Sino-Forest Corporation and Ontario Class Action Plaintiffs

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK 	FOR PUBLICATION
In re:
SINO-FOREST CORPORATION,
Debtor in a Foreign Proceeding.
Chapter 15
Case No. 13-10361 (MG)
MEMORANDUM OPINION GRANTING MOTION TO RECOGNIZE AND ENFORCE
ORDER OF ONTARIO COURT APPROVING E&Y SETTLEMENT INCLUDING
THIRD-PARTY RELEASE
A P P E A R A N C E S:
MILBANK, TWEED, HADLEY & McCLOY LLP
Attorneys to FTI Consulting Canada Inc.,
as Foreign Representative of the Canadian Proceeding
of Sino-Forest Corporation
One Chase Manhattan Plaza
New York, NY 10005-1413
By: 	Dennis F. Dunne, Esq.
Thomas J. Matz, Esq.
Jeremy C. Hollembeak, Esq.
ALLEN & OVERY LLP
Attorneys for Ernst & Young LLP
1221 Avenue of the Americas
New York, NY 10020
By: 	Ken Coleman, Esq.
Jonathan Cho, Esq.
LOWENSTEIN SANDLER LLP
Chapter 15 Counsel for Class Action Plaintiffs
1251 Avenue of the Americas
New York, NY 10020
By: 	Michael S. Etkin, Esq.
Tatiana Ingman, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Before the Court is Ernst & Young LLP’s (“E&Y”) Motion to Recognize and Enforce
Order of Ontario Court Approving E&Y Settlement (the “Motion”). (ECF Doc. # 18.) The
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Motion is supported by a Memorandum of Law in Support of Motion to Recognize and Enforce
Order of Ontario Court Approving Ernst & Young Settlement (ECF Doc. # 19), along with the
Declaration of Ken Coleman in Support of Petition for Recognition of Foreign Proceedings
(ECF Doc. # 21), which attaches various orders issued by the Canadian courts. Two joinders in
the Motion were also filed: (1) Joinder of Foreign Representative in (I) Motion to Recognize
and Enforce Order of Ontario Court Approving Ernst & Young Settlement and (II) Memorandum
of Law in Support of Motion to Recognize and Enforce Order of Ontario Court Approving Ernst
& Young Settlement (the “FTI Joinder,” ECF Doc. # 22), and (2) U.S. Class Action Plaintiffs’
and Canadian Class Action Plaintiffs’ Joinder to the Motion to Recognize and Enforce Order of
Ontario Court Approving Ernst & Young Settlement (the “Class Action Plaintiffs’ Joinder,” ECF
Doc. # 25). A Notice of Filing of Order of Quebec Court Permanently Staying Class Action
Against E&Y was filed. (ECF Doc. # 26.) Additionally, the Declaration of Kurt J. Elgie
Regarding Notice to the Class (ECF Doc. # 27), and the Supplemental Declaration of Kurt J.
Elgie Regarding Notice to the Class (ECF Doc. # 28) were also filed. The Motion is unopposed.
Through the Motion, E&Y seeks entry of an order giving full force and effect in the
United States to the March 20, 2013 order (the “Settlement Order”) of the Ontario Superior
Court of Justice (Commercial List) (the “Ontario Court”) in the proceeding (the “Canadian
Proceeding”) of Sino-Forest Corporation (“SFC”) under Canada’s Companies Creditors
Arrangement Act (as amended, the “CCAA”). The Settlement Order approves the settlement of
class action claims against E&Y and implements a global release in favor of E&Y (the “E&Y
Settlement”) under SFC’s plan of compromise and reorganization dated December 3, 2012 (the
“Plan”).
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This is the first time this Court has been asked to grant comity in a chapter 15 case to a
foreign court order approving a third-party non-debtor release since the Fifth Circuit’s decision
in In re Vitro S.A.B. de C.V., 701 F.3d 1031 (5th Cir. 2012), affirming a bankruptcy court
decision declining to grant comity in a chapter 15 case to a Mexican court order that included
third-party releases. In a decision preceding the Vitro decision, this Court granted comity to a
Canadian court order that included third-party releases. See In re Metcalfe & Mansfield
Alternative Investments, 421 B.R. 685 (Bankr. S.D.N.Y. 2010). Metcalfe is almost on all fours
with this case, and the Court concludes below that nothing in Vitro would require a different
result here. Therefore, the Motion to recognize and enforce the Canadian court order is
GRANTED.
