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Precedential or Non-Precedential: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.