INTERNATIONAL TRANSACTIONS, LTD., A Cayman Islands Corporation, Plaintiff-Appellant, VERSUS EMBOTELLADORA AGRAL REGIOMONTANA, SA DE CV; EMBOTELLADORA AGRAL DE LA LAGUNA, SA DE CV; AGRAL ARRENDADORA, SA DE CV; AGRAL COMISIONISTA Y DISTRIBUIDORA, SA DE CV; AGRAL IMMOBILIARIA, SA DE CV; PEPSI-GEMEX, SA DE CV, Defendants-Appellees.
No. 02-11280
United States Court of Appeals For the Fifth Circuit
October 20, 2003
Before DAVIS, SMITH and DUHÉ, Circuit Judges.
Appeal from the United States District Court for the Northern District of Texas
International Transactions, Ltd. (“ITL“) challenges the dismissal of its action to confirm an arbitration award against Embotelladora Agral Regiomontana, S.A. de C.V.; Embotelladora Agral De La Laguna, S.A. de C.V.; Agral Arrendadora, S.A. de C.V.; Agral Comisionista Y Distribuidora, S.A. de C.V.; and Agral Immobiliaria, S.A. de C.V. (the “Agral Companies“). The district court dismissed the case based on its conclusion that ITL lacked standing to collect the arbitration award based on an order of a Mexican bankruptcy court in the insolvency
I.
In May of 1994, ITL made an investment in one of the Agral companies, Embotelladora Agral Regiomontana, S.A. de C.V. (“Embotelladora“), through Sharp, its undisclosed agent. The form of the investment was a promissory note with Embotelladora as maker payable to NationsBank of Texas, N.A. (the “Note“). NationsBank endorsed the Note to Sharp “as custodian” without recourse. The remaining Agral Companies guaranteed the Note. ITL was not identified as Sharp‘s principal and none of the parties knew ITL was involved in any way in the investment. The Note contains an arbitration clause and choice of venue clause which requires enforcement actions to be brought in Texas. The purpose of the loan was to fund the construction of a Pepsi-Cola bottling plant in Monterrey, Mexico.
In 1996, Agral defaulted on the promissory note. Sharp, at ITL‘s direction, initiated arbitration proceedings against the Agral Companies in Dallas, Texas, in accordance with the provisions of the Note. On January 17, 1997, Sharp obtained an award against the Agral Companies in the amount of $11,374,859, with interest accruing at the rate of 18% compounded daily (the “Award“). ITL was not identified as the unnamed investor in the arbitration
In February 1997, four of the five Agral Companies filed for Suspension of Payments protection in Monterrey, Mexico, under Mexican law. The proceeding was later converted to a bankruptcy. At ITL‘s instruction, Sharp filed a claim in the bankruptcy proceeding for confirmation and recognition of the Award. Sharp‘s attorney was appointed as provisional intervenor for the creditors in the Agral bankruptcy. According to the Agral Companies, under Mexican law, the role of a provisional intervenor is to represent the creditors, similar to the function of a creditors’ committee under U.S. bankruptcy law.
In August 1998, Sharp, without authority from ITL, assigned the Award and Note to Jose Trevino Canamar, a Mexican attorney, in exchange for an account of Bridgestone, Inc. and payment of Sharp‘s legal fees. ITL believes that Mr. Canamar is related to Sharp‘s president and is the brother of the attorney Sharp hired to collect the Award for ITL. Nine days later, Mr. Canamar assigned the Award and Note to Grupo Embotellador Norest, S.A. de C.V. (“GEN“) in exchange for 55 million pesos, a fraction of the face value of the Award. GEN is an affiliate of the Agral Companies as they are all third-tier subsidiaries of defendant Pepsi-Gemex.1 On the same day, Sharp, Canamar, and GEN executed a Master Agreement releasing all claims against
Because of Sharp‘s fraudulent business practices, in November 1998, the Securities and Exchange Commission brought an action against Sharp and its president in the Northern District of Texas. A Special Master was appointed for Sharp. Sharp‘s president was indicted on fraud charges and later entered a guilty plea.
