Intex Recreation Corp. v. Bestway USA, Inc.
Intex Recreation Corp. v. Bestway USA, Inc.
2023 WL 11964260 (C.D. Cal. 2023)
October 30, 2023

Eick, Charles F.,  United States Magistrate Judge

Possession Custody Control
Failure to Produce
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Summary
The court is considering a motion to compel the plaintiff to identify custodians and produce relevant ESI from a Chinese company. The dispute centers around whether the plaintiff has control over the ESI and if the refusal to produce it would breach a contractual obligation. The court determines that the plaintiff has the practical ability to obtain the ESI and that Chinese law does not bar the discovery.
Additional Decisions
INTEX RECREATION CORP.
v.
BESTWAY (USA), INC., ET AL
Case No. CV 19-8596-JAK(Ex)
United States District Court, C.D. California
Filed October 30, 2023

Counsel

Matthew James Spegele, R. Trevor Carter, Reid E. Dodge, Louis T. Perry, Andrew M. McCoy, Joshua DeAmicis, Pro Hac Vice, Faegre Drinker Biddle and Reath LLP, Indianapolis, IN, Doowon R. Chung, David R. Merritt, Pro Hac Vice, Faegre Drinker Biddle and Reath LLP, Minneapolis, MN, Luke E. Steffe, Pro Hac Vice, Faegre Drinker Biddle and Reath LLP, Denver, CO, Tarifa Belle Laddon, Faegre Drinker Biddle and Reath LLP, Los Angeles, CA, for Intex Recreation Corp.
Ben M. Davidson, Davidson Law Group ALC, Calabasas, CA, James Cleland, John S. Artz, Sharae L. Williams, Pro Hac Vice, Dickinson Wright PLLC, Ann Arbor, MI, Michael David Saunders, Dickinson Wright PLLC, Austin, TX, Oliver F. Ennis, Pro Hac Vice, Dickinson Wright PLLC, Chicago, IL, Steven A. Caloiaro, Dickinson Wright PLLC, Reno, NV, for Bestway (USA), Inc., et al.
Eick, Charles F., United States Magistrate Judge

Proceedings: (IN CHAMBERS)

