Court Opinion

ID: 3101171
Source: CourtListenerOpinion
Date Created: 2015-10-16 05:10:33.411848+00
Date Added: 2024-06-11T07:38:26.010036
License: Public Domain

Opinion issued July 31, 2014.

                                     In The

                             Court of Appeals
                                    For The

                         First District of Texas
                          ————————————
                             NO. 01-13-00636-CV
                          ———————————
      KUMKANG VALVE MANUFACTURING CO. LTD., Appellant
                                       V.
           ENTERPRISE PRODUCTS OPERATING LLC AND
            ENTERPRISE GAS PROCESSING LLC, Appellee

                  On Appeal from the 165th District Court
                           Harris County, Texas
                     Trial Court Case No. 2007-77260

                                   OPINION

     After a thousand industrial valves in two of its facilities failed, Enterprise

Products Operating LLC and Enterprise Gas Processing, LLC (collectively

Enterprise), sued Kumkang, the valve manufacturer, for breach of warranty. A
Korean company, Kumkang appeared and answered in the suit, but later filed for

bankruptcy relief in Korea and sought recognition of the foreign proceeding in a

United States bankruptcy court, under Chapter 15 of the federal Bankruptcy Code.

The United States Bankruptcy court entered a preliminary order of recognition, and

the trial court below stayed this state court suit pending resolution of the federal

proceedings. But that stay was lifted after the federal bankruptcy court dismissed

Kumkang’s Chapter 15 proceeding for want of prosecution.

      The parties stipulated to liability and damages on Enterprise’s breach of

warranty claims. Kumkang then moved for summary judgment, claiming that the

Korean bankruptcy judgment discharged Enterprise’s state court claims.

Enterprise filed a cross-motion, claiming that Kumkang’s affirmative defense of

discharge in bankruptcy failed as a matter of law. The trial court granted summary

judgment to Enterprise.

      Kumkang appeals, contending that the trial court erred in refusing to

recognize that the Korean bankruptcy judgment discharged Enterprise’s claims

against it and in failing to give effect to the federal bankruptcy court’s recognition

order in the dismissed Chapter 15 proceeding. Because the federal bankruptcy

proceedings were dismissed for want of prosecution, we conclude that the federal

bankruptcy court never finally determined the effect of the Korean court’s

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judgment on Enterprise’s claims, and thus Enterprise’s state law claims against

Kumkang were never discharged. We therefore affirm.

                                   Background

      Enterprise purchased approximately 1000 of Kumkang’s high-pressure

valves for use in constructing two of its gas-processing facilities, one in Colorado

and one in Wyoming. The valves failed. Ultimately, Enterprise replaced them at

an out-of-pocket cost of approximately $11 million.

      In 2007, Enterprise sued Kumkang for, among other claims, breach of

warranty. It sought reimbursement for its out-of-pocket cost and damages to

compensate for its lost profits. In February 2009, before the suit was resolved,

Kumkang filed for protection under the Korean Debtor Rehabilitation and

Bankruptcy Act in Korean bankruptcy court.           The Korean bankruptcy court

ordered Inspection Commissioner Samil PricewaterhouseCoopers to investigate the

circumstances that led to Kumkang’s bankruptcy and render an opinion concerning

whether the requested relief would be appropriate.

      In April 2009, Kumkang petitioned a federal bankruptcy court in the

Southern District of Texas for recognition of a foreign main proceeding under

Chapter 15 of the United States Bankruptcy Code. 11 U.S.C. §§ 1501–1532.

Kumkang served Enterprise with its petition, which included information about the

                                         3
Korean bankruptcy proceeding, as well as notice of the recognition hearing

scheduled in the Chapter 15 proceeding.

      The federal bankruptcy court entered an order recognizing the pendency of

the Korean proceeding, which gave rise to the automatic stay of all litigation

against Kumkang in the United States. Kumkang filed a suggestion of bankruptcy

in this case, and the trial court abated the proceedings.

      Enterprise did not appear in the Korean bankruptcy proceeding. The list of

creditors that Kumkang filed in the Korean bankruptcy proceeding did not include

Enterprise. The Korean Inspection Commissioner’s report mentioned Enterprise’s

claims against Kumkang, but Kumkang’s Korean rehabilitation plan did not

address them.

