National Institute for Trial Advocacy

Apr 04, 2019
Discovery Abroad: An Overview of European Blocking Statutes and the Hague Convention on the Taking of Evidence Outside the U.S.—Part Two of Two
Apr 04, 2019

Written by NITA guest blogger Lukas Holub


This article is the second of a two-part series on discovery outside the U.S. Click here to read Part I.

Cross-Border Discovery: Relevant Case Law

Exercise of Enforcement Jurisdiction: The Restatement Balancing Test

In United States v. First National City Bank, a seminal case, the American bank, with offices in New York and Germany, was served a subpoena duces tecum for production of documents regarding the investigation of violation of antitrust laws by some of its clients.[1] First National City Bank complied with the subpoena as to the documents located in New York, but refused to produce—or even inquire whether there are any relevant—documents located in Germany. First National City Bank argued that in order to comply with the subpoena, it would have to violate a bank secrecy law. The law was not statutory, but only of a contractual nature. Breaking this privilege that could be waived only by the clients would impose civil liability on the bank. But, if the clients would obtain a restraining order enjoining the bank from disclosing the privileged material, violation of such injunction would subject the bank to criminal penalties.[2] Nevertheless, one of the clients, a New York corporation, made it clear that it would not initiate the injunctive procedure but rather sue the bank if it complied with the subpoena. The amount of the damages in a German civil court would be in the complete discretion of the judge. The U.S. district court held the bank in contempt, fined it $2,000 per day, and sentenced the bank’s vice president to sixty days of imprisonment.Map for Part II.jpg (555 KB)

The Second Circuit, citing Restatement Second of The Foreign Relations Law of the United States, made it clear that it is “not precluded from exercising its jurisdiction solely because such exercise requires a person to engage in conduct subjecting him to liability under the law of another state having jurisdiction with respect to that conduct.”[3] In considering the liability of First National City Bank, the court refused to create a per se rule that absence of criminal liabilities would mandate obedience with a subpoena. The court recognized that a risk of a criminal liability may provide stronger justification, but stated that rather the severity of the sanctions, whether labeled civil or criminal, should be taken into consideration. In deciding the merits of the case, that is, how to proceed when two states have jurisdiction to prescribe and enforce rules that require inconsistent conduct upon a person, the court adopted a balancing test from the Restatement. This test requires the states: to consider, in good faith, moderating the exercise of its enforcement jurisdiction, in the light of such factors as: a) vital national interests of each of the states, b) the extent and the nature of the hardship that inconsistent enforcement actions would impose upon the person, c) the extent to which the required conduct is to take place in the territory of the other state, d) the nationality of the person, and e) the extent to which enforcement by action of either state can reasonably be expected to achieve compliance with the rule prescribed by that state.[4]

The court then weighed the interest of the United States in enforcing subpoenas in criminal investigations of violation of antitrust laws against the interest of Germany in securing the bank secrecy. The court noted that the German legislature chose not to classify the breach of the privilege as a criminal act, as it did in the case of breaking the attorney-client or physician-patient privilege, and that the risk of civil damages in this case was too speculative. Accordingly, the court affirmed the trial court’s ruling ordering the enforcement of the subpoena.

The Three-Prong In Re Uranium Test

About a decade later, in In Re Uranium Antitrust Litigation, a federal district court in Illinois rejected the balancing test established in First National City Bank.[5] This case involved foreign nondisclosure laws aimed at nullifying the effects of U.S. antitrust litigation. With this direct conflict, the court found the notion of international comity unworkable. The court also noted that it had little expertise and authority to evaluate the policies of a foreign country.

The court formulated a different three-prong test. It acknowledged that the exercise of enforcement jurisdiction is discretionary and should be based on


[1] the importance of the policies underlying the United States statute which forms the basis for the plaintiffs’ claims; [2] the importance of the requested documents in illuminating key elements of the claims; and [3] the degree of flexibility in the foreign nation’s application of its nondisclosure laws.[6]

As to the first two parts, the court recognized the importance of U.S. antitrust laws and noted that “the heart of any American antitrust case is the discovery of business documents.”[7] However, in applying the second prong, the court suggested that the discovery standard should be modified from “calculated to lead to the discovery of admissible evidence” to a higher standard of “whether the requested documents are crucial to the resolution of a key issue in the litigation.”[8] Even though the court first said it had little expertise in evaluating policies of a foreign country, it subsequently delved into an evaluation of the leniency in the application of the foreign nondisclosure law when applying the third prong. It explained that the greater the flexibility in applying these laws, the stronger the argument for issuing the production order.

