Lehman Brothers Special Financing Inc. v. Bank of America National Association et al

FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
___________________________________________________x
In re: 	Chapter 11
Case No. 08-13555 (SCC)
LEHMAN BROTHERS HOLDINGS INC., et al.,
Debtors.
___________________________________________________x
LEHMAN BROTHERS SPECIAL FINANCING INC.,
Plaintiff,
-against- 	Adversary Proceeding
No. 10-03547 (SCC)
BANK OF AMERICA NATIONAL ASSOCIATION,
et al.,
Defendants.
___________________________________________________x
MEMORANDUM DECISION
A P P E A R A N C E S :
WOLLMUTH MAHER & DEUTSCH LLP
500 Fifth Avenue
New York, NY 10110
By: 	Paul R. DeFilippo, Esq.
William F. Dahill, Esq.
Joanna Schorr, Esq.
Attorneys for Lehman Brothers Special Financing Inc.
FRESHFIELDS BRUCKHAUS DERINGER US LLP
601 Lexington Avenue, 31st Floor
New York, NY 10022
By: 	Timothy P. Harkness, Esq.
David Livshiz, Esq.
Abbey Walsh, Esq.
Shannon Leitner, Esq.
Attorneys for Shield Securities Limited
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SHELLEY C. CHAPMAN
UNITED STATES BANKRUPTCY JUDGE
Before the Court is a motion to dismiss filed by Shield Securities Limited (“Shield”) in
the above-captioned adversary proceeding brought by Lehman Brothers Special Financing Inc.
(“LBSF”). 	Shield takes the position that this Court has neither in personam jurisdiction nor in
rem jurisdiction to resolve this adversary proceeding as it relates to Shield. LBSF responds that
Shield’s actions outside the United States had significant and foreseeable effects on LBSF in the
United States and that such actions provide the requisite “minimum contacts” necessary to
support in personam jurisdiction. 	LBSF further argues that the Court may exercise jurisdiction
over Shield, an investment holding vehicle affiliated with the Rothschild corporate family,
because Shield is properly viewed as a “mere department” of one or more Rothschild entities
over which this Court has jurisdiction. In the alternative, LBSF takes the position that this Court
has in rem jurisdiction to resolve this adversary proceeding as it relates to Shield because this
adversary proceeding concerns a dispute over property of the LBSF estate. 	For the reasons set
forth below, the Court grants Shield’s motion to dismiss for lack of personal jurisdiction. 	The
Court further holds that it has in rem jurisdiction over the property that is the subject of this
adversary proceeding as it relates to Shield.
BACKGROUND
LBSF, a wholly-owned subsidiary of Lehman Brothers Inc. and an indirect subsidiary of
Lehman Brothers Holdings Inc. (“LBHI”), initiated this adversary proceeding on September 14,
2010 against certain investment vehicles, trustees, and noteholders who had participated in
certain transactions involving credit default swap agreements. 	In each of these transactions,
LBSF (as the credit default swap counterparty) and the noteholder held competing interests in
collateral securing an issuer’s obligations to LBSF under a credit default swap and a noteholder
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under a credit-linked synthetic portfolio note. 	The transaction documents for these transactions
include provisions that govern the priority of payment from the liquidation of such collateral.
Those so-called priority of payment provisions entitle the relevant noteholder or noteholders,
under certain circumstances, to receive distributions from the liquidation of the collateral prior to
LBSF. 	In each transaction subject to this adversary proceeding, LBSF alleges that the
noteholders received such distributions. Among other reasons, LBSF brings this action to obtain
a declaratory judgment that the so-called priority of payment provisions are unenforceable ipso
facto clauses and to avoid distributions made to noteholders pursuant to those provisions.
As between LBSF and movant Shield, this adversary proceeding concerns the so-called
Ruby Transaction, which culminated in an approximately $41 million distribution to Shield after
the bankruptcy filings of LBHI and LBSF. LBSF now seeks to recover that distribution.
A. The Ruby Transaction
Lehman Brothers International (Europe) (“LBIE”) was the primary European broker-
dealer for the Lehman Brothers corporate group and was located in London. 1 In the summer of
2006, LBIE developed a multi-issuer secured obligation program (the “Dante Program”), under
which certain investment vehicles issued synthetic portfolio notes linked to a credit default
swap. 2 LBIE created the Ruby Transaction under the Dante Program and marketed and sold it to
N.M. Rothschild & Sons Limited (“NMR”), 3 an English company based in London and a
member of the Rothschild corporate family.4
1 Documents Concerning U.K. Admin. of Lehman Bros. Int’l (Europe), Feb. 11, 2009, Case No. 08-13555, ECF No.
2819, Ex. A (Order Appointing Joint Administrators).
2 Declaration of Peter Jaffe in Support of Shield Securities Limited’s Motion to Dismiss for Lack of Personal
Jurisdiction, Oct. 15, 2014, ECF No. 848 (hereinafter, the “Jaffe Decl.”), Ex. A (Base Prospectus).
3 Id.
4 Declaration of Leigh Enevoldson in Support of Shield Securities Limited’s Motion to Dismiss, Oct. 15, 2014, ECF
No. 846 (hereinafter, the “Enevoldson Decl.”) ¶ 2.
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1. 	The Transaction
On January 18, 2007, the Ruby Transaction was executed.5 LBIE created an investment
vehicle 	called 	Ruby 	Finance 	Public 	Limited 	Company 	(“Ruby 	Finance”), 	which 	was
incorporated in Ireland.6 Ruby Finance entered into a credit default swap (the “Swap”) for which
LBIE selected LBSF as the counterparty.7 At the same time, Ruby Finance issued a $40 million
synthetic portfolio note linked to the Swap (the “Ruby Note”). 8 Ruby Finance’s obligations
under the Ruby Note and the Swap were secured,9 and LBSF’s obligations under the Swap were
guaranteed by LBHI.10 NMR acted as portfolio manager for the Ruby Note and, initially, as the
noteholder.11
Both the Swap and the Ruby Note provide for payments based on the performance of a
portfolio of reference securities. 	Under the Ruby Note, Ruby Finance made payments to the
noteholder if the portfolio performed as expected. 	Under the terms of the Swap, Ruby Finance
made payments to LBSF if the reference securities did not perform as expected and LBSF made
payments to Ruby Finance equaling those that Ruby Finance made to the noteholder.12 Thus,
investors in the Ruby Note gained synthetic long exposure to a portfolio of reference securities
and LBSF gained synthetic short exposure to the same reference portfolio. 13
5 Jaffe Decl. Ex. C (Series Prospectus); Enevoldson Decl. ¶ 5.
6 Jaffe Decl. Ex. C (Series Prospectus), at 1.
7 Enevoldson Decl. ¶¶ 8–9.
8 Jaffe Decl. Ex. D (Principal Trust Deed).
9 Id. at 6 § 5.2; Jaffe Decl. Ex. B (Supplemental Trust Deed), at 9–10 § 8.1.
10 Jaffe Decl. Ex. O (LBHI Guarantee); Jaffe Decl. Ex. B (Supplemental Trust Deed), at 24.
11 Declaration of William F. Dahill in Opposition to Shield Securities Limited’s Motion to Dismiss, Mar. 6, 2015,
ECF No. 1058 (hereinafter, the “Dahill Decl.”), Ex. L (Portfolio Management Agreement); Jaffe Decl. Ex. G
(Asset Purchase Agreement).
