Phila. Gear, Corp v. Phila. Gear, Mexico, S.A.

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
12-29-1994
Phila. Gear, Corp v. Phila. Gear, Mexico, S.A.
Precedential or Non-Precedential:
Docket 94-1054
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 94-1054
PHILADELPHIA GEAR CORPORATION
v.
PHILADELPHIA GEAR DE MEXICO, S.A.,
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 91-06250)
Argued September 20, 1994
BEFORE: GREENBERG, ROTH, and ROSENN, Circuit Judges
(Filed: December 29 1994)
Joan G. Dorgan (Argued)
Bruce A. Americus
Samuel W. Braver
Tarek F. Abdalla
Buchanan Ingersoll
Professional Corporation
600 Grant Street
58th Floor
Pittsburgh, PA 15219
Attorneys for Appellant
Kevan F. Hirsch (Argued)
Joseph A. Battipaglia
Eckert, Seamans, Cherin
& Mellott
1700 Market Street
Suite 3232
Philadelphia, PA 19103
Attorneys for Appellee
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Philadelphia Gear de Mexico, S.A., (PGMex) appeals from
an order for summary judgment entered in favor of Philadelphia
Gear Corporation (PGC). The case raises significant questions
regarding recognition of foreign judicial proceedings which, in
light of the anticipated increase in international commercial
transactions in North America, likely will become of increasing
significance. Inasmuch as we decide this case on procedural
grounds, we only need summarize the factual background of the
case.
Pursuant to an agreement dated March 5, 1968 (the
"basic agreement"), PGC and several Mexican investors formed
Philadelphia Gear Mexicana (PGM), with PGC owning 49% and the
Mexican investors owning 51%. PGM had two purposes: (1) to
manufacture PGC's products in Mexico; and (2) to sell PGC
products in Mexico. The basic agreement provided that the
Mexican investors would manage PGM and that, pursuant to a
separate technical assistance agreement, PGC would provide
technical assistance and licensing to enable PGM to manufacture
PGC's products. The basic agreement was to last until 1999, and
continue year-to-year thereafter.
The technical assistance agreement ("1968 technical
agreement"), executed on March 15, 1968, provided, among other
things that: (1) PGC would train PGM's technical and sales
personnel at PGC's plant in King of Prussia, Pennsylvania;
(2) PGC would send engineers or technicians to supervise the
installation of machinery and equipment in PGM's plant in Mexico;
(3) PGC periodically would send qualified personnel to Mexico to
assist PGM's manufacturing and selling; and (4) PGC periodically
would supply PGM all available information and technical
assistance required for the efficient manufacture and sale of the
products covered by the agreement. The 1968 technical agreement
also granted PGM the exclusive right to use PGC's patents and
trademarks in Mexico and provided that PGM would not have to pay
a fee for the technical assistance so long as PGC remained a 49%
shareholder in PGM.
Until 1973, PGM conducted its manufacturing and sales
operation in a rented facility. However, in 1973, two of the
Mexican investors and PGC formed a Mexican corporation, MYB, S.A.
(MYB), which constructed a manufacturing and sales facility in
Mexico. The Mexican investors owned 51% and PGC owned 49% in
MYB. In 1981, MYB changed its name to Philadelphia Gear de
Mexico, S.A. (PGMex), and in 1987, PGM merged into PGMex, making
it the sole surviving Mexican entity. From 1968 through 1988,
PGC and PGMex, including the latter's predecessors, executed
various agreements governing their relationship.
In 1991, after a breakdown in their relationship, PGC
filed a complaint against PGMex in the United States District
Court for the Eastern District of Pennsylvania, seeking a
declaration that, because PGC properly terminated a May 1, 1990
agreement ("1990 sales agreement") between PGC and PGMex, PGMex
no longer had the right to use PGC's trademarks, to manufacture
products from PGC's designs, to act as a PGC sales representative
in Mexico, or to retain PGC's technical material. In response,
PGMex filed a motion to dismiss on the basis of forum non
conveniens which the district court denied. PGMex then filed an
answer alleging that the 1990 sales agreement did not govern the
parties' relationship. PGMex also filed a counterclaim in which
it alleged that PGC breached its agreements with PGMex.
