United States District Court, E.D. Virginia, Richmond Division
A. Gibney, Jr., United States District Judge.
Retailing Limited ("Fung") appeals two orders of
the United States Bankruptcy Court for the Eastern District
of Virginia (the "Bankruptcy Court"). Despite
Fung's active participation in the bidding process in the
United States to purchase the majority stake in an Asian
company, Fung now argues that the Bankruptcy Court lacked
personal jurisdiction over it with respect to that process.
Because Fung has immersed itself in the bidding process in
the United States from start to finish, the Bankruptcy Court
properly exercised specific personal jurisdiction over Fung.
Accordingly, the Court AFFIRMS the decisions of the
September, 2017, Toys "R" Us declared
bankruptcy. Since then, the Bankruptcy Court has
devoted considerable efforts to liquidate TRU's assets.
Among other things, the court has been overseeing the sale of
TRU's majority interest in Toys (Labuan) Holding Limited
(the "Asia JV"), which operates Toys "R"
Us stores in Asia. Fung, a company incorporated and
headquartered in Hong Kong, owns a 15.13% stake in the Asia
JV. TRU (UK) Asia Limited (the "TRU Asia JV
Partner"), a corporate subsidiary of TRU, owns the other
84.87% stake. A shareholders' agreement between Fung and
the TRU Asia JV Partner governs the Asia JV.
Freres & Co. LLC ("Lazard"), TRU's New
York-based financial advisor, has shepherded the sale of the
TRU Asia JV Partner's majority interest in the Asia JV.
To accomplish the sale, Lazard conducted a lengthy process
that combined aspects of negotiations and auctions. In March,
2018, Lazard began to seek bidders for the asset. Interested
parties would tell Lazard how much they would likely pay, and
what conditions of sale they would demand. Lazard conducted
several rounds of bidding, and after each round, it whittled
down the number of participating bidders. Fung, among others,
submitted "Non-Binding Indications of Interest" in
the rounds of bidding. Fung hung in the process through three
rounds. It submitted three decreasing bids: Fung offered
between $675 and $775 million on March 14, 2018, between $650
and $750 in the second round, and either $525 or $700 million
in the third. Fung conditioned each bid on receiving
favorable orders from the Bankruptcy Court. The proposed
orders would insure that Fung got clear title to the asset,
and would include findings of good faith and other
protections under the Bankruptcy Code.
the third round of bidding supervised by Lazard, Fung no
longer participated in the negotiations. Fung's counsel
was cagey about whether Fund quit bidding voluntarily or
Lazard dropped Fung from the process because of its
decreasing bids. Either way, the bidding continued among
other potential buyers, and Lazard eventually selected a
"stalking horse" purchaser for a court supervised
auction. The stalking horse set a bottom line for the auction
by agreeing to buy the TRU Asia JV Partner for $760 million,
pursuant to certain terms (the "Stalking Horse
Bid"). Lazard selected certain of TRU's creditors as
the stalking horse.
bidding process involved the exchange of large amounts of
information as the bidders conducted due diligence
investigations. Given the size of the asset and the expected
enormous bids, Lazard set up a virtual data room where
bidders could get business documents and ask questions about
the sale before bidding. Fung was among the first entities to
express interest in the sale and to participate in the
virtual room. Lazard ultimately granted 72 Fung
representatives access to the room. From March to August 2018,
Fung submitted 279 due diligence requests to Lazard. Fung
logged into Lazard's diligence data room approximately 1,
200 times and downloaded approximately 100, 000 documents
from the data room. Fung's United States-based legal and
financial advisors also sent 100 emails to Lazard and had 15
phone conferences with Lazard.
August 4, 2018, TRU took steps to move ahead with the sale of
the TRU Asia JV Partner's interest. TRU moved the
Bankruptcy Court to invalidate Fung's Right of First
Refusal ("ROFR") in the Partner's interest,
which Fung held pursuant to a shareholder's agreement
with the Partner. TRU also moved the Bankruptcy Court to
approve the Stalking Horse Bid.