I. 	BACKGROUND
On February 4, 2013, FTI, as Foreign Representative and Monitor, commenced this case
by filing a Verified Petition for Recognition of Foreign Proceeding and Related Relief (the
“Verified Petition,” ECF Doc. # 1). On April 15, 2013, this Court granted the relief requested in
the Verified Petition and entered an order (the “Recognition Order,” ECF Doc. # 16) (a)
recognizing the Canadian Proceeding as a “foreign main proceeding” under section 1517 of the
Bankruptcy Code and (b) enforcing in the United States (i) certain provisions of the Ontario
Court’s Initial Order dated March 30, 2012 (the “Initial Order”) and (ii) the Ontario Court’s Plan
Sanction Order dated December 10, 2012, sanctioning the Plan (the “Plan Sanction Order”).
The Motion seeks the recognition and enforcement of the Settlement Order approving the
E&Y Settlement, pursuant to which E&Y will pay CAD $117 million to resolve claims asserted
against it in class action litigations filed by plaintiffs in Canada (the “Canadian Class Actions”)
and the United States (the “U.S. Class Action,” and together with the Canadian Class Actions,
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the “Class Actions”) on behalf of all persons and entities, wherever they may reside, who
acquired any securities of SFC, including securities acquired in the primary, secondary, and
over-the-counter markets (the “Securities Claimants”). Those proceedings were commenced
against SFC and certain of its former officers, directors, underwriters, and auditors, including
E&Y (together, the “Third Party Defendants”), on the basis of alleged misrepresentations in
SFC’s financial statements issued before 2011. E&Y, SFC’s external auditor from 2007 to 2012,
is a named defendant in the Class Actions.
In the course of the Canadian Proceeding, E&Y and the plaintiffs in the Canadian Class
Actions successfully negotiated the terms of a settlement that is supported by substantially all
constituents in the Canadian Proceeding, including the lead plaintiffs in each of the Class
Actions. In addition, the plaintiffs in the U.S. Class Action filed a claim in the Canadian
Proceeding, and Canadian counsel for the U.S. plaintiffs appeared on their behalf at the
respective hearings on the Plan Sanction Order and the Settlement Order. The terms of the E&Y
Settlement provide that following E&Y’s CAD $117 million payment into a settlement trust fund
(the “Settlement Fund”) for the benefit of the Securities Claimants, Article 11.1(a) of the Plan
will grant E&Y a global release and the benefit of certain injunctions under the Plan. E&Y also
agreed to release all claims, including indemnification claims, it may have against each of SFC
and SFC’s subsidiaries, officers, and directors. E&Y also relinquished its rights to any
distributions under the Plan and agreed to support the Plan’s approval.
The Ontario Court approved the E&Y Settlement with the entry of the Settlement Order
on March 20, 2013, and on June 26, 2013, the Court of Appeal for Ontario dismissed motions for
leave to appeal the Plan Sanction Order and the Settlement Order brought by certain minority
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investors in SFC. 1 Both courts specifically found that the approval of the Plan Sanction Order
and the Settlement Order was consistent with a prior opinion of the Court of Appeal for Ontario
establishing the requirements for third-party releases under the CCAA. 2
The principal remaining condition that must be satisfied before the E&Y Settlement can
be implemented is the recognition and enforcement of the Settlement Order in the United States.
The Ontario Court expressly requested this Court’s assistance in implementing and enforcing the
Settlement Order in this jurisdiction and has authorized E&Y to apply to any appropriate court
for the relief requested.
A. The Plan
Article 11.1 of the Plan contains the agreed framework for giving effect to the E&Y
Settlement. Article 11.1(a) of the Plan provides that if: (1) the Plan Sanction Order is entered,
(2) the Ontario Court approves by order the E&Y Settlement, (3) the Plan Sanction Order and the
Settlement Order are enforced in the United States through chapter 15 of the Bankruptcy Code,
(4) all orders are final orders not subject to further appeal or challenge, and (5) all other
conditions precedent to the E&Y Settlement are met, E&Y will pay CAD $117 million into a
settlement trust fund for the benefit of the Securities Claimants in settlement of all claims
asserted against it in the Class Actions. Upon that payment, Article 11.1(b) of the Plan provides
that E&Y will receive a global release and the benefit of certain injunctions under the Plan.
