Restructuring

Contributed by Kyle J. Ortiz
Finding competent and effective legal counsel in a foreign country can be difficult; there are language barriers, time differences, and a general unfamiliarity with the foreign legal system, but it is particularly difficult to retain local legal counsel when you want to advance an argument that would put local legal counsel at risk of being sanctioned.  In In re Hawker Beechcraft, Inc., Case No. 12-11973(SMB), ECF No. 1639 (Bankr. S.D.N.Y. Oct. 25, 2013), a Chinese creditor requested an adjournment of its deadline to respond to the debtor’s objection to the Chinese creditor’s claim, alleging that it was having trouble obtaining U.S. counsel due to, among other factors, language difficulties.  The creditor made this argument only months after it had engaged sophisticated U.S. counsel to negotiate a potential transaction worth hundreds of millions of dollars.  This sudden shift from complex U.S. legal bargaining to difficulty with English is reminiscent of a classic exchange from the TV show “Family Guy,” where Brian Griffin (the talking dog of the protagonist family) and Stewie Griffin (the talking baby of the protagonist family – did I mention the show is a comedy?) catch a ride with a group of Spanish-speaking migrant workers while hitchhiking back to the family house in Rhode Island.  Once picked up, Brian attempts to strike up a conversation with one of the migrant workers:

Brian Griffin: Hola! Um . . . me, me llamo es Brian. Ahh, uh, um . . . Let’s see, uh, nosotros queremos ir con ustedes.

Migrant Worker: Hey, that was pretty good, except when you said, “Me llamo es Brian,” you don’t need the “es,” just “me llamo Brian.”

Brian Griffin: Oh! You speak English!

Migrant Worker: No, just that first speech and this one explaining it.

Brian Griffin: You . . . you’re kidding, right?

Migrant Worker: Qué?

– The Road to Rhode Island, Family Guy, Season 2, Episode 13.
Similar to the migrant worker in Family Guy, it appears that, prior to the argument it made in Hawker Beechcraft, the Chinese creditor had no difficulty with English or, for that matter, the American legal system.  Indeed, with the assistance of sophisticated U.S. counsel, the Chinese creditor entered into a tentative agreement to purchase the assets that comprised the debtor’s jet aircraft business. In connection with the proposed transaction, on July 6, 2012, the Chinese creditor and the debtor entered into an exclusivity agreement whereby, in exchange for the debtor’s agreement to negotiate exclusively with the Chinese creditor for a period of time, the Chinese creditor agreed to pay the debtor $50 million.  Pursuant to a separate refund agreement, the Chinese creditor would be entitled to a refund if the transaction was not consummated, but the amount of such refund would decrease over time based on a formula that accounted for the cost incurred by the debtor of preserving the assets in question.  If the proposed transaction was not terminated by October 19, 2012, the refund amount would be deemed to be zero.  Judge Gropper of the United States Bankruptcy Court for the Southern District of New York entered an order approving the exclusivity agreement and characterized the $50 million payment as an “option price.”
On October 18, 2012, the debtor announced that it was no longer pursuing the proposed transaction, and on October 23, 2012, the Chinese creditor sent a termination notice demanding refund of the full $50 million. In a sign of things to come, the termination notice was signed by the chairman of the Chinese creditor and not the large national law firm that had represented the Chinese creditor in connection with the proposed transaction.  In March 2013, the Chinese creditor filed four identical requests for payment of administrative expenses on the theory that the $50 million helped preserve the debtor’s jet aircraft business and, therefore, benefited the estate.  In August 2013, the debtor filed an objection arguing that the Chinese creditor didn’t even have a valid prepetition claim much less an administrative expense against the debtor.  A hearing to consider the objection was set for September 19, 2013.
Prior to the hearing, the Chinese creditor had a dispute with the attorneys who had been representing it in the proposed transaction, and, following the dispute, a different New York-based attorney filed a notice of appearance on the Chinese creditor’s behalf.  Subsequently an Atlanta- based attorney also filed a notice of appearance and requested a one day extension of the Chinese creditor’s response deadline.  On the day of the response deadline, however, no response was submitted.  Rather, the Atlanta-based attorney filed a motion for leave to withdraw as counsel for the Chinese creditor “because of material disagreement with [the Chinese creditor] about the subject matter of the representation.”  At the hearing, a new Dallas-based attorney and two attorneys from China represented the Chinese creditor, instead of the counsel that had previously appeared on the Chinese creditor’s behalf.  The Dallas attorney sought a continuance of the hearing, and Judge Gropper agreed to grant an additional 30 days for the Chinese creditor to file a response.
Three days before the response was due, the Chinese creditor submitted an application for a 90-day adjournment signed by its Chairman contending that it was difficult for a Chinese company unfamiliar with United States laws to find qualified U.S. counsel, especially in light of the language and time differences.  The debtor opposed the continuance asserting that the Chinese creditor’s trouble keeping counsel stemmed from the frivolous position it was taking in connection with its purported claims.  The debtor also contested the Chinese creditor’s assertion that language and time differences were a valid reason for continuing to adjourn the hearing, noting that the Chinese creditor had no trouble obtaining competent U.S. counsel in connection with the proposed transaction and that 69 of the “American Lawyer 100” law firms had offices in either Beijing, Shanghai, or Hong Kong.
Judge Gropper agreed with the debtor and declined the Chinese creditor’s request for an adjournment for ninety days “or any other period.”  Judge Gropper explained that the Chinese creditor had not adequately demonstrated why it was having so much difficulty obtaining U.S. counsel, especially in light of the amount of money at stake, the fact that it had retained U.S. counsel in the past, and that a substantial number of large U.S. firms maintain offices in China.  Judge Gropper went on to note that he suspected “that no U.S. lawyer would risk filing papers that [took] the position advocated by [the Chinese creditor],” and thus, an additional 90 days would make no difference in their ability to retain counsel.
Judge Gropper then turned to the disposition of the debtor’s objection to the administrative expense and held that the clear and unambiguous terms of the exclusivity agreement demonstrated that the Chinese creditor was not entitled to a refund and that although the $50 million had conferred a benefit on the estate, such value was consideration in exchange for the exclusive right to negotiate with the debtor during the period covered by the exclusivity agreement.
Although a U.S. court may be understanding of the needs of a foreign litigant, where a litigant attempts to capitalize on its foreign status to gain a litigation advantage or to advance frivolous claims, the U.S. court will be more inclined to say, “Yo no comprendo!”