Official Committee of Unsecured Creditors of Arcap v. Tadhamon Capital B.S.C.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re 	Chapter 11
ARCAPITA BANK B.S.C.(c), et al. 	Case No. 12-11076 (SHL)
Reorganized Debtors. 	(Jointly Administered)
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OFFICIAL COMMITTEE OF UNSECURED
CREDITORS OF ARCAPITA BANK B.S.C.(c),
et al.,
Plaintiff,
vs.
Adv. No. 13-01434 (SHL)
BAHRAIN ISLAMIC BANK,
Defendant.
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OFFICIAL COMMITTEE OF UNSECURED
CREDITORS OF ARCAPITA BANK B.S.C.(c),
et al.,
Plaintiff,
vs.
Adv. No. 13-01435 (SHL)
TADHAMON CAPITAL B.S.C.,
Defendant.
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MODIFIED BENCH RULING ON
DEFENDANTS’ MOTIONS FOR RECONSIDERATION
A P P E A R A N C E S:
MILBANK, TWEED, HADLEY & McCLOY LLP
Counsel for Official Committee of Unsecured Creditors
of Arcapita Bank B.S.C.(c), et al.
By: 	Andrew M. Leblanc, Esq.
1850 K Street, NW, Suite 1100
Washington, D.C. 20006
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K&L GATES LLP
Counsel for Bahrain Islamic Bank and Tadhamon Capital B.S.C.
By: 	Robert Honeywell, Esq.
John A. Bicks, Esq.
Priya Chadha, Esq.
599 Lexington Avenue
New York, New York 10022
SEAN H. LANE
UNITED STATES BANKRUPTCY JUDGE
Before the Court is the motion of Defendants Bahrain Islamic Bank and Tadhamon
Capital B.S.C. to reconsider the Court’s memorandum decision issued on October 13, 2017 and
the related orders entered on November 3, 2017.1 The memorandum decision and orders denied
the Defendants’ motions to dismiss their respective adversary proceedings, and held that (1) the
facts of the case weighed against this Court’s abstention based on international comity, and (2)
the presumption against extraterritoriality was inapplicable because the case did not involve an
extraterritorial application of the statute in question.
The Defendants offer two reasons for the requested relief. First, they argue that there has
been an intervening change in controlling law. Second, they believe that this Court has
overlooked controlling decisional authority when making its ruling. But for the reasons to be
discussed, the Court denies the Defendants’ motion.
The relief sought is under Rule 59 of the Federal Rules of Civil Procedure, which is made
applicable to these adversary proceedings by Rule 9023 of the Federal Rules of Bankruptcy
Procedure. The standard for granting a motion under Federal Rule 59(e) is “strict, and
reconsideration will generally be denied unless the moving party can point to controlling
decisions or data that the court overlooked.” Analytical Surveys, Inc. v. Tonga Partners, L.P.,
1 	This written decision memorializes the Court’s bench ruling that was read into the record on January 16, 2018. Because of its origins
as a bench ruling, this decision has a more conversational tone.
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684 F.3d 36, 52 (2d Cir. 2012). “In other words, reconsideration is appropriate only where there
is an intervening change of controlling law, newly available evidence, or the need to correct a
clear error or prevent manifest injustice.” Perez v. Progenics Pharmaceuticals, Inc., 46 F.
Supp.3d 310, 314 (S.D.N.Y. 2014) (internal citations omitted). Such request for relief “is not a
vehicle for relitigating old issues, presenting the case under new theories, securing a rehearing on
the merits, or otherwise taking a ‘second bite at the apple.’” Tonga Partners, 684 F.3d at 52
(internal citations omitted). Thus, reconsideration is “an extraordinary remedy to be employed
sparingly in the interests of finality and conservation of scarce judicial resources.” In re Health
Management Sys. Inc. Sec. Litig., 113 F.Supp.2d 613, 614 (S.D.N.Y.2000) (internal citations
omitted). The burden for such a motion rests with the movant. See In re Crozier Bros., Inc., 60
B.R. 683, 688 (Bankr. S.D.N.Y. 1986).
A. Intervening Change in Controlling Law
As to their first argument, the Defendants rely on a recent Second Circuit decision in
Bascunan v. Elsaca, 874 F.3d 806 (2d Cir. 2017). Defendants contend that Bascunan represents
an intervening change in law that requires this Court to modify its memorandum decision, which
was issued before Bascunan.