Further, none of the Securities Claimants will be entitled to claim from any Third Party
1 These minority investors (the “Objectors”) held, in the aggregate, approximately 1.62% of SFC’s
outstanding equity on June 30, 2011, and first appeared in the Canadian Proceeding shortly before the hearing to
consider the sanction of the Plan. E&Y refrained from seeking enforcement of the Settlement Order in the United
States until the resolution of the Objectors’ motion for leave to appeal the Settlement Order.
2 ATB Financial v. Metcalfe and Mansfield Alternative Investments II Corp., 2008 ONCA 587 at ¶¶ 26-28,
92 O.R. (3d) 513, leave to appeal refused, [2008] S.C.C.A. No. 337.
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Defendant any portion of damages that corresponds to the liability of E&Y, proven at trial or
otherwise, that is the subject of the E&Y Settlement.
At the hearing to consider the sanctioning of the Plan and in entering the Plan Sanction
Order, the Ontario Court fully considered and dismissed the Objectors’ concerns—which
focused on Article 11 of the Plan—and found that the Plan was fair and reasonable and satisfied
the applicable test for sanction under the CCAA. Soon after, three of the Objectors filed a notice
of motion (the “Sanction Appeal Motion”) for leave to appeal those portions of the Plan Sanction
Order relating to Article 11 of the Plan, but did not seek an intervening stay of the Plan’s
implementation. Accordingly, the Plan became effective on January 30, 2013.
B. The E&Y Settlement
The E&Y Settlement principally provides that E&Y will pay CAD $117 million into the
Settlement Fund in settlement of all claims asserted against E&Y in the Class Actions, upon
satisfaction of certain conditions precedent. Once payment is made, E&Y will benefit from the
release and injunction provisions of the Plan as against all parties. The Settlement Fund will be
distributed to or for the benefit of eligible Securities Claimants pursuant to a plan of allocation to
be submitted to the Ontario Court for approval. Aside from this significant monetary payment
and the obvious benefit to affected Canadian and U.S. investors, E&Y has made substantial non-
monetary concessions and contributions that further warrant recognition and enforcement of the
E&Y Settlement in the United States.
In particular, E&Y also: (1) released all claims, including indemnification claims,
asserted against SFC and SFC’s subsidiaries, officers, and directors; (2) relinquished all rights to
distributions under the Plan; (3) agreed not to seek leave to further appeal a decision relating to
equity claims, and a related decision of the Court of Appeal for Ontario, to the Supreme Court of
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Canada; (4) voted in favor of the Plan; and (5) supported the entry of the Plan Sanction Order.
By making these additional concessions, E&Y not only waived substantial claims which, if
allowed, would have diluted recoveries to other creditors, but E&Y also eliminated the expense
and delay of litigating these claims in full. Numerous parties, including the Monitor, SFC, and
the Ontario Court, have recognized that the deterioration of SFC’s assets made an expedited
implementation of the Plan essential. Moreover, the Ontario Court observed in a settlement
endorsement (the “Settlement Endorsement,” attached as Ex. B to Coleman Decl.) that the
“unencumbered participation of the SFC subsidiaries is crucial to the restructuring,” and the Plan
intended to facilitate the subsidiaries’ continued operations free from the claims and uncertainty
associated with SFC. Settlement Endorsement ¶¶ 68–69. Thus, E&Y’s concessions in the E&Y
Settlement provided additional benefits to the restructuring effort and removed a potentially
substantial obstacle to an expeditious implementation of the Plan.
C. Canadian Court Approval and ATB Financial
The Ontario Court approved the E&Y Settlement and entered the Settlement Order on
March 20, 2013, following a February 4, 2013 hearing at which the court considered and
overruled the objections of the Objectors (who were the only parties who appeared in
opposition). In addition, the Ontario Court entered an order, also dated March 20, 2013, denying
the Objectors’ motion to be appointed as representative of all proposed class members who
opposed the E&Y Settlement (the “Representation Dismissal Order”).
