• Possible Consequences to a Third Party for Violating a Foreign Blocking Statute Outweighed by Plaintiff's Need for Banking Records to Enforce a Judgment
  • April 14, 2010 | Author: Brendon M. Tavelli
  • Law Firm: Proskauer Rose LLP - New York Office
  • On March 8, 2010 the U.S. District Court for the Southern District of New York issued the latest opinion addressing the conflict between U.S. discovery laws and foreign blocking statutes.  In Gucci Amer., Inc. v. Curveal Fashion, No. 09 Civ. 8458, 2010 WL 808639 (S.D.N.Y. Mar. 8, 2010), the court compelled third-party United Overseas Bank Limited, Singapore (“UOB”), the parent of a Malaysian-based bank, to produce documents located at its subsidiary despite claims that such production was illegal under the Malaysian law.

    The potential conflict between foreign blocking statutes and U.S. discovery laws is a well documented problem. See, e.g., Working Document 1/2009 on pre-trial discovery for cross border civil litigation (European Commission, Working Document No.WP 158, 2009). When considering whether to order production despite the applicability of foreign law, Courts in the U.S. apply the test set forth in the Restatement (Third) of Foreign Relations Law of the United States, which includes consideration of:

    [T]he 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 retrieving 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 the important interests of the state where the information is located.

    Gucci, 2010 WL 808639, at *2.  Further, in the Second Circuit, two additional factors are considered, “the hardship of compliance on the party or witness from whom discovery is sought [and] the good faith of the party resisting discovery.” Id.

    In Gucci, the Plaintiff sought certain documents and information regarding Defendants’ Malaysian bank accounts by serving a subpoena on UOB’s New York Agency in midtown Manhattan. Id. at *1. UOB took the position that complying with the subpoena would violate banking secrecy laws in Malaysia. Id. After consideration of the Restatement and Second Circuit factors, the court ordered the production of the sought after records because:

    [T]he documents are vital to the litigation, the requests are direct and specific, the documents are not easily obtained through alternative means, the interest of the United States outweighs that of Malaysia under the circumstances, and the likelihood that UOB N.Y. would face civil or criminal penalties is speculative. Although UOB N.Y. has acted in good faith, and the documents are located abroad, this is insufficient to overcome those factors weighing in favor of disclosure.

    Id. at *8.

    Putting aside the question of whether the court’s analysis was correct, there are two wrinkles to this case that are worthy of note.

    First, UOB was a third party, and courts are generally less willing to impose burden on third parties during discovery than they are parties. The Gucci court considered UOB’s third-party status during its analysis of the “hardship factor,” but determined that this factor did not outweigh the Restatement factors favoring of production. Id. at *7.

    Finally, with regard to the importance of the documents sought, it is worth noting that the requested documents were not relevant to a claim or defense, but were instead directed toward the enforcement of a judgment. The court noted that in the absence of the requested discovery, “Plaintiffs are left without a remedy and it cannot be said that the matter has been ‘fully and fairly adjudicated.’” Id. at *5.

    This opinion illustrates the no-win situation that foreign corporations continue to be placed in by the tension between U.S. courts and foreign law, and underscores the importance of raising foreign-law based discovery objections as early and in as detailed a manner as possible in order to maximize the chances of successfully navigating this conflict.