December 07, 2010

Bankruptcy Court’s Rejection of Collateral Attack on Convention Award is Sustained

Observers of the relationship between the New York Convention and U.S. bankruptcy proceedings will take interest in a recent decision of a federal district court in Pittsburgh, in which the Court rejected the bankruptcy trustee’s attempt to collaterally attack an ICC arbitration award and the judgment entered on that award. G&G Investments, Inc. v. Buschmeier, 2010 U.S. Dist. LEXIS 125902 (W.D. Pa. Nov. 30, 2010).   The bankruptcy debtor in G&G Investments had: contracted to purchase a controlling interest in a German company; attempted to rescind and recover its initial payment; and then lost an ICC arbitration in which it was held fully liable to the German company for the purchase price. Judgment on the award was entered by the federal district court in Pittsburgh several years prior to the bankruptcy filing, in a confirmation proceeding under the New York Convention and Chapter Two of the Federal Arbitration Act in which allegations that the award had been procured by fraud on the tribunal were raised without success. In the bankruptcy case, the controlling shareholder of the German company filed a claim based on the unsatisfied judgment, and the trustee filed an objection to the claim, citing new evidence of fraud based on the report of a German private investigator the trustee had hired to review the documentary record in the arbitration and to interview certain of the witnesses.  The bankruptcy court refused to accept jurisdiction over the trustee’s objection, based on res judicata. That decision was upheld in this appeal to the District Court, which found no excuse for the debtor’s lack of diligence in gathering the evidence of fraud, and no reason to relief the trustee of the res judicata effect of the enforcement proceeding in which  the fraud on the tribunal claim had been raised to no avail.

 

 

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