Sun Group U.S.A. Harmony City, Inc. v. CRRC Corporation LTD et al

Filing 148

ORDER REGARDING APPLICATION OF HAGUE CONVENTION (Granting 132 Motion to Provide Additional Evidence, Granting 133 Request to Provide Additional Evidence, Granting 144 MOTION for Leave to File Reply Brief). Signed by Judge Sallie Kim on November 19, 2019. (sklc1S, COURT STAFF) (Filed on 11/19/2019) Modified on 11/19/2019 (mklS, COURT STAFF).

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SUN GROUP U.S.A. HARMONY CITY,
INC.,
Plaintiff,

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v.

Case No. 17-cv-02191-SK
ORDER REGARDING APPLICATION
OF HAGUE CONVENTION

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CRRC CORPORATION LTD,

Regarding Docket Nos. 132, 135, 144

United States District Court
Northern District of California

Defendant.
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Defendant CRRC Corporation Ltd (“Defendant”) argues that Plaintiff Sun Group U.S. A.

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Harmony City, Inc. (“Plaintiff”) must submit its request for documents located in China in

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accordance with the procedures proscribed by the Hague Convention on the Taking of Evidence

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Abroad in Civil or Commercial Matters (“Hague Convention”). Plaintiff argues that Defendant

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must provide documents pursuant to the Federal Rules of Civil Procedure and that the Hague

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Convention does not apply here.1

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The Court may regulate the conduct of discovery and require the use of the Hague

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Convention procedures. See St. Jude Med. S.C., Inc. v. Janssen-Counotte, 104 F. Supp. 3d 1150,

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1160 (D. Or. 2015) (citing Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for S.

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Dist. of Iowa, 482 U.S. 522, 546 (1987)); see also Autodesk, Inc. v. ZWCAD Software Co., 2015

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WL 1928184, at *1 (N.D. Cal. Mar. 27, 2015) (“When a conflict exists between the discovery

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authorized under the Federal Rules of Civil Procedure and sovereign interests implicated by such

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discovery, a court may direct parties to conduct discovery under the Hague Convention. . . .). In

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determining whether to require a party to follow the Hague Convention protocol to obtain

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The Court GRANTS Plaintiff’s and Defendant’s requests to file additional evidence and
briefs. (Dkt. Nos. 135, 144.)
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discovery requires “scrutiny in each case of the particular facts, sovereign interests, and likelihood

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that resort to those procedures will prove effective.” Aerospatiale, 482 U.S. at 544.

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The parties agree that the determination of whether to require the application of the Hague

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Convention procedures involves a two-step inquiry. First, Defendant must prove that Chinese law

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bars it from producing the discovery that Plaintiff seeks. EFG Bank AG v. AXA Equitable Life Ins.

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Co., 2018 WL 1918627, at *1 (S.D.N.Y. Apr. 20, 2018). Second, Defendant must demonstrate

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that the particular facts of this case, including the sovereign interests at stake, warrant the

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requiring the application of the Hague Convention. Aérospatiale, 482 U.S. at 544.

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A.

Whether Chinese Law Prohibits Defendant from Providing Documents Located in
the People’s Republic of China.

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Defendant argues that Article 277 of the Chinese Civil Procedure Law bars it from

United States District Court
Northern District of California

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collecting and producing documents located in the People’s Republic of China (“PRC” or
“China”) unless it complies with the procedures under the Hague Convention.

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Article 277 provides the following:
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Request for and to provide judicial assistance shall be made through
channels prescribed by international treaties concluded or acceded to
by the People’s Republic of China; or in the absence of such a treaty,
shall be made through diplomatic channels.
A foreign embassy or consulate to the People’s Republic of China
may serve process on and investigate and collect evidence from its
citizens but shall not violate the laws of the People’s Republic of
China and shall not take compulsory measures.
Except for the circumstances in the preceding paragraph, no foreign
authority or individual shall, without permission from the competent
authorities of the People’s Republic of China, serve process or
conduct investigation and collection of evidence within the territory
of the People’s Republic of China.
(Dkt. 132-12 (Declaration of Xiaoyi Chen), ¶ 5.) Defendant’s Legal Expert, Jinhua Wei, is a