On July 20, 1993, PGC filed a motion for summary
judgment both on its complaint and on PGMex's counterclaim and,
on August 31, 1993, PGMex filed its opposition to the motion. On
October 6, 1993, while the motion still was pending, the district
court received a Letter Rogatory from a Mexican court, requesting
that the district court either stay the case or transfer it to
Mexico.1 The Mexican court issued the letter at the request of
PGMex which had instituted a suspension of payments proceeding in
1
. PGMex recites in its brief that the Justice Department served
the letter on the district court. Appellant's br. at 5. On the
other hand, PGC indicates that the "Mexican Consulate" supplied
the letter. Appellee's br. at 5. The parties, however, do not
treat the method of service of the letter as significant on this
appeal and thus we do not consider this discrepancy further,
beyond noting that according to the district court's docket
sheets, the consulate sent the letter to the court.
the Mexican court pursuant to the Mexican Bankruptcy and
Suspension of Payments Laws (MBSPL).2 PGC describes the
suspension of payments proceeding as "somewhat analogous to
Chapter 11" of the Bankruptcy Code. App. at 1068. PGMex accepts
this description. Appellants' br. at 39.
On November 19, 1993, PGC filed a brief in opposition
to the relief sought in the Letter Rogatory along with an opinion
of a Mexican attorney contending that the Letter Rogatory was
ineffective. On December 9, 1993, the district court entered
summary judgment in PGC's favor on both the complaint and the
counterclaim. At that time the court filed a comprehensive
opinion which explained why the court was granting summary
judgment but which did not mention the Letter Rogatory. On
December 10, 1993, PGMex filed a brief in support of the Letter
Rogatory with an opinion from a Mexican attorney asserting that
the letter should be honored. PGC then moved to amend the
judgment in a manner not material to this opinion. The district
court granted that motion, vacated the judgment of December 9,
1993, and entered an amended final judgment on January 19, 1994.
PGMex has appealed from the judgment of January 19, 1994.3 PGMex
challenges both the district court's refusal to extend comity to
2
. We also note that in Remington Rand v. Business Sys. Inc.,
830 F.2d 1260, 1262 (3d Cir. 1987), we indicated that a
suspension of payment proceeding in the Netherlands was "the
Dutch equivalent of reorganization under Chapter 11 of the United
States Bankruptcy Code."
3
. PGMex appealed from the judgment entered December 9, 1993,
but filed an amended notice of appeal after the district court
entered its amended judgment.
the Mexican court proceedings and its grant of summary judgment
to PGC.
The district court had subject matter jurisdiction
under 28 U.S.C. § 1332(a)(2), as PGC is incorporated in the
United States, PGMex is a Mexican corporation, and the amount in
controversy exceeds $50,000. We have appellate jurisdiction
under 28 U.S.C. § 1291, as PGMex appeals from a final judgment.
II. DISCUSSION
The initial, and indeed in light of our conclusions,
the only issue we consider on this appeal is whether the district
court abused its discretion by not granting the request in the
Letter Rogatory that the court stay this case or transfer it to
the Mexican court. Because we find that the district court
abused its discretion by the procedure it followed in failing to
execute the Letter Rogatory, we will not reach the merits of
PGMex's appeal from the summary judgment. Instead, we will
vacate the order for summary judgment without prejudice and
remand this matter for further proceedings.
As we have indicated, the district court received the
Letter Rogatory while the motion for summary judgment was
pending. Yet, neither in its opinion granting the summary
judgment, nor in any other opinion, did the district court
express its reasons for declining to execute the Letter Rogatory.
While PGC argues that the district court was not obliged to
execute the letter and "[s]urely . . . considered the timing" of
the letter's service in not honoring it, in fact we only can
guess as to the court's reasoning. Appellee's br. at 39 n.6.
Furthermore, the court granted PGC's motion for summary judgment,
thus implicitly declining to recognize the Letter Rogatory,
before PGMex filed its brief in support of the letter. We thus
make our analysis without knowing the reason for the court's
refusal to honor the letter.
In general, "[u]nder the principle of international
comity, a domestic court normally will give effect to executive,
legislative, and judicial acts of a foreign nation." Remington
Rand v. Business Sys. Inc., 830 F.2d 1260, 1266 (3d Cir. 1987).
More specifically, we have stated that "[c]omity should be
withheld only when its acceptance would be contrary or
prejudicial to the interest of the nation called upon to give it
effect." Somportex Ltd. v. Philadelphia Chewing Gum Corp., 453
F.2d 435, 440 (3d Cir. 1971) (citations and footnote omitted),
cert. denied, 405 U.S. 1017, 92 S. Ct. 1294 (1972). Thus, a court
may, within its discretion, deny comity to a foreign judicial act
if it finds that the extension of comity "would be contrary or
prejudicial to the interest of the" United States.
