written by NITA guest bloggers Samantha E. Scheff and Michael J. Costello, II
Blocking statutes are laws enacted in countries with the purpose of frustrating litigation in the United States by prohibiting the production of evidence in courts in the United States that otherwise have jurisdiction. International litigation in courts in the United States between American citizens and citizens of other countries has become more prevalent through globally conducted businesses and transnational commerce. The purpose of enacting blocking statutes, as they are known, is to force the United States into strict compliance with the procedures promulgated by the Hague Evidence Convention on the Taking of Evidence Abroad in Civil or Commercial Matter (HEC). The reason foreign countries assert to enact these laws is to avoid compliance with United States discovery processes that are at odds with foreign discovery procedures and policies. The United States regards these blocking statutes as a means of delaying litigation, barring access to evidence, and frustrating their legal system. This article discusses the HEC and how American courts and lawyers deal with it.
The HEC was negotiated in 1970 to avoid countries from frustrating one another’s national sovereignty. The HEC is a treaty allowing letters rogatory, or letters of request, to be sent from one court to another with the intention of having the foreign court order production of evidence. For the most part, the treaty is concerned with allowing the jurisdiction requesting the evidence to continue to follow its rules of procedure as closely as possible.
The United States Supreme Court has firmly established in Société Nationale Industrielle Aérospatiale v. U.S. District Court for the Southern District of Iowa that, so long as personal jurisdiction exists under the Federal Rules of Civil Procedure, the HEC need not be the exclusive or even the first resort used to compel the production of documents or information from a foreign party. The Court also held that a United States court may order the production of evidence even if doing so will violate a foreign blocking statute. The ruling became United States policy—that American national interests will tend to be favored over international ones. However, the rule is not absolute, and courts may employ a balancing test to determine whether they will grant comity to the foreign blocking statute. The balancing test used is taken from the Restatement (Third) of Foreign Relations Law. The factors considered by the court are:
A minority of jurisdictions, including the Third Circuit, simplified the test to three elements:
Ultimately, the tests are very similar, and it is unlikely that using one or the other will be outcome determinative.
In re Activision Blizzard Stockholder Litigation, a state court case in Delaware, is an excellent example of how courts apply the majority balancing test from the Restatement. In this case, shareholders sued a Delaware corporation and its controlling stockholder, a French company, for allegedly breaching its fiduciary duties by transferring over 50 percent of its outstanding shares from the controlling stockholder to the corporation. The shareholders filed a motion to compel discovery, and the French company objected on the ground that French law barred the production of discovery unless it was pursuant to the HEC. The French blocking statute broadly prohibits any form of discovery in France for the use of foreign judicial proceedings, with penalties for disobeying this statute being the possibility of heavy fines or imprisonment. The Delaware Chancery Court applied the balancing test and held that the action would proceed under both the Court of Chancery rules and the HEC. The court found that the documents being requested were material to the case, specific in nature and not overly broad to comply with the HEC, and could not be obtained through alternative means. With multiple business connections throughout the United States, it would make sense for this type of evidence to have originated in the United States, yet there was no definitive evidence establishing whether the documents originated in France or the United States.
When establishing whether compliance with the discovery request would undermine interests in France, the court looked directly to the French blocking statute. The French blocking statute was broad and prohibited any person from conducting discovery for the purposes of any foreign litigation without focusing on any specific material or mentioning a French sovereign interest. However, noncompliance would directly undermine Delaware’s interest in effectively litigating internal affairs within its corporations. Furthermore, the French company was involved in many business ventures and had previously submitted to the jurisdiction of Delaware courts, by accepting a director position in a Delaware corporation, and in another suit disregarding blocking statutes where it was beneficial to the company. Balancing these factors, the court gave the French company the opportunity to use the HEC to make a good faith effort to receive the requisite authorization from the French authorities for the discovery by the time the document production would be due in the Court of Chancery case. However, if the process could not be completed by then, the French company was expected to produce the documents or face sanctions from the Delaware court. It is important to point out that when the court was deciding whether to apply the HEC at all, it cited many reported American cases that perceive the HEC as lengthy, burdensome, and inefficient. Further, even if the French company heard back from French authorities in the given time period, if those authorities chose not to comply with the letter of request, the court would then mandate the use the procedures available in the United States’ legal system. This decision is a prime example of how American courts attempt to honor the HEC, but when there is as conflict with the United States legal system, the courts have found ways to support the United States national interest and sovereignty.
The Activision holding and other opinions do not create a bright-line rule governing whether a United States court will uphold a foreign blocking statute. Courts will, therefore, make the determination based on the unique facts of each case using the balancing factors described above. However, it appears that foreign parties may be at a disadvantage, given the Supreme Court’s statement that it will weigh the United States’ interests more favorably than foreign interests. The reality is that the enactment of foreign blocking statutes rarely prevent foreign litigants from having to comply with discovery orders from the Unites States’ jurisdiction. Overall, the courts have discretion when deciding whether to order the production of evidence or issue protective orders in response to these blocking statutes. This discretion began with the decision in Société Nationale Industrielle Aérospatiale v. U.S. District Court for the Southern District of Iowa and continues by the decades of developing case law demonstrating the trend of American courts choosing to use their own discovery procedures.
Yet, despite the widespread refusal of American courts to comply with foreign blocking statutes, the Second Circuit has apparently created a way for foreign companies to possibly avoid this result. In re Sarrio, S.A. includes dictum stating that American law firms representing foreign companies need not provide documents falling under the scope of blocking statutes. The case involved internal investigations by the SEC under 28 U.S.C. § 1782, which allows district courts to compel persons residing within their district to testify or produce documents for use in proceedings occurring in foreign jurisdictions, which is known as a subpoena duces tecum.
The Sarrio court cited Fisher v. United States, which recognized that documents that are undiscoverable in the hands of a law firm’s foreign client are subject to attorney–client privilege. It went on to say that this reasoning is applicable to subpoenas duces tecum, because they lie outside the statutorily provided limits granting courts power to compel production. Therefore, assuming the documents are held by the United States law firm for the purpose of legal review, it is likely that the Second Circuit would not compel discovery on the basis of attorney–client privilege. The Second Circuit ultimately does not want a result where documents that would not otherwise be within the scope of a subpoena suddenly fall within that scope simply because they are being used by a United States law firm. Significantly, the bank involved in this case withdrew its objection to production, so the legal significance of this reasoning is dictum. If courts in the Second Circuit choose to follow this approach, foreign companies can avoid violating their home country’s blocking statute by evoking attorney–client privilege.
In addition, banking secrecy laws may be considered a type of blocking statute because they functionally work the same way by including provisions that block foreign discovery. In general, these laws obligate banks to keep customer information private. Banks in foreign jurisdictions are usually structured to ensure that the customer’s information is kept private, such as using pseudonyms for the accounts and insulating bank employees from the information. While banking in jurisdictions such as Switzerland has enjoyed a substantial amount of privacy in the past, the current global trend has been moving toward open exchange of customer information. For example, in a proposed piece of French legislation commonly called “Sapin II,” a newly created anti-corruption enforcement body will have the authority to monitor compliance with the French blocking statute. This could result in a change in the French courts’ reluctance to enforce it.
In 2010, the United States Congress passed the Foreign Account Tax Compliance Act (FATCA) in an attempt to curb tax evasion that was enabled by these banking secrecy laws. The law requires reporting by U.S. taxpayers that meet certain criteria, specifically, taxpayers who have foreign financial accounts and offshore assets. Foreign financial institutions are also required to report financial accounts held by U.S. taxpayers. This would include foreign investment banks in jurisdictions where tax evaders have their assets.
Another important step in global tax transparency took place in 2014, when 101 nations committed to implementing a Common Reporting Standard was promulgated by the Organization for Economic Cooperation and Development (OECD). This helped ease the burden on financial institutions facing different compliance standards in various jurisdictions, which is credited with an increase of voluntary disclosures. The recent Panama Papers leak may lead to additional pressure being placed on countries to join these types of initiatives. If this trend continues, banking secrecy laws may matter less over time.
