Kestrel Coal Pty Ltd v. Joy Global Inc ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-3604
KESTREL COAL PTY. LTD.,
Petitioner-Appellee,
v.
JOY GLOBAL INC.,
Respondent-Appellant.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 03-MISC-42—Charles N. Clevert, Jr., Judge.
____________
ARGUED FEBRUARY 27, 2004—DECIDED MARCH 25, 2004
____________
Before EASTERBROOK, MANION, and EVANS, Circuit
Judges.
EASTERBROOK, Circuit Judge. Kestrel Coal, an Australian
corporation, has filed suit in the Supreme Court of
Queensland against Longwall Roof Supports Ltd., a firm
incorporated in the United Kingdom. Kestrel contends that
Longwall furnished defective roof supports for a coal mine
and is liable under a contract signed in 1991 between
Longwall and Gordonstone Coal Management, Kestrel’s
predecessor in interest. Kestrel also named as a defendant
in the Australian proceeding Joy Global Inc., a Delaware
corporation with its principal place of business in Milwau-
kee. Joy Global is a holding company that, through several
2 No. 03-3604
layers of subsidiaries, acquired in 1995 all of Longwell’s
stock. An amended complaint named three of Joy Global’s
other indirect subsidiaries: Joy Manufacturing Company
Pty Ltd, Gullick Australia Pty Ltd, and Joy Mining Machin-
ery Ltd. The first two are Australian firms, and the third a
U.K. firm. Soon after filing suit, Kestrel asked the court to
require the four defendants that are Joy Global’s subsidiar-
ies to hand over certain documents. Justice Muir declined,
writing:
The subject documents are not necessary to enable
a case to be pleaded. A statement of claim has al-
ready been filed and served. If the defendants’ con-
duct becomes oppressive in a material way or if it
appears that the lack of disclosure will prejudice
the plaintiff’s prospects of a fair trial, the question
of early disclosure can be reconsidered. I have in
mind matters such as an oppressive request for
particulars or an attempt to strike out the state-
ment of claim for want of relevant particulars.
In other words, unless the defendants complain that the
complaint is defective because Kestrel has omitted details
that it lacks, but defendants possess, the documents in
question are not necessary to the litigation.
Neither Joy Global nor any of the other defendants has
opposed Kestrel’s claim in Australia on the sort of ground
Justice Muir mentioned. Nonetheless, Kestrel has contin-
ued to seek the documents’ disclosure. It commenced this
proceeding in the Eastern District of Wisconsin under 28
U.S.C. §1782, demanding that Joy Global cause its subsid-
iaries to retrieve documents in Australia and the United
Kingdom, have them shipped to Wisconsin, and there pro-
vide them to Kestrel, which will cart them to Australia. Joy
Global protested, among other things, that §1782 may not
be used to second-guess the judge handling the underlying
suit, that disclosure must be sought from the entities that
No. 03-3604 3
have them rather than from their stockholders, that §1782
does not permit a district court to order disclosure of
documents not located in the United States, and that
disclosure would be inappropriate because some of the
documents contain commercially valuable information that
ought not be revealed to Kestrel, which Joy Global sees as a
competitor to its subsidiaries. Without discussing any legal
authority, the district judge directed Joy Global to acquire,
and then turn over, every document Kestrel wanted. The
judge’s explanation, delivered orally in the courtroom, was:
Now, if we were talking about this in 1782, perhaps
that would be problematic, but this is not 1782,
1982 or 1992. This is 2003 and the exchange of
information and the production of documents from
far off places in the world is not a mammoth task.
I counted the paper the other day and they had a
big ad from I think DHL telling how they have
consolidated with another carrier and can now
provide much better services in all kinds of zip
codes around the world. And I also note how often
I get unwanted faxes from people who fail to comply
with the law and send stuff to people and use up
their ink and paper needlessly.
The reason for my rambling is this: I don’t buy your
argument that it’s problematic. When you’re the
puppeteer and you’re pulling the strings of compa-
nies around the world, there are consequences.
The judge did not explain why §1782 obliges stockholders to
obtain documents from subsidiaries outside the United
States, as long as the task would not be “mammoth”. The
district judge did not mention either the fact that three
months earlier the Australian judge had held the materials
not required, or the fact that Joy Global had made a claim
of commercial confidentiality. We stayed the turnover order
and now reverse it.
4 No. 03-3604
Kestrel’s contention that we lack appellate jurisdiction is
incorrect. Orders such as this, like orders enforcing subpoe-
nas, are final and appealable because they dispose of all
issues in the proceeding. See EEOC v. Sidley Austin Brown
& Wood, 315 F.3d 696, 699 (7th Cir. 2002) (administrative
subpoena); Bayer AG v. Betachem, Inc., 173 F.3d 188, 189-
90 & n.1 (3d Cir. 1999) (disclosure order under §1782); In re
Gionoli, 3 F.3d 54, 57 (2d Cir. 1993) (same).