The Ontario Court’s bases for its decision are detailed in the Settlement Endorsement.
As a threshold matter, the Ontario Court noted that outstanding litigation claims against third
parties are regularly compromised and settled in CCAA proceedings, and in particular that “[i]t
is well established that class proceedings can be settled in a CCAA proceeding.” Settlement
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Endorsement ¶¶ 36–37. It further observed that “[s]uch compromises fully and finally dispose of
such claims, and it follows that there are no continuing procedural or other rights in such
proceedings . . . [s]imply put, there are no ‘opt-outs’ in the CCAA,” thereby making clear that it
was considering the approval of the E&Y Settlement within the context of the Canadian
Proceeding and the CCAA. Id. ¶ 36 (emphasis added). With respect to the E&Y Settlement’s
release provisions, the Ontario Court noted that “third-party releases are not an uncommon
feature of complex restructurings under the CCAA” and considered whether the release in the
E&Y Settlement satisfied the applicable standards for third-party releases in CCAA proceedings
established by the Court of Appeal for Ontario in ATB Financial.
In ATB Financial, a decision rendered in connection with the restructuring of the
Canadian asset-backed commercial paper market, the Court of Appeal for Ontario held that third-
party releases are permissible in CCAA restructurings where there is “a reasonable connection
between the third party claim being compromised in the plan and the restructuring achieved by
the plan to warrant inclusion of the third party release in the plan.” Settlement Endorsement ¶ 50
(citing ATB Financial at ¶ 70). As set forth in paragraph 50 of the Settlement Endorsement, in
determining whether the requisite nexus exists, a CCAA court must consider the following
factors:
a) Whether the claims to be released are rationally related to the purpose of the
plan;
b) Whether the claims to be released are necessary for the plan of arrangement;
c) Whether the parties who have claims released against them contributed in a
tangible and realistic way; and
d) Whether the plan will benefit the debtor and the creditors generally.
Id. Further, as set forth in paragraph 49 of the Settlement Endorsement, in considering a
settlement within the CCAA context, a court considers the following factors:
a) Whether the settlement is fair and reasonable;
b) Whether it provides substantial benefits to the other stakeholders; and
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c) Whether it is consistent with the purpose and spirit of the CCAA.
Id. ¶ 49.
The Ontario Court ultimately concluded that “[i]n [its] view, the [E&Y] Settlement is fair
and reasonable, provides substantial benefits to relevant stakeholders, and is consistent with the
purpose and spirit of the CCAA. In addition, in [its] view, the factors associated with the ATB
Financial nexus test favour approving the Ernst & Young Release.” Id. ¶ 66. Accordingly, it
granted the Settlement Order and approved the E&Y Settlement including the release.
On April 9, 2013, the Objectors filed a notice of motion for leave to appeal both the Settlement
Order and the Representation Dismissal Order with the Court of Appeal for Ontario (the
“Settlement Appeal Motion,” and with the Sanction Appeal Motion, the “Appeal Motions”). On
April 18, 2013, while the Settlement Appeal Motion remained pending, the Objectors separately
served in the Ontario Class Action a notice of appeal of the Settlement Order and the
Representation Dismissal Order to the Court of Appeal for Ontario (the “Settlement Appeal”).
The Objectors are the only parties who sought to appeal any of the Plan Sanction Order, the
Settlement Order, and the Representation Dismissal Order. No other party supported these
appeals, and several major constituents in the Canadian Proceeding opposed the Appeal Motions
and the Settlement Appeal.
The Court of Appeal for Ontario consolidated the Appeal Motions, and on June 26, 2013,
the court dismissed the Appeal Motions (“Appeal Endorsement,” attached as Ex. C to Coleman
Decl.). As for the Sanction Appeal Motion, the Court of Appeal for Ontario held that the
Objectors’ proposed appeal had been mooted by the intervening implementation of the Plan, but
noted that in any event, it saw no basis for interfering with the Ontario Court’s decision. The
Court of Appeal for Ontario likewise saw no basis for interfering with Ontario Court’s decision
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with respect to the Settlement Order, agreeing that “the issues raised on this proposed appeal are,
at their core, the very issues settled by this court in ATB Financial.” Appeal Endorsement ¶ 14.
