Resolving the cross-border discovery catch-22.

Author:Smith, Matthew J.

"A proclamation by judicial fiat that one interest is less 'important' than the other will not erase a real conflict." (1)


    The extraterritorial reach of the Federal Rules of Civil Procedure's (Federal Rules) evidence-gathering provisions has long been a source of tension in foreign relations. (2) The world we live in is increasingly interconnected and litigation between parties subject to multiple sovereigns has become more commonplace. (3) Often, the discovery provisions of the Federal Rules come into conflict with foreign laws, such as banking secrecy or blocking statutes. (4) under such a predicament, a litigant that operates both abroad and in the united States is placed in a catch-22: produce discovery in violation of foreign law (and be subject to liability) or refuse to produce discovery (and be subject to sanctions). (5) These types of scenarios can arise in almost every context and implicate the laws of many of nations. (6) For example, consider the Securities and Exchange Commission's (SEC) recent conflict with Deloitte's branch in China regarding the production of documents. (7) The SEC sought documents related to Deloitte's audit of Longtop Financial Technologies, but Deloitte claimed it was barred from doing so by Chinese secrecy laws. (8)

    Courts have attempted to resolve these conflicts in a variety of ways. (9) The United States Supreme Court has even offered guidance. (10) Federal courts, however, continue to apply an inconsistent standard that balances various interests. (11) Thus, it is common for courts to decide cases in this area in conflicting fashion. (12) The conflicting decisions, however, run further than a typical circuit split. (13) The United States District Court for the Southern District of New York recently decided virtually identical cases involving the discovery obligations of Chinese banks differently. (14) Neither judge was wrong in either of those cases; rather, the legal standard itself provides the judiciary with almost unlimited discretion to make subjective policy judgments. (15)

    This Note aims to provide a useful framework for resolving these types of cross-border discovery disputes. This framework would remove the current balancing tests courts utilize and replace them with a uniform system of enforcement of the Federal Rules, coupled with discretion as to the sanctions imposed for violations. Part II of this Note will outline the background and legal principles that govern cross-border discovery disputes. Part III will suggest a different type of framework for these cases, which aims to change the way courts resolve these disputes. This framework will promote uniformity and force the political branches to find a solution through negotiation.


    1. Comparing Evidence-Gathering Systems

      In the United States, judges typically select the more persuasive of opposing legal arguments formulated by the litigants, rather than directly seeking the truth of a matter. (16) The evidence-gathering process under the Federal Rules, known as discovery, is considered one of the most far-reaching and invasive systems in the world. (17) The process is broad in scope, plentiful in method, and "sweeping, virtually creating a presumption of discoverability." (18) Under the Federal Rules, "[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense," and "[r]elevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." (19) Thus, information and other materials must often be disclosed to the opposing party, even though both sides know it will never be admissible during the trial. (20)

      The Federal Rules' discovery provisions reflect the underlying philosophy of litigation in the United States. (21) This philosophy emphasizes the importance of obtaining the maximum amount of information about the facts of a case prior to the trial. (22) The Supreme Court emphasized this when holding that "[m]utual knowledge of all the relevant facts gathered by both parties is essential to proper litigation." (23) As long as a United States court has personal jurisdiction over a party, the court can compel that party to produce discoverable materials under their "possession, custody, or control," regardless of the materials' location. (24) The doctrinal justification for this notion is derived from the underlying rationale for personal jurisdiction itself: if a party conducts business in a territory, that choice equates to consenting to be governed by the territory's laws. (25)

      Under the Federal Rules, the discovery process is usually handled by the parties themselves, each requesting discovery from the other. (26) If a party refuses a valid discovery request, however, the court can grant a motion to compel production of the requested information. (27) If the motion to compel is granted, failure to comply can be devastating. (28) The court can, for example, award fines and fees, resolve an issue against the noncompliant party, partially or entirely dismiss the action, or render a default judgment. (29) Thus, United States pretrial discovery is litigant managed and judicially enforced. (30)

      In contrast to the Federal Rules, many civil law judicial systems do not entrust evidence gathering to the parties. (31) In fact, civil law nations have no equivalent to our evidence-disclosure process. (32) Even nations with common-law systems are often unfamiliar with the scope and breadth of United States discovery procedures. (33) In many jurisdictions around the world, judges inquire into what evidence is needed to reach a justifiable decision, rather than what is required to understand the entire context of a case. (34) These jurisdictions are naturally suspicious of evidence-gathering systems of judicial supervision, a concept wholly divergent from the civil law judge's primary role in obtaining and presenting evidence. (35) Moreover, other types of legal systems, such as mixtures of common, civil, and other legal theories (often religious), typically do not allow broad pretrial discovery compatible with the American system. (36)

      China's civil procedure system, for example, is largely aimed at ascertaining the truth of a matter. (37) Unlike their American counterparts, Chinese judges share little power with juries, launch independent investigations, collect evidence, and search beyond the pleadings to discover the "objective truth" of a matter. (38) China's system also affords counsel a role in the evidence- gathering process, but does not provide enforceable methods of obtaining the evidence sought. (39) If a party is unable to obtain evidence, then the court has the authority to investigate and collect it on its own initiative. (40)

      In Germany, courts are primarily concerned with "cost-containment, swiftness, and the privacy of the litigants." (41) This results in pretrial evidence gathering that is narrow and restrained. (42) For instance, only a judge may order the production of documents, and fishing for information is generally impermissible. (43) Notably, a party generally has no procedural right to demand the disclosure of information. (44) Instead, judges lead witness testimony. (45)

      In France, another example of a civil-law nation that does not have comparable discovery procedures, the trial judge controls most of the evidence gathering, rather than the litigants. (46) Similarly, in the Netherlands, the scope of discovery is much narrower than in the United States, but some have noted a policy shift in the Dutch courts to allow for broader disclosure obligations. (47) Similar to Germany, the Swiss rules of civil procedure are based upon the notion that evidence gathering is a judicial task. (48) The examples could go on further, but are outside the scope of this Note. (49) Often, nations limit the scope of discovery based on constitutional and societal principles respecting privacy, an essential right throughout much of the world. (50)

    2. Foreign Laws that Preclude Evidence Gathering

      This Note addresses the catch-22 dilemma that arises when a foreign law directly conflicts with the Federal Rules. (51) These foreign laws vary in scope; for example, blocking, privacy, and secrecy laws contain different prohibitions and are enforced for different reasons. (52) Foreign blocking statutes are enacted to generally block, within a nation's territory, the gathering of evidence for litigation conducted abroad. (53) These statutes vary in severity and scope, however, depending on the country. (54) For example, some of these statutes prohibit disclosure in all circumstances, while others may merely provide the government with the discretionary authority to forbid compliance. (55) One of the first blocking statutes was enacted in Canada, in reaction to an antitrust investigation of a Canadian paper company. (56) Since then, similar laws have been enacted across the world in an effort to prevent the production of documents requested by--and limit the extraterritorial reach of--foreign courts and litigants. (57) It is important to recognize that the distinguishing characteristic of a blocking statute is its objective: precluding evidence gathering rather than protecting certain information that a litigant might seek to gather. (58)

      Privacy laws also regularly conflict with American-style discovery. (59) The right to privacy in many nations is directly tied to individual-rights principles. (60) In the European Union, for example, all personal information is protected and any production of documents could infringe the privacy rights of any number of individuals. (61)

      Secrecy laws, however, are probably the most well-known foreign laws that preclude discovery. (62) Banking secrecy laws, for example, often serve the purpose of protecting customer information, which may make a country's banking system attractive to potential customers. (63) United...

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