      The Korean bankruptcy court approved Kumkang’s rehabilitation plan in

December 2009. Kumkang did not inform the federal bankruptcy court or its

American bankruptcy counsel of this development. After nearly two years passed

without word from Kumkang, the federal bankruptcy court sent notice of its intent

to dismiss the Chapter 15 proceeding and scheduled a status conference. At the

conference, Kumkang’s American counsel informed the bankruptcy court that he

had tried, without success, to communicate with his client and that he had no

information about the status of the Korean proceeding.       The United States

bankruptcy court gave Kumkang’s American counsel another month to provide an

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update, but received no response. The United States bankruptcy court thereafter

entered an order dismissing the Chapter 15 case and lifted the stay.

      Enterprise moved the trial court below to lift the bankruptcy stay, and the

trial court granted the motion. The parties eventually entered into an agreement,

pursuant to Texas Rule of Civil Procedure 11, in which Kumkang “[a]gree[d] that

Enterprise is damaged in the amount of $11,000,000 due to problems with the

valves[,]” and that the valves did not comply with Kumkang’s express warranties

and were unfit for Enterprise’s particular purpose.

      Next, Kumkang moved for summary judgment on the affirmative defense of

discharge in bankruptcy.      With its motion, Kumkang provided copies of the

Korean bankruptcy statute, the court records underlying the Korean bankruptcy

proceeding,    the   Korean     bankruptcy    judgment     approving   Kumkang’s

reorganization, and certified translations of those documents.

      Enterprise responded that the Korean proceeding had not discharged its

claims against Kumkang because (1) Enterprise was not subject to the Korean

bankruptcy court’s jurisdiction and did not participate in the proceeding,

(2) Kumkang failed to identify Enterprise’s claim against it to the Korean

bankruptcy court, and (3) Kumkang waived its opportunity to raise bankruptcy

discharge as an affirmative defense by failing to fully comply with Chapter 15 in

the United States bankruptcy court.      Enterprise also filed a cross-motion for

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summary judgment, contending that Kumkang failed to raise a fact issue on its

affirmative defense of discharge in bankruptcy and that Enterprise was entitled to

liability and damages findings in its favor as a matter of law based on the parties’

Rule 11 agreement.      The trial court denied Kumkang’s motion and granted

summary judgment in favor of Enterprise.

                                    Discussion

I.    Summary Judgment Standard of Review

      We review a traditional summary judgment to determine whether the record

establishes there is no genuine issue of material fact and the movant is entitled to

judgment as a matter of law on a ground set forth in the motion. TEX. R. CIV. P.

166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548–49 (Tex. 1985). In

deciding whether the summary judgment record establishes the absence of a

genuine issue of material fact, we view as true all evidence favorable to the non-

movant and indulge every reasonable inference, and resolve all doubts, in its favor.

Nixon, 690 S.W.2d at 548–49.

      Discharge in bankruptcy is an affirmative defense. TEX. R. CIV. P. 94;

Strata Resources v. State, 264 S.W.3d 832, 843 (Tex. App.—Austin 2008, no pet.);

Burnam v. Patterson, 119 S.W.3d 12, 14 (Tex. App.—Amarillo 2003, pet. denied).

A defendant moving for traditional summary judgment must conclusively establish

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each element of an affirmative defense. Sci. Spectrum, Inc. v. Martinez, 941
S.W.2d 910, 911 (Tex. 1997).

      When both sides move for summary judgment and the trial court grants one

motion and denies the other, we review both sides’ summary judgment evidence

and determine all questions presented. FM Props. Operating Co. v. City of Austin,

22 S.W.3d 868, 872 (Tex. 2000); Jones v. Strauss, 745 S.W.2d 898, 900 (Tex.

1988). In reviewing cross-motions for summary judgment, we may render the

judgment that the trial court should have rendered. FM Props. Operating Co., 22
S.W.3d at 872; Williamson v. State Farm Lloyds, 76 S.W.3d 64, 67 (Tex. App.—

Houston [14th Dist.] 2002, no pet.).

II.   Foreign country bankruptcy judgment as proof of discharge

      Kumkang first contends that the trial court erred in refusing to recognize that

Enterprise’s claims were discharged in the Korean rehabilitation proceeding.