12 Jaffe Decl. Ex. C (Series Prospectus), at 21 § 39(v); Enevoldson Decl. ¶ 10.
13 Enevoldson Decl. ¶ 10.
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2. 	The Collateral
Ruby Finance used the proceeds of the sale of the Ruby Note14 to purchase from LBIE
$20 million in bonds issued by General Electric Corporation, which Ruby Finance transferred,
along with $20 million in cash (such cash, together with the bonds issued by General Electric
Corporation, the “Collateral”),15 to a custodian bank based in London.16 Ruby Finance granted a
security interest in the Collateral to BNY Corporate Trustee Services Limited (the “Trustee”) and
to LBSF. 17 The security interest secured “payment of all sums due under . . . the Notes” and
“performance of [Ruby Finance’s] obligation (if any) under the Swap [].” 18 The Trustee’s
security interest in the Collateral became enforceable upon the termination of the Swap,19 and if
demanded to do so by the noteholder, the Trustee was obligated to take possession of the
Collateral, liquidate it, and distribute the proceeds in accordance with the applicable payment
priority.20
3. 	The Governing Documents
The 	Ruby 	Transaction 	was 	governed 	by 	seven 	related 	documents 	(collectively,
the “Transaction Documents”): (1) a base prospectus (the “Base Prospectus”) governing the
terms of the Dante Program;21 (2) a principal trust deed (the “Principal Trust Deed”) governing
the terms of an initial transaction with Ruby Finance’s predecessor-in-interest to the Ruby
Transaction, Dante Finance Public Limited Company (“Dante”);22 (3) a deed of accession (the
“Deed 	of 	Accession”) 	governing 	Ruby 	Finance’s 	accession 	to 	Dante’s 	interest 	in 	the
14 Jaffe Decl. Ex. C (Series Prospectus), at 97.
15 Jaffe Decl. Ex. B (Supplemental Trust Deed), at 3.
16 Id. at 2, 4.
17 Jaffe Decl. Ex. D (Principal Trust Deed), at 6 § 5.1; Jaffe Decl. Ex. B (Supplemental Trust Deed), at §§ 5.1, 5.3.
18 Jaffe Decl. Ex. D (Principal Trust Deed), at 6 § 5.2.
19 Id. at 7 § 5.5.
20 Id. at 9–11 § 6.
21 Jaffe Decl. Ex. A (Base Prospectus).
22 Jaffe Decl. Ex. D (Principal Trust Deed).
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transaction; 23 (4) a supplemental trust deed (the “Supplemental Trust Deed”) governing the
specific terms of the Ruby Transaction; 24 (5) a series prospectus (the “Series Prospectus”)
governing the terms of the Ruby Note;25 (6) an ISDA Master Agreement (the “ISDA Master
Agreement”) governing the basic terms of the Swap; 26 and (7) a Swap Confirmation (the “Swap
Confirmation”) governing more specific terms of the Swap as between LBSF and Ruby
Finance.27
All of the relevant Transaction Documents include forum selection and choice of law
clauses, which mandate that any dispute arising under the Ruby Transaction be heard in an
English court and governed by English law. 28 The Series Prospectus provides for the Ruby Note
to be registered on the Irish Stock Exchange.29
The Transaction Documents also govern how and when the Ruby Transaction can be
terminated. Under the Transaction Documents, the bankruptcy or insolvency of LBSF or LBHI
constitutes an “Event of Default,” under which LBSF would be the defaulting party.30 An Event
of Default gives the non-defaulting party the right to call for an early termination of the Swap.31
An early termination of the Swap automatically causes an early redemption of the Ruby Note.32
In the event of an early termination, the Collateral is to be liquidated and the amount due to each
23 Jaffe Decl. Ex. E (Deed of Accession).
24 Jaffe Decl. Ex. B (Supplemental Trust Deed).
25 Jaffe Decl. Ex. C (Series Prospectus).
26 Jaffe Decl. Ex. H (ISDA Master Agreement). 	See also Jaffe Decl. Ex. B (Supplemental Trust Deed), at 21
§ 39(v).
27 Jaffe Decl. Ex. F (Swap Confirmation). See also Jaffe Decl. Ex. B (Supplemental Trust Deed), at 21 § 39(v).
28 Jaffe Decl. Ex. A (Base Prospectus), at 51–52 ¶16; Jaffe Decl. Ex. B (Supplemental Trust Deed), at 15 ¶¶15.1–
15.2; Jaffe Decl. Ex. C (Series Prospectus), at 3.
29 Jaffe Decl. Ex. C (Series Prospectus), at 30 § 49.
30 See Jaffe Decl. Ex. H (ISDA Master Agreement), at § 5(a)(vii).
31 Id. at § 6(a).
32 Jaffe Decl. Ex. D (Principal Trust Deed), at 81, Condition 6(d)(ii).
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party is to be distributed from the proceeds of the Collateral in accordance with the applicable
payment priority waterfall.33
The payment priority waterfall at issue in the Transaction Documents is triggered upon a
termination of the Swap.34 In most cases of termination, the Trustee would be obligated to make
distributions to satisfy LBSF’s claims before satisfying any noteholder claims.35 However, in the
case of an early termination due to an LBSF default, the Transaction Documents provide that the
Trustee is obligated to make distributions to satisfy noteholder claims before satisfying any
LBSF claims (“Noteholder Priority”). 36 Moreover, under the same circumstances that trigger
Noteholder Priority, the amount due to each noteholder upon termination of the Ruby Note is the
full amount of principal and interest on the Ruby Note, as opposed to the Ruby Note’s pro rata
share of the collateral proceeds to which each noteholder would otherwise be entitled.37
B. The Sale to Shield
On June 30, 2008, NMR sold a portfolio of investments, including the Ruby Note, to
Shield,38 an investment holding vehicle formed in June 2008.39 NMR and Shield memorialized
the sale in an asset purchase agreement governed by English law.40 Following the sale, Shield
was the sole beneficial owner of the Ruby Note.41 The admitted purpose of the sale was to take
the Ruby Note off the “Rothschild” balance sheet. 42 Rothschild Bank International, Ltd.
(“RBI”), another member of the Rothschild corporate family, held the Ruby Note, on behalf of
33 Id. at 7–11 §§ 5.5, 5.6, 6.2.
34 Jaffe Decl. Ex. B (Supplemental Trust Deed), at 7 § 5.5.
35 Id.
36 Jaffe Decl. Ex. D (Principal Trust Deed), at 11 § 6.2(iii); Jaffe Decl. Ex. B (Supplemental Trust Deed), at § 5.5.
37 Jaffe Decl. Ex. C (Series Prospectus), at 28 § 43; Jaffe Decl. Ex. D (Principal Trust Deed), at 81, Condition
6(d)(ii).
38 Enevoldson Decl. ¶ 11; Dahill Decl. Ex. E (Jan. 16, 2015 Yeates Dep.), at 8:7–10.
39 Dahill Decl. Ex. E (Jan. 16, 2015 Yeates Dep.), at 8:7–25; Jaffe Decl. Ex. K (Certificate of Registration).
40 Jaffe Decl. Ex. G (Asset Purchase Agreement).
41 Dahill Decl. Ex. O, at Response to Interrogatory No. 3.
42 Dahill Decl. Ex. E (Jan. 16, 2015 Yeates Dep.), at 13:14–22.
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Shield,43 and NMR continued to act as the asset manager for the Ruby Note.44 RBI also financed
Shield’s purchase of the NMR portfolio of investments, lending Shield £120 million at an
interest rate of “RBI Libor” plus 1% margin.45 Shield asserts that the interest rate it received on
the loan was comparable to that which would have been offered to third-party market
participants.46
Apart from its investment in the Ruby Note, Shield has little, if any, connection to the
United States. 	Shield is organized and headquartered in Guernsey.47 It does not have offices,
employees, or property in the United States, nor does it advertise for, conduct, or solicit business
here.48 It does not pay taxes in the United States, nor has it filed a tax return here.49 Indeed, it
has no employees at all, 50 and its four directors are employees of RBI. 51 Shield is a wholly-
owned subsidiary of Shield Holdings, which is owned by Rothschild Continuation Holdings,
itself an indirect subsidiary of Paris Orleans SCA. 52 Paris Orleans SCA is the ultimate parent of
the Rothschild corporate family. Shield is located “across the road” from Rothschild’s corporate
finance business, and, as LBSF emphasizes, if mail were sent to the wrong address, it would
“tend to find its way back” to Shield.53
43 Dahill Decl. Ex. B (Termination Letter).
44 Dahill Decl. Ex. M (Project Union), at SL_0001160.
45 Id.
46 Declaration of Philip Yeates in Further Support of Shield Securities Limited’s Motion to Dismiss, Mar. 27, 2015,
ECF No. 1066 (hereinafter, the “Yeates Decl.”) ¶ 5.
