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Anthony Pacchia brought an action challenging a transaction through which Activision Blizzard, Inc. and an entity controlled by Activision’s two senior officers acquired more than fifty percent of Activision’s outstanding shares from Vivendi S.A., its controlling stockholder. Several of the individual defendants who served on the Activision board of directors and approved the transaction were senior officers of Vivendi (“Vivendi Directors”). Vivendi objected to the document requests that Plaintiff served on the grounds that French law generally barred the production of discovery, noting that all of its electronic documents were housed on servers in Paris, France, and could not be produced. Plaintiff filed a motion to compel seeking an order requiring Vivendi and the Vivendi Directors to produce documents in their custody and control, wherever located, in accordance with the Court of Chancery Rules and without regard to any contrary provisions of French law. The Court of Chancery largely granted the motion and directed that discovery proceed in the manner described in this decision.Receive FREE Daily Opinion Summaries by Email
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE ACTIVISION BLIZZARD, INC.
C.A. No. 8885-VCL
Date Submitted: February 11, 2014
Date Decided: February 21, 2014
Joel Friedlander, Jeffrey M. Gorris, Albert J. Carroll, BOUCHARD MARGULES &
FRIEDLANDER, P.A., Wilmington, Delaware; Jessica Zeldin, ROSENTHAL,
MONHAIT & GODDESS, P.A., Wilmington, Delaware; Lawrence P. Eagel, Jeffrey H.
Squire, BRAGAR EAGEL & SQUIRE, PC, New York, New York; Attorneys for
Raymond J. DiCamillo, Susan M. Hannigan, RICHARDS, LAYTON & FINGER, P.A.,
Wilmington, Delaware; Joel A. Feuer, Michael M. Farhang, Alexander K. Mircheff,
GIBSON, DUNN & CRUTCHER LLP, Los Angeles, California; Attorneys for
Defendants Vivendi S.A., Philippe Capron, Frédéric Crépin, Régis Turrini, Lucian
Grainge, Jean-Yves Charlier, and Jean-François Dubos.
R. Judson Scaggs, Jr., Shannon E. German, Angela C. Whitesell, MORRIS, NICHOLS,
ARSHT & TUNNELL, Wilmington, Delaware; Robert A. Sacks, Diane L. McGimsey,
SULLIVAN & CROMWELL LLP, Los Angeles, California; William H. Wagener,
SULLIVAN & CROMWELL LLP, New York, New York; Attorneys for Defendants
Robert A. Kotick, Brian G. Kelly, ASAC II LP, and ASAC II LLC.
Collins J. Seitz, Jr., Garrett B. Moritz, Anthony A. Rickey, SEITZ ROSS ARONSTAM
& MORITZ LLP, Wilmington, Delaware; William Savitt, Ryan A. McLeod,
WACHTELL, LIPTON, ROSEN & KATZ, New York, New York; Attorneys for
Defendants Robert J. Corti, Robert J. Morgado, and Richard Sarnoff.
Edward P. Welch, Edward B. Micheletti, Sarah Runnells Martin, Lori W. Will,
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware;
Attorneys for Nominal Defendant, Activision Blizzard, Inc.
LASTER, Vice Chancellor.
Plaintiff Anthony Pacchia has challenged a transaction through which Activision
Blizzard, Inc. (―Activision‖ or the ―Company‖) and an entity controlled by Activision‘s
two senior officers acquired over 50% of the Company‘s outstanding shares from
Vivendi S.A., its controlling stockholder, for approximately $8 billion in cash. The
plaintiff contends that Vivendi and the members of the Activision board of directors (the
―Board‖) breached their fiduciary duties by entering into the transaction. Six of the
eleven individual defendants who served on the Board and approved the transaction were
senior officers of Vivendi (the ―Vivendi Directors‖).
In response to document requests that the plaintiff served, Vivendi objected
generally on the grounds that French law barred the production of discovery (i) except
pursuant to the Hague Convention on the Taking of Evidence Abroad in Civil or
Commercial Matters (the ―Evidence Convention‖) and (ii) unless electronic documents
were handled in accordance with French Law No. 78-17 of January 6, 1978 on
Information Technology, Data Files and Civil Liberties (the ―Data Protection Act‖).
With one exception, the Vivendi Directors joined in this objection. The exception was a
Vivendi Director who lives in California and who agreed to search for and produce
responsive documents located in the United States. Vivendi similarly offered to produce
files located in the United States, but cautioned that all of its electronic documents were
housed on servers in Paris, France, and could not be produced.
The plaintiff has filed a motion to compel seeking an order requiring Vivendi and
the Vivendi Directors (together, the ―Vivendi Defendants‖) to produce documents in their
possession, custody, and control, wherever located, in accordance with the Court of
Chancery Rules and without regard to any contrary provisions of French law (the
―Motion to Compel‖). The Motion to Compel also seeks a ruling that depositions will be
conducted in the United States in accordance with the Court of Chancery Rules. The
Vivendi Defendants ask that the motion be denied and a protective order be entered
providing that discovery only proceed in conformity with the Evidence Convention and
that any production of electronic information comply with the Data Protection Act.
The Motion to Compel is largely granted. Discovery shall proceed as described in
The facts for purposes of the Motion to Compel are drawn from the allegations of
the Verified Second Amended Class and Derivative Complaint (the ―Complaint‖) and the
exhibits, affidavits, and declarations submitted with the briefing on the Motion to
Compel. What follows are not formal factual findings, but rather how the court views the
record for purposes of a discovery ruling.
Activision And Vivendi
Activision is a Delaware corporation with its headquarters in Santa Monica,
California. Its stock is listed on Nasdaq under the symbol ―ATVI.‖ The Company is a
leading player in the interactive entertainment software industry and one of the largest
video game publishers in the United States.
Vivendi is a société anonyme organized under the laws of France with its
headquarters in Paris, France.
Vivendi is a French multinational mass media and
telecommunication company that operates in the music, television and film, publishing,
telecommunications, the Internet, and video games sectors.
Vivendi has experience
litigating in the United States. In addition to the current litigation, it has been a plaintiff
at least four times1 and named a defendant at least twice.2
On December 1, 2007, Activision, Vivendi, and certain of their wholly owned
subsidiaries entered into a business combination agreement (the ―Business Combination
Agreement‖ or ―BCA‖). Pursuant to the BCA, Activision acquired a Vivendi subsidiary,
Vivendi Games, Inc., in exchange for issuing 295.3 million shares of Activision common
stock to a different Vivendi subsidiary, VGAC LLC. In addition, Activision issued 62.9
million shares of its common stock to Vivendi for approximately $1.7 billion. This
decision refers to the transaction as the ―Business Combination.‖
The Business Combination closed in 2008. As part of the transaction, Vivendi
gained the right to appoint six directors to the eleven-member Board.
The Challenged Transaction And This Litigation
On July 25, 2013, Activision, Vivendi, and defendant ASAC II LP (―ASAC‖)
entered into a stock purchase agreement (the ―Stock Purchase Agreement‖ or ―SPA‖).
Pursuant to the SPA, Activision agreed to purchase a Vivendi subsidiary for $5.83
billion, and ASAC agreed to purchase 171,968,042 shares of Activision common stock
from Vivendi at $13.60 per share. ASAC is an entity controlled by defendants Robert
See Vivendi S.A. v. T-Mobile, 2:06-cv-01524 (W.D. Wash.); Vivendi S.A. v. AXA Ins.
Co., 2:09-cv-08893 (C.D. Cal.); Vivendi Universal S.A. v. USANi Sub LLC, C.A. No. 319-N
(Del. Ch.); Vivendi Universal, S.A. v. Echostar Comm. Corp., 1:05-cv-00225 (S.D.N.Y.).
See In re Vivendi Universal S.A. Sec. Litig., 1:02-vc-05571 (S.D.N.Y.); Wayne Cty.
Empls.’ Retire. Sys. v. Corti, C.A. No. 3534-CC (Del. Ch.).