The material language of §1782(a) is:
The district court of the district in which a person
resides or is found may order him to give his tes-
timony or statement or to produce a document or
other thing for use in a proceeding in a foreign or
international tribunal, including criminal inves-
tigations conducted before formal accusation. The
order may be made . . . upon the application of any
interested person and may direct that the testi-
mony or statement be given, or the document or
other thing be produced, before a person appointed
by the court. . . . The order may prescribe the
practice and procedure, which may be in whole
or part the practice and procedure of the foreign
country or the international tribunal, for taking the
testimony or statement or producing the document
or other thing. To the extent that the order does not
prescribe otherwise, the testimony or statement
shall be taken, and the document or other thing
produced, in accordance with the Federal Rules of
Civil Procedure.
Joy Global is found (and “resides” as well) in the Eastern
District of Wisconsin. Kestrel wants the evidence for use in
a pending foreign proceeding in which it is an “interested
person”. So far so good. But §1782(a) adds that the disclo-
sure must conform either to the procedure of the foreign
nation or to that of the Federal Rules of Civil Procedure.
No. 03-3604 5
Justice Muir has concluded that Australian procedure does
not require the disclosure of these documents, and the
district judge did not find that they would be discoverable
under our Rules of Civil Procedure. To obtain documents
under Rule 26 and the other discovery rules, you seek them
from the person who has them, rather than from an inves-
tor in such a person. Moreover, although §1782(a) does not
say whether the evidence must be present in the United
States, one commentator has written:
[a] harmonious scheme is established: evidence
in Spain is obtained through proceedings in Spain,
evidence in Great Britain is obtained through pro-
ceedings in Great Britain, and evidence in the
United States is obtained through proceedings
in the United States. . . . Section 1782 was not
intended to enable litigants to obtain in Spain
evidence located in Spain that could not be obtained
through proceedings in Spain. Section 1782 should
not be used to interfere with the regular court
processes in another country.
Hans Smit, American Assistance to Litigation in Foreign
and International Tribunals, 25 Syracuse J. Int’l L. &
Commerce 1, 11 (1998). Yet what the district court ordered
Joy Global to do is to secure, from Australia and the U.K.,
evidence sought for use in Australia.
Joy Global leads with the argument that courts of this
nation should not order disclosure of information that the
court handling the underlying suit has held not discov-
erable. Five circuits have adopted that rule. Two have held
otherwise. They observe that, if the foreign court denies the
request because it believes that disclosure of evidence in the
United States should be governed by U.S. law, it would be
perverse for the U.S. court to take the foreign decision as
blocking use of §1782. The Supreme Court may decide this
Term which view is correct, and whether foreign decisions
6 No. 03-3604
that leave discovery to U.S. tribunals should be distin-
guished from those that, like Justice Muir’s, deny discovery
because the evidence is not important to the underlying
suit. See Advanced Micro Devices, Inc. v. Intel Corp., 292
F.3d 664 (9th Cir. 2002), cert. granted, 124 S. Ct. 531 (2003)
(to be argued April 20, 2004). We need not try to anticipate
the outcome of Intel, because there are other grounds on
which to resolve this dispute. Nor need we determine
whether §1782 ever permits a district judge to require
evidence to be imported from a foreign nation so that it may
be handed over here and then exported. Professor Smit’s
negative answer has some support, see Four Pillars Enter-
prises Co. v. Avery Dennison Corp., 308 F.3d 1075, 1079-80
(9th Cir. 2002); In re Sarrio, S.A., 119 F.3d 143, 147 (2d Cir.
1997), but neither of these decisions is definitive. The
statement in Sarrio is dictum, and Four Pillars held that
the district court is entitled to deny a request that docu-
ments outside the United States be fetched but did not hold
that such a request must necessarily be rebuffed. Once
again there are other grounds of decision. The documents
not only are outside the United States but also outside Joy
Global’s files. They are in the custody of Joy Global’s
subsidiaries, which are not parties to this proceeding under
§1782.
The district judge said that there are “consequences” to
being the apex firm of a holding company, which surely
is true, but did not explain why an obligation to fetch doc-
uments from the subsidiaries is one of these consequences.
Legal distinctions between corporations and their investors
(even owners of 100% of the stock are just investors, see
Landreth Timber Co. v. Landreth, 471 U.S. 681 (1985)) are
embedded in both statute and common law. Section 1782(a)
itself neither instructs, nor permits, courts to disregard the
distinction between the corporation that owns a set of
documents, and a different corporation that owns stock in
the first entity. Kestrel does not contend, and the district
No. 03-3604 7
court did not find, that the requirements for piercing the
corporate veil under Delaware law have been met. Kestrel
does not deny that Joy Global has adhered fully to the
forms of separation between investment and management;
it does not contend that Joy Global has broken a unitary
enterprise into slivers in order to hide assets or bamboozle
creditors. See C M Corp. v. Oberer Development Co., 631
F.2d 536 (7th Cir. 1980); Sea-Land Services, Inc. v. Pepper
Source, 941 F.2d 519 (7th Cir. 1991). Cf. Richard A. Posner,
The Rights of Creditors of Affiliated Corporations, 43 U.