Kumkang, however, has not cited to any case in which a party has sought and

obtained summary judgment based on the direct recognition of a foreign country

bankruptcy judgment without regard to American law.

      Kumkang cites to two cases to suggest that our inquiry involves application

of Korean law and principles of comity to determine whether the Korean

bankruptcy judgment is valid: Mindis Metals, Inc. v. Oilfield Motor & Control,

Inc., 132 S.W.3d 477 (Tex. App.—Houston [14th Dist.] 2004, pet. denied), and

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Fleeger v. Clarkson Co., Ltd., 86 F.R.D. 388 (N.D. Tex. 1980). We find guidance

in neither. Mindis Metals involved a judgment issued by a court in the state of

Georgia that Mindis sought to enforce pursuant to the Uniform Enforcement of

Foreign Judgments Act (UEFJA). See 132 S.W.3d at 483 (citing TEX. CIV. PRAC.

& REM. CODE ANN. § 35.001–.008.). The UEFJA, however, does not provide a

mechanism for obtaining enforcement of judgments from other countries. See

TEX. CIV. PRAC. & REM. CODE ANN. § 35.001 (defining “foreign judgment” as “a

judgment, decree, or order of a court of the United States or of any other court that

is entitled to full faith and credit in this state.”). Chapter 36 of the Civil Practice

and Remedies Code, which provides a mechanism for obtaining enforcement of

foreign country judgments, by its terms, does not extend to foreign bankruptcy

judgments.    See TEX. CIV. PRAC. & REM. CODE ANN. § 36.001(2) (defining

“foreign country judgment” as “a judgment of a foreign country granting or

denying a sum of money other than a judgment for taxes, a fine, or other penalty;

or support in a matrimonial or family matter”).          Our sister court in Mindis

ultimately determined that the Georgia judgment was entitled to full faith and

credit and ordered its reinstatement pursuant to the UEFJA. 132 S.W.3d at 490.

      In Fleeger, the federal district court granted the motion to dismiss a

shareholder derivative suit against a Canadian corporation in receivership pursuant

to an order of the Supreme Court of Ontario. See 86 F.R.D. at 393. “American

                                          8
courts have consistently deferred to Canadian courts under the comity principle.”

Caddel v. Clairton Corp., 105 B.R. 366, 366 (N.D. Tex. 1989); see also Fleeger,
86 F.R.D. at 393 (observing that it was “aware of no case in which an American

court has refused to defer to Canada.”). The plaintiff shareholder’s complaint

arose out of dealings that culminated in a settlement agreement approved by the

Ontario court. Fleeger, 86 F.R.D. at 393. Under the Canadian legal system, the

plaintiff would be required to obtain leave from the Ontario court before he could

bring the shareholder derivative claim. Id. at 394. The district court concluded

that comity compelled dismissal of the suit, explaining that “the appropriate forum

for this suit is Canada.” Id.

      Even within the United States and its territories, bankruptcy law is itself

foreign to state courts. Congress has exercised its constitutional grant of authority

over bankruptcy matters by vesting jurisdiction over them exclusively in the

federal courts. 28 U.S.C. § 1334(a) (giving federal district courts “original and

exclusive jurisdiction of all cases under title 11”); see U.S. CONST. art. I, § 8

(requiring Congress “[t]o establish . . . uniform Laws on the subject of

Bankruptcies throughout the United States”); Kalb v. Feuerstein, 308 U.S. 433,

438–39, 60 S. Ct. 343 (1940).       “‘Congress intended to grant comprehensive

jurisdiction to the bankruptcy courts so that they might deal efficiently and

expeditiously with all matters connected with the bankruptcy estate.’” Celotex

                                         9
Corp. v. Edwards, 514 U.S. 300, 308, 115 S. Ct. 1493, 1499 (1995) (quoting

Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)).

        Thus, we reject Kumkang’s request that we directly recognize the scope and

effect of a foreign bankruptcy proceeding without regard to federal bankruptcy

law. The historical deference that state courts owe to the federal judicial system in

bankruptcy matters instead requires us to determine whether federal bankruptcy

law authorized the trial court to accept the Korean bankruptcy judgment as direct

evidence of discharge, even absent a federal bankruptcy court order discharging

Enterprise’s claims. We conclude that it does not. We begin by examining the

relevant bankruptcy law, codified in Chapter 15 of the United States Bankruptcy

Code.