In its memorandum decision, this Court found that the presumption against
extraterritoriality was inapplicable because the case does not involve extraterritorial application
of Section 547 of the Bankruptcy Code. This is because the conduct targeted by Section 547—
the transfer of property— took place in the United States. Specifically, the transfers in question
were made by the Debtor to the Defendant using New York correspondent bank accounts. See In
re Arcapita Bank B.S.C.(C), 575 B.R. 229, 245 (Bankr. S.D.N.Y. 2017). The Defendants argue
that under the holding in Bascunan, a defendant’s momentary use of a U.S. correspondent bank
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account cannot transform a foreign transaction into a domestic one for purposes of
extraterritoriality, and thus Bascunan necessitates a reversal of this Court’s reliance on the use of
the correspondent accounts.
But the Bascunan case is quite different from the one before this Court. Bascunan
interpreted the civil suit provision of the Racketeer Influenced and Corrupt Organizations Act
(“RICO”). Civil RICO gives a private right of action to “[a]ny person injured in his business or
property by reason of a violation of [RICO's substantive provisions, codified in Section 1962].”
Bascunan, 874 F.3d at 809 (emphasis added). This “domestic injury” requirement was discussed
extensively in Bascunan. The Defendants interpret this discussion in Bascunan as an
independent requirement apart from its RICO origins, even appearing to suggest that it should be
applied in every extraterritorial analysis regardless of the statute at issue. See Motion at 6
(characterizing the “domestic injury” requirement as “an extraterritoriality standard” set out in
the RJR Nabisco case). But Defendants’ position ignores that Bascunan specifically framed the
question before it as “whether the plaintiffs have plausibly alleged ‘a domestic injury’ to their
business or property within the meaning of Section 1964(c). . . .” Id. at 809 (emphasis added).
Said another way, the court in Bascunan analyzed whether the plaintiffs had satisfied the
requirements for a civil RICO claim. The court did so in light of the Supreme Court’s recent
ruling in RJR Nabisco v. European Community, 136 S. Ct. 2090 (2016), which held that RICO’s
civil suit provision did not apply extraterritorially. More specifically, the Supreme Court held
that “Section 1964(c) requires a civil RICO plaintiff to allege and prove a domestic injury to
business or property and does not allow recovery for foreign injuries.” Id. at 2111 (emphasis in
original). 	The Supreme Court stated that:
Section 1964(c) allows “[a]ny person injured in his business or property by reason
of a violation of section 1962” to sue for treble damages, costs, and attorney's
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fees. Irrespective of any extraterritorial application of § 1962, we conclude that §
1964(c) does not overcome the presumption against extraterritoriality. A private
RICO plaintiff therefore must allege and prove a domestic injury to its business or
property.
Id. at 2106 (emphasis in original). Thus, it is clear that the domestic injury requirement is one
embedded in the RICO statute – that is to say, it is the focus of that statute’s concern. Id. at
2106.
Given the ruling in RJR Nabisco, the task before the Second Circuit in Bascunan was to
determine whether the alleged injury under the civil RICO statute took place in the United States
or overseas. See Bascunan, 874 F.3d at 809. Not surprisingly then, the Court in Bascunan
engaged in an extensive discussion regarding what constitutes an injury under the civil RICO
statute. See id. at 817-18. So while the Defendants assert that the Second Circuit “spoke broadly
against using a defendant’s mere use of the U.S. banking system as a basis for asserting the
jurisdiction of U.S. courts over their transactions,” Motion at 6, the passages of Bascunan that
are cited by the Defendants all explicitly relate to where and how the alleged civil RICO “injury”
in Bascunan took place. See Bascunan, 874 F.3d at 819.
In the Arcapita memorandum decision, by contrast, this Court was tasked with
interpretation of Section 547 of the Bankruptcy Code, relating to avoidance of preferential
transfers. The Court’s inquiry was distinct from Bascunan because, as this Court stated in the
memorandum decision, the “focus of the Bankruptcy Code’s avoidance and recovery provisions
is the initial transfer that depletes the property that would have become property of the estate.”
See In re Arcapita, 575 B.R. at 244 (quoting In re Ampal-American Israel Corp., 562 B.R. 601,
613 (Bankr. S.D.N.Y. 2017 (citing cases)). Similar to Bascunan, and as required by the Supreme
Court decision in Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247 (2010), once the Court in
the memorandum decision determined the focus of the statute, it then set about determining
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whether the activity that is the focus of the statute had taken place in the United States or
overseas. The Court held that this case involved a permissible domestic application of the statute
because the conduct in question—the transfers between Arcapita and the Defendants—took
place in the United States. See id. at 245. This inquiry is distinct from an analysis of where the
injury occurred; that later focus is a reflection of the civil RICO statute as interpreted by the
Supreme Court and Second Circuit. Thus, the Second Circuit’s analysis in Bascunan does not
constitute an intervening change in law for purposes of this case.
