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U.S. Courts Will Defer to Brazilian Bankruptcy Proceedings
Description Appeals court affirmed the decision of district court to dismiss a suit brought by creditor of a Brazilian bank that defaulted on payment of notes. At the time payment was due, the bank was under liquidation proceedings under Brazilian law. Comity requires U.S. courts to respect such proceedings.
Topic International Law
Key Words Extrajudicial Proceeding; Comity
C A S E   S U M M A R Y
Facts Finanz sued to recover on promissory notes guaranteed by defendant, Banco Economico S.A. (BESA) of Brazil. Before the notes matured, the central bank of Brazil placed BESA into "intervention"-a form of pre-bankruptcy financial monitoring under Brazilian law-as a result of its poor financial condition. After the notes had matured, the intervention was converted into an extrajudicial liquidation, which is similar to bankruptcy proceedings in the U.S. Creditors, including Finanz, would be paid after liquidation, depending on status as creditors and funds available. Finanz presented the notes for payment at the New York branch of BESA, but was refused payment. Finanz then sued BESA in the U.S. for payment. The district court dismissed the suit in favor of the Brazilian proceeding. Finanz appealed.
Decision Affirmed. Under Brazilian law, bank liquidation is an extrajudicial proceeding. The liquidator has control of BESA finances and U.S. courts respect such proceedings and will not intervene. Comity is "the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws." Under this principle, U.S. "Courts ordinarily refuse to review acts of foreign governments and defer to proceedings taking place in foreign countries" so long as the foreign court has proper jurisdiction and does not prejudice the rights of U.S. citizens. Brazilian bankruptcy proceedings are to be respected.
Citation Finanz AG Zurich v. Banco Economico S.A., - F.3d - (1999 WL 958509, 2nd Cir.)

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