47 Declaration of David Gordon Oxburgh in Support of Shield Securities Limited’s Motion to Dismiss, Oct. 15,
2014, ECF No. 847 (hereinafter, the “Oxburgh Decl.”) ¶¶ 2–3; Dahill Decl. Ex. E (Jan. 16, 2015 Yeates Dep.), at
8:7–10.
48 Oxburgh Decl. ¶¶ 4–6.
49 Id. at ¶ 8.
50 Dahill Decl. Ex. E (Jan. 16, 2015 Yeates Dep.), at 8:7–10.
51 Id. at 9:22–23.
52 Dahill Decl. Ex. E (Jan. 16, 2015 Yeates Dep.), at 8:18–25.
53 Id. at 76:22–77:4.
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C. Termination of the Swap Agreement and the Distribution
On September 15, 2008, LBHI commenced a case under chapter 11 of title 11 of the
United States Code (the “Bankruptcy Code”). 	LBSF did the same on October 3, 2008
(the “LBSF Petition Date”).54 Each bankruptcy filing constituted an Event of Default under the
Transaction Documents,55 permitting Shield to terminate the Swap.56
In October 2008, RBI, acting on behalf of Shield, executed and delivered two letters to
the Trustee. First, it sent a letter providing an indemnity (the “Indemnity”) to the Trustee for any
liability the Trustee might incur in connection with the Trustee’s compliance with any requests
from Shield in relation to the Ruby Transaction.57 According to Shield, the Trustee “would not
act without an indemnity.”58 Second, it delivered a letter directing the Trustee to terminate the
Swap, redeem the Ruby Note, liquidate the Collateral, and distribute the proceeds in accordance
with Noteholder Priority.59 Shortly after Shield sent the two letters to the Trustee, Ruby Finance
sent a letter to LBSF citing LBHI’s bankruptcy filing as an Event of Default and designating
October 20, 2008 as the “Early Termination Date” with respect to the Swap.60
Before the Trustee followed Shield’s direction to liquidate the Collateral and make a
distribution to Shield, LBSF and Shield communicated. First, on April 20, 2009, Andrew Weber
at 	LBIE 	sent 	an 	e-mail 	message, 	on 	behalf 	of 	LBSF, 	to 	Leigh 	Enevoldson 	at 	Shield
acknowledging the early termination and the application of Noteholder Priority, stating that
54 Between October 14 and 29, 2009, three members of the Rothschild corporate family, including RBI and NMR,
filed proofs of claim against LBHI. See Declaration of William F. Dahill Supplementing the Record for LBSF’s
Opposition to Shield Securities Limited’s Motion to Dismiss for Lack of Personal Jurisdiction, May 6, 2015, ECF
No. 1096 (hereinafter, the “Dahill Supp. Decl.”), Exs. C, D, E.
55 Jaffe Decl. Ex. H (ISDA Master Agreement), at § 5(a)(vii).
56 Id. at § 6(a).
57 Dahill Decl. Ex. A (Trustee Indemnification Letter).
58 Dahill Decl. Ex. E (Jan. 16, 2015 Yeates Dep.), at 23:24.
59 Dahill Decl. Ex. B (Termination Letter).
60 Jaffe Decl. Ex. I (Designation of Early Termination Date).
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LBSF would object neither to a liquidation of the Collateral nor to a distribution of the proceeds
thereof; Mr. Weber’s email also reserved LBSF’s rights.61 On May 5, 2009, LBSF clarified its
reservation of rights by letter to the Trustee,62 which the Trustee provided to Shield on May 8,
2009.63
On the same day, the Trustee set the final wheels of the distribution (the “Distribution”)
in motion and designated May 8, 2009 as the Early Redemption Date for the Ruby Note.64 Also
on May 8, in accordance with the October 2008 agreement reached in the Indemnity,65 Shield
and RBI cash collateralized the Indemnity. 66 RBI and Shield explicitly acknowledged the
possibility that LBSF could bring claims that would be covered by the Indemnity. 67 The
Indemnity further provided that the Trustee could request additional cash to be held until certain
termination events occurred, including confirmation in writing from LBHI and LBSF that they
would not pursue legal action against the Trustee in respect of the Ruby Note.68 On May 12,
2009, the Trustee liquidated the Collateral, applied Noteholder Priority to the proceeds, and
transferred approximately $41 million to Shield.69
D. Procedural History
This adversary proceeding was commenced on September 14, 2010 [ECF No. 1]. LBSF
filed an amended complaint (the “First Amended Complaint”) on October 1, 2010 [ECF No. 8].
Shield was served with the First Amended Complaint in accordance with Rule 7004 of the
61 Declaration of Shannon M. Leitner in Further Support of Shield Securities Limited’s Motion to Dismiss for Lack
of Personal Jurisdiction, Mar. 27, 2015, ECF No. 1067 (hereinafter, the “Leitner Decl.”), Ex. A.
62 Dahill Dec. Ex. N (Letter).
63 LBSF’s Memorandum of Law in Opposition to Shield Securities Limited’s Motion to Dismiss for Lack of
Personal Jurisdiction, Mar. 6, 2015, ECF No. 1057 (hereinafter, the “LBSF Opp.”) ¶ 20.
64 Jaffe Decl. Ex. J (Default Notice), at LBHI_SPV_0023859.
65 Dahill Decl. Ex. A (Trustee Indemnification Letter), at ¶ 3.2.
66 Dahill Decl. Ex. C (Indemnity).
67 Id.
68 Id. at § 6(a)(iii).
69 Dahill Decl. Ex. O, at Response to Interrogatory Nos. 1 and 2.
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Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) on March 7, 2011 [ECF
No. 184]. Shield does not dispute the propriety of service of process. On July 23, 2012, LBSF
filed a second amended complaint [ECF No. 303], and on September 15, 2014, LBSF filed a
third amended complaint [ECF No. 831].
Beginning on October 20, 2010, litigation in this action was stayed by a series of orders
[Case No. 08-13555, ECF Nos. 12199, 17763, 24198, 29506, 33970, 34697, 38806, 42081]. On
January 31, 2014, this Court entered a bridge order (the “Bridge Order”) extending the litigation
stay until the later of May 20, 2014 or thirty days after the date on which the Court entered a
scheduling order governing this adversary proceeding [Case No. 08-13555, ECF No. 42417]. On
July 14, 2014, this Court entered such a scheduling order, which, among other things, permitted
defendants to submit letter requests seeking the Court’s permission to raise individualized
defenses [ECF No. 794].
Shield submitted such a letter request on August 1, 2014, seeking to file a motion to
dismiss for lack of personal jurisdiction [ECF No. 803]. 	LBSF filed a letter opposing Shield’s
request [ECF No. 811]. 	On October 6, 2014, this Court granted Shield’s request and permitted
limited jurisdictional discovery [ECF No. 837]. Shield filed its motion to dismiss on October 15,
2014 [ECF Nos. 845, 851] and declarations in support thereof [ECF Nos. 846, 847, 848, 849,
850]. Shield and LBSF agreed to briefing and discovery schedules on November 3, 2014 [ECF
No. 876]. 	After completing jurisdictional discovery, LBSF filed its opposition to Shield’s
motion to dismiss on March 6, 2015 [ECF No. 1057] and a declaration in support thereof [ECF
No. 1058]. 	On March 27, 2015, Shield filed its reply [ECF No. 1065] and supplemental
declarations in support thereof [ECF Nos. 1066, 1067].
