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The legal war accompanying the collapse of the bankrupt Italian food giant Parmalat is being waged mainly in Italy. But litigation has spread to American courts, and some U.S. creditors of Parmalat are crying foul. An injunction based in bankruptcy law bars the U.S. creditors from litigating in the United States and it has prevented them from defending themselves in cases Parmalat has filed against them in this country, they say. When revelations about Parmalat’s financial troubles appeared last year, the bad news quickly pushed the company into bankruptcy. Executives were fired, investigations were begun here and abroad, and Enrico Bondi took over the administration of the bankrupt company. In the summer, Bondi won a preliminary injunction barring creditors in the United States from pursuing their claims here and pushing them to the Italian courts. Led by Marcia Goldstein of Weil, Gotshal & Manges and a team of lawyers from Curtis, Mallet-Prevost Colt & Mosle, Parmalat applied for the injunction under �304 of the bankruptcy code. “It is a coordination statute,” explained Stephen Gross of Robinson & Cole, who is not involved in the litigation. The law allows U.S. bankruptcy judges to stop creditors of bankruptcies administered abroad from pursuing their claims here. It is meant to encourage harmony among countries, Gross said, by having all the creditors pursue their claims in one jurisdiction instead of risking inconsistency in courts around the world. In this case, that meant the Italian bankruptcy system. Bankruptcy Judge Robert Drain of the Southern District of New York granted the preliminary injunction in July and confirmed it in August. He barred creditors both from seeking claims in the United States and making discovery requests here. (His order did not stop the Securities and Exchange Commission from continuing its investigation.) All seemed quiet until early October, when Bondi filed a slew of lawsuits in U.S. courts against several companies in multiple jurisdictions claiming they abetted Parmalat’s fraud. Parmalat targeted companies that provided it with accounting and financial assistance such as accounting firm Grant Thornton International, several Deloitte & Touche entities, Bank of America and Citigroup. Within days of Bondi’s suit, class action lawyers at Delaware-based Grant & Eisenhofer and Cohen Milstein Hausfeld & Toll of Washington, D.C., entered the fray by targeting the same companies with class actions filed in the Southern District. These suits have the defendants crying foul. In a barrage of motions filed in Judge Drain’s court in late October, Grant Thornton International and Bank of America asked the court to modify the preliminary injunction order. A date for a hearing has not yet been set. “The purpose of this anti-suit injunction is to not allow litigation to go forward in a foreign country,” said Brian Cogan, a partner at Stroock & Stroock & Lavan representing Grant Thornton. The injunction should bar the suits in the United States, he said. Bank of America, represented by New York-based A. Robert Pietzrak and Washington-based Joseph Tompkins Jr., both of whom are at Sidley Austin Brown & Wood, echoed the critique. Bondi sued the bank in federal court in North Carolina, accusing it of making off-balance-sheet transactions with Parmalat, providing unrecorded loans and helping the food giant raise capital from investors who were unaware of the risks. Bank of America saw it differently, viewing itself as a victim of deception by Parmalat. “[T]he Preliminary Injunction,” it said in its court filing, “should be modified to allow Bank of America to assert a vigorous defense against Bondi’s transparent effort to shift attention away from Parmalat’s extensive fraud by claiming that Bank of America would knowingly lend and risk hundreds of millions of dollars to a company engaging in a massive fraud to earn a few million dollars in fees and interest.” The bank claims that Parmalat owes it more than $640 million. Bank of America also asked the court to remove the bar on discovery so that it can conduct discovery with the Italian company to defend itself against all of the suits. The injunction prohibits Bank of America from pressing its rights as a creditor in U.S. courts and stops it from making discovery requests against Parmalat. SECTION 304 At the heart of it, Bank of America and Grant Thornton said, Parmalat is using a bankruptcy-related injunction to block counterclaims and discovery in suits it initiated outside of the bankruptcy proceedings taking place in Italy. It cannot have it both ways, they argue. Parmalat is “using this protective mechanism as a sword instead of a shield,” Grant Thornton’s Cogan said of �304. Referring to Bondi, he said, “He is in a poor position to say I can sue you and you can’t sue me.” This is not the first time the application of this statute has led to controversy, particularly in a global economy where links among debtors and creditors cross many borders. In August, state banking regulators, including New York’s superintendent of banks, asked Southern District Judge Jed Rakoff to reconsider his decision confirming the power of a Yugoslavian bankruptcy court to administer the assets of a bank that once operated branches in New York. Regulators argued that the decision, Agency for Deposit Insurance, Rehabilitation v. Superintendent of Banks of the State of New York, 03 Civ. 9320, deprived them of their power to oversee the assets of bankrupt banks doing business in their states. Rakoff rejected their pleas to have the domestic assets administered by state regulators. “It’s a growth industry for bankruptcy judges and lawyers,” said Gross in describing �304 related litigation. In normal circumstances, he said, one court or judicial body should administer all claims. That seems unlikely now, as litigation continues to spread. Attorneys for Parmalat could not be reached for comment.

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