In Re: Kumtor Gold Company CJSC

Background

Kumtor Gold Company CJSC and Kumtor Operating Company CJSC filed Chapter 11 bankruptcy cases in the Southern District of New York on May 31, 2021. The filing triggered an automatic stay under 11 U.S.C. § 362, which generally pauses actions against the bankruptcy estate and its property. The Bankruptcy Court entered an order applying the stay, including against governmental units outside the United States.

The Kyrgyz Republic objected to the stay and later sought dismissal of the Chapter 11 cases on several grounds, including foreign-sovereign immunity under the Foreign Sovereign Immunities Act. While the bankruptcy cases were pending, the Kyrgyz Republic brought proceedings in courts in Bishkek concerning the debtors, their assets, and the validity of the bankruptcy cases. The debtors asked the Bankruptcy Court to enforce the stay and impose contempt sanctions.

At a July 19, 2021 hearing, the Bankruptcy Court found that the Kyrgyz Republic violated § 362(a)(3). It also concluded that the Kyrgyz proceedings did not fall within the stay’s exception for police and regulatory powers and were not criminal proceedings. The Bankruptcy Court found that the standards for injunctive relief were met, but it could not issue the injunction because the Kyrgyz Republic had not been properly served under the Foreign Sovereign Immunities Act and the Bankruptcy Code. The court granted the request for legal fees under § 105, but likewise found that it could not enter an enforceable fee award without proper service of a summons and complaint.

The District Court’s review

The Kyrgyz Republic asked to appeal as of right under 28 U.S.C. § 158(a)(1), for permission to appeal under § 158(a)(3), or directly to the Second Circuit under § 158(d)(2)(A). It argued that the Bankruptcy Court had rejected its foreign-sovereign-immunity claim.

Judge Hellerstein held that the Bankruptcy Court had not denied the Kyrgyz Republic’s claim of immunity from suit in the broad manner asserted. The Bankruptcy Court had ruled, at least implicitly, that the Foreign Sovereign Immunities Act did not immunize the Kyrgyz Republic from enforcement of the automatic stay or from potential sanctions. The District Court characterized that ruling as limited because the sanctions could not be enforced unless and until the debtors properly served the Kyrgyz Republic.

Appeal as of right

The District Court denied the motion for an appeal as of right. Although the denial of foreign-sovereign immunity can sometimes be immediately appealable under the collateral-order doctrine, Judge Hellerstein concluded that this doctrine did not apply here. The order finding a stay violation and the sanctions award, if enforced, could be reviewed after a final judgment. The order therefore did not qualify for immediate appeal under that exception.

Permission to appeal

The District Court also denied permission for an interlocutory appeal. Such permission generally requires a controlling legal question, substantial grounds for disagreement about the answer, and a finding that immediate review could materially advance the litigation. Judge Hellerstein said the issues concerning the interaction between Bankruptcy Code § 106 and the Foreign Sovereign Immunities Act were interesting and might involve disagreement, but they were not controlling legal questions that would materially advance the litigation in the circumstances presented.

The court explained that the Bankruptcy Court had not decided the broader question of whether the Kyrgyz Republic could be sued in the bankruptcy court. The Kyrgyz Republic remained free to assert foreign-sovereign immunity in support of its pending motion to dismiss. Because the question presented on appeal was not the question actually decided by the Bankruptcy Court, the District Court denied leave to appeal.

Direct appeal to the Second Circuit

The District Court denied the request for direct appeal to the Second Circuit. It concluded that the proposed appeal did not involve a controlling question of law or a matter of public importance that had to be decided immediately. Although the parties identified conflicting decisions from outside the Second Circuit concerning § 106 and foreign-sovereign immunity, Judge Hellerstein found that those decisions did not conflict on the narrower issue actually decided: the Bankruptcy Court’s authority under §§ 105 and 106 to enforce the automatic stay and award sanctions.

The court also found that a direct appeal would not materially advance the adversary proceeding or the Chapter 11 cases. The conclusion states that the Kyrgyz Republic’s motions for an appeal as of right, permission to appeal, and direct appeal were denied. The Clerk of Court was directed to terminate ECF Nos. 4 and 12.