*1 The Magistrate Judge has read and considered all papers filed in support of and in opposition to “Defendants' Motion to Compel Plaintiff's ESI Custodians and Documents” (“the Motion”), filed October 10, 2023. The previously noticed November 3, 2023 hearing is vacated. The Magistrate Judge has taken the Motion under submission without oral argument.
The Motion principally seeks to compel Plaintiff to identify custodians of, and to produce relevant electronically stored information (“ESI”) possessed by, a Chinese company named Intex Industries Xiamen Co. Ltd. (“Intex Xiamen”). Plaintiff and Defendants dispute whether Plaintiff has the requisite “control” over the relevant ESI possessed by Intex Xiamen so as to make the ESI subject to party discovery in this action.
In the Ninth Circuit, “control” is defined “as the legal right to obtain documents upon demand.” United States v. Int'l Union of Petroleum and Indus. Workers AFL-CIO, 870 F.2d 1450, 1452 (9th Cir. 1989). A “practical ability” to obtain documents, as distinguished from a “legal right” to do so, is insufficient to constitute “control.” In re Citric Acid Litig., 191 F.3d 1090, 1107-08 (9th Cir. 1999), cert. denied, 529 U.S. 1037 (2000). However, where the refusal of a demand for documents would breach a contractual obligation, the requisite “control” exists. See In re Citric Acid Litig., 191 F.3d at 1107-08 (dicta); Anderson v. Cryovac, Inc., 862 F.2d 910, 928-29 (1st Cir. 1988). “The party seeking production of the documents ... bears the burden of proving that the opposing party has such control.” United States v. Int'l Union of Petroleum and Indus. Workers AFL-CIO, 870 F.2d at 1452.
Approximately ten years ago, Plaintiff and Intex Xiamen entered into an assignment contract with respect to intellectual property which resulted in patents relevant to this action. See Exhibit E to Declaration of Steven A. Caloiaro, filed October 10, 2023.[1] By its terms, this contract must be “construed under the laws of the State of California, U.S.A.” (Doc. 144-6, p. 8). By entering into this contract, Intex Xiamen expressly promised “to cooperate with [Plaintiff] in every way possible in obtaining evidence and going forward with ... litigation” concerning “any resulting patents” (Doc. 144-6, p. 7).
Under California law, “[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” Cal. Civ. Code § 1636. “When a contract is reduced to writing, the parties' intention is determined from the writing alone, if possible. (Civ. Code § 1639). The words of the contract are to be understood in their ordinary and popular sense. (Civ. Code § 1644 ...).” Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., 109 Cal. App. 4th 944, 955, 135 Cal. Rptr. 2d 505 (2003) (quotations omitted); see Cal. Civ. Code § 1638 (“The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.”); see also M&G Polymers USA, LLC v. Tackett, 574 U.S. 427, 435 (2015) (“Where the words of a contract in writing are clear and unambiguous, its meaning is to be ascertained in accordance with its plainly expressed intent.”) (citations and quotations omitted). Here, the parties' mutual intention at the time of contracting is determinable from the clear and explicit words of the contract alone. The parties plainly intended to include in the contract an obligation on the part of Intex Xiamen to provide to Plaintiff on demand evidence in Intex Xiamen's possession relevant to litigation concerning the patents.
*2 Plaintiff argues for a contrary interpretation of the contract, relying on self-interested declarations from negotiation participants regarding the supposed “understanding” of Plaintiff and Intex Xiamen. According to Plaintiff (and these declarants), the provision quoted above was always “understood” not to impose any obligation on Intex Xiamen whatsoever. According to Plaintiff and the declarants, Intex Xiamen always retained the absolute right to grant, or to refuse, any request by Plaintiff for any evidence relevant to any litigation. See Declarations of Chris Hsu and Matthew Whalen, filed October 12, 2023.
Plaintiff's argument is unpersuasive. The parties' mutual intention is determinable from the contract wording itself, understood in the ordinary sense of the wording. There is no need for extrinsic evidence. Moreover, the self-interested extrinsic evidence offered here seeks to prove a meaning to which the contract is not reasonably susceptible. Such evidence is not permissible. See Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., 109 Cal. App. 4th at 955-56. Furthermore, “California recognizes the objective theory of contracts.” Id. at 956. “The parties' undisclosed intent or understanding is irrelevant to contract interpretation.” Id. Finally, the interpretation for which Plaintiff argues would transform Intex Xiamen's express promise “to cooperate with [Plaintiff] in every way possible in obtaining evidence” into an essentially illusory promise. “An interpretation rendering contract language nugatory or inoperative is disfavored.” Id. at 957; see M&G Polymers USA, LLC v. Tackett, 574 U.S. at 440 (the “illusory promises doctrine” “instructs courts to avoid constructions of contracts that would render promises illusory ...”) (dicta). Plaintiff should not be permitted to avoid its discovery obligations by denying, abandoning or refusing to enforce its contractual rights.
