Opinion ID: 147384
Heading Depth: 2
Heading Rank: 3

Heading: Determining Status as a Foreign Main Proceeding

Text: A foreign main proceeding is a foreign proceeding pending in the country where the debtor has the center of its main interest.  11 U.S.C. § 1502(4) (emphasis added). The phrase center of main interest (COMI) is a term of art, which the Bankruptcy Code does not define explicitly. Chapter 15, however, does provide that [i]n the absence of evidence to the contrary, the debtor's registered office, or habitual residence in the case of an individual, is presumed to be the center of the debtor's main interests. Id. § 1516(c). This presumption can be rebutted by evidence to the contrary. See In re Tri-Continental Exch. Ltd., 349 B.R. at 634. Thus, to determine where Ran's presumptive COMI lies, we must determine the location of his habitual residence and then determine if any evidence to the contrary was presented by Lavie to rebut the presumption that Ran's habitual residence is his COMI. If so, our inquiry does not end and we must consider all evidence to determine the location of Ran's COMI. The Code does not define habitual residence, but it has been analyzed recently by foreign courts as virtually identical to the more commonly used, at least in the United States, concept of domicile. Under our law, domicile is established by physical presence in a location coupled with an intent to remain there indefinitely. Texas v. Florida, 306 U.S. 398, 59 S.Ct. 563, 83 L.Ed. 817 (1939). One acquires a domicile of origin at birth, and that domicile continues until a new one (a domicile of choice) is acquired. Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 109 S.Ct. 1597, 104 L.Ed.2d 29 (1989). To defeat the presumption of continuing domicile and establish a new domicile, an individual must demonstrate residence in a new state and an intention to remain in that state indefinitely. Acridge v. Evangelical Lutheran Good Samaritan Soc'y, 334 F.3d 444, 448 (5th Cir.2003). Similarly, according to foreign courts, the existence of a habitual residence largely depends on whether the debtor intends to stay in the location permanently. See, e.g., Pinna v. Caisse d' Allocations Familiales de la Savoie, [1986] E.C.R. 1 (ECJ 1986) (France). Other factors pertinent to a finding of an individual's habitual residence include: (1) the length of time spent in the location; (2) the occupational or familial ties to the area; and (3) the location of the individual's regular activities, jobs, assets, investments, clubs, unions, and institutions of which he is a member. See, e.g., id.; see also George A. Rosenberg, Israeli Tax Reform, J. INT'L TAX'N 31, 2003 WL 1871011 at  (April 2003); Geveran Trading Co. v. Skjevesland, 2002 WL 31947334 (Ch. D. Bankruptcy Ct.) (Eng.); Israel Doran & Tal Golan, Aging, Globalization, and the Legal Construction of Residence: The Case of Old Age Pensions in Israel, 15 ELDER L.J. 1, 16 (2007). Here, it is evident that when Lavie filed the petition for recognition, Ran's habitual residence was in Houston, Texas. Our conclusion is supported by our review of the record which reveals that Ran left Israel nearly a decade prior to the filing of the petition, has no intent to return, and has established employment and a permanent residence in Houston. Ran is a legal permanent resident of the United States and his children are United States citizens. And the record also reflects that Ran maintains his finances exclusively in Texas. The totality of the circumstances before us indicates that the United States is Ran's habitual residence and thus his presumptive COMI. Before the district court, Lavie introduced evidence to rebut the presumption that Ran's COMI is located in the United States. Because of this, we cannot rely solely upon Section 1516(c)'s presumption. Instead, in order to determine Ran's COMI we must consider all evidence, while keeping in mind that it is Lavie's burden to persuade the court by a preponderance of the evidence that Ran's COMI is in Israel. See In re Bear Stearns, 389 B.R. at 335-36; see also FED. R. EVID. 301 (explaining that a party's rebuttal of a presumption does not shift the burden of proof; rather, the risk of nonpersuasion remains upon the party on whom it was originally castin this case, Ran); In re Tri-Continental Exch. Ltd., 349 B.R. at 635 (discussing the 11 U.S.C. § 1516(c) presumption); Schaflein v. Comm'n of the European Cmtys., (Case 284/87) [1988] ECR 4475 (ECJ 2d Chamber 1988) (noting that although an individual's habitual residence is presumed to be his COMI, this presumption is not outcome determinative if other evidence suggests the debtor's COMI is elsewhere); see also Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency § 122 (noting that the presumption does not prevent, in accordance with applicable procedural law, calling for or assessing other evidence if the conclusion suggested by the presumption is called into question by the court or an interested party). Neither Chapter 15 nor the Model Law on Cross-Border Insolvency describes the factors that may be relevant to a determination of the debtor's COMI in a case where it is disputed. But, the SPhinX court suggested the following list of non-exhaustive factors to be considered when a debtor's COMI is in dispute: Various factors, singly or combined, could be relevant to such a determination: the location of the debtor's headquarters; the location of those who actually manage the debtor (which, conceivably could be the headquarters of a holding company); the location of the debtor's primary assets; the location of the majority of the debtor's creditors or a majority of the creditors who would be affected the case; and/or the jurisdiction whose law would apply to most disputes. 