        Entitled “Ancillary and Other Cross-Border Cases,” Chapter 15 of the

Bankruptcy Code, enacted in 2005, essentially adopts the Model Law on Cross–

Border Insolvency, which the United Nations Commission on International Trade

Law (“UNCITRAL”) had developed in 1997 “to provide effective mechanisms for

dealing with cases of cross-border insolvency.” 11 U.S.C. § 1501(a); see also H.R.

REP. No. 109–31, pt. 1, at 105 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 169.

Chapter 15 identifies five objectives: (1) to encourage cooperation with “the courts

and other competent authorities of foreign countries involved in cross-border

cases;” (2) to increase “legal certainty for trade and investment;” (3) to promote the

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“fair and efficient administration of cross-border insolvencies” in order to

“protect[] the interests of all creditors, and other interested entities, including the

debtor;” (4) to protect and maximize “the value of the debtor’s assets;” and (5) to

facilitate “the rescue of financially troubled businesses.” 11 U.S.C. § 1501(a); see

also H.R. REP. No. 109–31, pt. 1, at 105. See generally Leif M. Clark & Karen

Goldstein, Sacred Cows: How to Care for Secured Creditors’ Rights in Cross-

Border Bankruptcies, TEX. INT’L L.J. 513, 514–15, 527 (2011) [hereinafter Sacred

Cows]. Comity—“the ‘recognition which one nation allows within its territory to

the legislative, executive or judicial acts of another nation, having due regard both

to international duty and convenience, and to the rights of its own citizens, or of

other persons who are under the protections of its laws’”—is central to Chapter 15.

In re Vitro, S.A.B. de C.V., 701 F.3d 1031, 1043–44 (5th Cir. 2012) (quoting Hilton

v. Guyot, 159 U.S. 113, 164, 16 S. Ct. 139, 143 (1895)).

      Chapter 15 authorizes a foreign representative to petition for recognition of a

foreign proceeding in United States bankruptcy court. 11 U.S.C. §§ 1504, 1509(a),

1515. If the petition meets the statutory requirements, the bankruptcy court must

enter an order granting recognition of the foreign proceeding.         If the foreign

proceeding “is pending in the country where the debtor has the center of its main

interests,” it is recognized as a “foreign main proceeding.”               11 U.S.C.

§ 1517(b)(1); see also id. § 1502(4).

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      With the entry of an order recognizing a foreign main proceeding, the

foreign representative of the proceeding automatically receives relief, including the

automatic stay created by section 362, with respect to the debtor and its property in

the United States. Id. §§ 1520(a), 1509(b)(1), 1524. Chapter 15 authorizes the

federal court to assist the debtor throughout the course of the bankruptcy

proceedings by giving its foreign representative the ability to operate the debtor’s

business within the United States under section 363 and the right to sue, be sued,

and “intervene in any proceedings in a State or Federal court in the United States in

which the debtor is a party.” See id. § 1521 (empowering bankruptcy court to

grant appropriate relief after recognition of foreign proceeding); Id. § 1507

(empowering bankruptcy court, if recognition is granted, to provide additional

assistance, including “just treatment of all holders of claims against or interests in

the debtor’s property”); see also In re Vitro, 701 F.3d at 1051–69 (considering,

under sections 1521 and 1507, reasonableness of bankruptcy court’s denial of

debtor’s request for permanent injunction enjoining United States creditors from

continuing suits against it).

      The Bankruptcy Code categorizes a Chapter 15 proceeding as a “core

proceeding.” 11 U.S.C. § 1157b(2)(P); see generally In re Wood, 825 F.2d 90, 97

(5th Cir. 1987) (defining “core proceeding” as one that “involves a right created by

the federal bankruptcy law,” or “one that would arise only in bankruptcy,” such as

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“the filing of a proof of claim or an objection to the discharge of a particular

debt”). The federal bankruptcy courts retain exclusive subject-matter jurisdiction

over core proceedings. See 28 U.S.C. §§ 157(b), 1334(b); Koval v. Henry Kirkland

Contractors, Inc., No. 01-06-00067-CV, 2008 WL 458295 (Tex. App.—Houston

[1st Dist.] Feb. 15, 2008, no pet.) (citing Sigmar v. Anderson, 212 S.W.3d 789, 794

