991 F.2d 1376 (8th Cir. 1993), 92-1128, General Elec. Capital Corp. v. Grossman

Docket Nº:92-1128, 92-1317.
Citation:991 F.2d 1376
Party Name:GENERAL ELECTRIC CAPITAL CORPORATION; Gelco Corporation; International Couriers Corporation, Plaintiffs-Appellants, v. N. Bud GROSSMAN; Andrew C. Grossman; Richard W. McFerran; Defendants, Air Canada, a Canadian corporation; Peat Marwick Thorne, formerly doing business as Thorne, Ernst & Whinney; Defendants-Appellees, Deloitte & Touche, formerly do
Case Date:April 14, 1993
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
 
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Page 1376

991 F.2d 1376 (8th Cir. 1993)

GENERAL ELECTRIC CAPITAL CORPORATION; Gelco Corporation;

International Couriers Corporation, Plaintiffs-Appellants,

v.

N. Bud GROSSMAN; Andrew C. Grossman; Richard W. McFerran;

Defendants,

Air Canada, a Canadian corporation; Peat Marwick Thorne,

formerly doing business as Thorne, Ernst &

Whinney; Defendants-Appellees,

Deloitte & Touche, formerly doing business as Touche (USA);

Defendants,

Deloitte & Touche, formerly doing business as Touche Ross

(Canada), (CANADA), Defendants-Appellees.

GENERAL ELECTRIC CAPITAL CORPORATION; Gelco Corporation;

International Couriers Corporation, Plaintiffs-Appellees,

v.

N. Bud GROSSMAN; Andrew C. Grossman; Richard W. McFerran;

Defendants,

Air Canada, a Canadian corporation; Defendant-Appellant,

Peat Marwick Thorne, formerly doing business as Thorne,

Ernst & Whinney; Deloitte & Touche, formerly doing business

as Touche (USA); Deloitte & Touche (Canada), formerly doing

business as Touche Ross (Canada), Defendants.

Nos. 92-1128, 92-1317.

United States Court of Appeals, Eighth Circuit

April 14, 1993

Submitted Nov. 11, 1992.

Page 1377

[Copyrighted Material Omitted]

Page 1378

G. Marc Whitehead, Minneapolis, MN, argued (Richard Kaplan, on the brief), for defendant-appellant.

Counsel who presented argument on behalf of the appellee Air Canada was Samuel L. Hanson, Minneapolis MN, argued (Charles Rogers and Michael Krikava, John H. Hall, New York City, on the brief), for defendant-appellee Air Canada.

Deborah J. Palmer, Minneapolis, MN, argued (Elliot Kaplan, Linda Foreman, and Glenn Oliver on the brief), for Peat Marwick Thorne.

Michael Berens, Minneapolis MN, argued (Wendy Snyder and Constance Hill, on the brief), for Deloitte & Touche.

Before JOHN R. GIBSON and MAGILL, Circuit Judges, and VAN SICKLE, [*] Senior District Judge.

JOHN R. GIBSON, Circuit Judge.

General Electric Capital Corporation, Gelco Corporation, and International Couriers Corporation 1 appeal from orders of the district court 2 dismissing their action against Air Canada, a Canadian corporation, for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act, 28 U.S.C.A. § 1602-1611 (West Supp.1992), and against Peat Marwick Thorne and Deloitte & Touche (Canada), both Canadian partnerships of chartered accountants, for lack of personal jurisdiction. G.E. Gelco argues that Air Canada was not entitled to sovereign immunity under the Act because: (1) Air Canada was an investor-owned corporation no longer owned by the Canadian government at the time G.E. Gelco filed suit; (2) three of the commercial activity exceptions to the Act applied; and (3) Air Canada waived the protection of the Act. As to the accounting partnerships, G.E. Gelco claims that the partnerships intentionally transmitted false financial reports into Minnesota failing to disclose information that they were obligated to provide in the United States with the purpose of defrauding United States citizens and, accordingly, the district court erred in concluding that there was no personal jurisdiction. Finally, G.E. Gelco argues that the district court erred in limiting discovery on jurisdictional issues. We affirm.

The facts that are determinative of the issues before us are relatively simple, but the transactional background is complex. Thus, we outline here only those facts giving rise to the controversy before us.

Gelco owned Gelco Express United through Gelco's wholly-owned subsidiary, International Couriers Corporation. Express is a Canadian corporation based in Canada, engaged in the retail sector of the overnight and same-day delivery courier business.

Air Canada was a Crown corporation owned by the Canadian government, 3 and provided passenger and freight air service in Canada and the United States. In February 1987, Air Canada representatives traveled to Minnesota to meet with officers and directors of Gelco, Bud Grossman, Andrew Grossman and Richard McFerran, 4 to discuss the possibility of purchasing Express. On March 6, 1987, Air Canada and Gelco executed a Letter of Intent in which Air Canada offered to purchase all outstanding shares of Express for seventy-two million Canadian dollars. The Letter of Intent provided that Air Canada would conduct an investigation and evaluation of Express before closing the transaction.

