Nissei Sangyo America, Ltd. v. U.S.

• Decision Date: 25 July 1994
• Docket Number: No. 93-3859,93-3859
• Citation: 31 F.3d 435
• Parties: -5874, 29 Fed.R.Serv.3d 1104 NISSEI SANGYO AMERICA, LIMITED, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellee. Appeal of CAMARO TRADING COMPANY, LIMITED, Proposed Intervenor-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 435

31 F.3d 435

74 A.F.T.R.2d 94-5874, 29 Fed.R.Serv.3d 1104

NISSEI SANGYO AMERICA, LIMITED, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellee.

Appeal of CAMARO TRADING COMPANY, LIMITED, Proposed

Intervenor-Appellant.

No. 93-3859.

United States Court of Appeals, Seventh Circuit.

Argued June 6, 1994.

Decided July 25, 1994.

Thomas A. Foran, Stephen A. Gorman (argued), Foran & Schultz, Chicago, IL, for Nissei Sangyo America, Ltd.

Gary R. Allen, John A. Dudeck, Jr., Dept. of Justice, Tax Div., Appellate Section, Washington, DC, for U.S.

Francis D. Morrissey, Michael A. Pollard (argued), William M. Sneed, William J. Linklater, Baker & McKenzie, Chicago, IL, for Camaro Trading Co., Ltd.

Before ENGEL, ^* BAUER and CUDAHY, Circuit Judges.

CUDAHY, Circuit Judge.

Nissei Sangyo America, an electronics concern, sold cassette players to Chrysler Acustar Corporation, a Chrysler subdivision, located in Huntsville, Alabama. Camaro Trading Company was Nissei Sangyo's exclusive sales agent for the sale of the cassette players, and--according to the Alabama Supreme Court's published opinion in a related suit that Nissei Sangyo brought against Camaro Trading--received a 5 percent commission on the sales. See Camaro Trading Co. v. Nissei Sangyo America, 628 So.2d 463, 465 (Ala.1993).

Nissei Sangyo ended up paying over $2 million in commissions to Camaro Trading. It did not withhold taxes from those commission payments. This is problematic because Camaro Trading is a Hong Kong corporation, and domestic corporations that make payments to foreign corporations are typically required to withhold 30 percent of that payment for federal income tax purposes. See 26 U.S.C. Secs. 1441 & 1442.

In August 1990, the Internal Revenue Service issued a Technical Advice Memorandum asserting that Nissei Sangyo is liable (presumably under these provisions) for failing to withhold taxes from the commissions. Nissei Sangyo's defense is that it believed that Camaro Trading was the alter ego of Dohmer Ishler, an Alabama resident, and that all of its payments to Camaro Trading were remitted back to Ishler. ¹ If this is true, it contends, Camaro Trading never beneficially received "income" for the purposes of the tax code, and Nissei Sangyo is relieved of its withholding obligations. Nissei Sangyo's complaint further alleged (and the government, in its answer, admits) that the government was separately prosecuting Ishler for tax fraud.

Camaro Trading's bank records are therefore crucial to Nissei Sangyo's defense in the anticipated tax action. But those records are in the possession of Camaro Trading's bank--the Hong Kong office of The Hong Kong & Shanghai Banking Corporation Limited. Hong Kong law apparently requires that bank records be maintained for only seven years, and the documents at issue here date from as early as September 1987. So in May 1993 Nissei Sangyo filed this suit against the United States--essentially anticipating its tax rebate action against the United States (since the IRS has not yet assessed a tax deficiency against Nissei Sangyo). The essential purpose of the suit was to perpetuate the bank record evidence under Fed.R.Civ.P. 27(c).

In its complaint, Nissei Sangyo asked the district court--pursuant to the Hague Convention--to send a letter of request to Hong Kong judicial authorities, asking for the production of certain documents to Nissei Sangyo's attorneys. The documents were described as those that "identify the recipient(s) of any funds withdrawn, disbursed, or otherwise transferred from Camaro's account(s)" at the Hong Kong and Shanghai Bank. R.O.A. 1, p 4. At oral argument, Nissei Sangyo's attorneys indicated that they would turn over any such documents to the district court. The United States did not oppose Nissei Sangyo's request, and on July 1, 1993 the court issued the letter of request. ²

On July 9, 1993, the judicial authority in Hong Kong entered an order granting the letter of request, and Camaro Trading was notified of this order on July 12, 1993. The Hong Kong court scheduled a hearing on compliance with the letter on August 3 (which was ultimately continued until November). Camaro Trading's Hong Kong counsel sought to intervene to have the order set aside, but claimed in an affidavit, filed in the district court here, that such an effort would be futile. The affidavit stated that the Hong Kong court would look only at whether the letter of request satisfied Hong Kong's statutory requirements; it would not inquire whether the documents requested were in fact relevant to the suit in the United States. The parties, in their briefs and at oral argument, inform us (though it is not part of the record) that Camaro Trading's application to have the July 9 Hong Kong order set aside was denied on November 25, 1993, and that the first appeal of this decision was also denied. On December 11, 1993, the Hong Kong & Shanghai Bank produced the requested documents, which were delivered to the Supreme Court of Hong Kong, where they remain, pending further order from the Hong Kong court. Camaro Trading has filed a notice of appeal with the Hong Kong Court of Appeal, which is scheduled to be heard in July 1994.