Since entry of the Representation Dismissal Order naturally followed from the entry of the
Settlement Order, the Court of Appeal for Ontario dismissed the Settlement Appeal Motion.
In addition to the dismissal of the Settlement Appeal Motion, on June 28, 2013, the Court
of Appeal for Ontario granted a motion to quash the Settlement Appeal on the basis that the
Objectors had no jurisdiction to bring the appeal. According to E&Y, the Objectors intend to file
a motion seeking leave to appeal the Court of Appeal for Ontario’s orders to the Supreme Court
of Canada. As of the filing of this Motion, the Objectors had not followed through on that plan.
(Motion ¶ 32.) The Objectors were served with notice of the hearing in this Court seeking
recognition and enforcement of the E&Y Settlement, including the release provisions, but they
did not file any objections here.
II. DISCUSSION
In Metcalfe, 421 B.R. 685, the Court faced an almost identical request for relief. The
Court was also asked to enforce a Canadian order granting a non-debtor release and injunction.
The Court began by analyzing whether the requested relief could be granted in a plenary case
under chapter 11. The Court recognized that under In re Metromedia Fiber Network, Inc., 416
F.3d 136, 141 (2d Cir. 2005), the law in the Second Circuit limits availability of third-party non-
debtor releases; they are “proper only in rare cases.” While this Court thought that the facts in
Metcalfe may have satisfied the “rigorous standard established in Metromedia,” Metcalfe, 421
B.R. at 695, it was unclear whether the separate jurisdictional requirement before a bankruptcy
court may even consider whether to approve a third-party release in a plenary bankruptcy case
could be satisfied. See In re Johns-Manville Corp., 517 F.3d 52 (2d Cir. 2008), rev’d and
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remanded sub nom. Travelers Indem. Co. v. Bailey, 557 U.S. 137 (2009). After the Metcalfe
decision, the Second Circuit in dealing with Manville on remand from the Supreme Court,
adhered to its earlier view that the bankruptcy court in a plenary chapter 11 case lacks
jurisdiction to approve third-party releases unless the third-party claims may affect the res of the
estate. In re Johns-Manville Corp., 600 F.3d 135, 153 & n.13 (2d Cir. 2010). But in Metcalfe,
the Court held that the correct inquiry in a chapter 15 case was not whether the Canadian orders
could be enforced under U.S. law in a plenary chapter 11 case, but whether recognition of the
Canadian courts’ decision was proper in the exercise of comity in a case under chapter 15. 421
B.R. at 696. The Court explained:
[W]hatever the precise limits of a bankruptcy court’s jurisdiction to approve a
third-party non-debtor release and injunction in a plenary chapter 11 case, the
important point for present purposes is that the jurisdictional limits derive from
the scope of bankruptcy court “related to” jurisdiction under 28 U.S.C. § 1334,
and the prudential limits courts have applied in chapter 11 cases under the
Bankruptcy Code. This Court is not being asked to approve such provisions in a
plenary case; rather, the Court is being asked to order enforcement of provisions
approved by the Canadian courts. 	The correct inquiry, therefore, is whether the
foreign orders should be enforced in the United States in this chapter 15 case. . . .
[P]rinciples of enforcement of foreign judgments and comity in chapter 15 cases
strongly counsel approval of enforcement in the United States of the third-party
non-debtor release and injunction provisions included in the Canadian Orders,
even if those provisions could not be entered in a plenary chapter 11 case.
Id.
The Court then discussed the principles of comity that underpin chapter 15. Id. (“Chapter
15 specifically contemplates that the court should be guided by principles of comity and
cooperation with foreign courts in deciding whether to grant the foreign representative additional
post-recognition relief.”). The Court quoted the seminal comity case, Hilton v. Guyot, 159 U.S.
113, 202–03 (1895), where the Supreme Court held that if the foreign forum provides “a full and
fair trial abroad before a court of competent jurisdiction, conducting the trial upon regular
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proceedings, after due citation or voluntary appearance of the defendant, and under a system of
jurisprudence likely to secure an impartial administration of justice between the citizens of its
own country and those of other countries, and there is nothing to show either prejudice in the
court, or in the system of laws under which it is sitting,” the judgment should be enforced and
not “tried afresh.”