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lawyer who has practiced law in the PRC since 2004, and he opines that parties requesting
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evidence for civil litigation in the United States must proceed through the Hague Convention
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procedures for documents located in the PRC and no person, organization or institution may
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provide evidence at his, her or its own volition for use in civil proceedings abroad. (Dkt 132-13
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(Declaration of Jinhua Wei), ¶¶ 1, 8(b). 8(c).) Wei explains that Article 277 prohibits foreign
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entities or individuals from serving documents, investigating and/or conducting discovery in the

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PRC. (Id., ¶ 10.)2 Defendant states that because the Chinese government has a controlling

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ownership interest in Defendant, Defendant does not have the discretion to violate Chinese law.

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(Dkt. 132-12, ¶ 4.)

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Defendant wrote to the Chinese Ministry of Justice and asked the following question:

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Since you are the central organ designated by China under the Hague
Evidence Convention, CRRC would like to learn from your office that
whether [sic] CRRC can directly produce the above-mentioned
CRRC’s documents located in the territories of China to the U.S.
Court and [Plaintiff] Sun Group without abiding by the stipulated
path(s) in the Hague Evidence Convention?

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(Dkt. 134-2 (Reply Declaration of Teresa H. Michaud, Ex. A).) In response, the International
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Legal Cooperation Center of the People’s Republic of China Ministry of Justice stated in a letter

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United States District Court
Northern District of California

dated August 16, 2019:
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As provided by the Civil Procedure Law of the People’s Republic of
China, any foreign judicial department(s) under international treaties
to collect evidence within Chinese territories shall be conducted
through channels prescribed by the rules of the international treaty . .
..

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(Dkt. 132-2 (Declaration of Teresa H. Michaud, Ex. A.).) The letter further states that
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When a foreign country intends to propound discovery in the PRC, it
shall submit its request to the Ministry of Justice of the People’s
Republic of China through the channels in accordance to the rules set
forth in the Evidence Convention.

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(Id.)

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Plaintiff argues that Defendant has not demonstrated that Article 277 bars the production

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of documents located in China. Instead, Plaintiff contents that Article 277 merely prohibits non-

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Chinese persons from physically performing tasks in China. Plaintiff submits a declaration from

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its expert, Donald J. Lewis, a professor of Chinese and Hong Kong law. (Dkt. 133-2.) Lewis

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states that Defendant’s voluntary compliance with a discovery order does not implicate or violate

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An attorney practicing law in the PRC submitted a declaration in another case, Milliken
& Co. v. Bank of China, 758 F. Supp. 2d 238, 249 (S.D.N.Y. 2010), in which the attorney opined
that pursuant to Article 263, the former identical version of Article 277, complying with a
discovery request to produce documents located in the PRC would violate China’s Civil Procedure
Law.
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Article 277. (Dkt. 133-2, ¶ 7.) Plaintiff does not submit any evidence to address or contest the

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letter from the Chinese Ministry of Justice.
In light of Wei’s declaration and the letter by the Chinese Ministry of Justice on this

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specific issue, the Court finds that Defendant has demonstrated that producing documents located

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in the PRC in response to Plaintiff’s discovery requests would violate Article 277. Therefore, the

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Court will proceed to the second part of the inquiry.

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B.

Whether Plaintiff is Required to Obtain Documents Located in the PRC Through the
Hague Convention.

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Defendant must demonstrate that the particular facts of this case, including the sovereign
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interests at stake, warrant the application of the Hague Convention. The Supreme Court has
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endorsed the balancing test set forth in the Restatement of Foreign Relations Law of the United
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United States District Court
Northern District of California

States to guide this analysis. See Richmark Corp. v. Timber Falling Consultants, 959 F.2d 1468,
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1475 (9th Cir. 1992) (citing Aerospatiale, 482 U.S. at 544 n.28). Under that test, courts consider
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the following five factors:
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the importance to the investigation or litigation of the documents or
other information requested; the degree of specificity of the request;
whether the information originated in the United States; the
availability of alternative means of securing the information; and the
extent to which noncompliance with the 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.