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The parties scheduled oral argument for May 8, 2015. 	On May 7, 2015, LBSF filed a
motion seeking leave to file a sur-reply, to which it attached its proposed sur-reply [ECF
No. 1097]. 	In the early hours of the morning of May 8, Shield filed an opposition to LBSF’s
motion for leave to file a sur-reply [ECF No. 1099]. 	The same day, the Court heard oral
argument from both parties on whether to consider LBSF’s late-filed sur-reply and on whether to
grant Shield’s motion to dismiss. After oral argument, the parties exchanged further letters to the
Court [ECF Nos. 1107, 1114, 1122], which the Court has also reviewed and considered.
STANDARD OF REVIEW
Rule 12(b)(2) of the Federal Rules of Civil Procedure, incorporated into Rule 7012(b) of
the Bankruptcy Rules, provides that a case may be dismissed for lack of personal jurisdiction.
See Fed. R. Bankr. P. 7012(b). To survive a Rule 12(b)(2) motion, the plaintiff bears the burden
to make a prima facie showing that jurisdiction exists. 	See O’Neill v. Asat Trust Reg. (In re
Terrorist Attacks on September 11, 2001), 714 F.3d 659, 673 (2d Cir. 2013) (citing Penguin Grp.
(USA) Inc. v. Am. Buddha, 609 F.3d 30, 34 (2d Cir. 2010)). The plaintiff’s prima facie showing
must include an averment of facts, which, if credited, would suffice to establish jurisdiction over
the defendant. 	Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 567 (2d Cir. 1996)
(citing Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cir. 1994)) (internal
quotation marks omitted). 	However, “[w]hen a defendant rebuts plaintiffs’ unsupported
allegations with direct, highly specific testimonial evidence regarding a fact essential to
jurisdiction – and plaintiffs do not counter that evidence – the allegation may be deemed
refuted.” In re Methyl Tertiary Butyl Ether (“MTBE”) Prod. Liab. Litig., No. 1:00-1898, MDL
No. 1358, 2014 WL 1778984, at *1 (S.D.N.Y. May 5, 2014).
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DISCUSSION
Before addressing the merits of Shield’s motion to dismiss, the Court must address
whether to grant LBSF’s motion for leave to file its sur-reply. “[C]ourts have broad discretion to
consider arguments in a sur-reply, particularly when new arguments are put forth in a reply
brief.” 	Grocery Haulers, Inc. v. C&S Wholesale Grocers, Inc., No. 11 Civ. 3130, 2012 WL
4049955, at *6 (S.D.N.Y. Sept. 14, 2012) (granting leave to file sur-reply). The Court declines
to exercise such discretion here.
LBSF sets forth two arguments to convince Court to consider the arguments raised in its
sur-reply. 	First, LBSF contends that Shield’s submission of the Declaration of Philip Yeates
[ECF No. 1066] in connection with Shield’s reply included information beyond that which
Shield provided prior to the close of jurisdictional discovery. Second, LBSF alleges that Shield
did not produce certain requested information and materials during jurisdictional discovery that
LBSF seeks to use in support of its arguments in favor of asserting jurisdiction and that LBSF
includes in its sur-reply. 	Shield counters that LBSF’s motion for leave to file its sur-reply is
untimely because LBSF’s six-week delay between receiving Shield’s reply and making its
motion to file a sur-reply was too long.
While the Court appreciates LBSF counsel’s candor in explaining the delay,70 the Court
agrees with Shield that six weeks is too long to wait to request leave to file a sur-reply in this
instance. LBSF’s delay is not only unjustified, it is also prejudicial to Shield, which scrambled
to submit a response within twelve hours of receiving LBSF’s motion and eight hours prior to the
start of the hearing to which it related. See Clarex Ltd. v. Natixis Securities Americas LLC, 988
70 See Tr. of Oral Argument at 5:24–6:3, ECF No. 1100 (hereinafter, the “H’rg Tr.”).
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F. Supp. 2d 381, 384 (S.D.N.Y. 2013) (finding that delay of more than a month to submit letter
regarding “new” issue was unacceptable).
Accordingly, LBSF’s motion for leave to file a sur-reply is denied. 	On the basis of
Shield’s motion to dismiss, LBSF’s response, Shield’s reply, oral argument, and the parties’
letters to the Court, the Court will consider the parties’ in personam and in rem arguments in
turn.
A. In Personam Jurisdiction
Rule 7004(d) of the Bankruptcy Rules permits nationwide service of process. See Fed. R.
Bankr. P. 7004(d). 	A bankruptcy court may exercise personal jurisdiction over a defendant
served under Rule 7004(d) “[i]f the exercise of jurisdiction is consistent with the Constitution
and the laws of the United States.” Fed. R. Bankr. P. 7004(f). Because valid service of process
under Rule 7004(d) “is sufficient to establish personal jurisdiction, state long-arm statutes are
inapplicable, and the only remaining inquiry for a bankruptcy court is whether exercising
personal jurisdiction over the defendant would be consistent with the Due Process Clause of the
Fifth Amendment.” Bickerton v. Bozel S.A. (In re Bozel S.A.), 434 B.R. 86, 97 (Bankr. S.D.N.Y.
2010) (citing In re Enron Corp., 316 B.R. 434, 440, 444–45 (Bankr. S.D.N.Y. 2004)). 	The
“forum state” is the United States as a whole, and “a court should consider the defendant’s
contacts throughout the United States.” In re Amaranth Natural Gas Commodities Litig., 587 F.
Supp. 2d 513, 527 (S.D.N.Y. 2008).
1. 	Specific In Personam Jurisdiction
A court must consider two related inquiries to determine whether a defendant is subject to
specific personal jurisdiction: whether the defendant has sufficient “minimum contacts” with the
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forum state and whether the exercise of jurisdiction over that defendant would be reasonable.
See Metro. Life, 84 F.3d at 567.
Shield argues that it does not have minimum contacts with the United States and that,
therefore, the exercise of jurisdiction over it would not comport with “traditional notions of fair
play and substantial justice.” 	Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). 	In
Shield’s view, the transaction at issue was “purposefully organized . . . to really have its
economic center of gravity in England.” 71 See Official Comm. of Unsecured Creditors v.
Transpacific Corp. Ltd. (In re Commodore Int’l, Ltd.), 242 B.R. 243, 250 (Bankr. S.D.N.Y.
1999) (“TPC maintains that we lack specific jurisdiction over it because . . . the economic center
of gravity of the loan and security transactions upon which the Committee’s claims are
predicated was in the Bahamas.”). 	The Ruby Transaction, says Shield, involved LBIE, an
English entity, approaching NMR, also an English entity, to enter into a transaction governed by
English and Irish law, with collateral held by an English trustee. 	All of the negotiations and
discussions leading to Shield’s ownership of the Ruby Note occurred in the United Kingdom
among English and Irish counterparties under English and Irish law. When the transaction was
terminated, the proceeds of the Collateral were distributed from an English bank account. Aside
from its attenuated connection to LBSF through the Ruby Transaction, Shield argues that it has
no other connection to the United States.
LBSF submits that Shield’s limited contact with the United States is merely a product of
its status as an investment holding vehicle. 72 To LBSF, Shield is a “piece of paper in a file
somewhere that holds assets” and “to say that Shield is immune from jurisdiction because it has
71 H’rg Tr. 57:11–13
72 LBSF does not argue that the Court has general jurisdiction over Shield, see H’rg Tr. 37:2–15, so the Court will
not address the question.
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no contacts is to elevate form over substance.”73 LBSF argues that Shield’s purposeful act of
terminating the Swap had foreseeable effects in the United States, and that act was sufficient to
establish Shield’s minimum contacts with the United States. See, e.g., Calder v. Jones, 465 U.S.
