As we discussed in the first segment of this series on third party discovery, a company may be responsible for preserving and/or producing documents of its third party consultants depending on how the jurisdiction in which the case has been brought defines the word “control” as used in Fed. R. Civ. P. 34. This installment looks at how different jurisdictions view this critical concept.
Most courts agree that a company has “control” of documents in the possession of a third party if it has the “legal right” to obtain the documents on demand. In Columbia Pictures Indus. v. Bunnell, the U.S. District Court for the Central District of California ruled, “Federal courts have consistently held that documents are deemed to be within a party’s possession, custody or control for purposes of Rule 34 if the party has actual possession, custody or control, or has the legal right to obtain the documents on demand.” The “legal right” to obtain documents might derive from the parties’ contract, for example, or by virtue of a principal-agent relationship.
In a growing number of jurisdictions, however, the definition of “control” includes not only the “legal right” to obtain documents, but also the “practical ability” to obtain documents on demand. This expansive definition has been applied by district courts in the 2nd, 4th, 5th, 8th, and 11th Circuits.
But the 9th Circuit — always contrarian — has explicitly rejected this approach:
It is not enough that a party may have a practical ability to obtain the requested documents from an affiliated organization, because the other entity could legally – and without breaching any contract – continue to refuse to turn over such documents.
The expansive view has also been rejected by district courts in the 6th and 7th Circuits, with the 7th Circuit ruling, “[T]he fact that a party could obtain a document if it tried hard enough and maybe if it didn’t try hard at all does not mean that the document is in its possession, custody, or control; in fact, it means the opposite.”
The definition of control may be particularly important for companies with foreign parents. These companies are usually familiar with the “practical ability to obtain” standard, and some have long observed “corporate formalities” in part to reduce the likelihood of having to produce documents from corporate affiliates.
Some cases adopting an expansive definition of control suggest that if the relationship between the parent and the subsidiary is such that the employees of the subsidiary — regardless of the formal relationship — have relatively unfettered access to the parent’s documents (at least with regard to the lawsuit at issue) the subsidiary could be required to preserve and produce documents from the parent. For example, see Choice-Intersil Microsystems, Inc. v. Agere Sys., Inc. (wholly-owned American subsidiary required to produce documents in the possession of its German parent where, inter alia, the subsidiary and parent shared databases, and the subsidiary was able to obtain high-level documents from the parent on demand); Japan Halon Co., Ltd. v. Great Lakes Chem. Corp. (documents in possession of Japanese corporate parents were in plaintiff's possession for purposes of document production); Camden Iron & Metal, Inc. v. Marubeni Am. Corp. (subsidiary had sufficient influence over the parent to justify finding that the parent’s documents were within its control); Gerling Int'l. Ins. Co. v. C.I.R. (“Where the relationship is … thus such that the agent-subsidiary can secure documents of the principal-parent to meet its own business needs and documents helpful for use in the litigation, the courts will not permit the agent-subsidiary to deny control for purposes of discovery by an opposing party.”); and Cooper Indus., Inc. v. British Aerospace, Inc. (wholly-owned subsidiary required to produce documents from foreign corporate affiliate where it was adequately demonstrated that the subsidiary could obtain manuals and related documents from the affiliate related to the products in question).
In short, depending on the jurisdiction, counsel should be cognizant that there may very well be a need to coordinate discovery with the company’s third party vendors. Further, companies should be aware that respecting corporate formalities might not be sufficient in and of itself to prevent the company from being ordered to produce documents in the hands of a foreign parent or affiliate. While this is never welcome news, early notice to these non-parties could, at a minimum, help streamline discovery and, in some cases, help avoid discovery sanctions.
In the next segment, we will discuss what courts have viewed as “indicia of control” for Rule 34(b) purposes, looking in particular at a company’s “practical ability” to obtain documents maintained by third party consultants, contractors, and vendors.