Kotick and Brian Kelly, the Company‘s two most senior executives. The transaction
closed in October 2013. This decision refers to that transaction as the ―Restructuring.‖
During the time when the Restructuring was being negotiated, and when it was
approved, the Vivendi Directors who served on the Activision Board were Philippe
Capron, Frédéric Crépin, Régis Turrini, Lucian Grainge, Jean-Yves Charlier, and JeanFrançois Dubos. Each of the Vivendi Directors was a senior executive officer of Vivendi
or one of its U.S. subsidiaries.
The Complaint alleges that Vivendi caused Activision to enter into the
Restructuring because Vivendi desperately needed liquidity. It alleges that the Vivendi
Directors threatened to take actions to generate liquidity for Vivendi if a sale of Vivendi‘s
control position was not promptly achieved. The Complaint asserts that after the Board
created a special committee to negotiate with Vivendi, the Vivendi Defendants forced the
committee to disband. According to the Complaint, Vivendi then negotiated directly with
Kotick and Kelly to structure the Restructuring to their mutual benefit. Through the
transaction, Vivendi got the liquidity it needed, Kotick and Kelly got control of
Activision, and their investment vehicle, ASAC, got to purchase shares of stock from
Vivendi at a discount to the market price. The announcement of the transaction led to an
increase in Activision‘s stock price.
As a result of the transaction bump and the
discounted price, ASAC had an unrealized gain of over $725 million as of the first day of
public trading after the transaction closed. The Complaint alleges that faithful fiduciaries
would have sought and obtained a transaction that generated greater value for Activision
and its stockholders.
The Document Requests And The Objections
On October 14, 2013, the plaintiff served a first request for production of
documents on the Vivendi Defendants. On December 11, the plaintiff served a second
request. The document requests call for the Vivendi Defendants to produce documents
relating to the Restructuring.
On January 3, 2014, counsel for the Vivendi Defendants emailed the plaintiff‘s
counsel and noted that the Vivendi Defendants would object to producing documents
located in France. Vivendi‘s counsel took the position that French Statute No. 68-678 of
July 26, 1968, as amended in 1980, commonly known as the ―Blocking Statute,‖ made it
a criminal offense for the Vivendi Defendants to respond to the document requests. See
Law No. 68-678 of July 26, 1968 relating to the Communication of Economic,
Commercial, Industrial, Financial or Technical Documents and Information to Foreign
Individuals or Legal Entities, as modified by Law No. 80-538 of July 16, 1980, available
at Affidavit of Justice Jean-Paul Beraudo (―Beraudo Aff.‖) Ex. 2. Vivendi‘s counsel also
asserted that the plaintiff only could take discovery from the Vivendi Defendants by
using the procedures and abiding by the limitations on discovery set forth in the Evidence
Convention. See Evidence Convention, opened for signature Mar. 18, 1970, 23 U.S.T.
2555, 847 U.N.T.S. 241.
On January 17, 2014, the Vivendi Defendants served formal responses to the
plaintiff‘s document requests.
General Objection No. 2 objected to the plaintiff‘s
to the extent they seek or call for information or documents located in
foreign countries without . . . complying with any legal prerequisites to
production from such foreign jurisdictions, including without limitation
(i) the 1970 Hague Evidence Convention; (ii) French Statement n° 68-678
of 26 July 1968 (as amended in 1980) (also sometimes referred to as the
―French Blocking Statute‖) . . . ; and (iii) the French Data Protection Act
N° 78-17 of January 6, 1978 as amended in August 2004, governing the
processing and transfer of personal data outside France. In light of the
competing interests of the nations whose laws are in conflict, the hardship
of compliance on the Vivendi Defendants, the relative importance of the
information requested compared with information readily available from
parties within the U.S., and the Vivendi Defendants‘ good faith willingness
to provide responsive materials following a reasonable search, any
discovery of the Vivendi Defendants should be made in compliance with
the foregoing laws. Otherwise, complying with the Document Requests
would pose a material risk of criminal liability.
Pl.‘s Mot. Compel Ex. D at 3-4 (citations omitted); accord Pl.‘s Mot. Compel Ex. E at 34 (citations omitted). This objection confirmed the Vivendi Defendants‘ earlier, informal
objection based on the Blocking Statute and added an objection based on the Data
The Blocking Statute
France adopted its initial blocking statute in 1968 as part of the French
government‘s resistance to the antitrust investigations and enforcement actions by the
United States government against international shipping cartels. The original statute
prohibited the communication, ―to foreign public authorities, [of] documents or
information relating to carriage by sea defined by Ministerial order issued by the Ministry
in charge of the merchant navy.‖ Law No. 68-678 of July 26, 1968 relating to the
Communication of Documents and Information to Foreign Authorities in the Field of
Maritime Trade, available at Beraudo Aff. Ex. 1.
In 1980, the French government adopted the current Blocking Statute, which is
more expansive in scope. Article 1 bis addresses the gathering of evidence in France. As
translated by Vivendi for purposes of the Motion to Compel, it states:
Without prejudice to international treaties or agreements and laws and
regulations in force, it is prohibited for any person to request, search for or
communicate, in writing, orally or in any other form, documents or
information of an economic, commercial, industrial, financial or technical
nature for the purposes of establishing evidence in view of foreign judicial
or administrative proceedings or in relation thereof.
Blocking Statute, art. 1 bis. Article 2 requires that persons subject to the Blocking Statute
―promptly inform the competent Minister, upon the receipt of any request concerning
such communications.‖ Id. Article 3 makes a violation of the statute a criminal offense
punishable by imprisonment of up to six months and a fine of up to €18,000. Id.
By its terms, the Blocking Statute prohibits the collection and production of
materials in France for use outside of France in civil discovery, except in compliance
with French law or an international convention such as the Evidence Convention. Its
application is not limited to responses to document requests.
Read literally, it
encompasses any attempt by a party to transmit its own evidence outside of France for
purposes of a foreign judicial proceeding. ―If taken seriously the law would effectively
prevent French parties from suing their foreign counterparts, even legitimately, because
they could be barred from exporting their supporting evidence.‖ Pierre Grosdidier, The
French blocking statute, the Hague Evidence Convention, and the case law: lessons for
French parties responding to American Discovery, Haynes & Boone, LLP 4 (Jan. 31,
2014), available at http://www.haynesboone.com/french_blocking_statute/ (citing Adidas
(Can.) Ltd. v. S.S. Seatrain Bennington, 1984 WL 423, at *3 (S.D.N.Y. May 30, 1984)
(refusing to take law ―at face value‖ as a ―blanket criminal prohibition against exporting
evidence for use in foreign tribunals‖)).
As currently applied, the recipient of a request for documents or information
prohibited by the Blocking Statute is obligated to inform the Ministry of Foreign Affairs.
Beraudo Aff. ¶ 19. Some United States courts have observed that the recipient should be
able to seek and obtain a waiver of the statute or some assurance against prosecution.
One of Vivendi‘s experts on French law, Justice Jean-Paul Beraudo, categorically rejects
this possibility: ―It is not possible to obtain permission to disclose documents, the
disclosure of which would otherwise be prohibited by [the Blocking Statute.]‖ Id. ¶ 20.
At least one violation of the Blocking Statute has been prosecuted. See In re
Avocat “Christopher X”, Cour de cassation [Cass.] [Supreme Court for Judicial Matters]
Paris, crim., Dec. 12, 2007, No. 07–83228, available at Beraudo Aff. Ex. 7 [hereinafter
Christopher X]. The Christopher X case did not involve compliance with an ordinary
discovery request. Instead, a French attorney contacted a witness and sought to elicit
information for use in litigation in the United States by making false suggestions about
what the evidence would show. The witness responded by disputing the false account
and confirming his view in writing. The attorney then used the written statement in the
U.S. case. The Criminal Chamber of the French Supreme Court affirmed the attorney‘s
conviction for violation of the Blocking Statute and the imposition of a criminal sanction
of €10,000. Id.; accord Beraudo Aff. ¶ 26.