Plaintiff also argues that two provisions of Chinese law supposedly bar the discovery sought: People's Republic of China (“PRC”) Data Security Law (“DSL”), Article 36 and PRC Civil Procedure Law, Article 284. Plaintiff has the burden of demonstrating that foreign law bars the discovery. See In re Grand Jury Proc., 873 F.2d 238, 239-40 (9th Cir. 1989); Cadence Design Systems, Inc. v. Syntronic AB, 2022 WL 2290593, at *3 (N.D. Cal. June 24, 2022). In attempting to carry this burden, Plaintiff appears to rely solely on the declaration of Chris Hsu. Mr. Hsu reportedly is an “Assistant General Manager” of Intex Xiamen. Mr. Hsu is neither an attorney nor a law professor. Mr. Hsu neither claims nor demonstrates any expertise with respect to the laws of China. Nevertheless, Mr. Hsu declares that both PRC DSL, Article 36 and PRC Civil Procedure Law, Article 284 forbid Intex Xiamen from even voluntarily producing any ESI without “the approval from competent Chinese authorities for each and every document” (Doc. 146-2, p. 40).[2] Mr. Hsu's opinions regarding Chinese law do not qualify for admission under Federal Rules of Evidence 701 or 702. Furthermore, as discussed below, Mr. Hsu's opinions are mistaken.
*3 A court's determination of a foreign country's law is a “ruling on a question of law.” Fed. R. Civ. P. 44.1. In making such a ruling, the court may conduct its own independent legal research without formal notice to the parties, and the court may rely on the “relevant materials” consulted during the court's research, including scholarly treatises and English language translations of the foreign country's statutes and case law. See G&G Productions LLC v. Rusic, 902 F.3d 940, 948-49, 954 (9th Cir. 2018); see also De Fontbrune v. Wofsy, 838 F.3d 992, 997-98 (9th Cir. 2016) (Rule 44.1 makes the “process of ascertaining foreign law equivalent to the process for determining domestic law, insofar as possible”). Thus, in ruling on an issue of foreign law, a court need not rely on the testimony of any party's purported expert on foreign law. See id. Indeed, a court often will do well not to rely on any such testimony. See Sunstar, Inc. v. Alberto-Culver Co., 586 F.3d 487, 495-96 (7th Cir. 2009), cert. denied, 560 U.S. 906 (2010) (“[T]he lawyers who testify to the meaning of foreign law, whether they are practitioners or professors, are paid for their testimony and selected on the basis of the convergence of their views with the litigating position of the client or their willingness to fall in with the views urged upon them by the client. Those are banes of expert testimony.... Relying on paid witnesses to spoon feed judges is justifiable only when the foreign law is the law of a country with such an obscure or poorly developed legal system that there are no secondary materials to which the judge could turn.”).
PRC DSL, Article 36 does not bar the discovery sought. Article 36 provides:
The competent authorities of China shall in accordance with the relevant laws and the international treaties and agreements concluded or acceded to by China, or on the principle of equality and mutual benefit, handle the requests for data made by foreign judicial or law enforcement authorities for the provision of data. No organization or individual within the territory of China may provide foreign judicial or law enforcement authorities with data stored within the territory of China without the approval of the competent authorities of China.
“Cross-Border Provision of Information Under New Chinese Data Protection Legislation,” 16 No. 1 Disp. Resol. Int'l 85, p. 4 (2022) (emphasis added).
By its terms, Article 36 impacts only requests for data “made by foreign judicial or law enforcement authorities” where the data is to be provided to “foreign judicial or law enforcement authorities.” As courts uniformly have held, Article 36 “is inapplicable to ... any information produced in response to an FRCP discovery request.” In re Valsartan, Losartan, and Irbesartan Products Liab. Litig., 2021 WL 6010575, at *10 (D. N.J. Dec. 20, 2021); see Philips Med. Sys. (Cleveland), Inc. v Buan, 2022 WL 602485, at *6 (N.D. Ill. March 1, 2022) (parties “failed to demonstrate that this law applies here. The DSL requires review by the Supreme People's Court before a Chinese individual or organization may provide data in response to requests ‘made by foreign judicial or law enforcement authorities.’ ... Unlike in civil law jurisdictions where the judge takes a leading role in collecting evidence, discovery requests and responses thereto in the American common law system are traded between the parties.... While the court oversees the process, it does not make the request and is not involved in the stewardship or use of the exchanged information – in other words, the data is not provided ‘to the U.S. court.’ ... On its own terms, therefore, [Article 36's] review and approval requirements do not appear to apply to the American civil discovery process.”) (citations and quotations omitted); see also Motorola Solutions, Inc. v. Hytera Communications Corp. Ltd., 2023 WL 5956992, at *5 (N.D. Ill. Sept. 12, 2023) (“Hytera has not directed the Court to any case where a court has held that Article 36 of the DSL blocks the production of Chinese data in the context of the exchange of discovery between the parties. As such, Hytera has not met its burden to show that Article 36 of the DSL bars the production of [the documents].”). Further, the stated goals and the stated intent of the DSL concern preventing the dissemination of data potentially harmful to the “national security” of China. See In re Valsartan, Losartan, and Irbesartan Products Liab. Litig., 2021 WL 6010575, at *7-8. There is no suggestion in the present record that ESI concerning inflatable spas could possibly harm the “national security” of China.
*4 PRC Civil Procedure Law, Article 284 also does not bar the discovery sought. Article 284 provides:
Request for, and provision of, judicial assistance shall be carried out via the channels stipulated in the international treaty concluded or participated in by China; where there are no treaty relations, requests for and provision of judicial assistance shall be carried out via diplomatic channels.