783 (1984). Moreover, LBSF alleges that Shield’s post-petition termination of the Swap violated
the automatic stay, which, in LBSF’s view, provides additional support for the exercise of
jurisdiction. 	Finally, LBSF contends that the Court need not engage in the minimum contacts
analysis because the Court need only look to the New York long-arm statute to find jurisdiction
over Shield.
a. 	The Doctrine of Specific In Personam Personal Jurisdiction
To establish specific in personam jurisdiction, the defendant’s “suit-related conduct”
must create the necessary connection to the forum state. Walden v. Fiore, 134 S. Ct. 1115, 1121
(2014). 	The defendant’s connection to the forum must arise out of contacts the “defendant
himself creates,” and those contacts must be between the defendant and “the forum [s]tate itself,
not . . . persons who reside there.” 	Id. at 1122 (emphasis in original). 	To show minimum
contacts with the United States, the plaintiff must demonstrate that the defendant “purposefully
availed” itself of the privilege of doing business in the forum and “could foresee being haled into
court there.” 	See Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 127
(2d Cir. 2002). However, the foreseeability of causing harm in the forum state, without more, is
not enough to establish minimum contacts. 	See Walden, 134 S. Ct. at 1125. 	This is to ensure
“that a defendant will not be haled into a jurisdiction solely as a result of ‘random,’ ‘fortuitous,’
or ‘attenuated’ contacts, or of the unilateral activity of another party or a third person.” Burger
73 H’rg Tr. 36:1–7.
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King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (citing Keeton v. Hustler Magazine, Inc., 465
U.S. 770 (1984)).
Even if a court finds that the defendant has the requisite minimum contacts, it can refuse
to exercise jurisdiction if the exercise of jurisdiction would not be reasonable. MTBE, 2014 WL
1778984, 	at 	*2. 	The 	reasonableness 	inquiry 	“asks 	whether 	it 	is 	reasonable 	under 	the
circumstances of the particular case to assert personal jurisdiction.” Amaranth, 587 F. Supp. 2d
at 527.
b. 	No Specific In Personam Jurisdiction over Shield
Shield relies on Walden v. Fiore, 134 S. Ct. 1115 (2014) to support its position that it was
not subject to this Court’s jurisdiction. As in Walden, Shield argues, Shield’s only connection to
the United States is LBSF’s fortuitous presence there. LBSF, on the other hand, relies on Calder
v. Jones, 465 U.S. 783 (1984) to demonstrate that Shield is subject to this Court’s jurisdiction.
As in Calder, LBSF contends, Shield’s termination of the Swap was conduct “purposefully”
directed at the United States and Shield knew that its conduct would have effects here. Although
the facts present here do not squarely fit within the contours of either Walden or Calder, Shield
has the better argument on this point, for the reasons that follow.
Walden concerned a Bivens action brought in Nevada against a DEA agent who detained
two Nevada residents on their way through the Atlanta airport from San Juan. 	The Supreme
Court refused to permit the exercise of jurisdiction over the DEA agent based on his “random,
fortuitous, or attenuated contacts” with persons affiliated with the forum state. 	Walden, 134 S.
Ct. at 1123 (quoting Burger King, 471 U.S. at 475) (internal quotation marks omitted). 	The
agent’s actions in Georgia did not create sufficient minimum contacts with Nevada, even though
the agent knew of the plaintiffs’ Nevada connections. 	Moreover, the Supreme Court expressly
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disavowed the lower court’s analysis that the DEA agent’s knowledge of the plaintiffs’
connection to Nevada and the foreseeability that the harm would be felt there were sufficient to
establish minimum contacts. See id. at 1124.
In Calder, the defendants’ contact with California, the forum state, was the act of
publishing an allegedly libelous article about a California resident in a magazine with circulation
in California. 	The Supreme Court found that the various contacts the defendants had with
California, including the magazine’s circulation in that state and the defendants’ intentional and
tortious conduct directed at the forum, supported a finding that the defendants “must ‘reasonably
anticipate being haled into court [in California]’ to answer for the truth of the statements made in
their article.” Calder, 465 U.S. at 790 (quoting World-Wide Volkswagen Corp. v. Woodson, 444
U.S. 286, 297 (1980)) (alteration in original).
LBSF contends that the foreseeability of the injury being felt in the forum state was
critical to the holding in Calder. 	However, both Walden and Calder make clear that the
minimum contacts analysis requires more. 	See Walden, 134 S. Ct. at 1123 (“[In Calder,] we
examined the various contacts the defendants had created with California (and not just with the
plaintiff) by writing the allegedly libelous story.”). 	The Calder defendants directed intentional
and tortious conduct at the forum state, did most of their research for the article in the forum
state, and were aware that the harm would be felt in the forum state. 	See Calder, 465 U.S. at
788–90 (“[T]hey knew that the brunt of that injury would be felt by respondent in the State in
which she lives and works and in which the National Enquirer has its largest circulation.”).
Here, LBSF alleges no facts to suggest that Shield’s connection to the forum state was
more substantial than that of the DEA agent in Walden. 	LBSF’s allegations of Shield’s
connection to the United States are limited to Shield’s knowledge that LBSF was domiciled in
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the United States and Shield’s ability to foresee that the harm caused by the Distribution would
be felt in the United States. 	LBSF concedes that, at the time of the Distribution, Shield was
organized and headquartered outside of the United States; had no offices, employees, or property
in the United States; was not registered to, and did not, conduct business in the United States;
and did not advertise or otherwise solicit business in the United States.74 The facts alleged show
that Shield’s only active connection to the United States was its indirect relationship, as a
creditor of the Irish entity Ruby Finance, to LBSF, a counterparty chosen not by Shield or NMR,
but by LBIE. See Amaranth, 587 F. Supp. 2d at 536–37 (finding no personal jurisdiction where
defendants’ only contact with forum was through investment in foreign hedge fund).
Nor did Shield “purposefully avail” itself of the “benefits and protections of the [United
States’] laws.” 	Burger King, 471 U.S. at 475 (quoting Hanson v. Denckla, 357 U.S. 235, 253
(1958)) (internal quotation marks omitted). 	None of Shield’s rights with respect to the Ruby
Transaction was affected, much less enhanced, by LBSF’s status as a United States domiciliary.
Even the Transaction Documents’ Event of Default provisions were indifferent to the domicile of
the Swap counterparty and its guarantor. Those provisions were tripped by any insolvency, not
just a United States bankruptcy. 75 Nor were the Noteholder Priority or early termination
provisions impacted by domicile. It was, in fact, “entirely irrelevant whether the Swap Counter
Party in the Ruby Transaction was LBSF or [LBIE].” 76
74 See Oxburgh Decl. ¶¶ 4–8. See Amaranth, 587 F. Supp. 2d at 537 (“Within the United States, the defendant has
never commenced any suit, registered an office, been qualified or licensed to do business, paid or been required to
pay taxes, employed any officers or agents, leased or purchased any property, acquired a telephone number, or
engaged in any other activity reasonably expected of a business venture under the protection and permission of
domestic laws.”).
75 See Jaffe Decl. Ex. H (ISDA Master Agreement), at § 5(a)(vii) (Event of Default occurs upon instituting “a
proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors’ rights.”).
76 Enevoldson Decl. ¶ 8.
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LBSF argues emphatically that Shield knew that the Distribution would later be
challenged by LBSF and thus could foresee being haled into court in the United States. 	LBSF
points to the Indemnity and LBSF’s reservation of rights letter to show that Shield knew it would
be subject to suit here. 	Shield responds that it had no idea that the Distribution would be the
subject of future dispute because Andrew Weber’s email stated that “LBSF [did] not object” to
the Distribution. 	In spite of the parties’ repeated emphasis on these facts, Shield’s May 2009
belief as to the likelihood of a dispute over the Distribution is of no moment. 	As explained
above, the foreseeability of harm being felt in the forum state and, relatedly, of being haled into
court in the forum state is not sufficient to meet the minimum contacts test. See Walden, 134 S.