For similar reasons, the Court also rejects the Defendants’ argument that Bascunan
requires this Court to reverse its decision not to abstain from hearing this case on grounds of
international comity. Indeed, the Bascunan case does not address international comity or
jurisdictional abstention. Moreover, it deals with a completely distinct fact pattern and federal
statute. It also does not involve a bankruptcy proceeding, a fact quite relevant to this Court’s
conclusion on international comity.
B. Overlooking Controlling Authority
As to its second argument, the Defendants assert that the Court has overlooked
controlling authority of the Second Circuit relating to extraterritoriality. When examining
whether the conduct in question took place in the United States or abroad, the Court’s
memorandum decision declined to follow the “component events” test of Maxwell
Communication Corp. v. Societe Generale (In re Maxwell Communication Corp.), 186 B.R. 807
(S.D.N.Y. 1995). The Court noted that a similar analysis—the “conduct and effects” test—was
abrogated by the later Supreme Court decision of Morrison v. Nat’l Australia Bank Ltd., 561
U.S. 247. Instead, this Court relied on the standard announced by the Supreme Court in
Morrison that examines the “focus” of the statute, i.e., the “objects of the statute's solicitude” or
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“those transactions that the statute seeks to regulate.” Id. at 267. The Defendants nonetheless
argue that Second Circuit cases decided subsequent to Morrison require the Court to evaluate
“all relevant conduct within a statute’s focus” to determine whether the conduct was domestic or
foreign, even suggesting that the Court must examine each element of Section 547 to determine
if it took place in the United States. See Motion at 2.
But Defendant’s second argument fares no better than the first. As an initial matter, the
cases cited by the Defendants specify that the conduct to be examined for an extraterritoriality
inquiry is the conduct that is the focus of the statutory provision or the object of the statute’s
solicitude, and that is the very test applied by this Court in the memorandum decision. See
Microsoft Corp. v. U.S. (In re Warrant), 829 F.3d 197, 216 (2d Cir. 2016); Mastafa v. Chevron
Corp., 770 F.3d 170, 183-84 (2d Cir. 2014); Licci v. Lebanese Canadian Bank, SAL, 834 F.3d
201, 215 (2d Cir. 2016). Moreover, the question of which test should be applied for
extraterritoriality was briefed by the parties and discussed extensively by the Court in the
memorandum decision. Indeed, extensive portions of the Defendants’ motion simply reargue the
legal standard and this Court’s interpretation of it from a new viewpoint in light of the Court’s
ruling. See, e.g., Motion at 15 n.18. For example, the Defendants once again rely upon when
they acquired full title to the funds that were transferred and when this occurred, an issue
previously briefed and discussed by the Court. See Motion at 2, 16; In re Arcapita, 575 B.R. at
247 (noting Defendants’ focus not on the transfers, but on component events, including financial
aspects of the transaction). In the same vein, the Defendants once again cite to the number of
contacts with the United States. See Motion at 12 n. 16 (citing U.S. v. Prevezon, 2017 WL
1951142 (S.D.N.Y. May 10, 2017)); In re Arcapita, 575 B.R. at 248 (specifically discussing
Prevezon and Defendants’ argument about number of contacts and extent of significant activity).
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It is inappropriate to revisit such issues now. See Griffin Indus., Inc. v. Petrojam, Ltd., 72 F.
Supp. 2d 365, 368 (S.D.N.Y. 1999) (“These criteria are strictly construed against the moving
party so as to avoid repetitive arguments on issues that have been considered fully by the
court.”); Perez, 46 F. Supp. 3d at 314 (Federal Rule 59(e) and Bankruptcy Rule 9023 “are meant
to ensure the finality of decisions and to prevent the practice of a losing party examining a
decision and then plugging the gaps of a lost motion with additional matters.”).
In addition to these two arguments, the Court notes that Defendants also raise new legal
arguments not previously raised in the underlying motions. See, e.g., Motion at 9-10 (raising
practical arguments about the policy implications of the Court’s decision); Motion at 4 n.9, 17
n.20 (arguing that preference claims in the complaint fail to meet the Iqbal pleading standard for
surviving a motion to dismiss). But such new arguments are not an appropriate basis for relief in
a motion for reconsideration. 	See Liberty Media Corp. v. Vivendi Universal, S.A., 861 F. Supp.
2d 262, 265 (S.D.N.Y. 2012) (“A motion for reconsideration is not an opportunity for making
new arguments that could have been previously advanced, nor is it a substitute for appeal.”)
(citations and quotation marks omitted); Sequa Corp. v. GBJ Corp., 156 F.3d 136, 144 (2d Cir.
1998) (motion for reargument is not an opportunity to present the case under new theories,
secure a rehearing on the merits, or otherwise take a “second bite at the apple.”).
For all those reasons the reconsideration motion is denied.
Dated: New York, New York
February 5, 2018
/s/ Sean H. Lane
UNITED STATES BANKRUPTCY JUDGE
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