To understand blocking statutes, it is important to recognize that the initiative of the HEC was to take into consideration the realities of international relations and ensure that litigation between foreign nations would afford respect for one another in regard to differing legal systems and policies. In large part, these blocking statutes were the direct response to the United States reluctance to adhere to the HEC when dealing with foreign litigants. Many countries with different legal systems view this reluctance to use the HEC, either exclusively or at least as a first resort, as a violation of their sovereignty. Article 12 of the HEC establishes that blocking statutes should effectively prohibit disclosure by including an exception to the mandatory production of discovery requests where a request is offensive to the nation’s sovereignty. Yet, when the United States courts are analyzing these blocking statutes, they are taking many factors into consideration, with the result that these statutes are often unenforced.
In an attempt to change the relaxed compliance with these blocking statutes by the United States and France, France is seriously considering more frequently enforcing its criminal sanctions for violations and raising the fines connected with these sanctions.
In conclusion, although the HEC is at issue in other countries, the HEC is more heavily litigated in the United States than in any other countries. The United States is obviously a major player in international globalization, and many countries want to be involved with American companies. Yet these companies do not want to be subject to the United States legal system. The United States approach to resolution of disputes is based on zealous advocacy in court, and other countries are extremely against this type of judicial process. The HEC was designed to acknowledgement different methods of discovery in international litigation, but has proven ineffective when it comes to foreign litigants in American courts. Blocking statutes have been put in place as a result of other nations’ frustration with the American courts, but have not had the impact on the American courts’ choice of law that these nations were seeking to attain by enacting of these laws. One way to accomplish more harmony in global business is to promote business contracts that include clauses setting forth both the governing law and the jurisdiction the parties will submit to in the event of legal disputes. Employing these clauses would make it easier to differentiate between actual sovereignty problems and business companies attempting to use blocking statutes as a means of avoiding compliance with the American litigation system. If protecting foreign sovereignty is the ultimate goal behind these blocking statutes, adding choice of law and forum selection clauses in international contracts could help solve the problem of compliance with blocking statutes.
Samantha E. Scheff and Michael J. Costello II are third-year students at Nova Southeastern University College of Law and research assistants to Professor Michael J. Dale.
 Laurent Martinet & Ozan Akyurek, The Perils of Taking Discovery to France, 20 No. 5 PRAC. LITIGATOR 39 (2009).
 Foreign Blocking Statutes and Cross-Border Discovery, ARENT FOX (Mar. 10, 2014), https://www.arentfox.com/newsroom/alerts/foreign-blocking-statutes-and-cross-border-discovery#.WAPupjLMyYV.
 Vivian G. Curran, United States Discovery and Foreign Blocking Statutes, 76 LA. L. REV. 1141, 1141 (2016).
 See, e.g., Société Nationale Industrielle Aérospatiale v. U.S. Dist. Ct. for the S. Dist. of Iowa, 482 U.S. 522, 542 (1987); In re Activision Blizzard Stockholder Litigation, 86 A.3d 531, 546 (Del. Ch. 2014); Trueposition, Inc. v. LM Ericsson Tel. Co., 2012 WL 707012, at *5 (E.D.Pa. Mar. 6, 2012); In re Air Cargo Shipping Servs. Antitrust Litig., 278 F.R.D. 51, 53 (E.D.N.Y. 2010); Benton Graphics v. Uddeholm Corp., 118 F.R.D. 386,391 (D.N.J. 1987).
 28 U.S.C. § 1781; Curran, supra note 4, at 1143.
 Bureau of Consular Affairs, U.S. Dep’t of State, Preperation of Letters Rogatory, https://travel.state.gov/content/travel/en/legal-considerations/judicial/obtaining-evidence/preparation-letters-rogatory.html.
 James P. Springer, An Overview of International Evidence and Asset Gathering in Civil and Criminal Tax Cases, GEORGE WASHINGTON JOURNAL OF INTERNATIONAL LAW AND ECONOMICS 313 (1988).
 See Société Nationale Industrielle Aérospatiale v. U.S. Dist. Ct. for the S. Dist. of Iowa 482 U.S. 522 (1987).
 “The United States Supreme Court has firmly established that, so long as personal jurisdiction exists, a U.S. court may order the production of evidence even if doing so will violate a foreign blocking statute.” Société, 482 U.S. at n. 29 (1987).