Accordingly, we review "the extension or denial of
comity . . . by the abuse of discretion standard." Remington,
830 F.2d at 1266 (citations omitted). Consequently, when
reviewing a denial of comity, we must determine whether a
district court acted within its discretion if it concluded that
"acceptance [of comity] would be prejudicial to the interest of
the" United States. Therefore, inasmuch as we do not know why
the court exercised its discretion as it did or, indeed, whether
it even recognized that it had discretion in considering whether
to recognize the Mexican proceedings, unless we conclude that
comity should have been denied as a matter of law we are
constrained to remand this case to the district court to make
appropriate findings.4
In making our inquiry into whether the letter could be
rejected as a matter of law, we initially recognize that PGMex
did not make a formal motion for a stay or transfer pursuant to
the letter. We have found no case law dealing with whether
comity can be granted to a foreign judicial act in the absence of
a motion by a party to extend comity. This is perhaps not
surprising as normally when a court decides whether to grant
comity to a foreign judicial act, it rules in response to a
motion by a litigant for a stay pending disposition of the
foreign action.5
4
. We do not mean to suggest that in every circumstance in which
a district court exercises discretion it must explain the basis
for its actions. Rather, we address only the situation before
us. We are not distinguishing between state and federal law
regarding comity, as the parties do not make any such distinction
in their briefs. There may, however, be a distinction and the
parties are free to address this issue on remand. We do observe
that in this diversity action Pennsylvania law with respect to
the substantive comity issues may apply but we do not reach that
unbriefed issue. See Somportex, 453 F.2d at 440; Drexel Burnham
Lambert Group v. Galadari, 777 F.2d 877, 880 (2d Cir. 1985).
5
. For example, in Allstate Life Ins. Co. v. Linter Group Ltd.,
994 F.2d 996, 998 (2d Cir.), cert. denied, 114 S. Ct. 386 (1993),
Allstate brought suit against, among others, a group of
Australian corporations, alleging that the corporations violated
United States securities laws. A month later, the corporations
"were placed in liquidation by orders of the Supreme Court of New
South Wales." The corporations and other defendants "moved to
dismiss or stay the action on the basis of the ongoing
liquidation proceeding in Australia." Allstate, 994 F.2d at 998.
Nevertheless, we conclude that the fact that PGMex did
not make such a motion does not compel the conclusion that the
district court should not have extended comity to the Mexican
proceedings. In fact, we conclude that whatever might be true in
other cases, the absence of a formal motion does not matter in
this case. Our primary reason for this conclusion is that the
Letter Rogatory served the same procedural function as a motion,
as it informed the district court and the parties what relief was
sought. Furthermore, the Mexican court had an institutional
interest in having its proceedings recognized, as they are
similar to Chapter 11 proceedings. Moreover, the district court,
after receiving the letter, was free to set a briefing and/or
hearing schedule for resolution of the issues raised by the
letter. Finally, PGMex in effect did move to enforce the Letter
Rogatory when it filed its brief in support of it.6 While we do
not suggest that a request in a brief always can be so treated,
in this case we regard PGMex's brief as the functional equivalent
of a motion. The totality of these circumstances convinces us
that we should consider the comity issue on the same basis we
would if PGMex had moved for the stay.
(..continued)
The district court "granted defendants' motion to dismiss, on the
ground of comity, in favor of the ongoing liquidation proceeding
in Australia." Id. The court of appeals affirmed, reasoning
that the appellants' claims could be resolved in the Australian
liquidation proceeding and dismissal would not violate United
States law or policy. Id. at 998-99.
6
. In its brief, PGMex indicates that the brief it filed in the
district court on December 10, 1993, was timely under the rules
of the district court. PGC does not dispute this point in its
brief.
We next consider PGC's argument that "[n]either the
voluminous Letter Rogatory nor PGMex provided the District Court
with the information necessary to warrant an extension of
comity." Appellee's br. at 40. In other words, PGC is
suggesting that, as a matter of law, PGMex did not present a
prima facie case for the extension of comity to the letter. This
implies that we should find the letter facially ineffective. If
we found that PGMex did not present a prima facie case for the
extension of comity, we would affirm the district court's denial
of comity.
We have stated that "[c]reditors of an insolvent
foreign corporation may be required to assert their claims
against a foreign bankrupt before a duly convened foreign
bankruptcy tribunal." Remington, 830 F.2d at 1271 (citing Cunard
S.S. Co. v. Salen Reefer Serv. AB, 773 F.2d 452, 458-59 (2d Cir.
