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In re Vivendi Universal

May 28, 2009



Third party witness Ernst & Young LLP (U.S.) ("E&Y-U.S.") objects to Magistrate Judge Pitman's order, dated January 9, 2009 (the "Magistrate's Order"), compelling discovery of various documents in its possession. For the reasons stated below, the Court denies the objection.


Familiarity with the Magistrate's Order is assumed. The Court here provides only a brief summary of the facts and conclusions set forth therein.

This dispute concerns a subpoena served on E&Y-U.S. by class plaintiffs. In the subpoena, plaintiffs demanded production of all documents relating to audits of Vivendi's U.S. subsidiaries undertaken by E&Y-U.S. at the request of Vivendi's two statutory auditors, the French accounting firms of Ernst & Young et Autres ("E&Y-France") and Salustro-Reydel (a firm unaffiliated with E&Y-U.S.). (Magistrate's Order at 2-3.) A similar though broader request for audit workpapers was made to the statutory auditors through letters rogatory. In two separate French proceedings, the statutory auditors objected to production on the basis that doing so would violate their confidentiality obligations under French law. (Id.) The Paris Court of First Instance, as regards Salustro-Reydel, and the Nanterre Court of First Instance, as regards E&Y-France, found that France's professional secrecy laws did bar production of Vivendi audit documents by the statutory auditors. (Id. at 4-5.)

In opposing production of workpapers located in the United States, E&Y-U.S. argued to the magistrate, and argues again to this Court, that it is bound by the same professional secrecy laws that barred the statutory auditors' production in France of Vivendi audit documents. (E&YU.S. Br. at 2-3.) Under French law, it argues, Vivendi's statutory auditors are permitted to hire whatever "experts or employees" they choose in performing their auditing function for Vivendi. (Id.) These experts are vested with the same investigative powers as the statutory auditors and are bound by the same "professional secrecy in respect of all facts, actions and information of which they have knowledge on account of their functions." (Id.) Here, Vivendi's statutory auditors hired E&Y-U.S. from approximately October 30, 2000 to August 14, 2002 to perform auditing and accounting services for Vivendi subsidiaries located in the United States. (Magistrate's Order at 2.) E&Y-U.S. argues that because the statutory auditors hired it as an "expert", it is bound by France's professional secrecy laws even though it performed its work in the United States and the documents are located here. (E&Y-U.S. Br. at 3.) It further argues that, like the statutory auditors, it is subject to criminal liability under French law if it violates professional secrecy. (Id.)

In contrast, plaintiffs argue that production is required for the simple reason that the Court has jurisdiction over E&Y-U.S. and that E&Y-U.S. has control over responsive documents located here. (Id.) E&Y-U.S. does not dispute the jurisdiction of this Court and concedes that it has in its possession approximately 38 boxes of documents responsive to plaintiffs' subpoena. (Magistrate's Order at 8-9.) E&Y-U.S. responds that jurisdiction and possession are dispositive only of whether the Court has the power to compel production, not whether the Court should compel production. (E&Y-U.S. Br. at 14-15.) To determine whether the Court should compel production, E&Y-U.S. argues that the Court must apply a comity analysis. (Id.) Under such a comity analysis, E&Y-U.S. claims, the subpoena should be quashed. (Id.)

In his order, the magistrate judge granted plaintiffs' motion to compel. (Magistrate's Order at 12.) He first held that no "true conflict" existed between France's professional secrecy laws and the Federal Rules of Civil Procedure because E&Y-U.S. had "not sustained its burden of demonstrating" such a conflict. (Id. at 7.) Specifically, the magistrate judge found decisive E&Y-U.S.'s failure to cite French legal authorities defining an "expert" under French law. (Id.) Having insufficient authority to conclude that E&Y-U.S. was subject to criminal liability under French law and citing E&Y-U.S.'s burden when resisting a subpoena, the magistrate judge held that French law should not be an impediment to enforcement of the subpoena. (Id.)

The magistrate judge further held that even if there was a conflict, a comity analysis supported production. Citing Minpeco, S.A. v. Conticommodity Services, Inc., 116 F.R.D. 517, 523 (S.D.N.Y. 1987), he proceeded to weigh four factors in the comity analysis: (1) the competing interests of France and the United States; (2) the hardship to E&Y-U.S. if it complied with the subpoena; (3) the importance of the documents requested; and (4) E&Y-U.S.'s good faith in resisting the subpoena. (Id. at 9-10.) The magistrate judge found that the first three factors favored plaintiffs while the last was neutral. (Id. at 10-12.) The first factor favored plaintiffs because the United States' interest in enforcing its securities laws was strong, while the French interest in enforcing its professional secrecy laws extraterritorially against U.S. entities was weak. (Id.) The second factor also favored plaintiffs because any hardship to E&Y-U.S. stemmed from its potential prosecution by French authorities-a possibility that the magistrate judge found was "remote". (Id.) The third factor favored plaintiffs because "it would be extremely surprising if [E&Y-U.S.] did not have at least some relevant documents." (Id. at 11.) Finally, the fourth factor is neutral because E&Y-U.S. resisted on the basis of its French counsel's good faith belief that French law barred production. (Id. at 11-12.) On balance, the magistrate held that comity militated in favor of granting the motion to compel. (Id. at 12.)