The Evidence Convention
The language of the Blocking Statute does not apply to parties‘ efforts to take
evidence in France under any ―international treaties or agreements and [the] laws and
regulations in force.‖ Blocking Statute, art. 1 bis. Both the United States and France are
parties to the Evidence Convention.
The Evidence Convention identifies two primary mechanisms for obtaining
evidence located abroad. The first method is a Letter of Request sent by a court in the
requesting state. Evidence Convention, art. 1 (―[A] judicial authority of a Contracting
State may, in accordance with the provisions of the law of that State, request the
competent authority of another Contracting State, by means of a Letter of Request, to
obtain evidence, or to perform some other judicial act.‖). Article 3 of the Evidence
Convention identifies items that the Letter of Request should contain, including, where
appropriate ―the questions to be put to the persons to be examined or a statement of the
subject-matter about which they are to be examined‖ and ―the documents or other
property, real or personal, to be inspected.‖ Id. art. 3(f)-(g). When responding to a Letter
of Request, the recipient judicial authority ―shall apply its own law as to the methods and
procedures to be followed.‖ Id. art. 9. The Evidence Convention contemplates, however,
that the recipient judicial authority ―will follow a request of the requesting authority that
a special method or procedure be followed, unless this is incompatible with the internal
law of the State of execution or is impossible of performance by reason of its internal
practice and procedure or by reason of practical difficulties.‖ Id. Article 9 states that ―[a]
Letter of Request shall be executed expeditiously.‖ Id.
The second method authorizes diplomatic officers, consular agents, or appointed
commissioners of the requesting state to collect evidence. Id. arts. 15-17. Under these
provisions, the collection of evidence must conform to the laws of the requested state. Id.
Article 23 of the Evidence Convention provides that ―[a] Contracting State may at
the time of signature, ratification or accession, declare that it will not execute Letters of
Request issued for the purpose of obtaining pre-trial discovery of documents as known in
Common Law countries.‖ Id. art. 23. When acceding to the Evidence Convention in
1974, France declared pursuant to article 23 that ―Letters of Request issued for the
purpose of obtaining pre-trial discovery of documents as known in Common Law
countries will not be executed.‖ Beraudo Aff. ¶ 35. The 1974 declaration effectively
prevented discovery in France except pursuant to the commissioner method and in
compliance with French law.
In 1987, the French authorities modified their declaration by stating that
[t]he declaration made by the French Republic in accordance with Article
23 relating to Letters of Request issued for the purpose of obtaining pretrial discovery of documents does not apply when the requested documents
are enumerated limitatively in the Letter of Request and have a direct and
precise link with the object of the procedure.
Id. Justice Beraudo states that the 1987 declaration is ―applied practically.‖ Id. ¶ 36. He
says that French authorities will accommodate a Letter of Request that contains ―a
general presentation of the dispute, explaining why the documents are requested.‖ Id.
He further states that French authorities understand ―that the requesting party‘s
knowledge of the documents is incomplete‖ and do not require an exact description. Id.
Justice Beraudo opines that the plaintiff‘s document requests meet the applicable
standards, with the exception of items 14 and 15 of the plaintiff‘s second request for
production. During oral argument, Vivendi agreed and represented that it would not
argue to the contrary before any French authority.
The Data Protection Act
The Data Protection Act reflects France‘s interest in protecting the privacy rights
of individuals. It codifies a data privacy regime established by the European Union,
which considers the privacy of personal data to be part of the ―fundamental rights and
freedoms of natural persons.‖ Directive 95/46/EC of the European Parliament and of the
Council of Europe of 24 October 1995 concerning the Protection of Individuals with
Regard to Processing of Personal Data and the Free Circulation of Such Data, art. 1,
available at Defs.‘ Opp‘n Mot. Compel Ex. 3 [hereinafter European Directive]; Data
Protection Act, art. 1, available at Defs.‘ Opp‘n Mot. Compel Ex. 15. European Union
members are required to afford ―privacy with respect to the processing of personal data.‖
European Directive, art. 1.
The Data Protection Act prohibits the disclosure of ―personal data,‖ which is
broadly defined, and requires that certain limiting steps be taken to minimize the
gathering and disclosure of personal data. See generally Declaration of Florence ChafiolChaumont (the ―Chafiol-Chaumont Decl.‖).
Key among these procedures is the
requirement that data requests be tailored in accordance with the Data Protection Act‘s
―proportionality‖ principle. This principle requires that only such information as is
―relevant and necessary‖ to the litigation be gathered and that access to non-relevant
personal data be minimized through closely circumscribed keyword searches and other
data searching tools. Chafiol-Chaumont Decl. ¶¶ 13-14. Personal data must be redacted
or replaced with pseudonyms wherever possible. Id. ¶¶ 13, 15.
For litigation in the United States, a confidentiality stipulation or protective order
must be used to ensure that appropriate privacy protection measures are taken to protect
the data privacy rights of persons identified in the materials produced. Id. ¶ 21-22.
These measures include redaction or encoding of any personal data, security measures,
and a promise to destroy or return all personal data once they have served their purpose.
Id. Compliance with the Data Protection Act is mandatory even if discovery is conducted
through the Evidence Convention. See Commission Nationale de l‘Informatique et des
Libertés, Deliberation No. 2009-474 of 23 July 2009 concerning Recommendations for
the Transfer of Personal Data in the Context of American Court Proceeding Known as
―Discovery,‖ available at Defs.‘ Opp‘n Mot. Compel Ex. 2.
A first violation of the Data Protection Act is punishable by criminal sanctions of
up to €150,000 and imprisonment of up to five years, with a subsequent violation
punishable by sanctions of up to €300,000.
Data Protection Act, art. 47.
Commission Nationale de l‘Informatique et des Libertés is the French Data Protection
Authority charged with enforcing the Data Protection Act. Since 2006, there have been
at least a dozen decisions by the Commission imposing monetary sanctions, including a
€150,000 sanction against Google on January 3, 2014. Chafiol-Chaumont Decl. ¶ 23.
Notably, the sanction against Google was based on Google merging ―into one single
policy the different privacy policies applicable to about sixty of its services,‖ thereby
affecting ―[n]early all Internet users in France,‖ not the gathering of emails in response to
a discovery request. Pl.‘s Reply Mot. Compel Ex. C. The Vivendi Defendants are not
aware of any decision imposing sanctions for a violation of the Data Protection Act in
connection with a party‘s efforts to respond to discovery requests.
The Motion To Compel
On January 21, 2014, the plaintiff filed the Motion to Compel. In their opposition,
the Vivendi Defendants faulted the plaintiff for not meeting and conferring regarding a
protocol for conducting discovery under the Evidence Convention and complying with
the Data Protection Act before filing. By that point, it had become clear that the parties
disagreed over a fundamental issue: whether the plaintiff had to comply with French law
when conducting discovery in this court. The parties had conferred on that issue and
exchanged authorities supporting their responsive positions.
The plaintiff acted
appropriately by filing the Motion to Compel.
On January 24, 2014, the Vivendi Defendants produced some 2,000 pages of
documents found in custodian files located in the offices of Vivendi‘s U.S. subsidiary.
The Vivendi Defendants claim that many responsive materials can be found in the United
States, because employees of Vivendi‘s U.S. subsidiary were involved in the
Restructuring and because Grainge lives in California.
The Motion to Compel turns on the legal implications of the Blocking Statute and
the Data Protection Act. The Delaware Supreme Court has not had the opportunity to
address how a Delaware court should proceed when confronted with a foreign statute that
purports to block discovery or mandate compliance with certain procedures. Nor has the
Court of Chancery. The Delaware Superior Court has reviewed a discovery master‘s
recommendation regarding whether to require parties to use the Evidence Convention to
obtain discovery from Finland and agreed that discovery could proceed under the Rules
of Civil Procedure. See In re Asbestos Litig., 623 A.2d 546, 550 (Del. Super. 1992).
