Vol 17 (2020) - Issue 6

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United States Bankruptcy Court Defers to Liquidators’ Selection of Litigation Forum

Synopsis
Following recognition of a Cayman Islands liquidation under Chapter 15 of the US Bankruptcy Code by a US Bankruptcy Court in New York, the foreign liquidator filed a lawsuit against certain defendants in the Delaware Chancery Court. In the complaint, the liquidators asserted Delaware and Cayman Islands law based claims. The defendants requested removal of the litigation to the US District Court in Delaware, arguing that the litigation claims were 'related to' the Chapter 15 case or 'arise under' the US Bankruptcy Court or 'arise in' the Chapter 15 case. In response to the removal, the liquidators requested the district court to abstain from the litigation and to remand it to the state court.
In general, a federal district court must abstain from litigation that is based upon a state law claim or state law cause of action that could otherwise be adjudicated in state court, but is only in federal court because the litigation is related to a bankruptcy case. In Principal Growth Strategies, LLC v AGH Parent LLC, No. 19-CV01319, 2020 WL 1677088 (D. Del. Apr. 6, 2020), the federal district court found that it was required to abstain from certain litigation. Therefore, the court remanded the litigation to state court, deferring to the liquidators' initial choice of forum.