United States: SDNY Bankruptcy Court Enters Final Default Judgments Against Properly Served Foreign Defendants

Recently, in the Advance Watch bankruptcy, the Bankruptcy Court for the Southern District of New York ruled that a bankruptcy judge is authorized to enter a final default judgment in an adversary proceeding against a foreign defendant who failed to respond to a validly-served summons and complaint, in spite of being an Article I judge.1  Notably, the court found that the recent Supreme Court decision, Wellness International Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015), a further iteration of the Stern v. Marshall2 line of cases, made clear that Article I judges can enter final orders with respect to claims that they would otherwise not have constitutional authority to issue final rulings on based on waiver by or consent of the parties.  The court then found that failing to respond to a served summons and complaint constituted such a waiver.

Background

In Advance Watch, the Plaintiff, the trustee for a creditor trust organized under the Debtor's confirmed chapter 11 plan, initiated adversary proceedings against three foreign defendants (the "Defendants"), all located in Hong Kong, to avoid and recover allegedly preferential transfers between the Debtor and the Defendants.3  In each of the adversary proceedings, the Plaintiff: (1) filed a complaint in the bankruptcy court; (2) served the summons and complaint on the Defendants by having the bailiff's assistant of the High Court of Hong Kong to personally serve each Defendant at its Hong Kong address; (3) filed a proof of service with the bankruptcy court; (4) requested that the clerk issue a certificate of default in the bankruptcy court; (5) served the certificate of default on the Defendants by U.S. mail; (6) moved for entry of default judgment and filed a notice of presentment of order for default judgment in the bankruptcy court; and (7) served the motion for entry of a default judgment and notice of presentment on each Defendant in Hong Kong via U.S. Mail.4  Throughout this entire process—which began on September 28, 2017 and concluded on April 30, 2018—the Defendants failed to appear and made no other responsive filings.5

Issue Presented and Applicable Law

The question before the court was whether it had the authority to enter a final default judgment against each of the Defendants where each was properly served, but failed to respond.6  In answering this question, the court looked to Rule 55 of the Federal Rules of Civil Procedure, which governs default judgments and is incorporated in the Bankruptcy Rules through Rule 7055, and the bankruptcy court's constitutional authority to enter final judgments.7  Rule 55(a) provides that the clerk "must" enter a default judgment, "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and the failure is shown by affidavit or otherwise."8  Rule 55(b) further provides that if a plaintiff's claim is "for a sum certain or a sum that can be made certain by computation, the Clerk must enter judgment against the defaulting party in the amount of the claim."9

As to the bankruptcy court's constitutional authority, the court first noted that Stern v. Marshall, a seminal case regarding the bankruptcy court's constitutional authority to issue final judgments, left open an important issue: "whether an Article I bankruptcy judge may enter a final order or judgment with respect to non-core and so-called Stern claims (i.e., statutorily core, but requiring an Article III judge to enter final orders or judgment) based on waiver by or consent of the parties."10  The court then explained its view that the Supreme Court's recent decision in Wellness Int'l Network, Ltd. v. Sharif resolved this issue by holding that "allowing bankruptcy litigants to waive the right to Article III adjudication of Stern claims does not usurp the constitutional prerogatives of Article III courts."11  A party can, thus, consent to final adjudication of such claims in the bankruptcy court and, importantly, "consent need not be express."12  The court then ruled that bankruptcy courts may, therefore, enter default judgment in an adversary proceeding based on implied consent resulting from a defendant's failure to respond to a summons and complaint. 

The court also concluded that its authority for entering such a default was consistent with its own prior precedent in Oldco M Corp., which predated Wellness,13 and which several other bankruptcy courts had applied following the Wellness decision.14

The Court's Analysis

Applying the standard to the case at hand, the court reasoned that it could grant the motion for default judgment against the Defendants so long as: (1) the appropriate documents were properly served on all Defendants; and (2) the motion for default judgment was for a sum certain or a sum that could be made certain by computation as required under Rule 55.15

First, in regards to service, the court, applying Rule 4(f) and (h), which together govern service on foreign corporations, concluded that the Plaintiff properly served the Defendants with the summons and complaint.16  Walking through one example, the court explained that the Plaintiff, in compliance with the Hague Convention and Hong Kong's High Court rules of service of process, caused the bailiff's assistant to personally serve a summons and complaint on the Defendant at its Hong Kong address, that the Defendant's secretary voluntarily accepted the service, and that the Plaintiff then obtained and filed a certificate confirming the date and place that the summons and complaint were served on the Defendant, and supplemented the certificate with an affidavit from the bailiff's assistant identifying the method and recipient of service.17  The court found that taken together, these facts satisfied Rule 4's service requirements on a foreign corporation.  The court also concluded that service of the remaining documents—including the certificate of default, and motion for default judgment—were properly served via mailings to the Defendant's last known address in compliance with the more flexible requirements of Rule 5, which applies to service of documents other than complaints.18

Second, in regards to the sum certain requirement, the court concluded that the Plaintiff's motion for a specified amount ($15,006.99), which included interest and costs, and which was supported by a declaration and bank statements evidencing the transfers and the amount the Plaintiff sought to avoid and recover, satisfied Rule 55's sum certain requirement.19

The court stated in summary: "The fact that the three Defendants are located in Hong Kong does not save them: The Plaintiff complied with the applicable provisions of the Hague Convention, Hong Kong law and U.S. Bankruptcy law."20  The court thus granted the motion for entry of default judgments against all Defendants.21              

Footnotes

1 Kravitz v. Deacons (In re Advance Watch Co., Ltd.), No. 15-12690, 2018 WL 3203386 (Bankr. S.D.N.Y. June 29, 2018).

2 564 U.S. 462 (2011).

3 In re Advance Watch Co., Ltd., at *1.

4 Id. at *1-2.

5 Id. at *2.

6 Id. at *1.

7 Id. at *2.

8 In re Advance Watch Co., Ltd., at *2 (citing Fed. R. Civ. P. 55(a)).

9 Id. (citing Fed. R. Civ. P. 55(b)).

10  Id. at *3.

11 Id. (citing Wellness at 1945-46).

12 Id. (citing Wellness at 1948 n.13).

13 In Oldco, the court had concluded that implied consent was a proper basis for upholding the bankruptcy court's authority to enter a final order or judgment in an adversary proceeding against a validly-served defendant. In re Oldco M Corp., 484 B.R. 598 (Bankr. S.D.N.Y. 2012).

14 In re Advance Watch Co., Ltd., at *3 (citing Campbell v. Carruthers (In re Campbell), 553 B.R. 448, 452-53 (Bankr. M.D. Ala. 2016); Hopkins v. M & A Ventures, dba Hiwide Transp. Ltd., (In re Hoku Corp.), AP No. 15-08043, 2015 WL 8488949, at *1-2 (Bankr. D. Idaho 2015)).

15 Id. at *4.

16 Id. at *5.

17 Id.

18 Id. at *6.

19 Id.

20 In re Advance Watch Co., Ltd., at *6.

21 Id.

This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions