Opinion
02 Civ. 5571 (RJH) (HBP).
November 13, 2006
MEMORANDUM OPINION AND ORDER
I. Introduction
Plaintiffs move for an Order compelling non-party Lazard Group LLC ("Lazard") to produce documents that are located outside the United States pursuant to a subpoena duces tecum that was served upon it in or about October 2005. Lazard cross-moves for a protective order (1) requiring that discovery of documents located in France be conducted pursuant to Chapter II of the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters, Mar. 18, 1970, 23 U.S.T. 2555, 847 U.N.T.S. 231, reprinted at 28 U.S.C. § 1781 (the "Hague Convention"), and (2) directing plaintiffs to reimburse it for its costs, including attorneys' fees, in responding to plaintiffs' motion and preparing its cross-motion.
For the reasons set forth below, plaintiffs' motion is granted and Lazard's cross-motion is denied.
II. Facts
This is a securities fraud class action in which plaintiffs allege that defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k, 771(a)(2) and 77o, and Sections 10(b), 14(a) and 20 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78n(a), 78u, along with the regulations promulgated by the Securities and Exchange Commission to enforce these provisions. The underlying factual allegations are set forth in detail in the decision of the Honorable Harold Baer, United States District Judge, to whom this matter was previously assigned, denying in substantial part defendants' motion to dismiss. In re Vivendi Universal, S.A., 381 F. Supp.2d 158 (S.D.N.Y. 2003). Familiarity with this decision is assumed. In very general terms, plaintiffs allege a pattern of misstatements and material omissions by the defendants which had the effect of overstating Vivendi's financial prospects and understating its liabilities, causing plaintiffs to suffer millions of dollars in losses.
Lazard, a non-party witness in this matter, describes itself as follows:
a preeminent international financial advisory and asset management firm that has long specialized in crafting solutions to the complex financial and strategic challenges of [its] clients. [Lazard] serve[s] a diverse set of clients around the world, including corporations, partnerships, institutions, governments and high-net worth individuals. . . . [Lazard] operate[s] today from 29 cities in key business and financial centers across 16 countries throughout Europe, North America, Asia and Australia.
(Lazard Form 10-K for the Fiscal Year Ending December 31, 2005, at 1, annexed as Exhibit C to the Memorandum of Law in Support of Plaintiffs' Joint Motion to Compel Lazard Group LLC to Produce Documents that Are Located Outside the United States, dated July 28, 2006 ("Pl. Mem.")).
The present dispute arises out of a subpoena plaintiffs served on Lazard approximately one year ago. By that subpoena, plaintiffs seek 53 categories of documents from Lazard and its subsidiaries concerning Vivendi and services that Lazard performed for Vivendi. Lazard claims that as a matter of comity and in deference to the French "Blocking" statute, plaintiffs should be required to seek documents that are within its (or its subsidiaries') possession, custody or control and that are located in France only pursuant to Chapter II of the Hague Convention. Plaintiffs claim that the subpoena is sufficient to compel the production of the requested documents. Lazard, whose principal office is in Manhattan, concedes that it is subject to the jurisdiction of this Court and that this Court has the power to compel it to produce all materials that are within its possession, custody or control regardless of their physical location.
The French Blocking statute, Law No. 80-538 of July 16, 1980, provides:
Art. I bis — Subject to international or accords and laws and regulations in effect, any individual is prohibited from requesting, seeking or disclosing, in writing, orally, or in any other form, documents or information of an economic, commercial, industrial, financial or technical nature directed toward establishing evidence in view of legal or administrative proceedings abroad or in relation thereto.
. . . .
Art. 3 — Without prejudice to heavier penalties set out by law, any violation to [sic] the provisions of articles 1 and 1 bis of this law shall be punishable by imprisonment of two to six months and a fine of FRF 10,000 to FRF 120,000 or by either one of these two penalties.
(Exhibit 4 to the Declaration of Ellen V. Hollman, Esq., dated August 23, 2006 ("Hollman Decl.")).
III. Analysis
It is beyond cavil that "the Hague Convention is not the exclusive means for obtaining discovery from a foreign entity."Société Nationale Industrielle Aérospatiale v. United States District Court for the Southern District of Iowa, 482 U.S. 522, 539-40 (1987); First American Corp. v. Price Waterhouse LLP, 154 F.3d 16, 21 (2d Cir. 1998); In re Vivendi Universal, S.A. Sec. Litig., 02 Civ. 5571 (RJH), 2004 WL 3019766 at *1 (S.D.N.Y. Dec. 30, 2004); Madanes v. Madanes, 199 F.R.D. 135, 140 (S.D.N.Y. 2001). Rather, the Hague "Convention was intended as a permissive supplement, not a pre-emptive replacement, for other means of obtaining evidence located abroad." Société Nationale Industrielle Aérospatiale v. United States District Court for the Southern District of Iowa, supra, 482 U.S. at 536. Nevertheless, in deciding whether discovery should proceed under the Hague Convention or the Federal Rules of Civil Procedure, "American courts should . . . take care to demonstrate due respect for any special problem confronted by the foreign litigant on account of its nationality or the location of its operations, and for any sovereign interest expressed by a foreign state." Société Nationale Industrielle Aérospatiale v. United States District Court for the Southern District of Iowa, supra, 482 U.S. at 546.
Courts have considered four factors in determining whether considerations of comity justify resort to Hague Convention procedures in lieu of the discovery vehicles provided in the Federal Rules of Civil Procedure:
(1) the competing interests of the nations whose laws are in conflict; (2) the hardship of compliance on the party or witness from whom discovery is sought; (3) the importance to the litigation of the information and documents requested; and (4) the good faith of the party resisting discovery.First American Corp. v. Price Waterhouse LLP, 988 F. Supp. 353, 364 (S.D.N.Y. 1997), aff'd, 154 F.3d 16 (2d Cir. 1998), citing Minpeco, S.A. v. ContiCommodity Servs., Inc., 116 F.R.D. 517, 523 (S.D.N.Y. 1987). Accord Reino de Espana v. American Bureau of Shipping, 03 Civ. 3573 (LTS) (RLE), 2005 WL 1813017 at *3 (S.D.N.Y. August 1, 2005); Bodner v. Banque Paribas, 202 F.R.D. 370, 375 (E.D.N.Y. 2000); S.E.C. v. Euro Sec. Fund, 98 Civ. 7347 (DLC), 1999 WL 182598 at *3 (S.D.N.Y. April 2, 1999). The party seeking to displace the Federal Rules of Civil Procedure in favor of the Hague Convention bears the burden of demonstrating that it is more appropriate for the Court to follow the Hague Convention.In re Automotive Refinishing Paint Antitrust Litig., 358 F.3d 288, 305 (3rd Cir. 2004); In re Vitamins Antitrust Litig., 120 F. Supp.2d 45, 51 (D.D.C. 2000); Valois of America, Inc. v. Risdon Corp., 183 F.R.D. 344, 346 (D. Conn. 1997); In re Perrier Bottled Water Litig., 138 F.R.D. 348, 354 (D. Conn. 1991).
As explained below, application of these four factors demonstrates that there is no substantial reason to depart from the procedures set forth in the Federal Rules of Civil Procedure.
The competing interests of the nations whose laws are in conflict. The United States has an obvious interest in the application of its procedural rules to discovery. The action is pending in the United States, and plaintiffs allege the violation of United States law. The third-party witness on which the subpoena in issue was served is a Delaware corporation with its principal executive offices in New York City (Lazard Form 10-K for the Fiscal Year Ending December 31, 2005, at 1, annexed as Exhibit C to Pl. Mem.). Finally, any court has a strong interest in applying its own rules of procedure to actions pending before it.
The majority of courts that have examined the issue have held that France has little interest in the enforcement of its Blocking statute. As the Honorable John F. Keenan, United States District Judge, held:
At first impression, French interests [in enforcing the Blocking statute] also appear to be substantial. Article One is explicitly intended to protect the "sovereignty, security and vital economic interests" of France. On closer examination of French Law No. 80-538, which encompasses Article One, however, Judge Leval concluded that the "legislative history of the statute gives strong indications that it was never expected nor intended to be enforced against French subjects but was intended rather to provide them with tactical weapons and bargaining chips in foreign courts." Adidas, Slip op. at 8; see id. at n. 4; see also United States v. Gonzalez, 748 F.2d 74, at 77-78 (2d Cir. 1984) (French Law No. 80-538 intended to protect French business from foreign discovery); Graco, 101 F.R.D. at 508 ("The Blocking Statute obviously is a manifestation of French displeasure with American pretrial discovery procedures, which are significantly broader than the procedures accepted in other countries"). Therefore, France's real interests in promulgating Article One are dwarfed by American interests in complete discovery.Compagnie Francaise d'Assurance Pour le Commerce Exterieur v. Phillips Petroleum Co., 105 F.R.D. 16, 30 (S.D.N.Y. 1984).
Other cases reaching the same result for substantially the same reasons include Société Nationale Industrielle Aérospatiale v. United States District Court for the Southern District of Iowa,supra, 482 U.S. at 544 n. 29; Bodner v. Banque Paribas, supra, 202 F.R.D. at 375; Valois of America v. Risdon Corp., supra, 183 F.R.D. at 348-49; Rich v. KIS California, Inc., 121 F.R.D. 254, 258 (M.D.N.C. 1988); Adidas (Canada) Ltd. v. SS Seatrain Bennington, 80 Civ. 1911 (PNL), 82 Civ. 0375 (PNL), 1984 WL 423 at *3 (S.D.N.Y. May 30, 1984).
The hardship of compliance on the party or witness from whom discovery is sought. The only substantial hardship to Lazard if discovery pursuant to Rule 34 is ordered is the possibility of criminal prosecution in France pursuant to the Blocking statute (see Lazard Group LLC's Memorandum of Law in Opposition to Plaintiffs' Joint Motion to Compel, dated August 23, 2006 ("Lazard's Memo."), at 19). However, as noted in Bodner v. Paribas, supra, 202 F.R.D. at 375, "[a]s held by numerous courts, the French Blocking Statute does not subject defendants to a realistic risk of prosecution, and cannot be construed as a law intended to universally govern the conduct of litigation within the jurisdiction of a United States court." See also Compagnie Francaise d'Assurance Pour le Commerce Exterieur v. Phillips Petroleum Co., supra, 105 F.R.D. at 30; Graco, Inc. v. Kremlin, Inc., 101 F.R.D. 503, 514 (N.D. Ill. 1984).
Although Lazard has been threatened with prosecution by two French agencies (Lazard Memo. at 19), the United States' experience with the French Blocking statute teaches that there is little likelihood these threats will ever be carried out. This speculative possibility of prosecution is insufficient to displace the Federal Rules of Civil Procedure. The importance to the litigation of the information and documents requested. Although Lazard does have some relevance objections, it does not seriously contest that at least some of the documents sought by plaintiff are relevant to this litigation. Given the nature of the claims and the relationship between Vivendi and Lazard, it would be extremely surprising if Lazard did not have at least some relevant documents.
The good faith of the party resisting discovery. Lazard argues that its attempts to obtain permission from the French government to produce its subsidiaries' documents and its production of documents that are not subject to the Blocking statute demonstrate good faith (see Lazard Mem. at 20).
Although plaintiffs argue that defendants have failed to show good faith by not obtaining an exemption from the Blocking statute, their argument is unconvincing. The Blocking statute, on its face, is a criminal statute. Plaintiffs do not explain how an exemption from a criminal statute could be granted under French law or who, if anyone, could grant it. As far as I know, no official in the United States could prospectively grant an individual or entity an exception from a federal criminal statute because criminal statutes are intended to establish minimum and universal standards of conduct.
Since Lazard has demonstrated good faith and plaintiffs have not established that Lazard has failed to do something it could have done, I find that this factor weighs in favor of the application of the Hague Convention.
Summary Since three of the four factors weigh in favor of the application of the discovery provisions of the Federal Rules of Civil Procedure, I conclude that discovery from Lazard should be conducted pursuant to Rule 34 and 45 and that the Hague Convention protocols need not be followed.
IV. Conclusion
Accordingly, for all the foregoing reasons, plaintiffs' motion to compel Lazard to produce in the United States documents that are in its possession, custody and control in France pursuant to the Federal Rules of Civil Procedure is granted, and Lazard's cross-motion for a protective order and other relief is denied.
SO ORDERED