DATE: January 23, 1992, Decided

COUNSEL: For Appellants: Weil, Gotshal & Manges, New York, New York, Of Counsel: Michael K. Stanton, Harvey R. Miller, Steven A. Reiss, Deryck A. Palmer, Laura M. Sillins
For United States of America, Appellee: Otto G. Obermaier, United States Attorney for the Southern District of New York Of Counsel: Beth A. Kaswan, Katherine A. Staton, Steven M. Haber, Assistant
U.S. Attorneys For BCCI Representatives, Appellees: Shearman & Sterling, New York, New York, Of Counsel: Ronald DeKoven, Frederick T. Davis, Jonathan L. Greenblatt, Stuart K. Fleischmann, Jerome S. Fortinsky

KEENAN

[*924] (“DOR”) at A, pp. 3-4, and petitioned their respective courts for appointment of the BCCI Representatives, Appellees in this action. These court-appointed Representatives are charged with locating and protecting all BCCI assets, wherever they are found, for ultimate distribution to all BCCI depositors and creditors by the courts in Luxembourg and the Cayman Islands, where BCCI insolvency proceedings are now pending.

On August 1, 1991, Brian Smouha, Jacques Delvaux, Constant Franssens, Christopher Morris, Nicholas Roger Lyle, John Parry Richards, San Wight and Robert Oxford (collectively, the “BCCI Representatives”), filed petitions pursuant to section 304 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. Section 304, entitled “Cases Ancillary to Foreign Proceedings,” allows foreign representatives to collect and shelter assets that belong to a debtor in a foreign proceeding and are found in the United States. Ultimately, the foreign representatives repatriate the assets, which are then administered in the foreign proceeding. Through their section 304 petitions, the BCCI Representatives sought to shelter the approximately $ 550 million worth of BCCI assets located in the United States, intending to make them available to the worldwide pool of BCCI creditors.

On August 2, 1991, United States Bankruptcy Judge James L. Garrity issued a temporary restraining order that prohibited all persons receiving notice of it from disposing of or otherwise acting against BCCI assets and from proceeding with litigation against BCCI. Appellant Sturge, who had filed a civil RICO action against a division of BCCI (“BCCI Overseas”) in Florida,2 was permitted to negotiate an amendment to the TRO that permitted him to litigate his action up to judgment but enjoined him from foreclosing on any judgment he might receive.

On November 15, 1991, a federal grand jury in the United States District Court for the District of Columbia filed an indictment against four BCCI entities and several individuals, charging them with massive criminal RICO violations.3 In an effort to prevent forfeiture of all of BCCI’s United States assets, and therefore to ensure that at least some part of the U.S. assets would ultimately be contributed to the worldwide fund for distribution to BCCI creditors, the BCCI Representatives entered into negotiations with the prosecutors. What ultimately emerged from these negotiations was the Plea Agreement, which was signed by the parties and filed in the United States District Court for the District of Columbia on December 19, 1991.

The Plea Agreement provides for BCCI pleading guilty to charges brought by Robert M. Morgenthau, the New York County District Attorney, and Jay B. Stephens, the United States Attorney for the District of Columbia. It further provides that the United States Attorney General would exercise his powers under section 1963(a) of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1963(a), to obtain the forfeiture of all BCCI assets in the United States. Half of the forfeited assets would be transferred overseas to a fund for distribution to creditors worldwide, and the remaining assets would be distributed by the Attorney General to various governmental entities and possibly to some of BCCI’s “victims” pursuant to 18 U.S.C. § 1963(g).

On December 30, 1991, Judge Joyce Hens Green of the United States Court for the District of Columbia ordered that the arraignment and offer of plea would be made on January 9, 1992. After BCCI was arraigned and proferred a guilty plea on [*926] where the Bankruptcy Court has denied a party’s request for injunctive relief, that denial is to be affirmed unless the court “abused its discretion.” In re Chateaugay Corp., 109 Bankr. 613, 619 (S.D.N.Y. 1990); see In re Tucson Estates, Inc., 912 F.2d 1162, 1166 (9th Cir. 1990).

The Opinion will address each facet of Judge Garrity’s January 8, 1992 ruling in turn.

1. Sovereign Immunity

Finding that the government had not waived its sovereign immunity in the section 304 case before him, Judge Garrity ruled that he therefore “lacked jurisdiction over the government to enjoin their participation in the forfeiture aspects of the plea agreement.” See DOR at Q, p. 4-5.

Although Sturge argues that he is not seeking to enjoin the government, the United States correctly observes that granting Sturge the relief he seeks would effectively “withdraw the power to prosecute violators of United States laws from the United States Executive Branch.” See Government’s Memorandum in Opposition to Sturge Appeal (“Gov. Opp.”) at 20. As Judge Garrity found, section 304 of the Bankruptcy Code does not countenance such a result.