Camaro Trading, as soon as it learned of the order granting the letter of request, retained counsel in the United States, and sought, pursuant to Fed.R.Civ.P. 24(a), to intervene in the action in the district court, moving for intervention on October 15, 1993. Nissei Sangyo opposed Camaro Trading's intervention, arguing that Camaro Trading's motion was untimely and that its rights would not be prejudiced by the denial of its motion. In a minute order, the district court ruled in favor of Nissei Sangyo, finding that the intervention motion was "not timely filed" and that denial of the motion "will not impair Camaro Trading's interest" because "[n]o prejudice will inure to Camaro Trading's detriment merely by the perpetuation of the evidence." Order (Nov. 2, 1993). The court added that "[t]his action was brought to insure that evidence would not be destroyed. The preservation of evidence is in every litigant's proper interests." Id. Finally, the court noted that "Camaro Trading has available to it the Hong Kong forum in which it may assert its appropriate proprietary and privacy interests." Id. Camaro Trading is here appealing the denial of its motion to intervene, which is an appealable final order. See Marino v. Ortiz, 484 U.S. 301, 304, 108 S.Ct. 586, 587-88, 98 L.Ed.2d 629 (1988) (per curiam).

I

Rule 24(a) provides that "[u]pon timely application anyone shall be permitted to intervene in an action ... (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties."

Our cases hold--tracking this language--that, in order to have a right to intervene, a plaintiff must (1) make timely application, (2) have an interest relating to the subject matter of the action, (3) be at risk that that interest will be impaired, "as a practical matter," by the action's disposition and (4) lack adequate representation of the interest by the existing parties. E.g. Southmark Corp. v. Cagan, 950 F.2d 416, 418 (7th Cir.1991).

The fourth factor, at least, is undisputed. No one contends that either Nissei Sangyo or the United States has any desire to protect whatever privacy or proprietary interests Camaro Trading may have in its bank records. The other three factors are disputed, however, since the district court found (1) that Camaro Trading's application was untimely, (2) that it lacked an interest in whether relief was granted, since "the preservation of evidence is in every litigant's proper interest," and (3) that its interest would not--as a practical matter--be impaired by the action's disposition in Camaro Trading's absence, because Camaro Trading has an adequate opportunity to argue its case in Hong Kong.

The court's determination of the first factor--timeliness--is reviewed for abuse of discretion, NAACP v. New York, 413 U.S. 345, 366, 93 S.Ct. 2591, 2603, 37 L.Ed.2d 648 (1973), while the other factors are reviewed de novo. B.H. by Pierce v. Murphy, 984 F.2d 196, 200 (7th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 2930, 124 L.Ed.2d 680 (1993).

II

A

The timeliness requirement, rather than imposing a precise time limit, essentially means that an intervenor must "act with dispatch," Atlantic Mutual Ins. Co. v. Northwest Airlines, Inc., 24 F.3d 958, 960 (7th Cir.1994). Intervention is unavailable to the litigant who "dragged its heels" after learning of the lawsuit. United States v. City of Chicago, 870 F.2d 1256, 1263 (7th Cir.1989). This test essentially sets out a reasonableness standard: potential intervenors need to be reasonably diligent in learning of a suit that might affect their rights, and upon so learning they need to act reasonably promptly. United States v. South Bend Community School Corp., 710 F.2d 394, 396 (7th Cir.1983) cert. denied, 466 U.S. 926, 104 S.Ct. 1707, 80 L.Ed.2d 181 (1984). Though the passage of time itself is not the only factor, rather the "most important consideration in deciding whether a motion for intervention is untimely is whether the delay in moving for intervention will prejudice the existing parties to the case." 7C Charles Alan Wright, et al., Federal Practice and Procedure: Civil 2d Sec. 1916 (1986).

Camaro Trading learned of this matter (in Hong Kong) on July 12, 1993, and filed its motion to intervene (in Chicago) three months later, on October 15, 1993. There is no suggestion that Camaro Trading--by exercising reasonable diligence--should have learned of the suit sooner, compare Atlantic Mutual, at 961-62 so the only question with respect to timeliness is...