Chi. L. Rev. 499 (1976).
Kestrel asks us to apply a federal common law that
supersedes state-law rules distinguishing investors from
the entities whose shares they own. But why? Nothing
in §1782 so much as hints at such a revolutionary approach.
Nor does any other aspect of federal discovery practice
under the Rules of Civil Procedure. One uses Fed. R. Civ. P.
34 to get documents from firms that possess them, not from
their corporate affiliates. Even when federal law supplies
the rule of decision, it routinely absorbs from state law the
legal distinctness of corporations and their investors. See,
e.g., United States v. Bestfoods, 524 U.S. 51 (1998); cf.
Peacock v. Thomas, 516 U.S. 349 (1996); Esmark, Inc. v.
NLRB, 887 F.2d 739, 757 (7th Cir. 1989). Prior decisions
have assumed this when managing international discovery;
judges have taken it as so well established that the legal
difference between the obligations of corporations and the
obligations of their investors has been applied without
much need for discussion. See Gerling International
Insurance Co. v. CIR, 839 F.2d 131 (3d Cir. 1988); cf. Société
Internationale pour Participations Industrielles et
Commerciales, S.A. v. Rogers, 357 U.S. 197 (1958) (requir-
ing a “silent partner” to disclose a joint venture’s docu-
ments, following the district court’s distinction, 111 F.
Supp. 435, 440-42, between partners and corporate inves-
tors).
8 No. 03-3604
Kestrel insists that this line of argument was forfeited in
the district court, but we do not think so. The proceedings
were abbreviated; Joy Global lacked an opportunity to
formulate its arguments with the luxury of time that the
appellate process allows. Still, it forcefully informed the
district court (with the support of an affidavit from its
corporate secretary) that the documents Kestrel wants are
in the possession of subsidiaries outside the United States.
If the district court had thought that choice of law mattered
to the veil-piercing issue, it could and should have asked
the parties for further assistance. See Kamen v. Kemper
Financial Services, Inc., 500 U.S. 90, 100 (1991). It is not
possible to read the district judge’s resolution as based on
a belief that Joy Global had failed to make a vital argu-
ment; instead the judge acknowledged Joy Global’s argu-
ment that it holds stock rather than responsive documents,
then brushed that argument aside.
Unfortunately, the secretary’s affidavit is not as clear
as it could have been. What it says is that “[t]he types of
documents that the subpoena would require Joy Global to
produce would be in the possession of Joy Mining’s†
subsidiaries, either in Australia or the United Kingdom.”
(Emphasis added.) Use of the subjunctive muddies the
waters. Even if the “types” of documents generally are
in the subsidiaries’ possession, Joy Global may have orig-
inals or copies of some responsive documents. So we must
consider the possibility of remanding with instructions to
determine what responsive documents, if any, Joy Global
possesses in the United States.
†
Joy Mining Machinery is the trade name of Joy Technologies
Inc., a Delaware operating corporation whose stock Joy Global
owns. Joy Mining Machinery not only conducts an active mining-
machinery business in the United States but also owns the stock
of foreign firms such as Longwall Roof Supports that carry on the
business abroad.
No. 03-3604 9
Such an exercise would not be productive, however,
because it would be an abuse of discretion for the district
judge to order their production. Section 1782 gives district
judges a source of authority, but use of that power depends
on a good reason. Justice Muir already has analyzed Kes-
trel’s need for the documents and held that it has none—at
least not yet. If, as Justice Muir concluded, Kestrel does not
need these documents to make out its claim, then no
purpose would be served by their production in the United
States under §1782. If, however, the documents become
important later, the most sensible recourse is a renewed
application to the Australian court, just as Justice Muir
contemplated. Only if it turns out that the documents are
relevant to the Australian suit, and difficult or impossible
to obtain through that court’s processes, would it make
sense to launch an ancillary proceeding in the United
States. Although air transportation, the Internet, and even
fax machines have shrunk the globe, it remains best to
conduct an Australian suit in Brisbane rather than in
Milwaukee, which is 8,915 miles away. Until Justice Muir
encounters a problem that proves difficult to handle under
Australian rules (and the geographical reach of the
Queensland court’s process), the dispute should remain a
subject for adjudication in Brisbane. Proceedings in Mil-
waukee are premature, and we hope that they are avoidable
in the long run.
REVERSED
10 No. 03-3604
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-25-04