“Federal courts generally extend comity whenever the foreign court had proper
jurisdiction and enforcement does not prejudice the rights of United States citizens or violate
domestic public policy.” In re Atlas Shipping A/S, 404 B.R. 726, 733 (Bankr. S.D.N.Y. 2009)
(quoting Victrix S.S. Co., S.A v. Salen Dry Cargo A.B., 825 F.2d 709, 713 (2d Cir. 1987)). As
the court stated in JP Morgan Chase Bank v. Altos Hornos de Mexico, S.A., 412 F.3d 418, 424
(2d Cir. 2005), “deference to the foreign court is appropriate so long as the foreign proceedings
are procedurally fair and . . . do not contravene the laws or public policy of the United States.”
In analyzing procedural fairness, courts have looked to the following nonexclusive factors:
(1) Whether creditors of the same class are treated equally in the distribution of
assets; (2) whether the liquidators are considered fiduciaries and are held
accountable to the court; (3) whether creditors have the rights to submit claims
which, if denied, can be submitted to a bankruptcy court for adjudication;
(4) whether the liquidators are required to give notice to potential claimants;
(5) whether there are provisions for creditors meetings; (6) whether a foreign
country’s insolvency laws favor its own citizens; (7) whether all assets are
marshalled before one body for centralized distribution; and (8) whether there are
provisions for an automatic stay and for the lifting of such stays to facilitate the
centralization of claims.
Finanz AG Zurich v. Banco Economico S.A., 192 F.3d 240, 249 (2d Cir. 1999); see also In re
Cozumel Caribe, S.A. de C.V., 482 B.R. 96, 114–15 (Bankr. S.D.N.Y. 2012).
In Metcalfe, focusing specifically on extending comity to orders of Canadian courts, the
Court explained that “[t]he U.S. and Canada share the same common law traditions and
fundamental principles of law. Canadian courts afford creditors a full and fair opportunity to be
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heard in a manner consistent with standards of U.S. due process. U.S. federal courts have
repeatedly granted comity to Canadian proceedings.” Metcalfe, 421 B.R. at 698. Applying the
doctrine of comity, and recognizing that the issue of the third-party non-debtor release had been
fully and fairly litigated in the Canadian courts, the Court held that it could recognize and
enforce the release. Id. at 699. The same analysis, with the same conclusion, applies here. The
parties to the Canadian proceedings in this case had a full and fair opportunity to litigate the
issues, and the trial court reached a reasoned decision that it had the jurisdiction to grant the
requested relief and that such relief was appropriate in the circumstances. The Objectors’ appeal
to the Court of Appeal for Ontario failed. While an additional motion for leave to appeal may be
filed in the Supreme Court of Canada, this Court sees no reason to await the outcome of such at
motion (if it is made) before ruling on the pending matter; the issues raised are not novel here or
in Canada, as this Court’s decision in Metcalfe demonstrates.
Similar to Metcalfe, relief here is proper as “additional assistance” under section 1507 of
the Bankruptcy Code.3 Section 1507 provides as follows:
3 E&Y also requests relief under section 1521(a), which provides that “Upon recognition of a foreign
proceeding . . . the court may . . . grant any appropriate relief—including [under subparagraphs (a)(1)–(7)].” 11
U.S.C. § 1521(a) (emphasis added). In Vitro, the Fifth Circuit applied a three-step process in considering similar
relief, also requested under sections 1521 and 1507. The court stated:
We conclude that a court confronted by this situation should first consider the specific relief
enumerated under § 1521(a) and (b). 	If the relief is not explicitly provided for there, a court
should then consider whether the requested relief falls more generally under § 1521's grant of any
appropriate relief. 	We understand “appropriate relief” to be relief previously available under
Chapter 15’s predecessor, § 304. 	Only if a court determines that the requested relief was not
formerly available under § 304 should a court consider whether relief would be appropriate as
“additional assistance” under § 1507.