Ct. at 1125 (“Petitioner’s actions in Georgia did not create sufficient contacts with Nevada
simply because he allegedly directed his conduct at plaintiffs whom he knew had Nevada
connections.”). 	Moreover, even if in May 2009 Shield foresaw this very dispute over the
Distribution, foreseeing a dispute is not the same as foreseeing being haled into court in the
forum. 77
LBSF also argues that minimum contacts are met here because this case involves actions
that allegedly violated the automatic stay. LBSF alleges that “the funds paid to Shield were still
encumbered by LBSF’s senior security interest, which constituted property of the estate, over
which Shield exercised possession and control in violation of [the automatic stay].” 78 LBSF
asserts that a party’s alleged violation of the automatic stay itself confers personal jurisdiction
77 LBSF also urges reliance on Amoco Chemical Co. v. Tex. Tin. Corp., 925 F. Supp. 1192 (S.D. Tex. 1996) (finding
sufficient minimum contacts where defendant received fraudulent transfer outside forum with knowledge of harm
occurring in forum) and Schwinn Plan Comm. v. AFS Cycle & Co. Ltd. (In re Schwinn Bicycle Co.), 192 B.R. 461,
473 (Bankr. N.D. Ill. 1996) (finding sufficient minimum contacts where defendant entered ongoing commercial
relationship with debtor). Schwinn is distinguishable on its facts, and both cases came before Walden, which, as
noted above, unequivocally clarifies that the foreseeability of the injury being felt in the forum state is insufficient
to establish minimum contacts.
78 LBSF Opp. ¶ 5.
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over the party, relying on LaMonica v. N. of Eng. Protecting and Indem. Ass’n Ltd. (In re
Probulk), 407 B.R. 56 (Bankr. S.D.N.Y. 2009) and In re Chiles Power Supply Co. Inc., 264 B.R.
533 (Bankr. W.D. Mo. 2001). 	Probulk and Chiles do not support LBSF’s position, however,
because they are both fundamentally concerned with a bankruptcy court’s jurisdiction over
property of the bankruptcy estate; the automatic stay is simply the means through which to
protect that property and implement the policy goals of the Bankruptcy Code. 	Indeed, Probulk
and Chiles fall more readily into the in rem line of bankruptcy jurisdiction cases, which hold, as
discussed in further detail below, that a court cannot enforce an in rem judgment against a
foreign defendant unless the foreign defendant has the requisite minimum contacts with the
United States. See Hong Kong & Shanghai Banking Corp., Ltd. v. Simon (In re Simon), 153 F.3d
991, 996 (9th Cir. 1998), cert. denied, 525 U.S. 1141 (1999); 1 COLLIER ON BANKRUPTCY
¶ 3.01[4] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). Consistent with the in rem line
of cases, the courts in Probulk and Chiles engaged in and relied upon a minimum contacts
analysis to find personal jurisdiction over the defendant. 	See Probulk, 407 B.R. at 64 (“[T]he
Trustee has shown a substantial course of business between the parties and a substantial effect
within the United States.”); Chiles, 264 B.R. at 543–44 (“In order for this Court to exercise
personal jurisdiction over the Defendants, I must find that they had minimum contacts with the
United States.”). 	Similarly, in order for this Court to exercise in personam jurisdiction over
Shield, it must find that Shield has the requisite minimum contacts with the United States.
Moreover, LBSF’s automatic stay arguments assume its desired conclusion of this
adversary proceeding: that Noteholder Priority is an ipso facto clause and invoking it violated the
automatic stay. This Court cannot rest its finding of jurisdiction over the defendant on the very
subject of the dispute. 	See Electra Aviation, Inc. v. European Org. for the Safety of Air
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Navigation (In re EAL (Delaware) Corp.), No. 93-578-SLR, 1994 WL 828320, at *16 (D. Del.
Aug. 3, 1994) (“Because the question of whether the automatic stay was violated is the
underlying dispute in the case, the alleged violation cannot constitute the basis for the personal
jurisdiction.”).
Finally, LBSF argues that the Court need not even engage in the minimum contacts
inquiry because Shield is subject to the Court’s jurisdiction under the New York long-arm
statute, N.Y. C.P.L.R. § 302, and because the long-arm statute “does not reach as far as the
Constitution permits, due process will be satisfied if the New York long-arm statute is satisfied.”
Picard v. Chais (In re BLMIS), 440 B.R. 274, 280 (Bankr. S.D.N.Y. 2010). Shield counters that
LBSF’s long-arm argument “turns the personal jurisdiction analysis on its head,” 79 and
alternatively points the Court to Ehrenfeld v. Bin Mahfouz, 881 N.E.2d 830 (N.Y. 2007) and
Marvel Characters, Inc. v. Kirby, 726 F.3d 119 (2d Cir. 2013) to show that the New York long-
arm statute is not satisfied.80
The parties veer off-course with these arguments. 	Shield’s citations to Ehrenfeld and
Marvel are highly instructive as to the reach of the New York long-arm statute, but they are
instructive only as to the reach of the New York long-arm statute, not as to the requirements of
constitutional due process. 	New York courts are “guided . . . by U.S. Supreme Court opinions
delineating proper bases for personal jurisdiction under the Federal Due Process Clause,”
Ehrenfeld, 9 N.Y.3d at 508, but as Shield itself suggests, that analysis is of no precedential value
when considering whether the exercise of personal jurisdiction over a foreign defendant is
consistent with constitutional due process in federal court. 	Under Rule 7004(f) of the
79 Memorandum of Law in Further Support of Shield Securities Limited’s Motion to Dismiss for Lack of Personal
Jurisdiction, Mar. 27, 2015, ECF No. 1065 (hereinafter, the “Shield Reply”), at 9.
80 See H’rg Tr. at 22:2–22.
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Bankruptcy Rules, this Court is guided by cases defining the constitutional reach of a federal
court’s jurisdiction, rather than New York cases defining the reach of the New York long-arm
statute. See In re Bozel S.A., 434 B.R. 86, 97 (Bankr. S.D.N.Y. 2010).
Moreover, even if the long-arm statute applied, the Court’s jurisdiction over Shield would
depend both on whether Shield’s contacts with the United States satisfied the constitutional
standard and on whether those contacts satisfied the New York long-arm statute. See, e.g., J.L.B.
Equities, Inc. v. Ocwen Financial Corp., 131 F. Supp. 2d 544, 547 (S.D.N.Y. 2001). Thus, even
if Shield can be reached under the New York long-arm statute, that conclusion would not
invalidate the minimum contacts analysis performed above, nor would it eliminate this Court’s
obligation to engage in it.
Having engaged in the required minimum contacts analysis, it is clear that Shield’s
contacts with the United States are too limited to support the assertion of in personam
jurisdiction over Shield, and none of LBSF’s arguments to the contrary convinces this Court
otherwise. As this Court finds that Shield does not have the requisite minimum contacts with the
United States, the Court need not reach the analysis of whether the exercise of in personam
jurisdiction would be reasonable. See Amaranth, 587 F. Supp. 2d at 527.
2. 	Derivative “Mere Department” Theory of Jurisdiction
LBSF argues that even if the Court cannot find in personam jurisdiction over Shield qua
Shield, Shield’s relationship with the Rothschild corporate family is sufficient to establish the
Court’s jurisdiction under the theory that Shield is a “mere department” of Rothschild.81 Shield
maintains that it and its parents and affiliates sufficiently observed corporate formalities such
that it cannot be considered a “mere department” of Rothschild. It argues, moreover, that LBSF
81 For ease of discussion and for purposes of faithfully describing LBSF’s argument, the Rothschild corporate family
will be referred to in this section simply as “Rothschild.”
