The Need for a Refined Balancing Approach When American Discovery Orders Demand the Violation of Foreign Law
Cohan, Keith Y., Texas Law Review
The English judge Lord Denning famously said, "As a moth is drawn to the light, so is a litigant drawn to the United States."1 There are a number of reasons for this attraction to the American courts: attorneys fees are not a deterrent for plaintiffs filing suit because of contingency-fee structuring; plaintiffs are not required to pay the opposing party's attorneys fees if they lose; and plaintiffs have the right to a trial by jury, juries being notorious for awarding very high damages.2 Another distinguishing factor that Lord Denning did not mention, however, is the discovery process in the United States. American courts allow for a much broader discovery process in which parties seeking information only must show that their request is "reasonably calculated to lead to the discovery of admissible evidence,"3 as opposed to systems such as England's that require a higher degree of relevance and systems such as France's where the judge (not the parties) plays the central role in requesting discovery.4
These differences have been particularly controversial when parties seek information that is located abroad, as foreign governments feel that broad American discovery orders are an intrusion on their sovereignty.5 As stated in the reporters' notes of the Restatement (Third) of the Foreign Relations Law of the United States, "No aspect of the extension of the American legal system beyond the territorial frontier of the United States has given rise to so much friction as the requests for documents in investigation and litigation in the United States."6 In response to this friction, some foreign countries have established blocking statutes that attach criminal liability to the disclosure of certain information located in those countries.7
This Note will focus on discovery orders from United States federal courts that not only require the disclosure of information located abroad, but also require a litigant to violate foreign law by producing that information. This is a two-step process, because the "American court must decide first whether to make an order compelling discovery and second whether noncompliance with an order should be enforced through sanctions under Rule 37 of the Federal Rules of Civil Procedure."8
A federal court's decision of whether or not to compel discovery and issue sanctions for noncompliance affects the various competing interests of the party seeking discovery, the withholding party, the United States, and the foreign country whose laws prohibit disclosure. If the American court issues an order compelling discovery and issues sanctions if the order is not met, then the withholding party faces the unfortunate catch-22 of choosing between facing criminal liability in the country where the information is held or suffering sanctions that would destroy its chances of winning high-stakes litigation.9 Moreover, such an order can be highly offensive to another country because it impedes its sovereignty and disregards its laws and legal system.10 Also, blocking statutes, such as bank-secrecy laws, can be vital to foreign economies since the confidentiality benefit attracts businesses and investors."
Nonetheless, there are also significant consequences if an American court chooses not to compel discovery or issue sanctions. In these cases, the party seeking discovery abroad may be put at an unfair disadvantage if it does not have the same excuse to avoid discovery as the opposing party.12 This disparity can be costly because billions of dollars are often on the line and discovery is crucial in many cases.13 Also, by establishing different standards for litigants who have information abroad and litigants who have all of their information in the United States, courts could potentially create an unlevel playing field. Companies with all of their information in the United States would face higher risks in litigation and the higher insurance premiums that attach to those risks. …