1994 Decisions

Opinions of the United

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Precedential or Non-Precedential: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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Recommended Citation

"Phila. Gear, Corp v. Phila. Gear, Mexico, S.A." (1994). 1994 Decisions. Paper 230.

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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.