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Richmark, 959 F.2d at 1475 (citing Aérospatiale, 482 U.S. at 544 n. 28). These factors are not

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exhaustive. Id. In addition, courts consider the extent and nature of the hardship on the

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responding party. Id.

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The first two factors, the relevance or importance of the discovery requests and the

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generalized nature of the requests, weigh in favor of requiring compliance with the Hague

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Convention procedures. “Where the outcome of litigation does not stand or fall on the present

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discovery order, or where the evidence sought is cumulative of existing evidence, courts have

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generally been unwilling to override foreign [blocking] laws.” Richmark, 959 F.2d at 1475

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(internal quotation marks and citation omitted). On the other hand, “[w]here the evidence is

First and Second Factors.

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directly relevant, . . . we have found this factor to weigh in favor of disclosure. Id.
Additionally, “[g]eneralized searches are discouraged.” Id. Here, Plaintiff’s discovery

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requests are very broad and go beyond what is necessary to litigate the disputed issues in this case.

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For example, despite the fact that remaining claims concern an agreement made in April 2014,

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Plaintiff defines the “relevant time period” for its requests for production of documents as January

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1, 2010 to the present and defines the relevant agreements to include agreements signed in 2011

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and 2013. (Dkt. 132-4.) Additionally, despite the fact that the Court held that Plaintiff only pled

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facts sufficient to allege that CRRC MA is the alter ego of Defendant, Plaintiff defines “CRRC

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Entities” to include Defendant, CRRC MA, CRRC Sifang America, CRRC Qingdao Sifang, TRC,
and CRRC Tangshan and requests documents related to the corporate structure of all of these

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United States District Court
Northern District of California

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entities. (Id.)

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2.

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The third factor, the location of the evidence, also weighs in favor of the requiring use of

Third Factor.

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Hague Convention procedures to the extent the responsive documents are in the PRC. Richmark,

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959 F.2d at 1475 (“The fact that all the information to be disclosed . . . are located in a foreign

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country weighs against disclosure . . .”).

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3.

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The fourth factor, the availability of alternative means of securing the information, weighs

Fourth Factor.

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in favor of requiring compliance with the Hague Convention procedures as well. The Ninth

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Circuit requires that “the alternative means must be ‘substantially equivalent’ to the requested

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discovery.” Id. Here, Plaintiff has propounded discovery requests on Defendant’s subsidiary

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CRCC MA. Plaintiff may be able to obtain a substantial portion of its requested documents from

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CRCC MA. Moreover, although using the Hague Convention procedures may cause some delay,

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it is not yet clear whether it would be effective. See Salt River Project Agric. Improvement &

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Power Dist. v. Trench France SAS, 303 F. Supp. 3d 1004, 1008 (D. Ariz. 2018) (finding use of

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Hague Convention procedures to be a substantially equivalent alternative). However, if Plaintiff is

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not actually able to obtain documents necessary to litigate its claims, then this factor would shift

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towards favor of disclosure through the Federal Rules of Civil Procedure.
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United States District Court
Northern District of California

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Fifth Factor.