E&Y-U.S. makes the following objections to the magistrate judge's analysis: (1) the magistrate ignored the unrebutted declarations of a French auditor and a French attorney, each of which supported a finding that France's professional secrecy laws bound E&Y-U.S.; (2) the magistrate ignored an unrebutted declaration of a French attorney stating that the possibility of prosecution for breach of France's professional secrecy laws is not remote; (3) the magistrate ignored the decisions issued by French courts when they could be fairly read to encompass the documents in dispute; (4) the magistrate applied a relevancy standard to the comity analysis when he should have applied a higher standard; and (5) the magistrate confused its power to compel with the proper exercise of that power under a comity analysis. (E&Y-U.S. Br. at 1-2.)


Review of a magistrate judge's decision depends on whether the matter at issue is a dispositive or non-dispositive matter under Federal Rules of Civil Procedure 72 and 28 U.S.C. § 635(b)(1). Thomas E. Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522, 525 (2d Cir. 1990). Where the matter is non-dispositive, the district court must review the magistrate's order only when timely objection is made, and it may only "modify or set aside any part of the order that is clearly erroneous or is contrary to law." Fed. R. Civ. P. 72(a); 28 U.S.C. § 635(b)(1)(A); Williams v. Beemiller, Inc., 527 F.3d 259, 264 (2d Cir. 2008). The "clearly erroneous" or "contrary to law" standard is applicable to the dispute at hand because an order to compel under Rule 45 of the Federal Rules of Civil Procedure is non-dispositive. Thomas E. Hoar, Inc., 900 F.2d at 525 ("Matters concerning discovery generally are considered 'nondispositive' of the litigation.").

Taking E&Y-U.S.'s last objection first, the Court concludes that the magistrate judge did not confuse "can compel" with "should compel". While the magistrate could have considered the issues of jurisdiction and custody of the documents first, the Magistrate's Order concludes its treatment of these issues with "this Court can compel E&Y-U.S. to produce these documents." (Magistrate's Order at 9.) Nowhere does the magistrate conclude that "can" implies "should". Furthermore, this Court rejects plaintiffs' position that jurisdiction and custody of the documents were sufficient grounds for the magistrate's decision. A comity analysis is generally required. See First Am. Corp. v. Price Waterhouse LLP, 154 F.3d 16, 22 (2d Cir. 1998) (noting the requirements of comity when deciding whether to enforce a subpoena requesting documents located abroad).

The magistrate judge correctly noted that a comity analysis is necessary only if a true conflict exists between the rules of discovery and French law. See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 798 (1993) ("We have no need in this litigation to address other considerations that might inform a decision to refrain from the exercise of jurisdiction on grounds of international comity [when no true conflict exists]."); In re Maxwell Comm'n Corp., 93 F.3d 1036, 1049 (2d Cir. 1996) ("International comity comes into play only when there is a true conflict between American law and that of a foreign jurisdiction."). Where the forum's law requires production, the party resisting production bears the burden of demonstrating that a conflict of law exists. See In re Grand Jury Proceedings, 40 F.3d 959, 964 (9th Cir. 1994) ("A party relying on foreign law to contend that a district court's order violates principles of international comity bears the burden of demonstrating that the foreign law bars compliance with the order."); see also United States v. Constr. Prods. Research, Inc.,73 F.3d 464, 473 (2d Cir. 1996) ("The party asserting the privilege must establish the essential elements of the privilege.") Here, the magistrate correctly held that E&Y-U.S. bears the burden of proving that French law bars it from producing the requested documents.

In this Court's view, E&Y-U.S. has met that burden. Under Rule 44.1 of the Federal Rules of Civil Procedure, it is for the court to determine the content of foreign law, and such a determination is not a finding of fact but a "ruling on a question of law." Fed. R. Civ. P. 44.1. The court may examine a wide array of materials to determine foreign law, Fed. R. Civ. P. 44.1, but it is under no obligation to do so if the party whose burden it is fails to produce sufficient evidence that foreign law applies. Loebig v. Larucci, 572 F.2d 81, 85 (2d Cir. 1978) ("Rule 44.1 of the Federal Rules of Civil Procedure permits parties to present information on foreign law, and the court may make its own determination of foreign law based on its own research, but it is not mandatory that it do so."); In re Nigeria Charter Flights Contract Litig., 520 F. Supp. 2d 447, (E.D.N.Y. 2007) (collecting cases). Here, the magistrate did not err, as E&Y-U.S. contends, because it failed to hear oral argument or request additional materials from the parties. However, a plain reading of the unrebutted materials submitted by E&Y-U.S. demonstrates that French law does indeed bar production of the requested documents. Article L, 822-15 of the Code de commerce states clearly that "the statutory auditors and their employees and experts are bound by professional secrecy in respect of all facts, actions and information of which they have knowledge on account of their functions." (emphasis added) The French courts in Paris and Nanterre have also held that France's professional secrecy laws bar the statutory auditors from producing the same documents requested from E&Y-U.S. (Magistrate's Order at 4-5.) In light of the express language in Article L, ...

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