351 B.R. at 117, aff'd, 371 B.R. 10 (S.D.N.Y.2007). In SPhinX the court was concerned with the COMI of a debtor corporation. It noted that in the absence of evidence to the contrary, the COMI of a corporation is presumed to be the place of its registered office which it equated with the corporation's principal place of business. Id. at 116. Considering the above listed factors, the court then determined that the statutory presumption regarding COMI had been overcome and that the debtor corporation's COMI was not the place of its registered office. Id. While the factors set forth in SPhinX offer a useful analytical framework to determine the disputed COMI of a corporate debtor, the relevant factors to determine the disputed COMI in the case of an individual debtor who has no registered office, headquarters, or holding company may be somewhat different. Nevertheless, in In re Loy, 380 B.R. 154, 162 (Bankr.E.D.Va. 2007), the only case to address the concept of COMI with respect to an individual debtor, the court noted that factors such as (1) the location of a debtor's primary assets; (2) the location of the majority of the debtor's creditors; and (3) the jurisdiction whose law would apply to most disputes, may be used to determine an individual debtor's COMI when there exists a serious dispute. In other words, the Loy court considered factors which are normally applied to the determination of a corporate debtor's COMI in order to determine the disputed COMI of an individual debtor. After weighing the evidence before it concerning each factor, the bankruptcy court concluded that Loy's COMI was England. Id. The applicability vel non of the SPhinX factors to the determination of the disputed COMI of an individual debtor is an argument that we need not address today. Even assuming arguendo their applicability to the instant case our review of the record reveals that Lavie's evidence, while sufficient to rebut the presumption that Ran's COMI was in the United States, was nevertheless insufficient to prove by a preponderance of the evidence that Israel is the location of Ran's center of main interests. Lavie proffered the following evidence before the district court to establish that Ran's center of main interests lies in Israel: (1) Ran's creditors are located in Israel; (2) Ran's principal assets are being administered in bankruptcy pending in Israel; and (3) Ran's bankruptcy proceedings initiated in Israel and would be governed by Israeli law. These factors, however, when weighed against the following: (1) Ran along with his family left Israel nearly a decade prior to the filing of the petition; (2) Ran has no intent to return to Israel; (3) Ran has established employment and a residence in Houston, Texas; (4) Ran is a permanent legal resident of the United States and his children are United States citizens; and (5) Ran maintains his finances exclusively in Texas, are insufficient to prove by a preponderance of the evidence that Israel is Ran's COMI. See Pennzoil Co. v. F.E.R.C., 789 F.2d 1128, 1136 (5th Cir. 1986) (noting that a fact finder can still credit the evidence of the party in favor of whom the rebutted presumption operates despite the existence of contrary evidence and despite the resultant destruction of the presumption). Lavie's reliance upon Loy to provide support for his argument that Lavie's COMI is Israel is misplaced because it is plainly distinguishable for a number of reasons. First, in Loy the court concluded that the debtor's habitual residence was the United Kingdom. Loy, 380 B.R. at 163. Thus, the presumption identified in Section 1516(c) weighed in favor of the court finding that the United Kingdom was Loy's COMI. Id. In contrast, in the instant case, before being rebutted, the Section 1516(c) presumption weighed in favor of Ran's COMI being in the United States, the location of his habitual residence. Second, unlike in the instant case, the debtor in Loy was involved in the bankruptcy proceedings in the United Kingdom prior to his departure for the United States. Unlike Ran, Loy never successfully transferred his COMI before the petition for recognition was filed. Although our review of the objective factors establishes that Ran's COMI is in the United States, Lavie has another argument. He contends that the