here.
Click here to read the original article.
By Amanda E. Finley, Miami
The European Union implemented the General Data Protection Regulation (GDPR), and it became effective on 25 May 2018.1 The GDPR enforces privacy requirements to protect EU citizens.2 “The GDPR applies to the processing of ‘personal data,’ which is defined as any information related to an ‘identified or identifiable natural person,’” who can be directly or indirectly identified by the data produced.3 The GDPR purports to have extraterritorial effect by applying “regardless whether the processing takes place in the EU or elsewhere.”4 The GDPR allows imposition of penalties and sanctions that “significantly increase[d] the maximum fine to €20 million, or 4% of annual worldwide turnover, whichever is greater.”5 Further, “[t]he GDPR provides an individual with access to the courts to seek a judicial remedy” in addition to any administrative remedy.6 Essentially, any production of documents that contain information about EU citizens could cause serious consequences and large fines for a GDPR violation.
The early cases in the United States suggest that the GDPR may have a profound impact on discovery in the United States. The GDPR may provide for targets subject to the jurisdiction of courts in the United States to object to discovery with the purpose (or possibly under the guise) of protecting EU citizens’ privacy. Defendants may object to production as a whole, request significant redaction of the discovery, request a strict confidentiality agreement, request to produce anonymized data that does not identify any EU citizen, or any combination thereof. There is limited case law on the implications of the GDPR on U.S. discovery because it is a relatively new regulation. So far, U.S. courts have taken divergent approaches on how to address and resolve objections to discovery based on the GDPR. Overall, it appears that most courts are allowing production of the discovery in some form, over a defendant’s GDPR objection.
U.S. Courts’ Historical Response to Discovery Objections Based on Foreign Privacy Statutes or Secrecy Laws
Historically, U.S. courts have been unwilling to allow a foreign privacy statute to preclude the production of responsive documents that were otherwise discoverable in U.S. litigation. As the Supreme Court stated, “[i]t is well settled that such statutes do not deprive an American court of the power to order a party subject to its jurisdiction to produce evidence even though the act of production may violate that statute.”7 The Court further noted that the French “blocking statute” was “originally ‘inspired to impede enforcement of United States antitrust laws,’ and that it did not appear to have been strictly enforced in France,” which further undercut U.S. courts’ interest in enforcing that foreign privacy statute over the American interest of full disclosure in discovery.8 Prior and subsequent courts similarly ruled that foreign privacy statutes are not dispositive on production of discovery in U.S. cases, although the statutes may be relevant to the issue of whether sanctions should be imposed for failure to comply with U.S. discovery orders.9 Likewise, U.S. courts deemed foreign bank secrecy laws insufficient to preclude discovery in U.S. litigation.10 Therefore, generally, courts in the United States overwhelmingly have held that full disclosure in discovery outweighs any interest in enforcing foreign privacy or secrecy laws.
A Chronological Review of U.S. Courts’ Approaches to GDPR Discovery Disputes and Other Foreign Privacy Statutes
On 5 October 2018, the first published ruling on GDPR in U.S. litigation involved a defendant, Microsoft, raising a GDPR objection to discovery based on the undue burden and cost of producing the discovery due to “the alleged tension with GDPR.”11 The court did not significantly analyze the GDPR issue, but stated that “the court [wa]s not persuaded by Microsoft’s arguments concerning undue burden” and required the production of documents.12
On 17 December 2018, the first substantive ruling by a U.S. court to address an objection to discovery based on GDPR was in the context of a 28 U.S.C. § 1782 application to obtain discovery for use in a foreign proceeding.13 The court “grant[ed] the application with respect to documents held by foreign custodians only to the extent that the Applicants (1) assume the costs of the document production, including the costs of compliance with the GDPR or other applicable European data privacy laws and (2) indemnify Respondents against any potential breaches of European data privacy laws.”14 Although the court granted production of the documents over the GDPR objection, this ruling has serious adverse consequences for parties seeking discovery in U.S. litigation if the GDPR is implicated because it required unknown and potentially multimillion-dollar indemnification liability on the party receiving the documents.
The approach in Hansainvest of requiring indemnification of the discovery target “against any potential breaches of European data privacy laws” is a serious deterrent to any party seeking discovery.15 It would be unusual and highly unlikely that any party would knowingly accept such an open-ended and potentially large financial risk given the large fines for a GDPR violation. If courts routinely adopted this approach, it would have a significant chilling effect on U.S. discovery when the GDPR is implicated. Hansainvest is the only U.S. court, thus far, to rule that indemnification of any GDPR liability is a condition precedent to production of the documents. In later rulings, U.S. courts have taken less drastic approaches to GDPR objections to discovery.