 “When there is any doubt, national interests will tend to be favored over foreign interests.” Id. (quoting Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909, 951 (1984).
 RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 442(1)(c).
 In re Automotive Refinishing Paint Antitrust Litigation, 358 F.3d 288, 300 (3d Cir. 2004).
 86 A.3d 531 (Del. Ch. 2014).
 Id. at 532–33.
 Id. at 533.
 Id. at 536, 549.
 Id. at 541.
 In re Activision Blizzard Stockholder Litigation, 86 A.3d 531, 543–45 (Del. Ch. 2014).
 Id. at 545.
 Id. at 543–45.
 Id. at 547–48.
 In re Activision Blizzard Stockholder Litigation, 86 A.3d 531, 549–50 (Del. Ch. 2014).
 Id. at 550.
 Id. at 551.
 Id. at 546.
 Id. at 551.
 See, e.g., In re Activision Blizzard Stockholder Litigation, 86 A.3d 531, 546 (Del. Ch. 2014).
 Société, 482 U.S. at n. 4 (1987).
 See id.; In re Activision Blizzard Stockholder Litigation, 86 A.3d 531, 546 (Del. Ch. 2014); Trueposition, Inc. v. LM Ericsson Tel. Co., 2012 WL 707012, at *5 (E.D.Pa. Mar. 6, 2012); In re Air Cargo Shipping Servs. Antitrust Litig., 278 F.R.D. 51, 53 (E.D.N.Y. 2010); Benton Graphics v. Uddeholm Corp., 118 F.R.D. 386,391 (D.N.J. 1987).
 Travis Robert-Ritter, Using Second Circuit Precedent to Fundamentally Change Multinational Corporations’ Global Foreign Corrupt Practices Act Internal Investigations, 8 B.Y.U. INT’L L. & MGMT. REV. 89 (2012).
 119 F.3d 143 (2d Cir. 1997).
 Id. at 146.
 28 U.S.C. § 1782.
 425 U.S. 391 (1976).
 In re Sarrio, 119 F.3d at 146-48.
 Ratliff v. Davis Polk & Wardwell, 354 F.3d 165, 169 (2d Cir. 2003).
 In re Sarrio, 119 F.3d at 144.
 G. Philip Rutledge, Bank Secrecy Laws: An American Perspective, 14 DICK. J. INT’L L. 601 (1996).
 Latham & Watkins LLP, French Anti-Corruption Reform Expected in 2016 (April 11, 2016), http://www.lexology.com/library/detail.aspx?g=0477aaee-fcfd-4ab5-92a4-ab35418c75da.
 Ozan Akyurek, United States: French Blocking Statute: A Death Foretold?, MONDAQ (Feb. 12 2014), http://www.mondaq.com/unitedstates/x/292340/Trade+Regulation+Practices/French+Blocking+Statute+A+Death+Foretold.
 See irs.gov, Foreign Account Tax Compliance Act, https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca (last updated Sept. 13, 2016).
OECD, Global Tax and Transparency: We Have the Tools, Now We Must Make them Work (2016), https://www.oecd.org/forum/oecdyearbook/global-tax-transparency-we-have-the-tools.htm.
 Mark A. Cotter, The Hague Evidence Convention: Selfish U.S. Interpretation Aggravates Foreign Signatories and Mandates Changes to Federal Discovery Rules, 6 FLA. J. INT’L L. 233, 247–48 (1991) (explaining that Germany, the United Kingdom, and France view the United States’ reluctance to adhere to the HEC as an infringement of their legal sovereignty).
 28 U.S.C. § 1781; Cotter, supra note 52, at 244.
 See, e.g., In re Aircrash Near Roselawn, Indiana, 172 F.R.D. 295 (N.D. Ill. 1997) (court refused to issue a protective order in response to a French blocking statutes not only because it was meant to frustrate discovery, but also because it was rarely enforced).
 Curran, supra note 4, at 1147–48 (discussing how an “eminent French lawyer and former cabinet minister” advises that both American and French litigants need to take the French blocking statute seriously and that applying it more seriously is a way to establish that the statute is not the sham that American courts perceive it as).
 Cotter, supra note 52, at 245.
 See Curran, supra note 4, at 1141–42.
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