Outside of Delaware, courts have frequently addressed whether parties to litigation
in American courts can obtain relief from customary discovery requests by invoking
foreign laws. The United States Supreme Court has considered the issue twice. See
Société Nationale Industrielle Aérospatiale v. U.S. Dist. Ct. for S. Dist. of Iowa, 482 U.S.
522, 524 (1987); Société Nationale pour Participations Industrielles et Commerciales,
S.A. v. Rogers, 357 U.S. 197 (1958). On both occasions, the United States Supreme
Court held that an American court has the power to require a party to respond to
discovery conducted in accordance with the Rules of Civil Procedure, although the court
must make a discretionary determination about whether to do so on the facts of the case.
See Aérospatiale, 482 U.S. at 543-46; Rogers, 357 U.S. at 204-06.
The leading case is Aérospatiale, where the question presented was ―the extent to
which a federal district court must employ the procedures set forth in the [Evidence]
Convention when litigants seek answers to interrogatories, the production of documents,
and admissions from a French adversary over whom the court has personal jurisdiction.‖
482 U.S. at 524. The defendants in the underlying action were French corporations sued
in tort for manufacturing and selling a defective airplane. When the plaintiffs served
requests for production of documents and for admissions, the French corporations moved
for a protective order, contending that the Blocking Statute prevented them from
complying and that discovery only could proceed under the Evidence Convention. The
district court, the court of appeals, and the United States Supreme Court each rejected the
French corporations‘ position. After reviewing the language, history, and purpose of the
Evidence Convention, the United States Supreme Court held that it ―does not speak in
mandatory terms which would purport to describe the procedures for all permissible
transnational discovery and exclude all other existing practices.‖ Id. at 534. The United
States Supreme Court further held that the Evidence Convention ―does not modify the
law of any contracting state, require any contracting state to use the Convention
procedures, either in requesting evidence or in responding to such requests, or compel
any contracting state to change its own evidence-gathering procedures.‖ Id. The United
States Supreme Court concluded that the Evidence Convention was ―a permissive
supplement, not a pre-emptive replacement, for other means of obtaining evidence
located abroad.‖ Id. at 536.
The Aérospatiale decision also addressed whether litigants should use the
Evidence Convention as a tool of first resort before conducting discovery under the Rules
of Civil Procedure. The United States Supreme Court declined to require use of the
Evidence Convention in the first instance, noting that ―[i]n many situations the Letter of
Request procedure authorized by the Convention would be unduly time consuming and
expensive, as well as less certain to produce needed evidence than direct use of the
[Civil] Rules.‖ Id. at 542. In reaching this holding, the United States Supreme Court
considered arguments about the ―‗judicial sovereignty‘ of the host nation‖ and the
tradition in civil law countries of having evidence gathered by a judicial officer rather
than by private attorneys. Id. at 543. The United States Supreme Court specifically held
that ―[t]he French ‗blocking statute‘ . . . does not alter our conclusion. It is well settled
that such 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.‖ Id. at 544 n.29 (citing Rogers, 357 U.S. at 204-06).
Having concluded that an American court has the power to enforce discovery
rulings under the Rules of Civil Procedure, the Aérospatiale court emphasized that a trial
court nevertheless should exercise its discretion in light of principles of comity and
should make a particularized determination based on the interests at stake in a given
case. Id. at 543-44.
American courts, in supervising pretrial proceedings, should exercise
special vigilance to protect foreign litigants from the danger that
unnecessary, or unduly burdensome, discovery may place them in a
disadvantageous position. Judicial supervision of discovery should always
seek to minimize its costs and inconvenience and to prevent improper uses
of discovery requests. When it is necessary to seek evidence abroad,
however, the district court must supervise pretrial proceedings particularly
closely to prevent discovery abuses. . . . American courts should therefore
take care to demonstrate due respect for any special problem confronted by
the foreign litigant on account of its nationality or the location of its
operations, and for any sovereign interest expressed by a foreign state.
Id. at 546. As to the Blocking Statute, the United Stated Supreme Court stated that ―[t]he
lesson of comity is that neither [an American court‘s] discovery order nor the blocking
statute can have the same omnipresent effect that it would have in a world of only one
sovereign.‖ Id. at 544 n.29. The United Stated Supreme Court held that ―[t]he blocking
statute thus is relevant to the court‘s particularized comity analysis only to the extent that
its terms and its enforcement identify the nature of the sovereign interests in
nondisclosure of specific kinds of material.‖ Id.
In a footnote, the Aérospatiale court quoted from a draft of what would become
the Restatement (Third) of Foreign Relations Law (1987) [hereinafter Restatement] to
identify factors that a court should consider when exercising its discretion:
the importance to the . . . litigation of the documents or other
the degree of specificity of the request;
whether the information originated in the United States;
the availability of alternative means of securing the information; 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.
Id. at 544 n.28 (internal quotation marks omitted).
The principles announced in Aérospatiale and Rogers are now reflected in
Sections 441 and 442 of the Restatement. Section 441 of the Restatement makes clear
that the forum state has the power to enforce its laws. Section 441(1), emended for
purposes of the current case, states: ―In general, a state [France] may not require a person
. . . (b) to refrain from doing an act [complying with discovery] in another state
[Delaware] that is required by the law of that state [Delaware] . . . .‖ Section 441(2),
emended for purposes of the current case, states: ―In general, a state [Delaware] may
require a person of foreign nationality (a) to do an act in that state [complying with
discovery requests in Delaware] even if it is prohibited by the law of the state of which he
is a national [France] . . . .‖ Comment g to Section 441 confirmed that ―[t]he principles
of this section apply to compulsion by a subdivision of a state having authority to compel
or prohibit conduct.‖ In other words, although the term ―state‖ in the Restatement refers
to sovereign international states like France and the United States, for purposes of Section
441, the reference includes subdivisions of the United States such as Delaware.
Section 442 of the Restatement applies the general principles set forth in Section
441 to the specific problem of discovery requests. Consistent with Aérospatiale and
Rogers, Section 442(1)(a) recognizes the power of an American court to order a litigant
to produce discovery located in a foreign state: ―A court . . . in the United States . . .
may order a person subject to its jurisdiction to produce documents, objects, or other
information relevant to an action or investigation, even if the information or the person in
possession of the information is outside the United States.‖ Section 442(1)(b) recognizes
the power of an American court to impose sanctions for the failure to comply with an
order to provide discovery:
Failure to comply with an order to produce information may subject the
person to whom the order is directed to sanctions, including finding of
contempt, dismissal of a claim or defense, or default judgment, or may lead
to a determination that the facts to which the order was addressed are as
asserted by the opposing party.
Section 442(1)(c) contains the list of factors cited by the Aérospatiale court as
considerations that American courts should weigh when deciding whether and how to
exercise their authority.
Section 442(2) of the Restatement provides additional guidance regarding the
actions an American court may take when a foreign statute, like the Blocking Statute or
the Data Protection Act, purports to prohibit or limit a litigant‘s ability to comply with an
American court‘s order. Under those circumstances, the Restatement states:
a court or agency in the United States may require the person to
whom the order is directed to make a good faith effort to secure
permission from the foreign authorities to make the information
a court or agency should not ordinarily impose sanctions of
contempt, dismissal, or default on a party that has failed to comply
with the order for production, except in cases of deliberate
concealment or removal of information or of failure to make a good
faith effort in accordance with paragraph (a);
a court or agency may, in appropriate cases, make findings of fact
adverse to a party that has failed to comply with the order for
production, even if that party has made a good faith effort to secure
permission from the foreign authorities to make the information
available and that effort has been unsuccessful.
