In an era driven by technology, there are an ever-increasing number of corporations choosing to store their information electronically (“ESI”). ESI is anything that can be stored on an electronic medium system, such as: emails, spreadsheets, databases, images, etc. Further, because ESI is voluminous, corporations are storing it in server farms or, to the layperson, “the cloud” as a cost-effective measure. The positive of this approach is that corporations can store virtually unlimited amounts of ESI for a very low cost. The negative is that the ESI might be stored in a “server farm” located in a foreign country. The problem with this is that many countries, primarily in Europe, have laws that prevent exportation of data for foreign litigation proceedings. The legal issue: What happens when corporations involved in U.S. litigation are requested to produce ESI located in a foreign country that has a data blocking statute?
For one, litigants face consequences whether they comply with the discovery request or not. This is because the U.S. discovery rules are so expansive that they offend foreign justice systems where the court plays an important role in the search for evidence. In opposition to the U.S. discovery rules some nations have enacted blocking statutes that criminalize the exportation of ESI for purposes of foreign litigation. Even the European Union has become involved with by requiring compliance with its Data Protection Directive. Thus, corporations have a catch-22: (1) comply with the blocking statute and face sanctions from U.S. courts or (2) comply with the discovery request and face possible sanctions and/or criminal proceedings in a foreign country.
Another consequence is a delay in the discovery process. This delay adds to the cost of what is already viewed as the most expensive phase in the litigation process. More often than not, the cost of discovery, specifically e-discovery, is a valuable tool for encouraging settlement talks. However, when parties are consistently engaging in pre-trial motion practice over the issue that foreign blocking statutes cause, this “tool” becomes less valuable. Without the requested information, a party may have no idea how strong their legal position is and thus cannot engage in reasonable settlement talks. Thus, the impediments foreign blocking statutes have on litigants is a clearly an issue that corporations must consider.
Fortunately, the Supreme Court, through its pre-ESI decision in Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for Southern Dist. of Iowa, has provided some hope for litigants faced with this conflict. 482 U.S. 522, 544 (1987). The Court, despite its holding that parties’ faced with blocking statues are required to produce requested documents, also instructed lower courts to consider the following factors in determining whether documents located in foreign countries are discoverable in the U.S: (1) The importance to the investigation or litigation of the documents or information requested; (2) The degree of specificity of the request; (3) Whether the information originated in the United States; (4) the availability of alternative means of securing the information; (5) 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. This decision, coupled with subsequent lower court decisions applying these factors to ESI cases, has placed litigants with discoverable ESI in foreign countries in a better position than was originally thought.
Despite the aforementioned decisions, corporations must be conscientious about where they store their ESI. Possibly because this legal issue is relatively recent, courts remain hesitant to not compel discovery of ESI where foreign blocking statutes conflict with discovery obligations. Until this conflict becomes resolute, it would be wise for corporations (and all potential litigants with ESI, for that matter) to ensure their ESI is kept in countries without blocking statutes. By doing this, litigants avoid the catch-22 foreign blocking statutes present in U.S. court proceedings. After all, ESI is the future, if not the present, of the discovery process.
Casey Smartt is a 2L and a Staff Editor on the Denver Journal of International Law and Policy