Bankruptcy

• Author: International Law Group

Phyllis Hoffman (plaintiff) was one of about 950,000 buyers who are parties to a Vehicle Service Contract (VSC) guaranteed by National Warranty Insurance Group (NWIG). NWIG is a Cayman Islands corporation. It operated a risk retention group insuring group members who were obligated to contract holders who had bought VSCs from those group members. NWIG's principal place of business was Lincoln, Nebraska and all of its business and assets lay within the United States.

After a number of incidents where group members declined to let NWIG use their reserve accounts to pay claims, plaintiff filed a lawsuit against NWIG which she hoped to convert into a class action. NWIG then transferred $24 million out of its U.S. bank accounts to banks in the Cayman Islands and filed for liquidation under Cayman law.

NWIG's official liquidators were Theo Bullmore and Simon Whicker. They filed a petition in a Nebraska bankruptcy court under 11 U.S.C. Section 304 seeking to enjoin all proceedings against the assets linked to the Cayman Island liquidation. Plaintiff, on behalf of herself and others similarly situated, opposed the requested Section 304 relief. After conducting a trial on the merits of the injunction, the bankruptcy court granted it. The Bankruptcy Appellate Panel affirmed the decision of the bankruptcy court. On further appeal, the U.S. Court of Appeals for the Eighth Circuit also affirms. According to the Court of Appeals, the key issue is whether the Bankruptcy Appellate Panel had mistakenly upheld the bankruptcy court's decision to exercise ancillary jurisdiction over the present matter.

"Congress expressly granted ancillary jurisdiction to bankruptcy courts to act as local auxiliaries to a foreign bankruptcy proceeding to honor requests from foreign representatives for the turnover of assets, injunctions and other such relief. See 11 U.S.C. Section 304 (2004). Ancillary jurisdiction is triggered by a foreign representative filing a petition showing the commencement of a foreign proceeding. Id. [Plaintiff] challenges the bankruptcy court's finding [that] the Cayman Islands liquidation was a 'foreign proceeding.' As this challenge implicates the bankruptcy court's jurisdiction, we review the matter de novo."

The Bankruptcy Code defines the term 'foreign proceeding' as: 'a proceeding, whether judicial...