Vol 14 (2017) - Issue 2

Article preview

In re Sanjel: When a US Court Does Not Grant Comity to a Foreign Court’s Stay

A recent decision from the US Bankruptcy Court for the Western District of Texas (the 'Bankruptcy Court') is a reminder that foreign debtors seeking protection under chapter 15 of the US Bankruptcy Code should not expect US courts to automatically give effect to the foreign court’s orders. In In re Sanjel, the Bankruptcy Court modified its prior order recognizing the Canadian foreign main proceeding and giving effect to the Canadian court’s order, and granted relief from the broad automatic stay imposed by the Canadian court to allow US litigants to pursue claims under the US Fair Labor Standards Act ('FLSA') for unpaid overtime wages in a US court against the foreign debtors’ officers and directors.
Background
Sanjel (USA) Inc. and related entities, a global energy service company, sought relief pursuant to the Canadian Companies’ Creditor Arrangement Act ('CCAA'). On April 4, 2016, the Court of Queen’s Bench of Alberta (the ‘Canadian Court’) entered an order granting relief under the CCAA (the ‘Canadian Order’), which included a broad stay of actions against former, current, and future directors and officers. On the same day, the debtors’ foreign representative filed a chapter 15 petition for recognition of the Canadian proceeding as foreign main proceeding. On April 29, 2016, the Bankruptcy Court entered the recognition order (the
'Recognition Order'), which gave full force and effect to the Canadian Order.
About a month later, Darell Davis and Christopher Keller (the 'Movants') filed a motion seeking to lift or modify the stay to allow them to pursue FLSA claims against the debtors’ directors and officers (but not the debtors themselves) in a US district court. At the time the chapter 15 case was filed, the Movants were plaintiffs in a collective action suit pending against the debtor Sanjel (USA) Inc. for unpaid overtime wages in the US District Court for the District of Colorado. In collective actions under the FLSA, an opt-in plaintiff’s action is not commenced until the plaintiff’s ‘written consent is filed in the court in which the [collective] action was commenced.’ By the chapter 15 filing, 98 class members joined the Movants’ suit, and another 40 were allegedly seeking to join. The Movants asserted that their statutory claims against directors and officers under the FLSA could be extinguished if the stay were not lifted because the two-year statute of limitations would continue to run during the pendency of the chapter 15 cases, and could completed extinguish employee claims against the debtors’ officers and directors.
In response, the debtors argued that US courts regularly upheld Canadian orders extending the stay to officers and directors, and that the Movants should bring their claims for relief from the stay before the Canadian court. The debtors also argued that lifting the stay would impose ‘onerous discovery’ and distract their limited personnel from the restructuring.