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does not specify which Rothschild entity it believes Shield to be a department of, reflecting an
inappropriate disregard for corporate distinctness within Rothschild.
a. 	The “Mere Department” Doctrine
A court may exercise jurisdiction over a defendant not otherwise subject to the court’s
jurisdiction where the defendant is a “mere department” of an entity over which the court has
personal jurisdiction. 	See GEM Advisors, Inc. v. Corporacion Sidenor, S.A., 667 F. Supp. 2d
308, 319 (S.D.N.Y. 2009). 	The question under the mere department analysis is “whether the
allegedly controlled entity was a shell for the allegedly controlling party,” Int’l Equity Invs., Inc.
v. Opportunity Equity Partners, Ltd., 475 F. Supp. 2d 456, 458 (S.D.N.Y. 2007) (internal
quotation marks omitted); it is not necessary that the entity was used to commit fraud, a showing
normally required to pierce the corporate veil under U.S. law. See GEM, 667 F. Supp. 2d at 319.
To determine whether a party is a mere department of a controlling entity, courts consider four
factors set forth by the Second Circuit in Volkswagenwerk Aktiengesellschaft v. Beech Aircraft
Corp., 751 F.2d 117, 120–22 (2d Cir. 1984):
(1) 	Whether there exists common ownership and the presence of an
interlocking directorate and executive staff,
(2) 	The degree of financial dependency of the subsidiary on the parent,
(3) 	The degree to which the parent interferes in the selection and
assignment of the subsidiary’s executive personnel and fails to
observe corporate formalities, and
(4) 	The degree of the parent’s control of the subsidiary’s marketing
and operational policies.
Id.; see also GEM, 667 F. Supp. 2d at 319. 	A court may assert jurisdiction where there is a
subsidiary amenable to jurisdiction that is a mere department of the parent-defendant, see Storm
LLC v. Telenor Mobile Commc’ns AS, No. 06 Civ. 13157, 2006 WL 3735657, at *13 (S.D.N.Y.
Dec. 15, 2006), or where there is a subsidiary-defendant that is a “mere department” of a parent
amenable to jurisdiction, see Int’l Equity Invs., 475 F. Supp. 2d at 458.
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b. 	No Derivative Jurisdiction over Shield
Even before engaging in an analysis of the Beech factors, the Court concludes that
LBSF’s derivative jurisdiction theory fails because LBSF has not established that this Court has
jurisdiction over any of the relevant Rothschild entities – NMR, RBI, or Paris Orleans SCA. The
only facts alleged to support jurisdiction over the Rothschild entities are the presence of some
offices in the United States and generalized allegations that “Rothschild . . . derive[s] substantial
revenue from international commerce.”82 There is no allegation, however, that the revenue or
the offices are in any way related to the transaction at issue in this case, a necessary element for a
finding of specific personal jurisdiction. See J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct.
2780, 2799 (2011) (“[S]pecific jurisdiction [is justified] in a suit arising out of or related to the
defendant’s 	contacts 	with 	the 	forum.”). 83 Nor 	does 	LBSF 	assert 	a 	theory 	of 	general
jurisdiction.84 Thus, even assuming that Shield’s relationship with Rothschild satisfies the Beech
factors, this Court cannot assert jurisdiction based on the mere department theory.
Moreover, LBSF’s argument does not specify the Rothschild entity of which Shield
should be deemed a mere department. The mere invocation of “Rothschild” does not suffice to
support LBSF’s alleged derivative basis for jurisdiction. Indeed, Rothschild’s use of a common
82 LBSF Opp. at ¶¶ 12–13, 41.
83 Although not considered by the Court, see supra at pp. 12–13, the arguments in LBSF’s unauthorized sur-reply
are also unconvincing as to the Court’s personal jurisdiction over any Rothschild entity. 	LBSF argues that
because NMR and RBI filed proofs of claim in the LBHI bankruptcy case, Rothschild should be deemed to have
submitted to the personal jurisdiction of this Court for the purposes of this adversary proceeding. See Glinka v.
Abraham & Rose Co. Ltd., 199 B.R. 484, 496 (D. Vt. 1996). However, a proof of claim against LBHI in its
bankruptcy case does not suffice as an all-purpose submission to jurisdiction for suits brought by procedurally
consolidated but substantively distinct debtors. See, e.g., Andros Compania Maritima, S.A. v. Intertanker Ltd.,
718 F. Supp. 1215, 1217–18 (S.D.N.Y. 1989) (noting that defendant’s personal jurisdiction waiver in one case
does not suffice to waive its personal jurisdiction defense in another, related case). See also Evergreen Systems,
Inc. v. Geotech Lizenz AG, 697 F. Supp. 1254, 1257 (E.D.N.Y. 1987) (noting that N.Y. C.P.L.R. § 303 provides a
basis for waiver of personal jurisdiction defense in related cases but only if the plaintiff in the related case is a
party to both cases). 	Thus, by filing proofs of claim against LBHI, neither RBI nor NMR submitted to this
Court’s jurisdiction for purposes of an avoidance action brought by LBSF.
84 See H’rg Tr. 37:2–15.
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trade name or references to itself as a collective entity “cannot create a single entity structure
given the sophistication and complexity of today’s corporate world.” 	Aerotel, Ltd. v. Sprint
Corp., 100 F. Supp. 2d 189, 193 (S.D.N.Y. 2000); see also Ocwen, 131 F. Supp. 2d at 550.
Even if this Court could assert jurisdiction over Rothschild (or any entity thereof),
Shield’s relationship to Rothschild does not satisfy any of the Beech factors but the first. 	The
first Beech factor – common ownership – is easily met. 	Shield’s parent, Shield Holdings, its
indirect parent, Rothschild Continuation Holdings, and its affiliates RBI and NMR are all
commonly owned by Paris Orleans SCA.
The second Beech factor – financial dependency – is not met. This factor is satisfied only
if the subsidiary “cannot run its business without the financial backing of its parent.” In re Ski
Train Fire in Kaprun, Austria on Nov. 11, 2000, 230 F. Supp. 2d 403, 410 (S.D.N.Y. 2002). In
LBSF’s view, Shield could not have purchased the Ruby Note or received the Distribution but
for the loan provided by RBI for the purchase of the Ruby Note and the Indemnity provided by
RBI to the Trustee. 	While the Indemnity provides some evidence of financial dependency, the
loan does not. Even under LBSF’s formulation of the facts, the loan provided by RBI appears to
be a well-documented loan to Shield at a market interest rate. 	The deposition testimony of
NMR’s Philip Yeates specifically refutes LBSF’s contention that this was not an arm’s-length,
market-rate transaction.85 LBSF has not made a prima facie case for financial dependency.
The third Beech factor – failure to observe corporate formalities – is clearly not met. In
support of this factor, LBSF points to the facts that Shield has no employees and that its location
“across the road” from Rothschild’s corporate finance business meant that mail would “tend to
85 Mr. Yeates, the co-head of Debt Fund Management at NMR, asserts that “Shield did not get a discount on the
interest rate that RBI could charge a third-party market participant.” Yeates Decl. ¶ 5.
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find its way back” to Shield.86 Such evidence is too thin to support a finding that corporate
formalities were not observed. 	The evidence put forth by Shield and unrefuted by LBSF,
including the loan from RBI to Shield and the documented sale of the Ruby Note from NMR to
Shield, suggests more strongly that corporate formalities were indeed observed.
LBSF also fails to make a prima facie case for the fourth Beech factor – control over
marketing and operational policies. 	The only evidence presented by LBSF is that Shield’s
directors are all employees of RBI. 	Since Shield itself has no employees, all of its policies,
LBSF argues, must be determined by Rothschild employees. 	These conclusory arguments
cannot support a finding that this factor has been satisfied.