The fifth factor, the balancing of national interests, is the most important factor. Richmark,
959 F.2d at 1476. Courts “must assess the interests of each nation in requiring or prohibiting
disclosure, and determine whether disclosure would ‘affect important substantive policies or
interests’ of either the United States or the PRC.” Id. at 1476 (quoting Restatement (Third) of
Foreign Relations Law § 442 comment c). The United States has a “substantial” interest in
“vindicating the rights of American plaintiffs,” id. at 1477, and an “overriding interest in the just,
speedy, and inexpensive determination of litigation in [its] courts.” Aerospatiale, 482 U.S. at 54243 (internal quotation marks and citation omitted). However, this is a generalized interest that
would be present in any civil litigation in the United States. Additionally, if Plaintiff is able to
obtain documents necessary to litigate its claims, then requiring use of the Hague Convention
procedures would not undermine these interests. Salt River Project, 303 F. Supp. 3d at 1009
(noting that if the procedures were ultimately ineffective, the court retained the power to order
discovery under the Federal Rules of Civil Procedure).
These interests must be weighed against the interests of China. In evaluating the interests
of foreign nations, courts look to “expressions of interest by the foreign state, the significance of
disclosure in the regulation of the activity in question, and indications of the foreign state’s
concern for confidentiality prior to the controversy.” Richmark, 959 F.2d at 1476 (quotation
marks and alterations omitted). Here, Defendant only points to Article 277, China’s interest in the
subject matter of this litigation and how the contract is interpreted, and the current trade war
between the United States and China. However, Article 277 is a general civil statue. As the
Supreme Court has made clear, a foreign statute barring discovery within its borders “is relevant to
the court’s particularized comity analysis only to the extent that its terms and its enforcement
identify the nature of the sovereign interests in nondisclosure of specific kinds of material.”
Aerospatiale, 482 U.S. 522, 544 n. 29. Moreover, the current trade war as well as China’s interest
in a favorable interpretation of the contract do not provide a basis for preventing disclosure of
documents located in China. Therefore, the Court finds that this factor is neutral at this time.
However, if Plaintiff is not able to obtain documents necessary to litigate its claims, the balance
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would tip towards weighing in favor of full discovery through the Federal Rules of Civil

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Procedure. The Court is concerned that an entity funded by the Chinese government is pursuing

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business in the United States but then seeking and obtaining assistance from the Chinese

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government to evade discovery that arises out of that business in the United States.
Additional Factors – Hardship.

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5.

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Finally, the Court considers the hardship to Defendant if required to provide responses to
Plaintiff’s discovery requests. Facing criminal prosecution “constitutes a ‘weighty excuse’ for

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nonproduction.” Richmark, 959 F.2d at 1477 (quoting Societe Internationale Pour Participations

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Industrielles et Commerciales, S. A. v. Rogers, 357 U.S. 197, 211 (1958)). Here, Defendant does

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not present any evidence to show that it is likely to be prosecuted or that any adverse action will

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United States District Court
Northern District of California

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occur. It argues that it has no discretion to violate Chinese law given its status as a state-

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controlled corporation but does not state what consequences it would suffer. (Dkt. 132 (Mot.) at

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1.) In light of the absence of any threat of criminal sanctions and the lack of evidence of any

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history of civil penalties, this factor only weighs slightly in favor of requiring Plaintiff to utilize

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the Hague Convention procedures.
On balance, the Court finds that the factors weigh in favor of requiring use of the Hague

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Convention procedures. However, this balancing might shift if Plaintiff is not actually able to

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obtain documents necessary to litigate its claims through the Hague Convention procedures and

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through Defendant’s subsidiaries.

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C.

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Producing Documents Accessible by CRRC North America Inc.
The Hague Convention procedures only applies to discovery of materials located in China.

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With respect to electronically stored documents, the Court finds that such documents are not

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actually “located” in China. In making this determination, the Court finds useful analysis from

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courts determining that producing records electronically stored in data centers outside of the

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United States was not an extraterritorial reach of the Stored Communications Act. As the dissent

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of the one court which ruled the opposite way pointed out, “electronic data are not stored on disks

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in the way that books are stored on shelves or files in cabinets. Electronic ‘documents’ are

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literally intangible: when we say they are stored on a disk, we mean they are encoded on it as a
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pattern.” Matter of Warrant to Search a Certain E-Mail Account Controlled & Maintained by

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Microsoft Corp., 855 F.3d 53, 61 (2d Cir. 2017) (Jacobs, J., dissenting). As another Justice

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reasoned:
Electronic “documents,” however, are different. Their location on a
computer server in a foreign country is, in important ways, merely
virtual. See Orin S. Kerr, The Next Generation Communications
Privacy Act, 162 U. Pa. L. Rev. 373, 408 (2014) (explaining that “the
very idea of online data being located in a particular physical ‘place’
is becoming rapidly outdated,” because computer files can be
fragmented and dispersed across many servers).
Corporate
employees in the United States can review those records, when
responding to the “warrant” or subpoena or court order just as they
can do in the ordinary course of business, and provide the relevant
materials to the demanding government agency, without ever leaving
their desks in the United States. The entire process of compliance
takes place domestically.