On 14 February 2019, the court in Finjan entered a reasoned opinion “conclud[ing] that the GDPR d[id] not preclude the Court from ordering Defendant to produce the requested e-mails in an unredacted form, subject to the existing protective order” and did not amend the existing protective order to include cost splitting related to anonymization, as requested by the defendant.16 First, the court referenced the Supreme Court ruling that a foreign country’s statute precluding disclosure …continued on page 47.
Click here to read the full Spring 2020 International Law Quarterly.
By Jim Ash
The Uniform Commercial Real Estate Receivership Act became law July 1, marking a new era for Florida courts — and the culmination of four years of relentless diplomacy by the Business Law Section.
Given the collateral damage COVID-19 has inflicted on the economy, the timing couldn’t be better, said BLS Executive Council Chair Leyza Blanco.
“It’s a big accomplishment,” Blanco said. “Of course, this couldn’t have been anticipated, but with the economic fallout from COVID, and all the closures, the first thing that will be affected when people stop paying their rent is commercial real estate.”
Florida is one of only nine states that have adopted UCRERA since 2017.
Drafted in 2015 by the National Conference of Commissioners of Uniform State Laws, UCRERA creates a process for state courts to appoint a receiver in disputes that arise over commercial real estate, typically a default.
Supporters say that once appointed by the court, a neutral receiver can manage an asset and prevent it from falling into disrepair. Blanco offers the example of a waterfront restaurant that goes out of business and is forced to close. Without someone to keep the power on and the air conditioner humming, mold would soon take over, she said.
Florida judges have the power to appoint receivers, but before UCRERA, there was no statute that addresses the process for commercial real estate disputes.
Blanco said the credit belongs to members of the Business Law Section Uniform Commercial Real Estate Receivership Act Task Force.
Former Executive Council Chair Jon Polenberg created the taskforce in June 2016. He appointed Miami attorneys Kenneth Murena and Amanda Fernandez, both with Damian Valori, as co-chairs, and asked them to determine whether the proposal was right for Florida and whether the section should support it.
From the beginning, UCRERA was a tough sell, even to task force members.
“We’re dealing with people who represent both debtors and creditors in the Business Law Section, people who practice on both sides,” Fernandez said. “There was definitely a lot of push back.”
“I’m not exaggerating, it took more than a year to build consensus,” Murena said. “We started with the people who were 50-50, and then we worked on the doubters.”
Fernandez, who specializes in complex business litigation, is a former chair of the Business Litigation Committee. Murena, who is a federal court-appointed receiver and a receiver’s counsel, has been active in the Bankruptcy/UCC Committee. They worked on their respective constituencies.
Murena considers himself one of the UCRERA’s biggest cheerleaders.
Whenever the issue arose in one of his cases in state court, Murena said he found himself having to explain the process to judges and other litigants.
“It was a lot of educating the parties and the judge on how the receivership should operate, the purpose of the receiver, the benefits of the receiver, and how the receiver can help the court administer the particular assets that were subject to the receivership,” he said.
State courts would differ on whether or when to appoint a receiver, Murena said.
“There is no well agreed upon body of law that governs receivership across the state of Florida,” he said. “I always thought it would be helpful because the case law in Florida, there is some development, but it is not necessarily so consistent across the state.”
Finding consensus within the Business Law Section was only half of the battle, Murena said. The taskforce reached out the Real Property, Probate and Trust Law Section to deal with a host of their concerns, and made a presentation to the RPPTL’s annual conference. A RPPTL liaison was appointed to the taskforce.
Some RPPTL members objected to the definition of certain exemptions to a “carve out” for real property, Murena said. Other critics opposed a provision that would have imposed an automatic stay. But the definitions were narrowed, and the automatic stay became permissive instead of mandatory, without weakening the thrust of the legislation, Murena said.
“We added in a very specific provision saying this statute does not affect homestead, because that’s sacrosanct in Florida,” Murena said. “We wanted the RPPTLs to not only be okay with this, but to be behind it.”
In addition to RPPTL support, the task force also worked with the Florida Bankers Association and the Florida Land and Title Association. The revised version also had to be reviewed by the Uniform Law Commission, which requested more changes, Murena said.
Taskforce members say Rep. Mike Beltran, R-Valrico, was an enthusiastic and engaged sponsor. Beltran, an attorney, is a member of the Judiciary Committee.