The Delaware Supreme Court regards federal decisions as persuasive authority on
discovery matters. See, e.g., Appriva S’holder Litig. Co. v. EV3, Inc., 937 A.2d 1275,
1286 (Del. 2007) (―Where, as here, the Superior Court‘s Rules of Civil Procedure closely
track the Federal Rules of Civil Procedure, cases interpreting the federal rules are
persuasive authority for our construction purposes.‖); Cede & Co. v. Technicolor, Inc.,
542 A.2d 1182, 1191 n.11 (Del. 1988) (―Decisions interpreting the Federal Rules of Civil
Procedure are usually of great persuasive weight in the construction of parallel Delaware
rules; however, such decisions are not actually binding upon Delaware courts.‖ (citations
omitted)). The Delaware Supreme Court also has followed principles of law set forth in
In the Asbestos decision, the Delaware Superior Court followed
Aérospatiale, held that the Evidence Convention was not mandatory, and required a
Finnish defendant to comply with discovery requests promulgated under the Delaware
Rules of Civil Procedure, notwithstanding the fact that ―under Finnish law, it is the sole
province of the judiciary to gather evidence in civil proceedings.‖ 623 A.2d at 549-50.4
This decision therefore follows Aérospatiale and the Restatement.
See D’Angelo v. Petroleos Mexicanos, 331 A.2d 388, 391-92 (Del. 1974) (citing to an
earlier version of the Restatement for the proposition that the act of state doctrine is similar to a
conflict of laws principle: ―It is ‗similar to those conflict of laws principles that direct the choice
of a foreign law, or apply the principles of res judicata to foreign judgments, or give faith and
credit to foreign legislation or to foreign judgments, or dismiss the proceedings on the basis of
forum non conveniens.‘‖ (quoting Restatement (Second) of the Foreign Relations Law of the
United States § 41, cmts. a and c)). The Delaware Supreme Court has adopted principles
codified in other restatements of law. See, e.g., In re Peierls Family Inter Vivos Trusts, 77 A.3d
249, 255 (Del. 2013) (―When confronted with a choice-of-law issue, Delaware courts adhere to
the Restatement (Second) of Conflict of Laws.‖); Riedel v. ICI Ams. Inc., 968 A.2d 17, 20 (Del.
2009) (―Generally, to determine whether one party owed another a duty of care, we follow the
guidance of the Restatement (Second) of Torts.‖); Falconi v. Coombs & Coombs, Inc., 902 A.2d
1094, 1099 (Del. 2006) (―In the context of determining vicarious liability for a tort, this Court
has recognized the value of the Restatement (Second) of Agency as an aid in deciding whether
an individual is an employee or independent contractor.‖).
The Asbestos decision reviewed and adopted a master‘s report that reached these
conclusions. The Asbestos court applied a deferential standard of review to the master‘s report,
holding that ―[m]asters‘ decisions on pre-trial, non-dispositive issues should be reviewed under
the clearly erroneous standard, while decisions which are case dispositive or which determine
substantial issues and establish legal rights should be subject to de novo review.‖ Id. at 548. In
an appeal from a master‘s decision that had been adopted by the Court of Chancery using a
similarly deferential standard, the Delaware Supreme Court held that ―the standard of review for
a master‘s findings—both factual and legal—is de novo.‖ DiGiacobbe v. Sestak, 743 A.2d 180,
184 (Del. 1999). Because the Asbestos decision reviewed the master‘s factual findings and
discretionary rulings under a clearly erroneous standard, those aspects of the decision cannot be
regarded as precedential in light of DiGiacobbe. In my view, the Asbestos decision remains
persuasive authority as to the legal principles, because the Delaware Superior Court had to
evaluate those principles independently to reach the determination that the master‘s decision was
not ―contrary to the law.‖ 623 A.2d at 550.
This Court’s Power To Compel The Vivendi Defendants To Respond To
Discovery Conducted Under The Court of Chancery Rules
In the Vivendi Defendants‘ communications with plaintiff, in their General
Objection No. 2, and at times in their opposition to the Motion to Compel, the Vivendi
Defendants appear to take the position that because of the Blocking Statute, discovery
only can proceed under the Evidence Convention and only in compliance with the Data
Protection Act. Under Aérospatiale, Rogers, the Asbestos case, and the Restatement, that
position is incorrect. This court has the power to require foreign litigants like the Vivendi
Defendants to respond to discovery conducted under the Court of Chancery Rules. See
Aérospatiale, 482 U.S. at 543-46; Rogers, 357 U.S. at 204-06; Asbestos, 623 A.2d at 54950; Restatement §§ 441, 442(1)(a).
To the extent the Vivendi Defendants contend
otherwise, their objection to discovery is overruled.
The Discretionary Exercise Of This Court’s Power Over The Discovery
The more important question is the degree to which discovery should proceed
under the Court of Chancery Rules in light of principles of comity.
Defendants have not objected to specific categories of discovery. Instead, they request an
order compelling the plaintiff to resort first to the Evidence Convention, that information
only be produced in compliance with the Data Protection Act, and that discovery under
the Court of Chancery Rules proceed only to the extent that the foregoing avenues and
the materials obtained from other parties prove inadequate.
As suggested by the
Aérospatiale decision, this court will ―exercise special vigilance to protect foreign
litigants from the danger that unnecessary, or unduly burdensome, discovery may place
them in a disadvantageous position.‖ 482 U.S. at 546. In doing so, this court will use the
factors cited in Aérospatiale and set forth in § 442(1)(c) of the Restatement.
The Importance Of The Documents Requested
The first Restatement factor directs the court to consider the importance to the
litigation of the documents or other information requested. This factor calls on the court
to consider the degree to which the information sought is more than merely relevant
under the broad test generally for evaluating discovery requests.5
In this case, the
discovery directed to the Vivendi Defendants meets the test.
The Vivendi Defendants are not third parties or secondary players. They are
primary defendants whose actions, decisions, and related communications lie at the heart
of this proceeding. Vivendi was the controlling stockholder of Activision. The Vivendi
Directors were both directors of Activision and senior decision-makers for Vivendi. The
Complaint alleges that the Vivendi Defendants initiated the process leading to the
Restructuring and that Vivendi‘s need for liquidity drove the transaction. The Complaint
alleges that the Vivendi Defendants made threats to force a liquidity event on Vivendi‘s
timetable and caused the disbanding of a special committee formed to negotiate on behalf
See Strauss v. Credit Lyonnais, S.A., 249 F.R.D. 429, 440 (E.D.N.Y. 2008) (―Because
the scope of civil discovery in the United States is broader than that of many foreign
jurisdictions, some courts have applied a more stringent test of relevancy when applying the
Federal Rules to foreign discovery.‖); cf. Trade Dev. Bank v. Cont’l Ins. Co., 469 F.2d 35, 40-41
(2d Cir. 1972) (denying defendant‘s discovery requests for the identities of Swiss bank account
customers because such identities were irrelevant to whether a bank employee had used customer
accounts ―in furtherance of his fraudulent scheme‖); In re Two Grand Jury Subpoenas Duces
Tecum (Union Bank of Switz.), 601 N.Y.S.2d 253, 256 (N.Y. Sup. Ct. 1993) (denying the
government‘s discovery requests, in part, because the District Attorney ―conceded that the
subpoenaed material is not crucial to his Grand Jury presentation‖).
of Activision‘s minority stockholders.
The Complaint alleges that the Vivendi
Defendants then turned to Kotick and Kelly to orchestrate a liquidity-generating
transaction by exploiting Kotick and Kelly‘s self-interest as conflicted fiduciaries.
The Vivendi Defendants and other Vivendi employees doubtless had extensive
communications, conducted significant internal analyses, and deliberated before and
during the course of conduct that led ultimately to the Restructuring. Documents and
communications relating to these matters cannot be obtained from anyone else and are
essential to understand what the Vivendi Defendants did and why they did it.
Not only can this information not be obtained except from the Vivendi
Defendants, much of it cannot be obtained except from Vivendi‘s files and servers in
France. Although the Vivendi Defendants have suggested that information could be
available from Vivendi‘s U.S. subsidiary, so far the production has consisted of anodyne
materials such as the closing binder for the transaction. Perhaps more importantly,
Vivendi‘s counsel advised the court during the hearing on the Motion to Compel that all
of Vivendi‘s electronic documents are housed on its servers in Paris. There are no
backups in the United States, and none of the computers in the United States are believed
to have responsive documents.