In January 1999, Sharp‘s claim in the Agral bankruptcy was denied. Based on the translation in the record, it appears that the ruling was without prejudice and based on the failure of Sharp to file the Award in a proper form, either a duly authenticated original or certified copy.
In February 1999, ITL filed suit against Sharp in the Northern District of Texas. In February 2001, in response to an order of the district court in that case, Sharp‘s Special Master conveyed the Award to ITL. ITL then sued the Agral Companies in the 68th Judicial District Court of Dallas County, Texas, seeking an order confirming the arbitration Award. In June 2001, the case was removed to the Northern District of Texas, Dallas Division.
In October 2001, GEN, the assignee of the Award, filed a motion in the Mexican bankruptcy proceeding to dismiss Sharp‘s attorney as provisional intervenor. GEN asked the court to dismiss Sharp‘s attorney from this role because Sharp, having assigned the Award away, was no longer a creditor of the Agral Companies. In a November 2001 ruling, presented in translation in the record along with the motion being ruled upon, the Mexican bankruptcy judge found that Sharp was no longer a creditor of any of the bankrupt parties. The basis of the ruling appears to be a finding that Sharp had assigned away the Award and that under the Assignments, GEN owned the Note and the Award. Since Sharp was no longer a creditor, its attorney was not
In December 2001, the Agral Companies were merged into GEN. The end result of the Assignments and the merger was that the debtor under the Award and the purported owner of the Award became one. The bankruptcy proceedings were dismissed in January 2002.
The Agral Companies submitted the November 2001 order of the Mexico bankruptcy court as basis for dismissal of this suit. They argued that ITL lacked standing to pursue collection of the Award because the Award had been assigned to GEN in 1998, and because applying the principles of res judicata and international comity, the 2001 order of the Mexican should be considered as conclusive on the question of ownership of the Award.
The district court granted the motion to dismiss for lack of subject matter jurisdiction for lack of standing on grounds of international comity. The court examined affidavits and other evidentiary materials submitted by the parties in making its ruling. After noting that standing requires an injury-in-fact, causation and redressability, the court found that ITL had sustained an injury-in-fact by its inability to collect the Award. In addressing the issue of redressability, it found that a judgment confirming the Award would not redress ITL‘s injury because (1) the Award had been assigned to Canamar and then to GEN, (2) Sharp, Canamar, and GEN released all claims against each other and the Agral Companies, and (3) the assignments were valid based
II.
The district court correctly identified the three requirements for Article III standing: (1) an injury-in-fact, which is a concrete invasion of a legally protected interest; (2) a causal connection between the injury and the defendants’ conduct; and (3) a substantial likelihood that the injury will be redressed by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). The Agral Companies argue that there are three bases on which ITL should be denied standing: (1) ITL‘s injury is not redressable because the relief it seeks, an order confirming the Award, will not help ITL because the Award was validly assigned to GEN; (2) ITL‘s injury is not redressable because an order confirming the Award will not help ITL in light of the Mexican court‘s finding that the Award was validly assigned to GEN, which decision is entitled to comity in this court; and (3) no causal relationship exists between the actions of the Agral Companies and the alleged injury, which is inability to collect the arbitration Award, because that harm was caused by Sharp by the first assignment to Canamar or by executing the Master Agreement.
The district court‘s decision to deny standing is reviewed de novo. Robison v. TCI/US West Communs., 117 F.3d 900, 904 (5th Cir. 1997). The court‘s decision to grant comity to the Mexican bankruptcy court‘s ruling is reviewed for abuse of discretion. Allstate Life Ins. Co. v. Linter Group, Ltd., 994 F.2d 996, 999 (2d Cir. 1993), cert. denied, 510 U.S. 945 (1994). The district court‘s decision to accept, under principles of comity, the Mexican bankruptcy court‘s finding that Sharp‘s assignment of the Award to Canamar and Canamar‘s assignment to GEN were valid is the focus of this appeal. We now turn to that issue.
