Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, S.A., 94-1054

• Decision Date: 29 December 1994
• Docket Number: No. 94-1054,94-1054
• Parties: Bankr. L. Rep. P 76,337 PHILADELPHIA GEAR CORPORATION v. PHILADELPHIA GEAR DE MEXICO, S.A., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 187

44 F.3d 187

Bankr. L. Rep. P 76,337

PHILADELPHIA GEAR CORPORATION v. PHILADELPHIA GEAR DE MEXICO, S.A., Appellant.

No. 94-1054.

United States Court of Appeals Third Circuit.

Argued Sept. 20, 1994.

Decided Dec. 29, 1994.

Joan G. Dorgan (Argued), Bruce A. Americus, Samuel W. Braver, Tarek F. Abdalla, Buchanan Ingersoll, Professional Corp., Pittsburgh, PA, for appellant.

Kevan F. Hirsch (Argued), Joseph A. Battipaglia, Eckert, Seamans, Cherin & Mellott, Philadelphia, PA, for appellee.

Before: GREENBERG, ROTH, and ROSENN, Circuit Judges.

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 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 the Mexican court proceedings and its grant of summary judgment to PGC.

The district court had subject matter jurisdiction under 28 U.S.C. Sec. 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. Sec. 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, 31 L.Ed.2d 479 (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

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...