In an era when the vast majority of information is created electronically, the
process of conducting discovery largely means the process of conducting electronic
discovery. All of the Vivendi Defendants‘ electronic discovery is located in France.
These documents and communications are not just important, they are essential to any
effort to fully and fairly litigate and try the case.
Given the plaintiff‘s allegations regarding the Vivendi Defendants‘ actions, the
court finds that the discovery sought from the Vivendi Defendants is both relevant and
vital to the litigation of the plaintiff‘s claims.
The Vivendi Defendants‘ actions,
decisions, and related communications are at the heart of this case and are not available
from other sources. Because these documents and information are highly relevant and
important to the claims in this litigation, this factor counsels in favor of conducting
discovery under this court‘s rules.
The Degree Of Specificity Of The Request
The second Restatement factor directs the court to consider the degree of
specificity of the request. The court has reviewed the plaintiff‘s document requests and
finds them to be appropriately focused and narrowly tailored for the needs of the case.
The Vivendi Defendants have agreed that the plaintiff‘s requests are ―enumeratively
limited‖ to a sufficient degree to comply with the requirements of the Evidence
Convention. The exceptions are requests 14 and 15 of the plaintiff‘s second request for
production, which are designed to prevent surprise documents from popping up at trial.
Request 14 seeks ―[a]ll documents on which you intend to rely in support of any claim or
defense in this action.‖ Request 15 seeks ―[a]ll documents you intend to introduce or
otherwise use at any hearing or trial in this action.‖ During the hearing on the Motion to
Compel, the Vivendi Defendants agreed that they would not be able to rely at trial on any
documents not previously produced in discovery, which moots the need for requests 14
The plaintiff‘s discovery requests are therefore sufficiently specific so as not to
confront the Vivendi Defendants with ―unnecessary, or unduly burdensome, discovery‖
that could place the Vivendi Defendants ―in a disadvantageous position.‖ Aérospatiale,
482 U.S. at 546. The requests do not create any concern about discovery abuse or the
improper use of discovery requests. See id. This factor counsels in favor of conducting
discovery under this court‘s rules.
Whether The Information Originated In The United States
The third Restatement factor directs the court to consider whether the information
originated in the United States. If the information originated in the United States and is
simply being stored abroad or was taken there, then the American origins of the
information and its prior presence in the United States counsel in favor of production. A
company or individual should not be able to evade discovery in American courts by
secreting information offshore.
It is not clear at this stage of the case what discoverable materials originated
where. The Vivendi Defendants have asserted that much of the work on the transaction
was conducted through its United States subsidiary, suggesting that a significant portion
of the documents and communications currently housed in France originated in the
United States. In addition, the plaintiff points out that Activision is located in California,
that Vivendi has an office in New York, that key meetings took place in New York on
January 16 and May 30, 2013, and that the special committee was disbanded at a Board
meeting held in California on June 6. Doubtless there are many other communications
exchanged among the Vivendi Directors and their colleagues who principally live and
work in France.
This factor is currently in equipoise. For documents and communications that
originated in the United States from individuals who live and work in the United States or
in connection with key meetings that occurred in the United States, this factor counsels in
favor conducting discovery under this court‘s rules. For documents and communications
that originated and remained in France, this factor counsels against conducting discovery
under this court‘s rules. It is not possible at this point to make a finer determination.
The Availability Of Alternative Means Of Securing The
The fourth Restatement factor is the availability of alternative means of securing
the information. As discussed in connection with the first factor, much of the information
that the plaintiff seeks, including all of the Vivendi Defendants‘ internal information,
only can be obtained from the Vivendi Defendants. There is no alternative source. The
Vivendi Defendants contend that the Evidence Convention provides an alternative means
of securing the information.
Whether the Evidence Convention can be used to obtain the discovery the plaintiff
seeks in timely fashion is a known unknown. The scheduling order in this matter calls
for trial to take place on December 8-12, 2014. To that end, the order called for a rolling
production of documents to begin on January 24, for substantial completion of document
production by March 31, for privilege logs and completion of remaining document
production by April 16, and for completion of non-expert fact discovery, including
depositions, by July 31.
That is a brisk schedule, but one that the experienced
practitioners who represent the parties in this case can readily meet—at least using the
discovery methods contemplated by the Court of Chancery Rules. If those methods are
employed, then there is every reason to expect that ―the most important aspect of the
scheduling order—the trial date—will be preserved.‖
Christian v. Counseling Res.
Assocs., Inc., 60 A.3d 1083, 1085 (Del. 2013).
The Vivendi Defendants posit optimistically that the parties can proceed under the
Evidence Convention and meet the deadlines in the scheduling order. The Vivendi
Defendants suggest that ―[i]n all likelihood, it would take merely a few weeks to secure
disclosure of covered documents under the letter of request procedure, and perhaps a few
months to request and complete depositions of French witnesses in France, using the less
formal commissioner process.‖ Defs.‘ Opp‘n Mot. Compel at 27.
The plaintiff is skeptical. Numerous decisions evince similar skepticism about the
efficiency, timeliness, and effectiveness of the Evidence Convention.6
See, e.g., Aérospatiale, 482 U.S. at 542 (―In many situations the Letter of Request
procedure authorized by the [Evidence] Convention would be unduly time consuming and
expensive, as well as less certain to produce needed evidence than direct use of the Federal
Rules.‖); Trueposition, Inc. v. LM Ericsson Tel. Co., 2012 WL 707012, at *5 (E.D. Pa. Mar. 6,
2012) (―[I]t must be noted that the procedures required pursuant to the . . . Evidence Convention
are much more likely to be time-consuming than the procedures under the Federal Rules.‖); In re
Air Cargo Shipping Servs. Antitrust Litig., 278 F.R.D. 51, 53 (E.D.N.Y. 2010) (―Although there
is no dispute that the [Evidence] Convention affords an alternative means for securing the
information, the outcome of a request pursuant to the [Evidence] Convention is by no means
certain, and making the request will undeniably result in delays of unknown, and perhaps
considerable, duration. Thus, the mere fact that the [Evidence] Convention provides an
alternative method for obtaining the documents is not proof that it is necessarily an effective, or
efficient, method for doing so in this case.‖); Benton Graphics v. Uddeholm Corp., 118 F.R.D.
386, 391 (D.N.J. 1987) (concluding that ―in light of the lengthy history of discovery in this case
decisions are hardly sanguine. When considering a motion to dismiss under the doctrine
of forum non conveniens, which requires evaluating the relative ease of access to proof in
Delaware versus a competing jurisdiction, the Delaware Supreme Court has described the
Evidence Convention procedures as ―circuitous‖ and ―somewhat cumbersome.‖ Ison v.
E.I. DuPont de Nemours & Co., Inc., 729 A.2d 832, 843 (Del. 1999). The Delaware
Superior Court has offered faint praise, suggesting that the Evidence Convention poses
difficulties that are ―not insurmountable.‖ Wright v. Am. Home Prods. Corp., 768 A.2d
518, 538 (Del. Super. 2000).
At present, the court cannot predict whether or not the Evidence Convention
procedures will provide an adequate alternative means of securing discovery. This factor
currently does not point either in favor of or against use of the Evidence Convention.
The Competing Interests
The final factor is a balancing of competing interests, taking into account the
extent to which the discovery sought serves important interests of the forum state versus
the degree to which providing the discovery would undermine important interests of the
foreign state. For this factor, the Blocking Statute and the Data Protection Act warrant
Delaware has a substantial interest in providing an effective forum for litigating
disputes involving the internal affairs of Delaware corporations. ―Delaware [also] [has] a
and the potential for additional delays‖ the Evidence Convention procedures were unlikely to
significant and substantial interest in actively overseeing the conduct of those owing
fiduciary duties to shareholders of Delaware.‖7 When individuals choose to serve as
directors of a Delaware corporation, their ―status as directors and their power to act in
that capacity arise exclusively under the Delaware corporation statutes,‖ and they accept
their directorships on notice ―that they [can] be [hauled] into the Delaware Courts to
answer for alleged breaches of the duties imposed on them by the very laws which
empowered them to act in their corporate capacities.‖ Armstrong, 423 A.2d at 176.
