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District Court Upholds Extraterritorial Enforcement of the Automatic Stay and Injunction Barring Foreign Creditor's Lawsuit

May 10, 2012

In an opinion forcefully reaffirming the global effect of the Bankruptcy Code's automatic stay and a U.S. bankruptcy court's injunctive powers over foreign creditors, the District Court for the Southern District of New York held in SIPC v. Bernard L. Madoff Inv. Secs. LLC (In re Bernard L. Madoff Inv. Secs. LLC) that a foreign creditor's filing of a declaratory judgment action in a foreign jurisdiction on the merits of a bankruptcy preference action against it violates the automatic stay, and that the U.S. bankruptcy court can enjoin the creditor from filing any further proceedings against the trustee, the debtor's estate, or the estate's assets in any domestic or foreign jurisdiction.  The opinion found that the comity-based factors courts typically consider when issuing an anti-foreign-suit injunction have no application in a case where the foreign action violates U.S. law and interferes with the U.S. bankruptcy court's exclusive jurisdiction over a debtor's worldwide assets.  The District Court's ruling reaffirms the global reach of the automatic stay in a plenary bankruptcy case, as well as the bankruptcy court's broad power to enjoin entities subject to its jurisdiction from taking actions violating the stay.

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