Sovereign immunity prohibits suits against the United States except in those instances in which it has been expressly waived by Congress. United States v. Shaw, 309 U.S. 495, 502 (1940); United States v. Mitchell, 445 U.S. 535, 538 (1980); United States v. Testan, 424 U.S. 392, 399 (1976). The judiciary may not extend the waiver of sovereign immunity “more broadly than has been directed by Congress.” Shaw, 309 U.S. at 502. In enacting the Bankruptcy Code, Congress explicitly waived sovereign immunity in three limited instances, which are laid out in subsections (a), (b) and (c) of section 106.5 None of these exceptions to sovereign immunity applies in a section 304 proceeding. See, e.g., In Re Petition of Ernst & Young, Inc., Case C-2-91-477 (S.D. Ohio, August 21, 1991) (Gov. Opp. Exhibit 4) (sections 106(a) and (c) do not cause a waiver of sovereign immunity in a section 304 proceeding); In Re Willington Convalescent Home, Inc., 850 F.2d 50, 54 (2d Cir. 1988), aff’d sub nom. Hoffman v. Connecticut Dep’t of Income Maintenance, 492 U.S. 96 (1989) (government must file formal claim against the estate to trigger § 106(b)).

Having found that the United States had not waived its sovereign immunity, Judge Garrity correctly concluded that he lacked jurisdiction to enjoin the government from participating in the Plea Agreement. From this it follows that the Court could not validly grant any injunctive relief to Sturge: it could neither force BCCI to withdraw its proferred guilty plea, nor prevent Judge Green from accepting the Plea Agreement. Thus, the defense of sovereign immunity effectively precludes any interference in the criminal proceeding.

2. Parties Interested in Property Forfeited under RICO

Judge Garrity ruled that Sturge’s application to the bankruptcy court to enjoin the forfeiture of BCCI’s assets in the criminal proceeding before Judge Green was explicitly barred by section 1963(i) of [*928] of BCCI’s assets under the Plea Agreement. This argument is without merit.

Recognizing that the automatic stay provision of the Bankruptcy Code does not apply to section 3304 proceedings, see 11 U.S.C. § 362(a), Sturge argues that Judge Garrity’s TRO was “as broad as” an automatic stay under section 362(a) and thus acts to block implementation of the forfeiture provision. This argument fails for two reasons. First, the TRO explicitly provided that “nothing contained within this Order shall be construed to enjoin andor restrain, without limitation, any judicial, administrative or regulatory action or proceeding that is not stayed under 11 U.S.C. § 362.” DOR at H, p.9. Thus, the TRO was no broader than section 362, which explicitly exempts from the operation of the automatic stay “the commencement or continuation of a criminal action or proceeding against the debtor.” 11 U.S.C. § 362 (b) (1). Because section 362(b) (1) would remove the RICO forfeiture from the ambit of the automatic stay provision, see, e.g., In Re James, 940 F.2d 46 (3d Cir. 1991), the TRO by its own terms precludes Sturge’s interpretation that it authorizes the injunctive relief that he seeks. See DOR at H, p.9. Sturge’s argument is also unpersuasive because Judge Garrity himself ruled that the TRO in no way barred the forfeiture. See DOR at Q, p. 3-4. That determination was not clearly erroneous. See In Re Ranch House of Orange-Brevard, Inc., 773 F.2d 1166, 1168 (11th Cir. 1985). For these reasons, Judge Garrity correctly ruled that general equitable principles, as well as the TRO issued in the section 304 proceeding, preclude issuance of any injunctive relief that would act to interfere in the pending criminal proceeding.

4. Standards for Injunctive Relief

Finally, Judge Garrity ruled that Sturge had failed to meet his burden for obtaining injunctive relief, and that this failure was an independent ground for denying his request for an injunction. Sturge has to show irreparable harm and either 1) likelihood of success on the merits or 2) sufficiently serious questions going to the merits to make them a fair ground for litigation, and a balance of hardships tipping decidedly toward the party requesting the preliminary relief. See Jackson Dairy, Inc. v. H.P. Hood & Sons, 596 F.2d 70, 72 (2d Cir. 1979) (per curiam). First, Sturge has failed to prove irreparable harm. Section 1963(1) of the RICO statute gives Sturge an opportunity to assert an interest in the property subject to forfeiture by filing a claim in the RICO proceeding. Further, Sturge may petition the Attorney General for relief under section 1963 (g), which gives the Attorney General discretion to “grant petitions for mitigation or remission of forfeiture, restore forfeited property to victims of a [RICO] violation … or take any other action to protect the rights of innocent persons.” Finally, Sturge may stake his claim to BCCI assets in the liquidation proceedings pending in Luxembourg and the Cayman Islands. The section 304 proceeding in Bankruptcy Court in the Southern District is ancillary to the proceedings in those forums, and was initiated to marshal BCCI’s U.S. assets for return to the foreign liquidation proceedings. The ultimate result of the Plea Agreement will be to infuse half of BCCI’s U.S. assets into the pool of assets that will ultimately be distributed in the foreign liquidation proceedings.

Sturge has at least three different venues in which to seek relief, yet claims that he will suffer irreparable harm if he is not permitted to enjoin the forfeiture under the Plea Agreement. This argument is intolerable. The equities clearly disfavor Sturge, who is essentially seeking not only to “cut in line” ahead of innumerable other BCCI creditors and depositors, but to derail a Plea Agreement of tremendous sociopolitical significance that will ultimately send $ 275 million to the worldwide “victims” fund. Not only will Sturge not suffer irreparable harm if his application is denied, but countless other creditors and depositors may well suffer irreparable harm if it were granted. For these reasons, Judge Garrity correctly ruled that Sturge failed