701 F.3d at 1054. This Court has, on a prior occasion, considered relief formerly available under old section 304.
See Atlas Shipping A/S, 404 B.R. at 726. But while the Fifth Circuit’s approach may be appropriate in certain
circumstances—e.g., so that “courts begin their analysis in familiar territory,” Vitro, 701 F.3d at 1057—the Court
believes that Vitro’s three-step approach is unnecessary here because the Court already decided in Metcalfe that the
relief sought is available under section 1507. Therefore, the Court declines to decide whether the “any appropriate
relief” language in section 1521 would also provide a basis for the relief.
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(a) Subject to the specific limitations stated elsewhere in this chapter the court, if
recognition 	is 	granted, 	may 	provide 	additional 	assistance 	to 	a 	foreign
representative under this title or under other laws of the United States.
(b) In determining whether to provide additional assistance under this title or
under other laws of the United States, the court shall consider whether such
additional assistance, consistent with the principles of comity, will reasonably
assure—
(1) just treatment of all holders of claims against or interests in the debtor’s
property;
(2) protection of claim holders in the United States against prejudice and
inconvenience in the processing of claims in such foreign proceeding;
(3) prevention of preferential or fraudulent dispositions of property of the debtor;
(4) distribution of proceeds of the debtor’s property substantially in accordance
with the order prescribed by this title; and
(5) if appropriate, the provision of an opportunity for a fresh start for the
individual that such foreign proceeding concerns.
11 U.S.C. § 1507.
“While recognition of the foreign proceeding turns on the objective criteria under § 1517,
‘relief [post-recognition] is largely discretionary and turns on subjective factors that embody
principles of comity.’” Metcalfe, 421 B.R. at 697 (quoting In re Bear Stearns High–Grade
Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325, 333 (S.D.N.Y. 2008)). “Once a
case is recognized as a foreign main proceeding, chapter 15 specifically contemplates that the
court will exercise its discretion consistent with principles of comity.” Atlas Shipping A/S, 404
B.R. at 738.
While the factors identified in section 1507(b)(1)–(5), required to be considered in
determining whether to extend comity in a case under chapter 15, may, in some circumstances,
narrow application of the common law rules for extending comity, none of those factors comes
into play here.4 Extending comity here does not affect (1) the just treatment of creditors, (2)
4 	‘‘Because the principle of comity does not limit the legislature’s power and is, in the final analysis, simply
a rule of construction, it has no application where Congress has indicated otherwise.’’ Maxwell Commc’n Corp. v.
Societe Generale (In re Maxwell Commc’n Corp.), 93 F.3d 1036, 1047 (2d Cir.1996). Here, Congress has identified
a series of factors to consider in determining whether to extend comity under section 1507; they may narrow
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protection of creditors in the United States against prejudice or inconvenience, (3) prevention of
preferential or fraudulent disposition of property of the debtor, (4) distribution of proceeds
substantially in accordance with Bankruptcy Code priorities, or (5) the opportunity for a fresh
start.
Section 1506 nevertheless places a limitation on recognition if doing so is manifestly
contrary to U.S. public policy:
Nothing in this chapter prevents the court from refusing to take an action
governed by this chapter if the action would be manifestly contrary to the public
policy of the United States.
11 U.S.C. § 1506. But this public policy exception is narrowly construed. See In re Ephedra
Prods. Liab. Litig., 349 B.R. 333 (S.D.N.Y. 2006); see also Vitro, 701 F.3d at 1069 (stating that
Ҥ 1506 was intended to be read narrowly, a fact that does not sit well with the bankruptcy
court’s broad description of the fundamental policy at stake as the protection of third party
claims in a bankruptcy case”) (internal quotation marks omitted). In Metcalfe, the Court
specifically rejected the argument that section 1506 precludes granting third-party releases in
appropriate cases. The Court explained:
The relief granted in the foreign proceeding and the relief available in a U.S.
proceeding need not be identical. 	A U.S. bankruptcy court is not required to
make an independent determination about the propriety of individual acts of a
foreign court. 	The key determination required by this Court is whether the
procedures used in Canada meet our fundamental standards of fairness.
circumstances when comity is appropriate. But as the Court concluded in Cozumel, “[i]t is unnecessary here to
explore this issue further as the Court concludes that the relief ordered by the Court would be appropriate in any
event.” 482 B.R. at 114–15 n.16. The factors listed in section 1507(b)(1)–(5), to be considered in deciding whether
to extend comity under section 1507, are not included in section 1521(a). Whether it is appropriate, consistent with
principles of comity, to grant “any appropriate relief” under section 1521, if granting comity would be inconsistent
with the factors in section 1507, need not be addressed in this case. In any event, section 1522 places limitations on
relief available under section 1521: relief may be granted “only if the interests of the creditors and other interested
entities, including the debtor, are sufficiently protected.” 11 U.S.C. 1522(a); see also Vitro, 701 F.3d at 1060.