Comity is “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.” Hilton v. Guyot, 159 U.S. 113, 163-64, 40 L. Ed. 95, 16 S. Ct. 139 (1895). The rationale underlying the grant of comity to a final foreign money judgment is similar to that underlying the application of res judicata to domestic judgments. Essentially, once the parties have had an opportunity to present their cases fully and fairly before a court of competent jurisdiction, the results of the litigation process should be final. Cunard S.S. Co. v. Salen Reefer Services AB, 773 F.2d 452, 457 (2d Cir. 1985); Moore‘s Federal Practice, § 131.11[1]. As applied to a bankruptcy proceeding, the extension of comity “enables the assets of a debtor to be dispersed in an equitable, orderly, and systematic manner, rather than in a haphazard, erratic or piecemeal fashion.” Cunard, 773. F.2d at 457-58. Businesses, like ITL, that voluntarily deal with foreign entities impliedly subject themselves to the laws of the foreign government under which the corporation is organized which may affect the powers and obligations of that corporation. Id. at 458. While a foreign court may not render a binding money judgment against one over whom it has no jurisdiction based solely on one‘s dealings with a foreign corporation, a creditor of an insolvent foreign corporation may be required to assert its claims before a duly convened foreign bankruptcy tribunal to preserve claims against a foreign bankrupt. Id.
Under principles of international comity, a foreign court‘s judgment on a matter is conclusive in a federal court when (1) the foreign judgment was rendered by a court of competent jurisdiction, which had jurisdiction over the cause and the parties, (2) the judgment is supported
Under the law of the United States, a foreign judgment cannot be enforced in a U.S. court unless it was obtained under a system with procedures compatible with the requirements of due process of law. Hilton, 159 U.S. at 205-06, 16 S.Ct. at 159; Bank Melli Iran v. Pahlavi, 58 F.3d 1406, 1410 (9th Cir. 1995), cert. denied, 516 U.S. 989 (1995). Notice is an element of our notion of due process and the United States will not enforce a judgment obtained without the bare minimum requirements of notice. Ma v. Continental Bank, N.A., 905 F.2d 1073, 1076 (7th Cir. 1990), cert. denied, 498 U.S. 967 (1990). One commentator has stated the standard thus: “[t]he polestar is whether a reasonable method of notification was employed and reasonable opportunity to be heard was afforded to the person affected.” Somportex, Ltd. v. Philadelphia Chewing Gum Corp., 453 F.2d 435, 443 (3d Cir. 1971), citing Restatement (Second) Conflict of Laws, § 92 (Proposed Final Draft), 1967.
While there is no requirement that Mexican law be identical to U.S. bankruptcy law, the notice requirements in our law give us some guidance as to what notice would satisfy our concept of due process. Allstate, 994 F.2d at 999. The U.S. Bankruptcy Code defines the phrase “after
There is no dispute that ITL had notice of the Agral bankruptcy, both actual and constructive, through its agent Sharp. The Agral Companies argue that because ITL had notice of their bankruptcy proceeding, ITL cannot complain of lack of notice because it failed to file a claim. We disagree. Although ITL did not file a claim for the Award under its own name, it clearly did file a claim in the Agral bankruptcy through its agent, Sharp.
Even though neither Sharp nor ITL was given notice of the motion, the district court appeared to charge ITL with notice because ITL was aware of the pendency of the bankruptcy proceedings in which the motion was filed. ITL contends that it (either through Sharp or directly) was entitled to notice of the particular motion to dismiss Sharp‘s attorney as provisional
Under the facts of this case, we need not discuss the precise level of due process required to be given to ITL, as the record does not indicate that any notice was given. We see nothing in the record, the district court‘s opinion or any of the briefs which supports a conclusion that this motion was not handled, as ITL claims, on an ex parte basis.
We fully accept that ITL would be bound by notices issued in the bankruptcy proceeding to its agent, Sharp, and that ITL‘s obligation to act to preserve its rights did not stop with the filing of the claim by Sharp. No later than November 1998, ITL should have been on notice that Sharp could no longer be trusted to advance its interests since the SEC had appointed a Special
Accordingly, the Agral Companies have failed to meet their burden of proof that ITL was afforded an opportunity to be heard in the Mexican court on the issues underlying the motion to dismiss Sharp as intervenor that the Agral Companies seek to enforce in this court. In these circumstances, we conclude that the district court abused its discretion in accepting that ruling under principles of comity.