1985)). In Remington, we had to determine, among other issues,
whether the district court violated the principles of
international comity by ordering a Dutch corporation, subject to
a suspension of payments proceeding in the Netherlands, to turn
over proprietary documents to a United States corporation and to
account for proceeds it wrongfully obtained through the use of
the materials. Remington, 830 F.2d at 1267. In addressing this
issue, we cited the general comity principles that we set forth
in Somportex:
Comity is a recognition which one nation extends
within its own territory to the legislative,
executive, or judicial acts of another. It is not
a rule of law, but one of practice, convenience,
and expediency. Although more than mere courtesy
and accommodation, comity does not achieve the
force of an imperative or obligation. Rather, it
is a nation's expression of understanding which
demonstrates due regard both to international duty
and convenience and to the rights of persons
protected by its own laws. Comity should be
withheld only when its acceptance would be
prejudicial to the interest of the nation called
upon to give it effect.
Remington, 830 F.2d at 1267 (quoting Somportex, 453 F.2d at 440).
Additionally, Remington set forth the comity
considerations that apply specifically "[i]n the foreign
bankruptcy context." Remington, 830 F.2d at 1267-68. More
specifically, Remington recognized two competing policies in
considering extending comity to a foreign bankruptcy proceeding.
First, when the foreign bankruptcy court shares our "fundamental
principle that assets be distributed equally among creditors of
similar standing," we should be inclined to extend comity.
Remington, 830 F.2d at 1271 (citations omitted). On the other
hand, federal courts must be careful not to force "American
creditors to participate in foreign proceedings in which their
claims will be treated in some manner inimical this country's
policy of equality." Id. (citations omitted). See also Republic
of the Philippines v. Westinghouse Elect. Corp., No. 93-5672,
slip op. at 18 (3d Cir. Dec. 20, 1994) ("principles of comity
cannot compel a domestic court to uphold foreign interests at the
expense of the public policies of the forum state").
Thus, Remington instructs that courts, when deciding
whether to extend comity to foreign bankruptcy proceedings by
staying a case before it, should ascertain whether the foreign
bankruptcy court is a duly authorized tribunal, whether the
foreign bankruptcy law shares our policy of equal distribution of
assets, and whether forcing the United States creditor to
prosecute its claim in the foreign court would be "in some manner
inimical to this country's policy of equality." Drawing on
Remington, we conclude that a party seeking a stay of a judicial
proceeding in this country based on a foreign bankruptcy
proceeding must demonstrate the following: (1) the foreign
bankruptcy court shares our policy of equal distribution of
assets; and (2) the foreign law mandates the issuance or at least
authorizes the request for the stay. If the party urging that
comity be afforded the foreign proceedings makes such a prima
facie showing, the district court should consider the matter
further and should not dismiss the request out of hand without
explaining its ruling. In this process it may be necessary for
the court to conduct an evidentiary hearing with expert testimony
to ascertain foreign law and procedures. These matters, after
all, may be in dispute, as they are here. See Grupo Protexa,
S.A. v. All American Marine Slip, 20 F.3d 1224, 1239 (3d Cir.),
cert. denied, 115 S. Ct. 481 (1994); Drexel Burnham Lambert Group
Inc. v. Galadari, 777 F.2d 877, 881 (2d Cir. 1985).
Accordingly, we now evaluate whether PGMex presented a
prima facie case for a stay. As to the first element, PGMex
presented an opinion from a Mexican attorney, stating that under
the MBSPL "[t]he obligation to present all claims against the
common debtor is based on the principle to preserve the company
and its possessions which should not be distributed in prejudice
of all creditors, and in other principle based on the
universality and territoriality of the suspension of payments and
the equitable treatment of all creditors." App. at 1105
(emphasis deleted). While this statement is not completely free
from ambiguity, the attorney seems to be stating that under the
MBSPL, all creditors are treated equally. Accordingly, we
believe that this statement demonstrates that the foreign
bankruptcy court shares our policy of equal distribution of
assets.
As to the second element, the attorney's opinion stated
that Article 409 of the MBSPL mandates the stay of the district
court proceeding. While the attorney acknowledged that there are
exceptions to the stay provisions, we understand his opinion to
state that the exceptions are not applicable here. Accordingly,
PGMex presented a prima facie case that Mexican law mandates a
stay of the district court proceedings. While PGC presented a
legal opinion which differs from that submitted by PGMex, at this
stage of the proceedings in which we are concerned only with
whether PGMex has presented a prima facie case, we have no need
to describe that opinion in detail.