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421 B.R. at 697 (citations omitted). In this Circuit, where the third-party releases are not
categorically prohibited, it cannot be argued that the issuance of such releases is manifestly
contrary to public policy. See Metromedia, 416 F.3d at 141.
The Fifth Circuit’s decision in Vitro does not dictate a different result.5 The Fifth Circuit,
on direct appeal from the bankruptcy court, affirmed the bankruptcy judge’s decision refusing to
extend comity to a Mexican court order approving a reorganization plan that vitiated guarantees
issued by Vitro’s U.S.-based affiliates, under loan agreements governed by U.S. law. The Fifth
Circuit concluded that the bankruptcy court did not abuse the discretion expressly provided in
section 1507(b). See Vitro, 701 F.3d at 1042 (“A court’s decision to grant comity is . . .
reviewed for abuse of discretion.”); id. at 1069 (“[W]e hold that Vitro has not met its burden of
showing that the relief requested under the Plan—a non-consensual discharge of non-debtor
guarantors—is substantially in accordance with the circumstances that would warrant such relief
in the United States. In so holding, we stress the deferential standard under which we review the
bankruptcy court’s determination. . . . Our only task is to determine whether the bankruptcy
court’s decision was reasonable. Having reviewed the record and relevant caselaw, we conclude
that the bankruptcy court’s decision was reasonable.”) (internal citations omitted). The court
specifically declined to decide the case on one of the alternative bases of the bankruptcy court’s
ruling—namely, whether the third-party release was manifestly contrary to public policy. Id. at
1070. The Fifth Circuit decision was largely premised on an analysis of section 1507(b)(4)—
“distribution of proceeds of the debtor’s property substantially in accordance with the order
prescribed by this title [11] . . .”—concluding that the bankruptcy court did not abuse its
5 	Obviously, a decision of the Fifth Circuit is not binding precedent on this Court. But to be clear, as
explained below, the Court does not believe that Vitro would require a different result here.
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discretion in finding that Vitro did not carry its burden under that subsection. See Vitro, 701
F.3d at 1065–66. The court distinguished Vitro from Metcalfe, and many of the same
distinguishing facts are present here: the Plan has near unanimous support, that support does not
rely on votes by insiders and “the Canadian court’s decision to approve the non-debtor release
‘reflect[ed] similar sensitivity to the circumstances justifying approving such provisions’” as
those considered by U.S. courts. Id. at 1068 (quoting Metcalfe, 421 B.R. at 698). No one has
objected to the relief requested here, and as already stated, the requested relief does not run afoul
of any of the subsections of section 1507(b).
III. CONCLUSION
E&Y, supported by the Foreign Representative and the Canadian and U.S. Class Action
Plaintiffs, seeks an order granting comity to a Canadian court order approving class action
settlements that include a third-party release and injunction in favor of E&Y in return for a
payment of CAD $117 million. Broad notice of the motion seeking relief and of the hearing in
the bankruptcy court was timely provided. No objections to the requested relief were filed.
This case is virtually on all fours with Metcalfe. The procedural posture is almost exactly
the same. The Ontario Court has already approved the E&Y Settlement and has asked this Court
to assist in its enforcement. The Court of Appeal for Ontario has denied a motion for leave to
appeal. While a motion for leave to appeal to the Supreme Court of Canada may be filed, the
Court believes that the law in Canada and in the Second Circuit is well settled so there is no
reason to wait before ruling. Furthermore, at least one additional ruling is required from the trial
court in Canada, seeking approval of a plan of distribution, before the settlement can become
final, so this Court’s ruling does not provide the last word in any event.
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For the reasons explained above, the Court concludes that the requested relief should be
approved. Therefore, the Motion is GRANTED. A separate order will be entered granting the
requested relief.
Dated: 	November 25, 2013
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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