(Tex. App.—Austin 2006, no pet.)); America’s Favorite Chicken Co. v. Samaras,

929 S.W.2d 617, 630 (Tex. App.—San Antonio 1996, writ denied) (“The allowance

and disallowance of a bankruptcy claim is considered a core proceeding under

federal bankruptcy law, and the bankruptcy court retains exclusive jurisdiction

over such claims.”). Chapter 15 is “the exclusive door to ancillary assistance to

foreign proceedings, thus concentrating control of these questions in one court.” In

re Vitro, 701 F.3d at 1043.

      Because the Bankruptcy Code exclusively vests in the federal bankruptcy

courts the authority to determine whether to grant comity to the bankruptcy

proceedings of foreign courts, we hold that the trial court correctly refused to apply

Korean law and comity and to directly recognize the Korean bankruptcy discharge.

We next determine whether the federal bankruptcy proceedings in this case

resulted in a federal recognition of a Korean discharge of Enterprise’s claims.

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III.   Federal bankruptcy court recognition order as proof of discharge

       Kumkang procured an order from the federal bankruptcy court recognizing

the Korean bankruptcy proceeding as a foreign main proceeding.          It did not,

however, pursue any specific relief from the federal bankruptcy court in

connection with Enterprise’s claims against it. By granting summary judgment in

favor of Enterprise, the trial court necessarily concluded that it could not rely on

the federal bankruptcy court’s recognition order as proof that Enterprise’s claims

against Kumkang were discharged in the Korean bankruptcy. Kumkang contends

that the trial court erred in so concluding because the federal bankruptcy court’s

May 2009 recognition order is enough to support its discharge defense.          We

disagree.

       Recognition of a proceeding under Chapter 15 is merely a precondition for

obtaining substantive relief from the United States bankruptcy court, such as the

recognition and enforcement of specific orders or decrees previously granted in a

foreign bankruptcy proceeding. In re Vitro, 701 F.3d at 1042. Chapter 15’s

provisions “do not prevent modification or termination of recognition if it is shown

that the grounds for granting it were fully or partially lacking or have ceased to

exist.” 11 U.S.C. § 1517(d); see also id. § 1522(a) (providing that relief may be

granted pursuant to section 1521 only if the interests of creditors and other

interested entities are “sufficiently protected”); In re Vitro, 701 F.3d at 1069

                                        14
(upholding bankruptcy court’s refusal to accord comity to permanent injunction

issued in Mexican bankruptcy proceeding that would have non-consensually

discharged claims of non-debtor guarantors). The bankruptcy court here, therefore,

could have refined its recognition decision at any step in the proceeding,

including—or perhaps especially—when the foreign debtor asked for enforcement

relief, including discharge, against United States creditors. See Sacred Cows, 46

TEX. INT’L L.J. at 527 (noting that, unlike predecessor statute, Chapter 15

“divorc[es] the issue of recognition from the issue of relief sought upon

recognition[,]” so that gaining access to United States bankruptcy court is fairly

routine, while judicial discretion “plays a much larger role in the nature and scope

of assistance afforded”).

      An interim Chapter 15 recognition order that a foreign bankruptcy is a main

proceeding is not, standing alone, evidence that the eventual judgment resulting

from the foreign bankruptcy proceeding discharged a creditor’s claims.            The

summary-judgment evidence presented by Kumkang contains no substantive ruling

from the federal bankruptcy court addressing the question of discharge of

Enterprise’s claims against Kumkang by the Korean judgment. Kumkang did not

provide the federal bankruptcy court with the Korean judgment when it was

finalized, and it did not ask the court for relief from Enterprise’s claims before the

Chapter 15 proceeding was dismissed for want of prosecution. Absent a ruling

                                         15
from the federal bankruptcy court encompassing the discharge question presented

here, we hold that the trial court correctly granted summary judgment in favor of

Enterprise.

                                   Conclusion

      We affirm the judgment of the trial court.

                                             Jane Bland
                                             Justice

Panel consists of Justices Keyes, Bland, and Brown.

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