After considering the three factors, the court ordered the production of the documents. The prerequisite for this decision was a finding of personal jurisdiction over the requested party and a conclusion that the party had control over the documents. The court also ruled that the three factors are not exclusive in deciding whether to exercise the enforcement jurisdiction and that all circumstances in a given case must be taken into consideration. These other considerations may include balancing of the vital interests in each case, but not when they are in direct conflict, as in this case.

The Use of the Hague Convention

In Compagnie Francaise d’Assurance Pour le Com. Exterieur v. Phillips Petroleum Company, production of documents was objected on two grounds: an assertion of governmental and executive privilege involving ministerial deliberations, and on the basis of the French blocking statute.[9] The requested parties argued that the court should resort to the procedures under the Hague Convention when obtaining evidence located abroad.[10]

The federal district court in New York refused to recognize the executive privilege based only on a generalized assertion of confidentiality, noting that the party did not provide sufficient information that would allow the court to determine that the documents were related to state secrets.[11] The court also rejected the argument that it was obligated to proceed under the Hague Convention whenever the evidence is located abroad.[12] If that would be a default rule, it would give an unfair advantage to the French litigants who would be allowed to use the full range of discovery in the United States, but would be shielded from the discovery requests in France.[13] Nevertheless, the court considered applying the Convention, using the balancing test from First National City Bank.[14] “American courts should refrain, whenever it is feasible, from ordering a person to engage in activities that would violate the laws of a foreign nation. Comity, however, is not ‘a matter of absolute obligation . . . .’”[15]

The court dealt with the first factors somewhat one-sidedly, labeling the French blocking statute a “blanket criminal prohibition” supported with little evidence that it was ever intended to be enforced.[16] What seems more sound reasoning is the fact that the parties resisting the discovery were plaintiffs, and even if the criminal penalties would be imposed, the plaintiffs could avoid them by withdrawing the action or by complying with the order. Therefore, the court was not persuaded that the vital national interest of France would be impaired and that the plaintiffs would suffer a hardship.[17] Because it would be the French nationals who would gather the evidence located in their country and intrusion of the French soil would be de minimis, the court also did not see the other factors favoring the resort to the Convention.[18]

Although good faith is generally considered only when imposing sanctions for violation of production orders, the court considered it also here, at the order stage, but found that the requested parties were lacking good faith.[19] “Plaintiffs come into this Court seeking the protection of United States laws that enable injured persons to recover for breach of contract. Plaintiffs cannot avail themselves of these benefits, yet neglect their accompanying responsibility to disclose all relevant facts to their adversary.”[20] The application of good faith at this stage was, however, novel.


The court in Compagnie Francaise ordered to produce the documents objected on the grounds of the blocking statute and cautioned the parties that it will consider imposition of all sanctions available under FRCP.[21] In the case of certain documents held by a French Ministry, the conclusion was different.[22] The need to respect foreign sovereignty shifted the consideration of international comity and the court allowed the parties to first utilize in good faith the procedures of the Hague Convention and to gather the documents held by the Ministry.

In Société Nationale Industrielle Aérospatiale v. United States District Court for the Southern District of Iowa, the United States Supreme Court, in an important opinion in the area, confirmed that even though the Hague Convention is the law of the land, as is the FRCP in federal court, its use is not exclusive nor mandatory and that resort to the Convention does not have to be the first option when obtaining evidence located abroad.[23] The Convention establishes only optional procedures for obtaining evidence abroad and the courts may employ them, or they may proceed under the FRCP. In determining whether to resort to the Hague Convention procedures, lower courts should consider 1) the particular facts in each case, 2) sovereign interests, and 3) the likelihood that utilizing these procedures will be effective.