―Delaware has more than an interest in providing a sure forum for shareholder derivative
litigation involving the internal affairs of its domestic corporations. Delaware has an
obligation to provide such a forum.‖ Sternberg v. O’Neil, 550 A.2d 1105, 1125 (Del.
1988) (citation and footnote omitted). ―Delaware‘s legitimacy as a chartering jurisdiction
depends on it.‖ NACCO Indus., Inc. v. Applica, Inc., 997 A.2d 1, 26 (Del. Ch. 2009).
Armstrong v. Pomerance, 423 A.2d 174, 177 (Del. 1980); accord Ryan v. Gifford, 918
A.2d 341, 349 (Del. Ch. 2007) (―Delaware courts have a significant and substantial interest in
overseeing the conduct of those owing fiduciary duties to shareholders of Delaware
corporations.‖ (internal quotation marks omitted)); Carlton Invs. v. TLC Beatrice Int’l Hldgs.,
Inc. 1996 WL 608492, at *5 (Del. Ch. Oct. 16, 1996) (Allen, C.) (―[C]laims that a director has
breached his fiduciary duties to a Delaware corporation are of special concern to this court.‖); In
re Chambers Dev. Co., Inc. S’holders Litig., 1993 WL 179335, at *3 (Del. Ch. May 20, 1993) (―I
acknowledge that Delaware courts do have a significant and substantial interest in overseeing the
conduct of those owing fiduciary duties to shareholders of Delaware corporations.‖ (internal
quotation marks omitted)); cf. CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 93 (1987)
(recognizing that a chartering state has ―a substantial interest in preventing the corporate form
from becoming a shield for unfair business dealing‖); Roberta Romano, The Genius of American
Corporate Law 38-39 (1993) (―The most important transaction-specific asset in the chartering
relation is an intangible asset, Delaware‘s reputation for responsiveness to corporate concerns,‖
which stems from ―a comprehensive body of case law, judicial expertise in corporation law, and
administrative expertise in the rapid processing of corporate filings.‖).
The fact that this action is being pursued by a stockholder plaintiff rather than by a
government agency does not diminish Delaware‘s interest.
―Our legal system has
privatized in part the enforcement mechanism for policing fiduciaries by allowing private
attorneys to bring suits on behalf of nominal shareholder plaintiffs.‖ In re Fuqua Indus.,
Inc. S’holder Litig., 752 A.2d 126, 133 (Del. Ch. 1999).
A fundamental condition of the corporate form when stockholders are
widely dispersed, as typically occurs in public corporations, is that
individual shareholders have little incentive to bear the costs associated
with activities that monitor board of director (or management) performance.
Of course, a fundamental advantage that the corporate form offers to
owners of capital is the utility that an investor gains through centralized
Centralized management allows passive (low cost)
ownership and promotes investor diversification. Limited liability and the
entity status of a corporation similarly allow investors to be relatively
passive. While the conditions that allow investors to be rationally passive
are a primary source of utility, they can also lead to inefficiency to the
extent centralized management may have incentives that are not perfectly
aligned with those of the residual owners of the firm, which is inevitably
the case. This imperfect alignment of incentives will inevitably lead to
excess costs associated with centralized management. For that reason some
expenditures for shareholder monitoring would be efficient.
monitoring is, of course, more or less costly to the shareholder who engages
in it. In a public company with widely distributed shares any particular
shareholder has very little incentive to incur those costs himself in pursuit
of a collective good, since unless there is some method to force a sharing of
costs, he will bear all of the costs and only a (small) pro rata share of any
gains that the monitoring yields.
Bird v. Lida, Inc., 681 A.2d 399, 402-03 (Del. Ch. 1996) (Allen, C.) (footnote omitted).
Due to rational passivity, ―it is likely that in a public corporation there will be less
shareholder monitoring expenditures than would be optimum from the point of the
shareholders as a collectivity.‖ Id. at 403. Incentivized by contingent fees, specialized
law firms representing stockholder plaintiffs can ―pursue monitoring activities that are
wealth increasing for the collectivity (the corporation or the body of its shareholders).‖
Id. ―In so doing, corporations are safeguarded from fiduciary breaches and shareholders
thereby benefit.‖ Fuqua, 752 A.2d at 133. Understood from this perspective, wellfounded stockholder litigation becomes ―a cornerstone of sound corporate governance.‖
Id.; accord King v. VeriFone Hldgs., Inc., 994 A.2d 354, 356 (Del. Ch. 2010) (noting that
―[r]epresentative litigation plays an important role in protecting the interests of
stockholders,‖ but only so long as ―suits are actually filed on the basis of a real concern
that wrongdoing has occurred and after a proper investigation‖), rev’d on other grounds,
12 A.3d 1140 (Del. 2011).
In this case, each of the Vivendi Directors submitted to the jurisdiction of the
Delaware courts when they agreed to be an Activision director. 10 Del. C. § 3114. By
submitting to the jurisdiction of the Delaware courts, those individuals consented to the
methods used by the Delaware courts for conducting and deciding litigation, including
the processes for discovery under the Delaware rules.
Vivendi likewise submitted to the jurisdiction of the Delaware courts in
connection with the Restructuring. In its Stock Purchase Agreement with Activision and
ASAC, Vivendi submitted to the exclusive jurisdiction of the Delaware courts and agreed
that Delaware law would govern any disputes. Pl.‘s Reply Mot. Compel Ex. F §§ 11.8,
11.9. When agreeing to a Delaware forum and the application of Delaware law, Vivendi
did not place any limitations on the available means of discovery. Vivendi took the same
approach in the Business Combination Agreement, where it agreed to a Delaware forum
without any limitations on the available means of discovery. BCA § 9.6.
This case is precisely the type of litigation in which Delaware has a paramount
According to the Complaint, Vivendi used its influence as a controlling
stockholder with an affiliated majority on the Activision board to structure a transaction
in which Vivendi obtained over $8 billion in desperately needed liquidity, allegedly by
exploiting the conflicting self-interest of Activision‘s two senior officers, at the expense
of the interests of Activision and its minority stockholders who otherwise could have
obtained greater value.
The Blocking Statute
Against Delaware‘s powerful interest in the efficient and effective handling of
disputes involving the internal affairs of a Delaware corporation and allegations of
fiduciary misconduct, the Vivendi Defendants cite the Blocking Statute. In Aérospatiale,
the United States Supreme Court held that a blocking statute ―is relevant to the court‘s
particularized comity analysis only to the extent that its terms and its enforcement
identify the nature of the sovereign interests in nondisclosure of specific kinds of
material.‖ 482 U.S. at 544 n.29. The current Blocking Statute does not meet this test.
As originally adopted, the Blocking Statute addressed only foreign government
investigations into French maritime interests and thus could be understood to address a
specific French sovereign interest in the nondisclosure of that type of information. Since
its revision in 1980, the Blocking Statute has applied generally to all foreign litigation
and purports to make it illegal for ―any person to request, search for or communicate, in
writing, orally or in any other form, documents or information of an economic,
commercial, industrial, financial or technical nature for the purposes of establishing
evidence in view of foreign judicial or administrative proceedings.‖ Blocking Statute,
art. 1 bis.
As framed, the Blocking Statute is expansively broad.
It purports to
encompass any documents or information ―relating to economic, commercial, industrial,
financial or technical‖ matters. Id. It does not focus on a specific kind of material, nor
does it identify a specific French sovereign interest.
