In a June 26, 2014 Commercial Division decision by Justice Scarpulla, the court granted Defendant Kemsley’s motion for summary judgment dismissing the complaint on the basis of a bankruptcy discharge granted in his favor in the United Kingdom, and denied Plaintiff Barclays’ motion for summary judgment on its breach of contract claim.
Plaintiff Barclays is a bank organized under the laws of England and Wales. Defendant is a citizen of the UK. In a UK bankruptcy proceeding commenced by Defendant, Defendant listed Barclays as an unsecured creditor. Barclays was aware of the bankruptcy proceeding but decided not to submit a proof of claim. Kemsley was eventually adjudged bankrupt and entered into an agreement with the trustees of his estate (the “UK Trustees”) under which his income would be garnished over the following three years for the benefit of his creditors, including Barclays.
About a year prior to this agreement, and during the pendency of the UK bankruptcy proceeding, Barclays commenced an action in New York seeking recovery of its debt on causes of action for breach of contract and unjust enrichment. While this action was stayed, the UK Trustees sought in the US Bankruptcy Court, Southern District of New York, recognition of the UK bankruptcy proceeding as a “foreign main proceeding”; SDNY found that Defendant’s “center of main interests” was not in the UK. Upon a subsequent hearing, SDNY clarified that nothing in its nonrecognition order prevented Defendant from seeking comity from US courts respecting his UK discharge of debts. Defendant therefore requested from the UK Bankruptcy Court an injunction preventing Barclays from proceeding with its US lawsuits against him. It was denied, and the UK Bankruptcy Court deferred to US state courts on the issue.
Defendant moved the Commercial Division to recognize the UK bankruptcy discharge in accordance with common law principles and comity. Barclays argued that Chapter 15 of the Bankruptcy Code, under which only a “foreign representative” may seek comity, preempted state common law. Barclays argued that even if it did not, “unusual circumstances” of this case weighed against application of comity. The court noted that in its order of nonrecognition, SDNY rejected Barclays’ preemption argument, finding that nothing in the Bankruptcy Code prevented a foreign debtor from seeking comity. Though the court did not find the words of SDNY binding, it found them “highly persuasive,” and rejected Barclays’ preemption argument.
The court also rejected Barclays’ argument that the court should, in is discretion, deny comity to the UK discharge. The court rejected Barclays argument that it had no practical way of recovering its debt in US proceedings. The court found that Barclays’ problem was largely of its own making; in other words, “Barclays may have mousetrapped itself.”
Barclays Bank PLC v Kemsley, Sup Ct, New York County, June 26, 2014, Scarpulla, J., Index No. 650611/2012.