Using bankruptcy code chapters 11 and 15 to avoid litigation is not quite as easy as some might think, as illustrated by an order that is here and is described in the LAW 360 article below.
Law360, New York (December 03, 2009) — A federal judge has ruled that a London-based fur broker that filed the equivalent of bankruptcy in the U.K. can’t stay a bid-rigging suit in the U.S. without first petitioning for recognition of the U.K. insolvency proceedings under Chapter 15.
Judge Ricardo S. Martinez of the U.S. District Court for the Western District of Washington rejected Fein & Co.’s motion to stay the putative antitrust class action Wednesday, saying the fur broker hasn’t shown that it can’t file Chapter 15.
The fur broker had argued in a Nov. 3 motion that comity necessitated the district court to stay the antitrust suit against Fein as it would have if the company had filed for bankruptcy in the U.S.
Meanwhile, the two mink fur producers who filed the action accusing Fein and other fur brokers of bid-rigging said an entity going through insolvency proceedings outside the U.S. can obtain relief here only through Chapter 15.
Siding with the plaintiffs, Judge Martinez said Chapter 15 “has provided a specific structure for addressing cross-border insolvencies, together with appropriate remedies.”
The Washington court will consider granting Fein relief if it receives Chapter 15 relief in the U.S., he added. “Until that time,” he said, “the court declines to stay these proceedings.”
The plaintiffs, Wanechek Mink Ranch and Smith Mink Ranch Corp., alleged that between 2000 and 2004, the defendants engaged in a bid-rigging scheme that depressed the prices the plaintiffs and other mink fur producers were paid for their furs at auctions.
In addition to Fein, some of the other fur brokers named in the case include Delta Trading Corp., Klondike International Furs Ltd. and Alaska Brokerage International Inc.
The defendants moved to dismiss the case in November 2008, but Judge Martinez refused to do so in early May.
Following the U.S. Supreme Court’s landmark ruling in Iqbal v. Ashcroft in May, the brokers asked the court to dismiss the action again, this time saying it didn’t meet the heightened pleading standard laid out by the high court.
The brokers noted that in the court’s May 5 order declining to dismiss the case, it pointed to repeated statements in the complaint that the defendants “agreed” to a bid-rigging scheme as well-pleaded allegations.
“The Ashcroft case puts to rest any lingering notion after Twombly that such allegations are sufficient,” the defendants said. “If all it takes to state an antitrust claim is to write the words ‘they agreed,’ no claim would fail under Rule 8.”
The U.S. Department of Justice launched an investigation into anti-competitive practices among fur brokers in 2004. In 2006 Alaska Brokerage was indicted, and an individual broker pleaded guilty to a conspiracy charge. The company was fined $30,000.
Attorneys for both sides didn’t immediately return calls for comment Thursday.
Plaintiffs are represented by Hagens Berman Sobol Shapiro LLP, Kohn Swift & Graf PC, Preti Flaherty Beliveau & Pachios LLP, Barrack Rodos & Bacine, Berger & Montague PC, Weinstein Kitchenoff & Asher LLC and Langer & Grogan PC.
Defendants are represented by Byrnes & Keller LLP, Wilson Smith Cochran Dickerson, Stoel Rives LLP and Yarmuth Wilsdon Calfo PLLC.
The case is Wanechek Mink Ranch and Smith Mink Ranch Corp., on behalf of themselves and all others similarly situated, v. Alaska Brokerage International Inc., case number 06-cv-00089, in the U.S. District Court for the Western District of Washington.