The Court noted that American courts “should exercise special vigilance to protect foreign litigants from the danger that unnecessary, or unduly burdensome, discovery may take place them in disadvantageous position,” but refused to make a blanket rule that international comity requires resort to the Convention.[24] Later cases made it clear that the party resorting to the Hague Convention has burden of showing that its application is appropriate.[25]

Unfortunately, the Supreme Court did not articulate specific rules that the lower courts should follow.[26] Due to the little guidance on the issue, the analysis that the courts applied in decisions that followed Aérospatiale were inconsistent.[27], [28] The majority of the decisions does not focus on the three generic considerations formulated in the Aérospatiale opinion, but rather on five factors from the latest Restatement of Foreign Relations Law of the United States that the Supreme Court mentioned only in a footnote. The Restatement test provides that when: deciding whether to issue an order directing production of information located abroad, and in framing such an order, a court or agency in the United States should take into account [1] the importance to the investigation or litigation of the documents or other information requested; [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 request would undermine important interests of the state where the information is located.[29]

Conclusion

The American courts are reluctant to give up on the broad discovery methods that are available to litigants under FRCP and to follow alternative means. The reason behind this preference is understandable, but the strict adherence to FRCP creates paradox situations when one state authority is ordering a party to a lawsuit to break the law of a different state.[30] The alternative processes of international discovery available under the Hague Convention, a treaty that is directly applicable to this subject matter and that would allow more amicable solutions, are usually avoided. Although international comity is widely discussed by the U.S. courts, the conclusions that label some blocking statutes as “blanket” and question their importance seem to be in direct conflict with this notion.[31] The U.S. courts can hardly be objective in balancing the interests of the authority under which they are established and the state interest of other countries and their reasons for enacting the blocking statutes.

The case law does not provide a specific scheme as to when the compliance with the discovery orders must be enforced, when excused, or when the Hague Convention methods should be utilized. The courts may use the concept of international comity—by applying one of the two tests mentioned in Aérospatiale—both when deciding whether to resort to the Convention or whether to issue the discovery order at all. The outcome of the decisions will depend on a case by case analysis. The litigants should be prepared that the U.S. courts will incline to enforce the discovery in a same way as in domestic litigation, but keep in mind some of the important considerations that set the cases involving cross-boarder discovery apart.

Firstly, the courts will scrutinize the need for obtaining the information under more stringent standard and will require that the requests are specific and the information sought is “crucial to the resolution of a key issue in the litigation.”[32], [33] The position of the parties may also be an aspect. Because it is the plaintiff who initiates the action and who seeks the help of the court, his position is weakened when trying to avoid the defendant’s discovery request. Good faith of the party avoiding the discovery may be contemplated not only when imposing the sanctions, but also when deciding whether to issue the order. The precedents further suggest that the subject matter of the litigation is a factor as well. In certain areas, such as in antitrust litigation, the enforcement of the discovery requests as available under FRCP seems to be more important than in other areas.

The nature of the blocking statutes also provides guidance. When the primary purpose in enacting the foreign law is protection from U.S. discovery, it is less likely that the court will allow the parties to proceed under the Hague Convention. Finally, the nature, severity, and evidence of enforcement of the sanctions under the laws having the blocking effect may determine the court’s decision.

Since the time Compagnie Francaise was decided, sanctions were imposed based on the French blocking statute.[34] Furthermore, many of the information sought to be produced in the pre-trial preparation may be covered by the broad European data protection laws and protected from transfer to the United States. These type of laws are not new in Europe, and the reasons behind their enactment are completely independent of U.S. discovery. The breach of these laws may lead to severe sanctions and expose the breaching party to further litigation. All these recent developments may change the outcome of the U.S. courts decisions in the years to come.[35]

Lukáš Holub is a lawyer practicing in Prague, Czech Republic, where he graduated from Charles University, Faculty of Law. Mr. Holub also earned his J.D. at Nova Southeastern University, Shepard Broad College of Law, Fort Lauderdale, where he was a research assistant to Professor Michael J. Dale. He is a member of the Florida Bar. Lukáš can be reached at lukas.holub.mail@gmail.com.