In sum, we therefore hold that inasmuch as the Letter
Rogatory was properly before the district court, and PGMex
presented a prima facie case for a stay of the district court
proceedings based on according comity to the Mexican proceedings,
the district court abused its discretion when it granted summary
judgment without even discussing the letter or making any factual
findings on the comity issue. See Drexel Burnham Lambert, 777
F.2d at 881 ("We conclude that the facts relating to the Dubai
proceedings and its consonance with domestic law and public
policy were sufficiently in dispute to warrant further
inquiry."). While the district court might have been able to
articulate a reason for its actions, it did not do so.
Accordingly, we will vacate the order for summary judgment and
will remand the case to the district court. On remand, the
district court should determine whether according comity to the
Mexican proceedings "would be prejudicial to the interest of the"
United States. In making that inquiry, the court should assess,
along with any other issues it finds relevant, the following
issues: (1) whether the Mexican court in which the proceedings
are pending is a duly authorized tribunal; (2) whether the MBSPL
provides for equal treatment of creditors; (3) whether a stay
would be "in some manner inimical to this country's policy of
equality"; and (4) whether PGC will be prejudiced by the stay.7
In the event that the court denies comity, it may reconsider the
motion for summary judgment or take such further proceedings as
are then appropriate.
III. CONCLUSION
For the foregoing reasons, the judgment of January 19,
1994, is vacated and the matter is remanded to the district court
for further proceedings consistent with this opinion.
7
. Conceivably, on remand the district court might conclude that
it should transfer the proceedings to the Mexican court. We do
not reach that issue and thus express no opinion on the point.
_________________________________________________
ROTH, Circuit Judge, dissenting: No. 94-1054
Although I share the majority's view that the district
court should have articulated its reasons for denying the Letter
Rogatory's request for comity, I reach a different decision as to
the action we should take in view of the district court's failure
to rule on comity. I base my conclusion on a combination of a
desire for judicial economy and a determination, from the record
before us, that it would have been inappropriate to grant the
Letter Rogatory, extending comity to the Mexican bankruptcy
court. I therefore respectfully dissent.
In reaching this conclusion, I, too, place great
emphasis on Remington Rand v. Business Systems, Inc., 830 F.2d
1260 (3d Cir. 1987). Yet, my reading of Remington does not lead
to the broad view of comity advocated by the majority. In
Remington, our pronouncements on the importance of comity are
specifically confined to the district court's attempt to attach
foreign assets:
To the extent that the district court order seeks to
attach BSI assets in the United States, it will not be
disturbed. No international trappings surround the
district court's imposition of a constructive trust
over assets located in the United States. We see no
aspects of comity implicated here. The same is not
true, however, insofar as the attachment of foreign
assets is concerned. We believe that before that
aspect of the judgment can be sustained, certain
conditions precedent . . . must first be satisfied.
Id. at 1272. Importantly, the doctrine of comity did not prevent
the Court in Remington from affirming certain decisions reached
by the district court, including the district court's findings
that BSI had misappropriated trade secrets and that BSI must
return certain confidential "know how" documents to Remington
U.S. These decisions were upheld, even though there is no
indication in Remington that the district court specifically
indicated why it chose to decide these matters rather than defer
to the bankruptcy proceeding simultaneously underway in The
Netherlands.
In my view, the issues argued on summary judgment in
the instant matter resemble the issues that were not precluded by
considerations of comity in Remington. Specifically, PGC seeks a
declaratory judgment on PGMex's rights to use PGC's trademarks
and technical material, to manufacture products from PGC's
designs, and to act as PGC's sales representative in Mexico.
Because such a determination does not implicate assets held by
PGMex in Mexico, the district court's action does not affect the
ability of a Mexican bankruptcy court to effectively distribute
PGMex's assets to its creditors. Accordingly, the district court
would not have abused its discretion if it had decided that
comity did not preclude it from deciding the merits of the
parties' summary judgment motions.
Additionally, concerns for judicial economy weigh
against remanding the matter without reaching the merits on
appeal. The district court's grant of summary judgment was the
focus of the briefing and argument before this Court. We are
familiar with the issues, and they are ripe for a decision.
Because we can decide these issues, because comity
should not, under Remington, preclude us from deciding them, and
because judicial resources would not best be served by simply
vacating summary judgment without deciding the issues, I conclude
that we should rule on the district court's grant of summary
judgment. My review of the parties' motions for summary judgment
reveals that numerous issues of material fact exist, including
whether the parties orally modified their sales and technical
agreements at the September 24, 1990 meeting. Accordingly, I
would reverse the district court's grant of summary judgment in
favor of PGC on its declaratory judgment complaint and its grant
of summary judgment against PGMex on its counterclaims, and I
would remand the case to the district court for further
proceedings.