Case of the Day: In re Toft

Today’s case of the day, In re Toft (Bankr. S.D.N.Y. 2011),  involves attempts by the creditors of Dr. Jürgen Toft, a celebrity knee surgeon in Munich, to obtain recognition and enforcement of a “Mail Interception Order” granted by a German insolvency court, which would, in effect, give the administrator of Toft’s bankruptcy estate in Germany access to email accounts stored in the US on the servers of two internet service providers. Dr. Toft did not have a good year in 2010. Dr. Martin Prager, the insolvency administrator in Dr. Toft’s insolvency proceedings in Munich asserted, in his petition to the US court, that Toft had secreted assets, fled Germany and relocated to “an unknown country outside of Europe, possibly the Philippines.” The German court entered the mail interception order, which authorized Prager to intercept Toft’s postal and electronic mail, in 2010. In 2011, Prager obtained an ex parte order from the Chancery Division of the High Court in England recognizing and enforcing the German order.

Prager then sought recognition and enforcement of the German and English orders, ex parte, and the issuance of subpoenas to two US ISPs that would require them to disclose all of Prager’s emails on an ongoing basis—what the judge described as “a wiretap of Toft’s future e-mail correspondence.” Not only did Prager proceed ex parte, he affirmatively requested that Toft receive no notice of the proceedings. You can guess how this ends.

The judge noted that under § 1506 of the Bankruptcy Code, it could deny recognition and enforcement notwithstanding comity if recognition would be manifestly contrary to public policy. This is, of course, a very high hurdle, and the court reviewed the prior cases that had emphasized the narrowness of the statutory exception to recognition. But the judge concluded that “this is one of the rare cases that calls for” refusal of recognition and enforcement. Under the Wiretap Act, as summarized by the judge, “the clandestine interception of e-mails of an individual, occurring contemporaneously with delivery, constitutes an illegal wiretap.” Moreover, under the Stored Communications Act, which we have mentioned at Letters Blogatory on a few occasions, after an e-mail has been delivered, it is illegal for an ISP to disclose the contents of the communication, even in response to a civil subpoena. ISPs can be subject to criminal and civil penalties for violation of the act. In short, the court concluded that Prager was seeking recognition of an order that would, if implemented in the United States, constitute a crime. This was, in the judge’s view, manifestly contrary to US public policy.

Prager argued that if the case had been an ordinary domestic case rather than a foreign proceeding, he would have been entitled to the relief he sought, because US bankruptcy trustees can conduct examinations under Bankruptcy Rule 2004 and can obtain mail redirection orders in certain cases. But the judge concluded that a US bankruptcy trustee could not obtain emails from ISPs in a domestic case through any mechanism available, including a Rule 2004 examination. Moreover, under Rule 2002(q)(1), the court cannot keep proceedings secret from the debtor, as Prager requested.

 

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2012), a nuts-and-bolts guide to international judicial assistance issues, and the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012 and 2014.

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