January 20, 2015 Practice Points

Deference of U.S. Courts to Obtaining Discovery Held in a Foreign Country

The U.S. District Court for the Southern District of New York recently considered whether to defer to foreign countries' secrecy and blocking statutes when parties seek discovery located in those foreign countries

by Eric (Rick) S. Rein

The U.S. District Court for the Southern District of New York recently considered whether to defer to foreign countries' secrecy and blocking statutes when parties seek discovery located in those foreign countries. In Motorola Credit Corp. v. Uzan, 2014 U.S. Dist. Lexis 176225 (S.D.N.Y. Dec. 22, 2014), the court phrased the question as "whether a New York judgment creditor, through subpoenas issued on New York offices of international banks, can obtain discovery regarding accounts held by judgment debtors or their agents in various foreign branches of these banks." Id. at *8.

In the Motorola case, banks located in France, Switzerland, Jordan, and the United Arab Emirates (UAE) objected to subpoenas issued by judgment creditor Motorola based on foreign law, contending that the laws governing the banks' non-U.S. branches prohibit production of the subpoenaed information. The court noted that "more often than not, such deference [to foreign laws] has not been accorded." Id. at *9. The court used the framework articulated by the Supreme Court in Societe Nationale Industrielle Aerospatiale v. United States District Court for the Southern District of Iowa, 482 U.S. 522 (1987). Of the factors articulated in Aerospatiale, the court found determinative that (i) Motorola could not realistically seek attachment of funds in foreign lawsuits without first learning where the funds were located by the discovery sought and (ii) Motorola is unlikely to obtain the bank information through resort to the Hague Convention or proceedings with foreign countries because of blocking statutes prohibiting release of such information. But, most importantly, the court focused on international comity—"the extent to which non-compliance with the [discovery] 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." Id. at *15. The court reached different conclusions for each of the countries involved.

France. The court held that France's "blocking statute," which the banks said prohibits the production of the subpoenaed information, "is riddled with loopholes that make it substantially unenforceable. This was no accident . . . . [I]n practice, . . . it appears that when a foreign court orders production of French documents even though the producing party has raised the 'excuse' of the French blocking statute, the French authorities do not, in fact, prosecute or otherwise punish the producing party." Id. at *19. The court therefore concluded that, under the comity analysis, France's interests did not override the Unites States' own interests in enforcing its judgments.

Switzerland. The court reached the opposite conclusion under Switzerland's bank-secrecy regime, which, "[i]n contrast with the French situation, . . . constitutes, not just a seriously enforced national interest, but almost an element of that nation's national identity." Id. The court found that violations can be and actually are prosecuted ex officio, even if the injured party does not complain. The comity analysis thus weighed in favor of deferring to the Swiss bank-secrecy laws.

Jordan and UAE. The court also declined to defer to Jordan's and the UAE's statutes. The court concluded that the Jordanian statute "permits disclosure of bank account information if so-ordered by a 'competent judicial authority,' and there is no material indication that this is limited to courts of Jordan." Id. at *22-23. The court also noted the "total paucity of published prosecutions of banks or their officers in Jordan and UAE for complying with discovery ordered by a foreign court." Id. at *23.

Motorola thus provides a guidepost to litigants involved in international matters in seeking discovery offshore. Litigants will need to be conversant in the specific countries' application of their laws.

Keywords: commercial and business, litigation, blocking statute, commercial and business, discovery, foreign bank, foreign country, international litigation, judgment creditor, judgment debtor, litigation, secrecy law, subpoena

Eric (Rick) S. Rein is with Horwood, Marcus & Berk Chartered in Chicago, Illinois.

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