3. 	No In Personam Jurisdiction over Shield
For all of the foregoing reasons, the Court finds that there is no basis for the exercise of
personal jurisdiction over Shield and grants Shield’s motion to dismiss as to in personam
jurisdiction.
B. In Rem Jurisdiction
Echoing its automatic stay arguments, LBSF also argues that this Court has in rem
jurisdiction to resolve this dispute because “LBSF’s senior security interest in the [Collateral],
and its priority right to payment” are property of the LBSF estate.87 Shield responds that LBSF’s
in rem theory fails because the property is not property of the estate, the property is not
physically situated in the forum, and Shield does not have minimum contacts with the forum in
any event.
86 Dahill Decl. Ex. E (Jan. 16, 2015 Yeates Dep.), at 76:22–77:4.
87 LBSF Opp. ¶¶ 51–56.
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1. 	The Doctrine of In Rem Jurisdiction
The court in which a bankruptcy proceeding is pending has “exclusive jurisdiction of all
the property, wherever located, of the debtor as of the commencement of such case, and of
property of the estate.” 28 U.S.C. § 1334(e) (emphasis supplied); see also Sinatra v. Gucci (In re
Gucci), 306 B.R. 679, 681 (S.D.N.Y. 2004). 	Property of the estate includes “all legal or
equitable interests of the debtor in property as of the commencement of the case,” 11 U.S.C.
§ 541(a)(1), and includes “even strictly contingent interests,” 	Mid-Island Hosp., Inc. v. Empire
Blue Cross & Blue Shield (In re Mid-Island Hosp., Inc.), 276 F.3d 123, 128 (2d Cir. 2002). 	A
debtor’s security interest in collateral or a debtor’s interest in an executory contract as of the
commencement of the case comprises property of the estate. 	See Lehman Bros. Special
Financing Inc. v. BNY Corp. Tr. Servs. Ltd., 422 B.R. 407, 411, 418 (Bankr. S.D.N.Y. 2010). A
contract is executory if “termination requires the non-debtor party to undertake some post-
petition affirmative act.” 	In re Margulis, 323 B.R. 130, 135 (Bankr. S.D.N.Y. 2005) (citations
omitted).
The bankruptcy court’s in rem jurisdiction is broad and reaches property wherever
located. 	See 28 U.S.C. § 1334(e). 	In other contexts, a court may only exercise in rem
jurisdiction over property physically within the court’s jurisdiction at the time of the suit. 	See
4A Charles Alan Wright & Arthur R. Miller, FEDERAL PRACTICE & PROCEDURE § 107 (3d ed.).
However, in the bankruptcy context, Congress explicitly gave bankruptcy courts global reach
over the debtor’s property via section 541(a) of the Bankruptcy Code and section 1334(e) of title
28 of the United States Code. See Hong Kong & Shanghai Banking Corp., Ltd. v. Simon (In re
Simon), 153 F.3d 991, 996 (9th Cir.1998), cert. denied, 525 U.S. 1141 (1999) (“Congress
intended extraterritorial application of the Bankruptcy Code as it applies to property of the
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estate.”); Gucci, 309 B.R. at 683 (declaring that “[s]ection 1334(e) . . . embodies a Congressional
determination that bankruptcy courts should determine rights in property of bankrupt estates
regardless of where that property may be found”); Nakash v. Zur (In re Nakash), 190 B.R. 763,
768 (Bankr. S.D.N.Y. 1996) (exercising in rem jurisdiction to enforce automatic stay against
foreign receiver related to foreign assets of foreign debtor).
Despite the bankruptcy court’s broad reach to assert jurisdiction over foreign property,
the bankruptcy court’s in rem jurisdiction cannot be enforced extraterritorially without in
personam jurisdiction over the defendant. See Found. for Research v. Globo Communicacoes e
Participacoes S.A. (In re Globo Comunicacoes e Partipacoes S.A.), 317 B.R. 235, 251–52
(S.D.N.Y. 2004). 	In other words, “the bankruptcy court is precluded from exercising control
over property of the estate located in a foreign country without the assistance of the foreign
courts.” In re Int’l Admin. Servs., Inc., 211 B.R. 88, 93 (Bankr. M.D. Fla. 1997).
2. 	In Rem Jurisdiction Exists
This Court has in rem jurisdiction to resolve this adversary proceeding as it relates to
Shield because, as of the LBSF Petition Date, LBSF had an undisputed security interest in the
Collateral and a property interest in the Transaction Documents. Although neither party relies on
Judge Peck’s opinion in Lehman Bros. Special Financing Inc. v. BNY Corporate Trustee
Services Ltd. (“BNY”), Judge Peck’s findings with respect to LBSF’s property interests in that
adversary proceeding are directly on point here. In BNY, Judge Peck found that, as of the LBSF
Petition Date, LBSF had “a valuable property interest” in the transaction documents at issue in
that proceeding and that such transaction documents were property of the estate under section
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541(a) of the Bankruptcy Code. BNY, 422 B.R. at 418. Judge Peck also found that LBSF had a
security interest in the collateral at issue in that proceeding.88 See id. at 411.
The circumstances in BNY are virtually identical to those here, including the timing of the
termination, the reason for termination, the identity of the trustee, and the provisions of the
transaction documents. The transaction documents at issue in BNY, just like those at issue here,
were part of LBIE’s Dante Program. In both cases, termination of the contracts required the non-
debtor party to undertake some post-petition affirmative act. See Margulis, 323 B.R. at 135. As
in BNY, it is undisputed that here, Shield, as the noteholder, had a right to terminate the
Transaction Documents as of the LBSF Petition Date, but no steps were taken to exercise that
right until after the LBSF Petition Date: Shield had not sent a termination notice, directed the
liquidation of the collateral, made the necessary calculations, or received the distributions as of
the LBSF Petition Date. It is also undisputed that, as of the LBSF Petition Date, the Collateral
securing the Swap had not been sold and LBSF had a security interest in that Collateral.89
Consistent with BNY, the Court finds that the Transaction Documents and LBSF’s
security interest in the Collateral were property of the estate as of the LBSF Petition Date and are
subject to this Court’s in rem jurisdiction. 	Shield’s arguments against the exercise of in rem
jurisdiction are inapposite – the property at issue is indeed property of the estate, that property
need not be physically situated in the United States, and Shield need not have minimum contacts
with the United States for this Court to exercise in rem jurisdiction over the property at issue.
Accordingly, because LBSF had a property interest in the Transaction Documents and the
88 The Supreme Court of the United Kingdom came to a similar conclusion in the so-called Perpetual Litigation.
Although that court held that Noteholder Priority did not violate the “anti-deprivation principle” under English
law, it nonetheless recognized that, as of the LBSF Petition Date, LBSF had an interest in the collateral securing
the swap agreement at issue in that proceeding. See Belmont Park Invs. PTY Ltd. v. BNY Corp. Tr. Servs. Ltd.,
[2011] UKSC 38 [53].
89 Jaffe Decl. Ex. D (Principal Trust Deed), at 6 § 5.1; Jaffe Decl. Ex. B (Supplemental Trust Deed), at §§ 5.1, 5.3.
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Collateral as of the commencement of the LBSF case, this Court can and shall exercise its in rem
jurisdiction over that property in LBSF’s dispute with Shield.
CONCLUSION
For all of the foregoing reasons, Shield’s motion to dismiss for lack of personal
jurisdiction is granted. Notwithstanding the Court’s lack of personal jurisdiction over Shield, the
Court has in rem jurisdiction and concomitant adjudicatory authority over the property at issue in
this dispute and shall exercise such jurisdiction. 	The parties are directed to settle an order
consistent with this decision.
Dated: August 24, 2015
New York, New York
/s/ Shelley C. Chapman
UNITED STATES BANKRUPTCY JUDGE
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