Air Canada hired Peat Marwick to assist in the investigation of Express. Peat Marwick discovered significant irregularities in Express's financial statements, including, among other things, that Express's allowance

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for doubtful accounts was inadequate and that there were other problems with its accounts receivable. Touche Canada had audited Express's 1985 and 1986 financial statements. As a subsidiary of Gelco, Express's financial statements were included in Gelco's consolidated financial statements, and Touche Canada provided Express's 1985 and 1986 financial statements to Touche USA in connection with Touche USA's audit of Gelco's 1985 and 1986 consolidated financial statements.

Based on the information Peat Marwick provided to Air Canada, Air Canada terminated its Letter of Intent with Gelco. 5 Nevertheless, negotiations between Air Canada and Gelco continued. Ultimately, Air Canada and Gelco negotiated a reduced price for Express, and, on July 14, 1987, the two executed a Share Purchase Agreement in which Air Canada purchased Express for $61.5 million Canadian dollars. The purchase price was subject to adjustment if, according to the audit report of Express's July 31, 1987 financial statements, Express had a negative net equity. On the other hand, if the purchase price was reduced, the agreement provided that Gelco retained the right to call off the sale.

Peat Marwick completed its work on the audit of Express's July 31, 1987 financial statements in September 1987. Representatives of Peat Marwick and Air Canada met, and Peat Marwick advised that it had serious concerns about the reliability of Express's financial statements. Peat Marwick also advised that it could not issue its formal audit report on Express's financial statements. Air Canada asked Gelco to waive the audit report requirement, and accept instead a certification from Peat Marwick that Express had a positive net equity of $2,252,334. Gelco agreed, and on September 17, 1987, Gelco completed the sale of Express to Air Canada.

Two weeks later, on October 2, 1987, General Electric and Gelco announced that they had entered into a merger agreement under which General Electric would acquire Gelco. On December 17, 1987, General Electric bought the outstanding shares of Gelco for $35 a share.

In November 1989, Air Canada and Express sued Gelco, International Couriers Corporation, Bud Grossman, Andrew Grossman, and McFerran in Canada for falsifying of Express's accounts receivable. That action is still pending.

General Electric, Gelco, and International Couriers then brought this action in March 1991 against Peat Marwick, Touche Canada, Touche USA, Bud Grossman, Andrew Grossman, Richard McFerran, and Air Canada, claiming that they conspired to suppress information about Gelco's financial status in order to dupe General Electric into buying Gelco at an inflated price. They also claimed that because of Peat Marwick's certification report, Gelco was unable to exercise its contractual right to cancel the transaction, leaving Gelco subject to a contingent liability to Air Canada.

Air Canada and the Canadian accounting partnerships moved to dismiss. Air Canada argued that because it was a Crown corporation at the time of the claimed wrongdoing, it qualified as a foreign state under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602-1611. The district court agreed that the Act provided immunity, and rejected the arguments that the Act did not apply because Air Canada was not a Crown corporation when the litigation started. General Electric Capital Corp. v. Grossman, Civ. No. 4-91-210, slip op. at 13-16 (D.Minn. Sept. 9, 1991). The district court also rejected arguments that the commercial activity exceptions under the Act

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applied, and the argument that Air Canada waived its immunity. Id.

Peat Marwick and Touche Canada moved to dismiss for lack of personal jurisdiction. The district court examined the contacts between the accounting firms and Minnesota and concluded that the contacts were insufficient to confer personal jurisdiction. Id. at 16-19. The district court also denied G.E. Gelco's motion for additional discovery on the jurisdictional issues. General Electric Capital Corp. v. Grossman, Civ. No. 4-91-210, slip op. at 6 (Nov. 8, 1991). G.E. Gelco appeals. 6

I.

G.E. Gelco first complains that the district court erred in dismissing its claims against Air Canada for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act. Under the Act, a "foreign state shall be immune from the jurisdiction of the courts of the United States" unless an exception to the Act applies. 28 U.S.C. § 1604. The district court held that the time for determining whether the Act applied was the time of the alleged wrongdoing, and because Air Canada was a Crown corporation at that time, the Act provided immunity. Slip op. at 14 & n. 9 (Sept. 9, 1991).

"The existence of subject matter jurisdiction is a question of law subject to de novo review." Keene Corp. v. Cass, 908 F.2d 293, 296 (8th Cir.1990). The foreign state has the burden of proving that it is entitled to sovereign immunity. Brewer v. Socialist People's Republic of Iraq, 890 F.2d 97, 100-01 (8th Cir.1989).

G.E. Gelco first argues that the language and history of the Act show that Air Canada is not entitled to...

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