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Court Compels Discovery from Foreign Corporation Pursuant to Federal Rules of Civil Procedure

Posted in CASE SUMMARIES

In re Global Power Equip. Group, Inc., 418 B.R. 833 (Bankr. D. Del. 2009)

Upon a motion to compel production of documents from claimant, a foreign corporation, the court found the documents at issue to be within the control of the claimant and, applying the “comity analysis” as articulated by the United States Supreme Court, determined that the contested matter “should and shall be conducted under the Federal Rules and not under the Hague Evidence Convention.”  Accordingly, the motion to compel was granted and claimant was ordered to comply with the contested discovery requests “in accordance with the Federal Rules.”

In this bankruptcy, claimant Maasvlakte, a Dutch corporation, filed two proofs of claim.  The debtors objected to those claims.  In the course of discovery, the Deltak Plan Administrator (“the administrator”) sought to compel Maasvlakte’s production of certain information as well as to compel witness depositions in the United States.  Maasvlakte indicated that much of the requested information was in the possession of a French corporation and insisted that discovery proceed pursuant to the Hague Evidence Convention.

Maasvlakte was a member of a general partnership that entered into an agreement to construct and install a power plant in the Netherlands.  That partnership, in turn, entered into an agreement with the French corporation, Air Liquide Engineering, S.A. (“ALE”) under which ALE would act as project manager of the construction and installation.  The agreement with ALE read, in part, that ALE “is fully and unconditionally authorized to act on behalf of [Maasvlakte] as its agent and attorney in fact. All matters relating to his letter, the Project, and the Completion Agreement shall continue to be delegated to ALE.” Moreover, ALE and Maasvlakte were sister corporations under the parent corporation, Air Liquide, S.A.

In response to discovery, Maasvlakte argued the requested information was in the possession and control of ALE and that Maasvlakte could only access that information with permission.  Maasvlakte also contended that ALE, a non-party, was a separate and distinct corporation for purposes of the “control analysis under [Rule 34].”  Moreover, Maasvlakte claimed that it was prevented from producing the requested information by the French Blocking Statute (“the Statute”) and that the procedures under the Hague Evidence Convention were mandatory as a result.  The Statute prescribes sanctions, including fines and imprisonment, for a French national or corporation “who engages in the discovery process of a foreign judicial system without using the procedures established under the Hague Evidence Convention.”

The administrator argued that Maasvlakte maintained control over the documents because of ALE’s status as its agent and attorney-in-fact.  Additionally, Maasvlakte had indicated that it had control of the documents at issue and was willing to produce them until such time as the issue of the Statute arose.

The court identified two questions before it:  1) whether the discovery sought was in the custody and control of Maasvlakte and 2) whether the “comity analysis” articulated by U.S. Supreme Court in Société Nationale Indust. Aérospatiale v. U.S. Dist. Ct. for the S. Dist. Of Iowa, 482 U.S. 522, 107 S.Ct. 2542, 96 L.Ed.2d 461 (1987), which addressed the issue of the applicability of the Hague Evidence Convention in U.S. proceedings, weighed in favor of using the Hague Procedures or the Federal Rules of Civil Procedure.

Addressing the question of Maasvlakte’s possession, custody, or control of the documents, the court first noted that the Third Circuit and other courts have held that documents “are in the ‘control’ of the responding party if the party has the ‘legal right or ability to obtain the documents from another source upon demand.’”  When considering whether a party has control of documents not in its possession, courts must determine the “nature of the relationship” between the litigant and the non-party considering three main factors:  “1) the corporate structure encompassing the different parties, 2) the non-party’s connection to the transaction at issue, and 3) the degree to which the non-party will receive the benefit of any award in the case.”

Addressing each factor in turn, the court found Maasvlakte was in control of both the documents in ALE’s possession as well as the witnesses employed by ALE.  Among the major considerations in making the determination were the agency relationship between Maasvlakte and ALE and the significant involvement of ALE in the transaction at issue.

The court then turned to the comity analysis in Société Nationale to determine how the administrator should obtain the discovery located in France.  In Société Nationale, the Supreme Court held that “The Hague Evidence Convention is not intended to establish exclusive or mandatory procedures for obtaining documents and other information located within the territory a foreign signatory.  The Hague Evidence Convention is intended only to establish optional procedures…”  The court also stated that “the Hague Evidence Convention did not require that "American litigants first resort to those procedures before initiating any discovery pursuant to the normal methods of the [Federal Rules]” and that “the Hague Evidence Convention ‘does not modify the law of any contracting state, require any contracting state to use the Convention procedures,… or compel any contracting state to change its own evidence gathering procedures.’”

The “comity analysis” as laid out in Société Nationale requires the consideration of five factors to determine whether a party should procure discovery through the Hague Procedures or the Federal Rules. Those factors are:

1) the importance of the documents or information requested to the litigation;
2) the degree of specificity of the request;
3) whether the information originated in the United States;
4) the availability of alternative means of securing the information; and
5) the extent to which noncompliance with the request would undermine important interests of the United States, or compliance with the requests would undermine important interests of the state where the information is located.

Courts considering the issue have identified two additional factors for consideration: the “good faith of the party resisting discovery” and “the hardship of compliance on the party or witness from whom discovery is sought.”

Considering the seven factors identified, the court found that “taken together” the factors warranted granting the motion to compel discovery of both documents and witness depositions under the Federal Rules of Civil Procedure.  In so finding, the court dismissed the “hardship” of potential prosecution under the French Blocking Statute, despite a recent French case in which an attorney was criminally prosecuted for engaging in discovery without going through the Hague Procedures.

The court also dismissed Maasvlakte’s argument that the “comity analysis” did not apply because ALE was a non-party.

Despite holding that document production must proceed pursuant to the Federal Rules, the court declined to require that the depositions take place in the United States, upon acknowledging the interests of time and financial hardship for the individual witnesses.