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United States District Court
Northern District of California

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Matter of Warrant to Search a Certain E-Mail Account Controlled & Maintained by Microsoft

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Corp., 829 F.3d 197, 229 (2d Cir. 2016) (Lynch, J., concurring). The vast majority of courts to

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consider this issue, including those in this District, agreed with these dissenting opinions from the

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Second Circuit. See Matter of Search of Content Stored at Premises Controlled by Google Inc.,

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2017 WL 3478809, at *5 (N.D. Cal. Aug. 14, 2017); In re Search of Content That is Stored at

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Premises Controlled by Google, 2017 WL 1487625, at *1 (N.D. Cal. Apr. 25, 2017).
The Court agrees with their reasoning and finds that electronic documents are not actually

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located in China. Therefore, to the extent Defendant or CRRC North America Incorporated can

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access Defendant’s electronically stored documents from computers located in the United States

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which are responsive to Plaintiff’s discovery requests, Defendant is obligated to do so pursuant to

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the Federal Rules of Civil Procedure. Even if documents are electronically stored on servers

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located in China, their location is merely virtual. Such an effort by Defendant to obtain electronic

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documents is not extraterritorial and does not implicate Article 277 of the Chinese Civil Procedure

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Law.

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D.

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Producing Documents Held by Subsidiaries.
Plaintiff requests documents related to the following subsidiaries of Defendant: CRRC

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MA, CRRC Sifang America, CRRC Qingdao Sifang, TRC, and CRRC Tangshan. Federal Rule of

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Civil Procedure 34(a) allows courts to order production of documents or items as long as those
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documents or items are in the possession, custody, or control of a party to the litigation. In re

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Citric Acid Litig., 191 F.3d 1090, 1107 (9th Cir. 1999); United States v. Int’l Union of Petroleum

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& Indus. Workers, 870 F.2d 1450, 1452 (9th Cir. 1989). “Control” is defined as “the legal right to

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obtain documents on demand.” Int’l Union, 870 F.2d at 1452. The party seeking production bears

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the burden of demonstrating actual control; proof of theoretical control is insufficient to meet this

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burden. Int'l Union, 870 F.2d at 1454. Defendant proffers that is does not “possess the legal right

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to obtain CRRC MA’s documents ‘on demand.’” (Dkt. No. 142 at 3.) At this time, the Court will

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not order Defendant to demand documents from CRRC MA. Plaintiff should proceed with its

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third-party discovery against CRRC MA. However, if Plaintiff is unable to obtain sufficient

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documents from CRRC MA or from Defendant, Plaintiff may pursue discovery to determine

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United States District Court
Northern District of California

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whether Defendant has sufficient control over CRRC MA to require Defendant to produce CRRC

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MA’s documents to Plaintiff.
CONCLUSION

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The Court GRANTS Plaintiff’s administrative motion to provide additional evidence.

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(Dkt. 135.) The Court FURTHER ORDERS that the parties must proceed through the Hague

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Convention to obtain physical documents located in China. However, this Order is without

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prejudice to the Court revisiting this issue if Plaintiffs do not actually receive documents necessary

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to litigate its claims. The Court HEREBY SCHEDULES a further Case Management Conference

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at 1:30 p.m. on February 10, 2020. The parties shall include a detailed update regarding the status

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of the discovery in their further case management statement.

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At the hearing, Defendant argued that some of Plaintiff’s discovery requests were overly

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broad and seek protection under the Federal Rules of Civil Procedure. If the parties have a

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discovery dispute that they are unable to resolve on their own, they should address it to the Court

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in a joint letter brief.

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IT IS SO ORDERED.
Dated: November 19, 2019
______________________________________
SALLIE KIM
United States Magistrate Judge
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