Western District of Kentucky Grants Motion to Compel Cross Border Discovery from Russia

Yesterday a decision was issued, Phoenix Process Equip. Co. v. Capital Equip. & Trading Corp, 3:16CV-00024-RGJ-RSE, 2019 U.S. Dist. LEXIS 44390 (W.D. Ky. Mar. 19, 2019) granting in part and denying in part the Plaintiff's motion to compel discovery. The case concerns a dispute over a distribution agreement between the parties for Phoenix's products in Russia, Ukraine and Eastern Europe. The Plaintiffs allege that CETCO reverse engineered its products and disclosed confidential design information. Phoenix's motion contended that the Defendants improperly subdivided their interrogatories into subcatgeories in order to increase the number agreed upon, and failed to produce documents related to the suit.

The Court noted that the question of whether or not the interrogatories contain discrete subparts could be analyzed in different ways. The line of inquiry approach asks whether or not there is a separate and distinct question. The related question approach asks whether or not subparts are logically subsumed to the primary question - can the first question be answered completely without answering the second question? The common theme approach allows for subparts addressing a common theme to be considered as a single interrogatory. Regardless of which test is used, the Court must review if allowing an inquiry undermines Rule 33's limit on the number of interrogatories from a practical standpoint. The Third Circuit has not expressed a preference for one of these approaches. The Court in this case chose to use the related question approach and analyzed each of the interrogatories in turn.

The Defendants rejected Phoenix's motion to compel records because producing certain information would violate Russian law. The Defendants noted that Russia does not comply with the Hague Evidence Convention of 1972, which generally governs discovery from foreign entities in U.S. courts. The Court chose to follow the two step test of In re Vitamins Antitrust Litigation, 120 F. Supp. 2d 45 (D.D.C. 2000), which considers if there is a conflict between the laws of the Unites States and a foreign country; and if such a conflict exists whether or not the principles of comity require deference to the foreign country's law.

The Court found that, "[s]electively citing to Russian laws that may or may not impact the production of the requested documents is insufficient to establish a forthcoming violation of Russian law.", and did not find any conflict with the laws of the United States. 2019 U.S. Dist. LEXIS 44390, at *37. Despite this, the opinion still discusses what its decision would be if a comity analysis were required. The comity analysis uses a seven factor test stated in Societe Nationale Industrielle Aerospatiale v. United States Dist. Ct. for the So. Dist.of Iowa, 482 U.S. 522 (1987).

1. Importance of the requested documents.

2. Specificity of the request

3. Foreign origin of the information

4. Availability through alternate means

5. If noncompliance would undermine the interests of the United States

6. Hardship on the producing party

7. Good faith of the party objecting to discovery

The Court found that the first two factors favor Phoenix because the requested documents could form the basis of breach of contract claims. The third factor supports the Defendants' position because the records are in Russia. The fourth factor favored Phoenix because the Court could make requests using letters rogatory through diplomatic channels. The Court considered the fifth factor to be the most important one. In part because the parties' confidentiality agreement would prevent information from being disclosed to the public, the interests of the Untied States were found to outweigh those of Russia. The sixth factor was weighed in favor of Phoenix because no evidence was submitted of any instances in which an enforcement action was brought in Russia for violation of its commercial secrets and data protection laws for responding to a discovery demand from an American court. With the respect to the seventh factor, the Court could not find any bad faith on the part of the Defendants.

Since 5 of 7 factors favored Phoenix, the Court chose to declined to issue letters rogatory and instead compelled production under the Federal Rules of Civil Procedure.