“I actually had a case, and this is a real problem,” Beltran said. “We had a commercial landlord, they went through multiple bankruptcies, they didn’t complete their bankruptcy plan, and they were pocketing the rent, and this bill prevents the debtor in possession from pocketing rents to the detriment of the landlord.”
HB 783 and a companion, SB 660 by Sen. Lori Berman, D-Boynton Beach, passed both chambers unanimously.
“There were an amazing amount of voices and interests that had to be heard, it’s definitely a step-by-step process,” Murena said. “To me, it was sort of like, where there’s a will there’s a way — you just have to be patient.”
The Business Law Section is sponsoring a CLE, “Course 3922: Florida’s Commercial Real Estate Receivership Law Substantively Changes July 1, 2020, Are You Prepared?” on July 30. Featured panelists include U.S. Bankruptcy Court Judge Mindy Mora, of Florida’s Southern District, Second District Court of Appeal Judge Edward LaRose, Manuel Farach, and Kenneth Murena.
Click here to read the original article.
The Business Law Section, one of the Bar’s largest, is marking a 50th anniversary by focusing on COVID-19 recovery — and strengthening a Diversity Fellowship Program, said newly installed Chair Leyza Blanco.
“It’s helping feed the pipeline of leadership of the section, and it’s helping us really develop greater diversity,” Blanco said. “And it’s really come full circle, to serve as chair at a time when, obviously, issues of social justice and equality are so important.”
A shareholder at Sequor Law who specializes in bankruptcy, asset recovery, and cross-border insolvency, Blanco is a former chair of the Bankruptcy/UCC Committee.
Blanco said she was drawn to the committee that oversees the Diversity Fellowship Program when she started climbing the leadership ladder years ago.
“I understand that I am the first Hispanic chair of the Business Law Section, for starters,” she said. “I am obviously a minority, female Hispanic, and certainly underrepresented in the area where I practice.”
Immediate past Chair Jacob “Jay” Brown recently announced the eight newest members of the Fellowship Program, who must be 36 or younger or have been Bar members for less than 10 years.
Fellowship Program participants are assigned a social mentor and a substantive mentor and are given a $2,500 stipend for two years. The stipend has been increased this year by more than $700, Brown said.
When they aren’t attending meetings, program participants, among other things, help with membership recruitment, organize section events, and write white papers for legislative positions.
“It doesn’t work out all of the time, certainly there are some people who come in and either don’t take advantage of the fellowship, or they use it, and we don’t hear from them again,” Brown said. “But we have a number of them who are remaining active and that are taking not just leadership positions, but high-level leadership positions.”
This year, Brown named two former Fellowship Program participants Outstanding Members of the Year — Giacomo Bossa, managing partner with Morris and Associates, in Doral, and Michelle Suarez, partner and founder of Florida Entrepreneur Law, P.A., of Ft. Lauderdale.
Bossa now serves as incoming chair of the Business Litigation Committee, one of the section’s largest, Blanco said. Suarez is second vice chair of the Corporations Committee and the new chair of the Inclusion/Mentoring/Fellowships Committee, Blanco said.
Blanco said a number of Fellowship Program members are now serving as “second vice chairs” of section committees.
“In two years, we’re probably going to have the most diverse slate I have ever seen of any year of the section,” she said. “All but two of my appointees were female, so it’s pretty exciting.”
Click here to read the original article.
Sequor Law represented the Plaintiff in successfully obtaining a $19.5 million temporary mandatory and prohibitory injunction to protect the res of a constructive trust claim, which funds had been dissipated from Miami escrow accounts to offshore accounts during the pendency of the case. The Florida Eleventh Judicial Circuit Complex Business Litigation Court required the Defendants to return the $19.5 million to a Miami escrow account and prohibited further transfer of the funds. The Defendants appealed the adverse injunction order over the escrow funds by arguing, among other things, that the Court should not have entered the injunction without first determining it had personal jurisdiction over the defendants. Sequor Law represented the Plaintiff as Appellee in the appeal. After considering the briefing and oral argument, on February 26, 2019, the Third District Court of Appeal affirmed injunction order in a written opinion.
28 U.S.C. § 1782, known colloquially as “Section 1782,” is a federal statute that allows foreign litigants and interested persons to request judicial assistance from U.S. federal courts to obtain evidence for use in a proceeding in a foreign or international tribunal. Section 1782 is highly relevant to a wide array of legal practitioners, both within and outside the U.S., as federal courts have concluded that evidence obtained through Section 1782 may be used in civil, criminal, probate, bankruptcy, marital, administrative, and regulatory cases. In short, if your client is not using Section 1782 as part of its litigation strategy, there is a good chance that your client’s opponent is using it to your client’s disadvantage.