IV.
Based on the above outlined facts, the Agral Companies did not meet their burden of proof on the defense of comity, because they did not demonstrate that ITL (or its representative)
Accordingly, we vacate the district court‘s judgment and remand this case to the district court for further proceedings consistent with this opinion.
VACATED and REMANDED.
I respectfully dissent. Although this may be a fairly close question if examined de novo, by no stretch of the imagination did Chief Judge Fish abuse his discretion in granting comity to the decisions of the Mexican bankruptcy court.
The salient facts are these: In 1996, ITL had contemporaneous actual knowledge of Agral‘s default and of the arbitration. In 1997, ITL had contemporaneous actual knowledge of the award, of Agral‘s bankruptcy, and of Sharp‘s proof of claim in the Mexican bankruptcy court. ITL chose not to reveal itself but instead to rely on Sharp as its collection agent. ITL knew of Sharp‘s fraud no later than February 1999, when it joined the SEC‘s enforcement action, and probably by November 1998, when the SEC first sued Sharp.
ITL had and declined three opportunities to protect its ownership of the award in the Mexican bankruptcy court: (1) in February 1997, when it instructed Sharp to file its claim in that court; (2) in November 1998 or February 1999, when it joined the SEC‘s enforcement action; and (3) in June 2001, when it sued Agral in Texas state court to enforce the award. When, in October 2001, GEN asked the Mexican bankruptcy court to confirm its ownership of the award, GEN likely knew that ITL also claimed ownership and that Sharp no longer acted as ITL‘s agent.
The critical question on appeal is whether ITL had an oppor-
ITL and Agral further reduce this dispute to when and on what ITL had an opportunity to be heard. ITL admits that it had multiple opportunities to be heard over the course of the Agral bankruptcy proceedings, but not on GEN‘s specific motion to confirm ownership of the award. Agral admits that ITL was not heard on GEN‘s motion, but disagrees that this fact matters on the issue of comity. Thus, the key issue is whether ITL had a right to be heard specifically on GEN‘s motion or just generally
There is essentially no law from the Fifth Circuit or other courts of appeals on this obscure question. We therefore must apply a fairly abstract standard—an opportunity to be heard—without much guidance from precedent. We should revert, however, to the purposes behind the Hilton test and specifically its opportunity-to-be-heard element. The test encourages respect for foreign courts (in hope of reciprocal respect), discourages protracted re-litigation of the same dispute, and ensures procedural fairness for the aggrieved party.5
With these purposes in mind, we should affirm the grant of comity—and certainly should do so on the ground that the district court did not abuse its discretion. American courts often note the importance of extending comity to foreign bankruptcy courts, given the nature of insolvency proceedings.6 Further, ITL (through Sharp or on its own behalf) and Agral have struggled over the note and then the award for seven years before an arbitrator, American courts, and Mexican courts.
Moreover, ITL easily could have intervened in the Mexican bankruptcy proceedings at any time. Instead, it instructed Sharp to file the claim in February 1997, it sought to recover the award from Sharp in February 1999 in federal district court, and it sued Agral to enforce the award in June 2001 in Texas state court. In fact, after ITL sued Agral in June 2001, Agral repeatedly encouraged ITL to join the Mexican bankruptcy proceedings. ITL, after years of indolence and neglect, can hardly cry injustice now.
Nor does the fraud of Sharp excuse ITL. Although ITL reasonably might have relied on Sharp in February 1997, it certainly knew of Sharp‘s malefactions by November 1998 or February
In sum, the district court reasonably concluded that the Hilton test requires only an opportunity for ITL to be heard generally in the bankruptcy proceedings, not specifically on GEN‘s motion. Thus, the district court did not abuse its discretion by granting comity to the Mexican bankruptcy court‘s decision that ITL did not own the award or by therefore finding that a favorable decision would not redress ITL‘s injury.