To read more articles by Professor Dale’s research assistants at Nova Southeastern, click here.



[1] 396 F.2d 897, 898 (2d Cir. 1968).

[2] First National City Bank, 396 F.2d at 899.

[3] Id. at 901.

[4] Id.

[5] 480 F. Supp. 1138, 1148 (N.D. Ill. 1979).

[6] Id. at 1148.

[7] In Re Uranium Antitrust Litigation, 480 F. Supp. at 1155.

[8] Id. at 1146.

[9] 105 F.R.D. 16, 21–22 (S.D.N.Y. 1984).

[10] Id. at 23.

[11] Id. at 25–26.

Historically, the claim has only been sustained to protect important military secrets, extremely sensitive foreign policy questions, and other national security-related issues . . . . Thus, information that was not disclosed because it ‘related to government subsidiaries’ or ‘affected the international economic relations of France’ seems to fall outside the protection afforded military and diplomatic secrets. Inter-ministerial deliberations may receive protection. Such a claim must specifically designate and describe the information purportedly privileged and the precise reasons for preserving the confidentiality of the requested information.


Id. at 25.

[12] Id. at 28.

[13] Compagnie Francaise, 105 F.R.D. at 28.

[14] See id. at 28–31.

[15] Id. at 28.

[16] Id.

[17] See Compagnie Francaise, 105 F.R.D. at 30–31.

[18] See id. at 31.

[19] See id. at 31–32. However, this factor is not determinative, because the presence of a good faith does not preclude the court from issuing a production order. Id.

[20] Id. at 32.

[21] Compagnie Francaise, 105 F.R.D. at 32.

[22] The French Ministry was not a party to the action. The request to produce those documents was directed to a plaintiff, a French national company and an agency of the French government that was an 85 percent shareholder in the company. Id. at 33. Under the facts of the case, the court ruled that it would be “unacceptable to allow [the] government to refuse to produce documents necessary for full and fair litigation of this action.” Id. at 35.

[23] 482 U.S. 522, 533 (1987).

[24] Id. at 544–46.

[25] See e.g. In Re Vitamins Antitrust Litigation, 120 F. Supp. 2d 45, 51 (D.D.C. 2000).

[26] The Aérospatiale decision is widely criticized. See, e.g., Patricia Anne Kuhn, Societe Nationale Industrielle Aérospatiale: The Supreme Court’s Misguided Approach to the Hague Evidence Convention, 69 B.U. L. Rev. 1011 (1989); George A. Bermann, The Hague Evidence Convention in the Supreme Court: A Critique of the Aérospatiale Decision, 63 Tul. L. Rev. 525 (1989).

[27] See Geoffrey Sant, Court-Ordered Law Breaking, 81 Brook. L. Rev. 181, 187 (2015).

[28] For more detailed information on post-Aérospatiale case law, see, e.g., James Chalmer, The Hague Evidence Convention and Discovery Inter Partes: Trial Court Decisions Post-Aérospatiale, 8 Tul. J. Int’l & Comp. L. 189 (2000).

[29] Restatement (Third) of The Foreign Relations Law of the United States § 442(1)(c) (Am. Law Inst. 1987). [30] See Sant, supra note 27, at 181–84.

[31] Compagnie Francaise d’Assurance Pour le Com. Exterieur v. Phillips Petroleum Co., 105 F.R.D. 16, 28 (S.D.N.Y. 1984).

[32] In Re Uranium Antitrust Litigation, 480 F. Supp. 1138, 1155 (N.D. Ill. 1979).

[33] Or, at least, under the Restatement test, the courts will consider the importance to the litigation of the documents or other information requested.

[34] See generally Ela Bardah & Thomas Rouhette, The French Blocking Statute and Cross-Border Discovery, Int’l Ass’n of Def. Couns., https://www.iadclaw.org/publications-news/defensecounseljournal/the-french-blocking-statute-and-cross-border-discovery/ (last visited Mar. 20, 2019).

[35] For possible alternative approaches, see Kathleen Braun Gilchrist, Rethinking Jurisdictional Discovery Under the Hague Evidence Convention, 44 Vand. J. Transnat’l L. 155 (2011).

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