Fung had dropped out of the bidding process, at this point it
jumped back into the fray to prevent the sale. Fung claimed
to be concerned because the Stalking Horse Bid would strip
the TRU Asia JV Partner of all its assets. On August 23,
2018, therefore, Fung filed a limited jurisdictional
objection to TRU's motion, arguing that the bankruptcy
court lacked personal jurisdiction over Fung and could not
invalidate its ROFR.
same day, Fung commenced arbitration in Hong Kong against the
TRU Asia JV Partner for breach of the shareholders'
agreement. In this proceeding, Fung asked arbitrators declare
that, regardless of the outcome of the bankruptcy sale, it
could still exercise its ROFR. It also asked the arbitrators
to determine the value of the Stalking Horse Bid,
which would trigger the amount Fung would need to pay to
exercise its ROFR. If Fung prevailed on its argument, it
would essentially encumber the asset sold by the Bankruptcy
tried to interfere in the Bankruptcy Court sale in another
way. It asked the arbitrator to require the proceeds of any
sale to remain in the Asia JV, instead of going through the
Bankruptcy Court to TRU's creditors.
Bankruptcy Court held a hearing on TRU's motion to
invalidate the ROFR on September 6, 2018. At the hearing, the
court declined to invalidate the ROFR and overruled
Fung's personal jurisdiction objection. The court noted
"the immersion of Fung in the bidding process," and
the execution of the confidentiality agreement. A. 383-84. By
these actions, it held, Fung had "subject[ed] itself to
the process that's being supervised by this Court."
A. 384. On September 14, 2018, the court entered an order
approving the Stalking Horse Bid and scheduling a final sale
hearing, which will occur on November 5, 2018 (the
"Bidding Procedures Order").
September 10, 2018, TRU commenced an adversary proceeding
against Fung in the Bankruptcy Court and filed an expedited
motion to (1) extend the automatic stay as to the Asia JV and
the TRU Asia JV Partner and (2) enjoin Fung from continuing
the Hong Kong arbitration.
response, Fung tried another tactic to impede the Bankruptcy
Court's sale of the asset. Fung secured an ex
parte injunction from the High Court of Hong Kong on
September 18, 2018. Fung told the High Court that it needed
to move fast (and without notice to its opponents) to avoid
the effects of the Bankruptcy Court auction that Fung had
unsuccessfully participated in. Fung said "the U.S.
Court will (on 20 September 2018) make an order on the Second
U.S. Application, the objective of which will be to seek to
fetter the ability of [Fung] to appear again before this
Court for the purpose of pro-actively seeking a continuation
of any time-limited ex parte injunction granted on
this application." A. 738 If 81. On the same day, the
High Court issued a temporary order, prohibiting TRU from
selling the majority stake in the Asia JV unless the TRU Asia
JV Partner "deposit[s] an amount to be determined by the
Court or the Arbitration tribunal sufficient to secure the
payment of any award in favor of Fung." A. 763.
same time, Fung continued to try to use the arbitration to
foul up the auction. On September 18, 2018, Fung filed an
amended request for arbitration in Hong Kong,
complaining-among other things-that TRU had wrongfully
prevented Fung from conferring with other bidders during the
bidding process in the Bankruptcy Court. Fung also
indicated that its request "was necessitated by
developments in the Bankruptcy Court and the Chapter 11
Cases," referring to the Bidding Procedures Order and
TRU's motion for injunctive relief in the Bankruptcy
Court. A. 750-51 ¶ 19.
also continued to participate in the bankruptcy proceeding,
primarily by protesting that the court lacked jurisdiction
over it. Over Fung's objections, the Bankruptcy Court
granted TRU's motion for a preliminary injunction at a
hearing on September 27, 2018, reaffirming that the court had
personal jurisdiction over Fung (the "Injunction
Order"). According to the Bankruptcy Court,
Fung's commencement of arbitration proceedings in Hong
Kong before the September 6th hearing and in connection with
its ex parte injunction relief. . . were in direct response
to the Court's September 6th ruling, and directly are
related to the bidding procedures and represent a
bidder's attempt to gain control of, and perhaps, even
manipulate the bidding process.
A. 972-73. The Injunction Order prohibits Fung from
initiating or continuing any proceedings in Hong Kong
"relating to the bidding process until the earlier of
(a) consummation of a plan of reorganization for [TRU], or
(b) December 31, 2018, subject to further extension by the
Court." A. 1027 ¶ 3. The High Court's temporary
injunction expired on October 12, 2018.
appeal, Fung challenges the Bidding Procedures
Order and the Injunction Order. Although Fung
appeals from two different orders, Fung solely objects to the
Bankruptcy Court's personal jurisdiction finding. Fung
moved to consolidate and expedite the appeals. TRU moved to
dismiss Fung's appeals, arguing that Fung must first file
leave to appeal because the Bankruptcy Court's findings
of personal jurisdiction do not qualify as final orders. The
Court granted Fung's motion to expedite the ...