Section 1782 is an alternative to the slower, and oftentimes cumbersome, cross-border discovery mechanisms such as letters rogatory and diplomatic or consular channels, because it can be pursued directly by the litigant or interested party without the involvement of the foreign court or tribunal or of the governmental authorities making up the traditional channels. Section 1782 was enacted decades ago and was revised extensively in 1964, but its widespread use did not take off until after the U.S. Supreme Court’s 2004 ruling in Advanced Micro Devices, Inc. against Intel Corp., or “Intel” as the seminal decision is widely known. In the Intel case, the Supreme Court clarified the statutory requirements that an applicant has to satisfy to obtain evidence using Section 1782 as well as a number of discretionary factors courts should also consider. If the applicant is successful, it can obtain U.S.-style discovery from persons or entities located where the application is filed (in the form of site inspections, requests for production of documents, or deposition testimony under oath) for use in the foreign proceeding. Typical Section 1782 subpoena targets include businesses (including affiliated companies and subsidiaries), financial institutions, professionals such as lawyers and accountants, brokers, escrow agents, art galleries and auction houses, former employees, and many more. This incredibly powerful tool can also be pursued on an ex parte basis (at least initially) and does not require the applicant to prove that she has exhausted her domestic evidence gathering tools in the foreign case or, significantly, that the evidence will be admissible in the foreign proceeding.
One issue that has been contested since Intel was decided is whether Section 1782 can be used in support of a private commercial arbitration (as opposed to treaty-based arbitrations where the use of Section 1782 is clearly supported by the applicable case law). Recently, the Sixth Circuit and Fourth Circuit Courts of Appeals broke with the Second and Fifth Circuits and determined that interested parties may rely on Section 1782 to obtain evidence for use in a privately constituted international arbitration proceeding. In September 2019, the Sixth Circuit analyzed the definition and interpretation of the word “tribunal” at length (relying on the ordinary meaning of the word, several dictionary definitions, the use of the word in legal writing, and an examination of the statute’s text, context and structure) and held that the language of Section 1782 unambiguously “includes private commercial arbitral panels established pursuant to contract and having the authority to issue decisions and bind the parties.” Abdul Latif Jameel Transportation Co. Ltd. v. FedEx Corp., 939 F.3d 710, 723 (6th Cir. 2019). A few months later, the Fourth Circuit followed. In March 2020, the Fourth Circuit agreed that private arbitral tribunals are “foreign tribunals” within the meaning of Section 1782, and rejected a litany of policy arguments advanced by the respondent. Servotronics, Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020).
Although district court decisions have been deeply divided on the issue since Intel, there is now strong momentum gathering at the appellate level favoring the use of Section 1782 in aid of private commercial arbitration. For example, California district courts had uniformly followed the Second and Fifth Circuits in holding that an applicant may not obtain evidence through Section 1782 for use in a private commercial arbitration—until recently. In February 2020, a federal court in the Northern District of California adopted the reasoning and conclusion of the Sixth Circuit’s decision regarding Section 1782’s application to private international arbitration. HRC-Hainan Holding Company, LLC v. Yihan Hu, No. 19-mc-80277, 2020 WL 906719 (N.D. Cal. Feb. 25, 2020). That case is now on appeal, and the Ninth Circuit is positioned to rule on the issue.
In sum, the already powerful Section 1782 has seen its applicability bolstered by two of the highest courts in the U.S. indicating that Section 1782 will remain an indispensable tool in any international lawyer’s toolbox for the foreseeable future.
About the authors:
Arnie Lacayo (firstname.lastname@example.org) is a Shareholder and Cristina Vicens (email@example.com) is an Attorney at Sequor Law. Lacayo and Vicens focus their practices on investigations, financial fraud and corruption-related asset recovery cases, as well as cross-border insolvency. Both Lacayo and Vicens have extensive experience with the Section 1782 statute, including in some of the most-cited cases in the U.S.
- Who We Are
- Sequor Law Team
- Left Column
- Right Column
- What We Do
- Left Column
- Center Column
- Right Column
- Representative Cases
1111 Brickell Avenue
Miami, Florida 33131
Phone: (+1) 305-372-8282
Fax: (+1) 305-372-8202