COMI determination should be made with reference to Ran's operational history, and not merely by focusing upon where Ran's COMI lies on the date the petition for recognition was filed. In other words, Lavie argues that because Ran's COMI was located in Israel at some point in time before he filed the petition for recognition, we should lookback at Ran's operational history in Israel to conclude that his COMI lies in Israel. We disagree. An analysis of the proper COMI timeframe starts with, as it must, the text of Section 1502 of the Code. See Mark Lightner, Determining the Center of Main Interest Under Chapter 15, 18 J. BANKR. L. & PRAC. 5, art. 2 (2009). In the bankruptcy context, the analysis must end with the text if the language is clear and does not lead to an absurd result. See, e.g., United States v. Ron Pair Enters., Inc. (In re Ron Pair Enters.), 489 U.S. 235, 238, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). While Section 1502 does not expressly discuss a temporal framework for determining COMI, the grammatical tense in which it is written provides guidance to the court. Every operative verb is written in the present or present progressive tense. More specifically, Section 1502 defines foreign main proceeding as a foreign proceeding pending in the country where the debtor has the center of its main interests. 11 U.S.C. § 1502(4). Congress's choice to use the present tense requires courts to view the COMI determination in the present, i.e. at the time the petition for recognition was filed. If Congress had, in fact, intended bankruptcy courts to view the COMI determination through a lookback period or on a specific past date, it could have easily said so. This is particularly significant because Congress is clearly capable of creating lookback periods in the Bankruptcy Code. See, e.g., id. § 522(b)(3)(A) (creating a lookback provision for property exemptions). Moreover, examining a debtor's COMI at the time the petition for recognition is filed fulfills Congress's purpose for implementing Chapter 15. As noted above, Chapter 15 was implemented by Congress in an attempt to harmonize transnational insolvency proceedings. If we were to assess COMI by focusing upon Ran's operational history, there would be an increased likelihood of conflicting COMI determinations, as courts may tend to attach greater importance to activities in their own countries, or may simply weigh the evidence differently which may lead to the possibility of competing main proceedings, thus defeating the purpose of using the COMI construct. See In re Betcorp Ltd., 400 B.R. at 290. In fact, a meandering and never-ending inquiry into the debtor's past interests could lead to a denial of recognition in a country where a debtor's interests are truly centered, merely because he conducted past activities in a country at some point well before the petition for recognition was sought. See Jay Lawrence Westbrook, Locating the Eye of the Financial Storm, 32 BROOK. J. INT'L L. 1019, 1020 (2007). Additionally, it is important that the debtor's COMI be ascertainable by third parties. If the debtor's main interests are in a particular country and third parties observe this situation, it should be irrelevant that the debtor's interests were previously centered in a different country almost a decade prior to the receiver attempting to have the foreign bankruptcy proceeding recognized. See In re Betcorp Ltd., 400 B.R. at 290. The presumption is that creditors will look to the law of the jurisdiction in which they perceive the debtor to be operating to resolve any difficulties they have with that debtor, regardless of whether such resolution is informal, administrative or judicial. This is consistent with English cases interpreting the European Union Regulation, which seem to select a time linked to the commencement or service of the relevant insolvency proceeding. Shierson v. Vlieland-Boddy, [2005] EWCA (Civ) 974, §§ 39, 55, 2005 WL 1860177 (Eng); Re Collins & Aikman Corp. Group, [2005] EWHC (Ch) 1754, § 39, 2005 WL 4829623 (Eng.). Lavie urges the court to recognize the Israeli proceeding to effect the principles of comity and deference encompassed in Chapter 15 by deferring to the jurisdictional choice of the Israeli creditors. This argument has no merit. The plain language of Chapter 15 requires a factual determination with respect to recognition before principles of comity come into play. See 11 U.S.C. § 1507. By arguing comity without first satisfying the conditions for recognition, Lavie urges this court to ignore the statutory requirements of Chapter 15. Lastly, we note that this case does not involve a recent change of domicile by the party in question. A similar case brought immediately after the party's arrival in the United States following a long period of domicile in the county where the bankruptcy is pending would likely lead to a different result. In sum, the district court's denial of recognition of the Israeli bankruptcy proceeding as a foreign main proceeding is affirmed.