An embassy or consulate of a foreign country based in China may serve documents on a citizen of that foreign country and carry out investigation and collection of evidence but shall not violate the laws of China and shall not adopt mandatory measures.
Except for the circumstances stipulated in the preceding paragraph, no foreign agency or individual shall carry out service of documents, investigation and collection of evidence in China without the consent of the relevant administrative authorities of China.
“Cross-Border Provision of Information Under New Chinese Data Protection Legislation,” 16 No. 1 Disp. Resol. Int.'l 85, pp. 3-4 (2022) (emphasis added).
Here, the “collection of evidence” would not be “carried out” by any “foreign agency or individual.” Rather, a Chinese entity, Intex Xiamen, would “carry out” the “collection of evidence” for purposes of honoring its contractual obligations. Thus, Article 284 would not be implicated. See id., p. 6 (“The Civil Procedure Law expressly imposes no prohibition on the [Chinese] entities' ability to provide evidence in civil cases to foreign courts on their own initiative”).
Assuming, arguendo, one or both of the cited Chinese laws would purport to bar the discovery sought, the result herein would remain the same. “It is well settled that [foreign blocking] statutes do not deprive an American court of the power to order a party subject to its jurisdiction to produce evidence even though the act of production may violate that statute.” Societe Nationale Industrielle Aerospatiale v. United States Dist. Ct., 482 U.S. 522, 544 n.29 (1987) (“Aerospatiale”). Plaintiff has neither acknowledged nor addressed the question of whether, if the cited Chinese laws were applicable, this Court nevertheless should order Plaintiff to produce documents within Plaintiff's “control.” Aerospatiale sets forth five factors to be considered in the “comity analysis” required to answer this question: “(1) the importance to the ... litigation of the documents or other 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; and (5) 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.” (Id. at 544 n.28) (citation and quotations omitted).
The Magistrate Judge need not reach the “comity analysis.” See Cadence Designs Systems, Inc. v. Syntronic AB, 2022 WL 2290593, at *3 (when a party fails to meet its burden of proving that foreign law blocks the discovery, the court need not reach the party's “international comity” objection). However, if the Magistrate Judge were to reach the “comity analysis,” the Magistrate Judge would conclude under the Aerospatiale factors that the subject discovery should not be curtailed by reason of the cited Chinese laws. See, e.g., Philips Med. Sys. (Cleveland), Inc. v. Buan, 2022 WL 602485, at *6-7.
*5 Plaintiff represents that Plaintiff previously requested “voluntary” production of the subject ESI from Intex Xiamen and Intext Xiamen previously refused the request (even though, in the past, Intex Xiamen granted Plaintiff's requests for other information). Plaintiff suggests that the granting of this Motion would therefore be a futile gesture. Perhaps. In a case in which the responding party lacked “control” over documents possessed by a foreign entity (unlike the present case), another judge of this Court stated, “Thus, the Court is being asked to order [the responding party] to produce documents it does not possess from a company in Germany that the Court does not have jurisdiction over and that has already refused to produce them. Granting [the propounding party's] request under these circumstances would be a futile gesture.” Ehrlich v. BMW of North America, LLC, 2011 WL 3489105, at *1 (C.D. Cal. May 2, 2011). Perhaps there will be some difference between Intex Xiamen's response to Plaintiff's previous request for a “voluntary” production of ESI and Intex Xiamen's response to Plaintiff's forthcoming demand that Intex Xiamen honor its contractual obligation to produce the ESI. Perhaps there will be no difference. Perhaps Plaintiff will be able to enforce its contractual rights against Intex Xiamen in China. Perhaps not. Regardless, for the reasons discussed above, the law requires that the Motion be granted with respect to Intex Xiamen's custodians and Intex Xiamen's ESI. The parties forthwith shall proceed accordingly.
Except as expressly stated herein, the Motion is denied. To the extent the Motion seeks the identification of the custodians of, or the production of ESI possessed by, any “Chinese entity” other than Intex Xiamen, Defendants have failed to demonstrate that Plaintiff has “control” over the discovery sought. See In re Citric Acid Litig., 191 F.3d at 1107-08.

Footnotes

Declarations subsequently filed under seal reference two assignment contracts, but also agree that the cooperation provision discussed herein is identical in both contracts. See Declarations of Chris Hsu and Matthew Whalen, filed October 12, 2023; see also Doc. 144-13, p. 7; Doc. 144-14, p. 4.
Mr. Hsu admits that Intex Xiamen previously “has voluntarily provided some requested information to [Plaintiff],” presumably after obtaining the supposedly required “approval from competent Chinese authorities.” And yet, Mr. Hsu asserts that the “cost” of “seeking approval from competent authorities” for the ESI at issue here “would be unduly burdensome and prohibitively costly.” Given Intex Xiamen's previous “voluntary” provision of “requested information” to Plaintiff, Mr. Hsu's conclusory assertion regarding the supposed burden and cost of providing the EIS at issue here rings hollow and is rejected. The Magistrate Judge finds that, even if “approval from competent Chinese authorities” were required, such requirement would not render the subject discovery disproportional.