United States: Foreign Blocking Statutes And Cross-Border Discovery

Last Updated: March 11 2014
Article by Matthew J. Clark, Timothy J. Feighery and Joshua Fowkes

Delaware Chancery Court Issues First Ruling Weighing French Blocking Statute Against US Discovery Rules

As companies conduct more business abroad in today's globalized economy, they increasingly face cross-border litigation with customers, competitors, and suppliers. Companies in cross-border disputes frequently must navigate foreign privacy laws and blocking statutes that limit or bar the production of discovery abroad for use in US litigation. In a recent case of first impression, the Delaware Court of Chancery issued a decision that is a valuable example of how US courts often resolve cross-border discovery issues arising when a party relies on a foreign blocking statute. In re Activision Blizzard Stockholder Litigation, C.A. No. 8885–VCL, 2014 WL 717541 (Del Ch. Feb. 21, 2014).

Due to the French Blocking Statute's Penalties, Vivendi Asks to Use The Hague Evidence Convention to Produce the Discovery Abroad

In challenging a $8 billion stock sale, the plaintiff in In re Activision requested documents from Vivendi SA and its directors (collectively, the Vivendi Defendants). Most of the requested documents held by the Vivendi Defendants were on servers in France. Vivendi objected to the document requests on the grounds that a French blocking statute bars the production of documents in France for use outside of France in civil discovery unless production is made under the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters.1 The French blocking statute broadly prohibits any person from "request[ing], search[ing] for or communicat[ing], in writing, orally or in any other form, documents or information of an economic, commercial, industrial, financial or technical nature" for use in foreign judicial proceedings. The statute imposes criminal penalties such as imprisonment and heavy fines. But it does not bar parties from producing documents under French law or an international treaty like the Hague Evidence Convention (HEC).

The Vivendi Defendants argued that if they produced the requested documents under Delaware discovery procedures rather than the HEC, they would violate the blocking statute and risk facing its criminal penalties. Thus, they proposed that the Court permit discovery to proceed through the HEC. The HEC enables a party to obtain discovery abroad by permitting a court in a requesting nation (here, the Delaware Court) to submit a Letter of Request to authorities in the nation in which the documents are held (here, France). The plaintiff disagreed with the Vivendi Defendants' proposal and moved the Court to compel them to produce their documents under Delaware's discovery rules.

The Court Resolves the Cross-Border Discovery Dispute by Giving the Vivendi Defendants Limited Time to Try to Comply With the Blocking Statute Before Risking Sanctions

The Court largely granted the plaintiff's motion. After ruling that US courts can require foreign litigants to produce discovery under US rules, the Court assessed its discretion to order the Vivendi Defendants to produce the discovery under US rules by applying factors in the Restatement (Third) of Foreign Relations Law. Applying the first factor (the importance to the litigation of the requested documents), the Court found that the requested documents were essential to the case. Applying the second factor (the degree of specificity of the request), the Court found that the plaintiff's document requests were narrowly tailored to the needs of the case and would not subject the Vivendi Defendants to undue burdens. The Court ruled that it could not determine how to assess the third factor (whether the requested information originated in the US) because it could not yet determine whether the requested documents originated in the US.

As to the fourth factor (the availability of alternative means of obtaining the information), the Vivendi Defendants asserted that the HEC offered an alternative way for the plaintiff to obtain the requested documents. Specifically, they noted that the HEC enables the Court to submit a Letter of Request to French authorities for the documents in France. They also contended that they could meet the Court's discovery deadlines even if they obtained the documents through a Letter of Request. Citing other courts' remarks about delays, inefficiencies, and burdens resulting from using the HEC, the Court expressed skepticism over the Vivendi Defendants' contention.

Finally, under the fifth factor (weighing how compliance or noncompliance with the document request would affect important US and French interests), the Court underscored that Delaware had a strong interest in resolving disputes concerning Delaware corporations and allegations of corporate misconduct. In contrast, the Court concluded that the French blocking statute is "expansively broad" because it bars production of any "economic, commercial, industrial, financial or technical" documents, and the statute never identifies a "specific French sovereign interest." It also ruled that Vivendi had demonstrated that no significant French interest existed when Vivendi itself previously chose "to sue in the US to take advantage of the greater access to evidence provided by American-style discovery."

Ultimately, the Court adopted a practical approach that directed document production to proceed under both US rules and the HEC. First, it ordered the Vivendi Defendants and the plaintiff to prepare a Letter of Request that the Court can submit to French authorities seeking permission for the Vivendi Defendants to produce the requested documents. It also directed the Vivendi Defendants to try to promptly obtain the help of French authorities to produce them. The Court concluded that, if the French authorities authorized the production, then the Vivendi Defendants' concern about violating the blocking statute will be moot. Second, the Court ruled that, if the French authorities bar Vivendi from producing the requested documents by the Court's deadline, then the Vivendi Defendants must produce the requested documents under the Court's own rules or risk sanctions, including a finding of facts adverse to them.

Cross-Border Litigation and Discovery: Takeaways as to Foreign Blocking Statutes

When determining how foreign blocking statutes should affect a litigant's access to discovery abroad for use in US litigation, US courts overwhelmingly require production of that discovery. But in applying a foreign blocking statute for the first time, the Delaware Court of Chancery did not require the Vivendi Defendants to produce discovery in a way that necessarily violates French law. Instead, by permitting the Vivendi Defendants to try to comply with the French blocking statute, the Court was more lenient than other US courts, which often wholly disregard foreign blocking statutes that risk delaying their cases and unfairly burdening the parties and their access to discovery. However, although the Court permitted the Vivendi Defendants to try to comply with the blocking statute, it also refused to allow that approach to delay the US litigation. Rather, the Court gave the Vivendi Defendants only a limited amount of time and firmly required them to produce the documents on time or face sanctions. In this way, this decision follows other decisions by US courts that refused to allow foreign blocking statutes to delay their cases or bar access to evidence.

Because the frequency and size of cross-border disputes will continue to increase, Arent Fox will continue to monitor important cases concerning cross-border discovery.

Footnotes

1. This alert does not discuss the portions of the decision concerning a French data protection statute.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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