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

Background

CRRC argued that Sun Group had to request documents located in China through the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters. Sun Group argued that CRRC had to provide the documents under the Federal Rules of Civil Procedure and that the Hague Convention did not apply.

The court described a two-step analysis. First, CRRC had to show that Chinese law prohibited it from producing the requested documents. Second, CRRC had to show that the facts of the case and the sovereign interests involved justified requiring Hague Convention procedures.

Chinese-Law Analysis

CRRC relied on Article 277 of China’s Civil Procedure Law, an opinion from its Chinese-law expert Jinhua Wei, and a letter from China’s Ministry of Justice. The court found that this evidence showed that producing physical documents located in the People’s Republic of China in response to Sun Group’s discovery requests would violate Article 277. The court therefore proceeded to the second step.

Balancing of Interests

The court applied a balancing test addressing the importance and specificity of the requested documents, the location of the information, alternative ways to obtain it, the interests of the United States and China, and the hardship to CRRC.

The first two factors favored Hague Convention procedures because Sun Group’s requests were broad and extended beyond the April 2014 agreement involved in the remaining claims. The location of the evidence also favored those procedures when the responsive documents were physically in China. The court found that discovery from CRRC MA might provide a substantially equivalent alternative for some documents. The national-interest factor was neutral at that time, although the court stated that the balance could favor discovery under the federal rules if Sun Group could not obtain documents necessary to litigate its claims. The hardship factor only slightly favored Hague Convention procedures because CRRC presented no evidence of likely criminal prosecution, civil penalties, or other consequences.

On balance, the court found that the factors favored requiring use of the Hague Convention. It stated that this conclusion could change if Sun Group could not obtain necessary documents through the Hague Convention or from CRRC’s subsidiaries.

Electronic Documents

The court held that the Hague Convention procedures applied only to materials physically located in China. It ruled that electronic documents were not actually located in China, even when stored on servers there, because their location was only virtual. To the extent CRRC or CRRC North America Incorporated could access responsive electronic documents from computers in the United States, CRRC was required to obtain and produce them under the Federal Rules of Civil Procedure. The court stated that doing so would not be an action outside the United States and would not implicate Article 277.

Documents Held by Subsidiaries

Sun Group sought documents related to CRRC MA, CRRC Sifang America, CRRC Qingdao Sifang, TRC, and CRRC Tangshan. The court explained that a party must produce documents in its possession, custody, or control, with control meaning a legal right to obtain documents on demand. Because CRRC asserted that it lacked that legal right over CRRC MA’s documents, the court did not order CRRC to demand them. Sun Group was directed to continue third-party discovery against CRRC MA. If that discovery and discovery from CRRC were insufficient, Sun Group could pursue discovery to determine whether CRRC had enough control over CRRC MA to require production of CRRC MA’s documents.

Disposition

The court GRANTED Sun Group’s administrative motion to provide additional evidence. It FURTHER ORDERED the parties to proceed through the Hague Convention to obtain physical documents located in China. The court stated that it could revisit that issue if Sun Group did not actually receive documents necessary to litigate its claims. It also scheduled a further case-management conference for February 10, 2020, and directed the parties to provide a detailed discovery update.