As currently drafted, the Blocking Statute reflects France‘s preference for its own
methods of litigation. Every country naturally prefers its own methods of litigation;
otherwise it would change them. The United States and Delaware prefer their own
methods of litigation and have an interest in using them. The competing interests offset,
which prevents an interest in one‘s own system of litigation from being used effectively
in a balancing test. Under Sections 441 and 442 of the Restatement, a tie goes to the
Notably, Vivendi has chosen previously to sue in the United States to take
advantage of the greater access to evidence provided by American-style discovery. In a
filing in Vivendi S.A. v. T-Mobile USA Inc., 586 F.3d 689 (9th Cir. 2009), Vivendi stated
that it sued in the United States for ―reasons of convenience,‖ including ―Vivendi‘s
substantial U.S. presence‖ and ―desire to litigate in a forum that would maximize its
access to evidence.‖ Transmittal Affidavit of Jeffrey M. Gorris (the ―Gorris Aff.‖) Ex. 2
at 14. In that same filing, Vivendi complimented the benefits of discovery under the
Federal Rules of Civil Procedure, asserting that ―a ‗bite at the apple‘ of meaningful
discovery‖ was a ―valid convenience reason‖ for choosing to litigate in the United States.
Id. at 19. In a later filing, Vivendi elaborated: ―Defendants do not dispute that the
United States offers greater access to evidence at trial than any alternative forum because
the parties have the vast majority of documents, and the parties will have to produce that
evidence pursuant to the Federal Rules of Civil Procedure.‖ Gorris Aff. Ex. 4 at 24.
Vivendi also took the position that the former executives of the German defendants were
subject to the court‘s powers of compulsory process. Gorris Aff. Ex. 5 at 14 (―Despite
Defendants‘ assertion that Messrs. Winkler, Golob, and Ricke are ‗outside this Court‘s
powers of compulsory process,‘ under Fed. R. Civ. P. 30(b)(1) a former officer, director,
or managing agent of a corporate party may be noticed for deposition, even if they are not
otherwise subject to the court‘s personal jurisdiction.‖ (citation omitted)).
As noted, studious compliance with the Blocking Statue as written would prevent
Vivendi from participating in the American discovery process as a plaintiff. Vivendi‘s
prior decisions to disregard the Blocking Statute when advantageous undercut its ability
to invoke the Blocking Statute now, when the shoe is on the other foot. Rather than
taking a consistent and principled stance, Vivendi appears to be adopting positions of
Vivendi‘s own actions undermine its current assertions about the
significance of the Blocking Statute and the need to resort to the Evidence Convention.
The Data Protection Act
The Vivendi Defendants also cite France‘s interest in the Data Protection Act.
Unlike the Blocking Statute, the Data Protection Act does represent a ―sovereign
interest in nondisclosure of specific kinds of material.‖ Aérospatiale, 482 U.S. at 544
n.29. The Data Protection Act codifies the European Union‘s privacy regime. European
Union members are required to afford ―privacy with respect to the processing of personal
European Directive, art. 1.
The Data Protection Act therefore reflects both
France‘s interest in protecting the privacy rights of its citizens and its interest in
complying with the directives of the European Union.
Steps can readily be taken to accommodate the French interests reflected in the
Data Protection Act. Compliance with the Data Protection Act appears to require only
minor modifications to the discovery process as normally conducted in this court.
The Discovery Framework
Having considered the factors set forth above, the court is not prepared to require
discovery from the Vivendi Defendants to proceed solely by way of the Evidence
Convention. Nor is the court prepared to risk jeopardizing the trial schedule by requiring
the parties to use the Evidence Convention as a means of first resort. Rather, as to
document discovery, the parties will proceed under both the rules of this court and the
As contemplated by Section 442(2)(a) of the Restatement, the Vivendi Defendants
shall make a good faith effort to secure permission from French authorities to make
available the information sought by the plaintiff. The Vivendi Defendants shall prepare
and confer with plaintiff‘s counsel regarding a letter of request designed to obtain the
information sought by the plaintiff in his document requests, other than items 14 and 15
of the second request for production. Within five days of the date of this decision, the
Vivendi Defendants shall submit a form of the letter of request to the court along with
information sufficient for the court to send the request to the appropriate French
authority. The Vivendi Defendants shall make a good faith effort to obtain promptly the
assistance of the appropriate French authority.
If the appropriate French authority
authorizes compliance with the letter of request, then the Vivendi Defendants‘ concern
about the Blocking Statute will be moot.
If production has not been authorized by March 31, 2014, when substantial
completion of document production is due, then the Vivendi Defendants shall produce on
that date the documents called for by the plaintiff‘s discovery requests or face the
prospect of sanctions in this court. In considering sanctions, the court will be guided by
the factors cited in Section 442 of the Restatement and will take into account the
recommendation in Section 442(2)(c) of the Restatement that the appropriate sanctions
involve making ―findings of fact adverse to a party that has failed to comply with the
order for production, even if that party has made a good faith effort to secure permission
from the foreign authorities to make the information available and that effort has been
unsuccessful.‖ Restatement § 442(2)(c).
To comply with the Data Protection Act, the parties shall enter into a two-tier
confidentiality stipulation and order of the type customarily used in this court and
containing a use restriction providing that the discovery material shall be used only for
purposes of this litigation. The confidentiality order shall provide for designating as
―Confidential‖ documents containing the types of information protected by the Data
Protection Act, such as the identities of minor children and other family members, the
address of a personal residence, and personal data revealing racial or ethnic origin,
religious beliefs, a trade union membership, or concerning health or sex life. The parties
shall confer regarding, and the confidentiality order shall specify, the categories of
information covered by the Data Protection Act that the Vivendi Defendants may redact.
The parties shall confer regarding and seek court approval for any proposal to use
pseudonyms. Setting aside the named defendants and the core individuals who worked
on the Restructuring, for whom the Vivendi Defendants agree that using pseudonyms is
not necessary, the court is not convinced at present that the Vivendi Defendants need to
use pseudonyms for all other names in the production. If Vivendi first provides the
plaintiff with a confidential list of individuals, their titles, and roles in the Restructuring,
the plaintiff may be in a position to agree on using pseudonyms for some or all of them.
This suggestion is not intended to restrict the parties‘ flexibility or creativity in crafting
As to depositions, the Vivendi Directors who are residents of France shall make
themselves available for deposition in the United States. By accepting a directorship in a
Delaware corporation, the Vivendi Directors agreed to the jurisdiction of the State of
Delaware, including for purposes of discovery. This court has undisputed authority to
compel a named defendant, over whom the court has personal jurisdiction, to appear at
trial. See 10 Del. C. § 362; Kingsbridge Capital Gp. v. Dunkin’ Donuts Inc., 1989 WL
997175, at *1 (Del. Ch. Sept. 6, 1989). The same authority extends to compelling an
appearance for purposes of a pre-trial deposition.
For other Vivendi witnesses who are located in France, the Vivendi Defendants
shall make a good faith effort to secure permission from French authorities for a
commissioner to oversee the taking of a deposition in France by plaintiff‘s counsel. If the
Vivendi Defendants are unable to secure permission, then the court will consider on a
case-by-case basis whether the court can and will require the witness to sit for deposition
in the United States.
Through its jurisdiction over Vivendi, this court can compel
Vivendi‘s directors, officers, and managing agents to appear at trial or for a deposition in
a particular location.8 If the director, officer, or managing agent fails to attend, the court
can impose sanctions on Vivendi as the party-corporation. See Ct. Ch. R. 37(b)(2);
accord Fed. R. Civ. P. 37(d) advisory committee‘s note (―The failure of an officer or
managing agent of a party to make discovery as required by present Rule 37(d) is treated
as the failure of the party.‖). If a witness is not a director, officer, or managing agent of
Vivendi or otherwise subject to this court‘s jurisdiction, then the plaintiff must proceed
under the Evidence Convention.
The motion to compel is granted to the extent set forth in this decision.
See Hoechst Celanese Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 1997 WL
716898, at *1 (Del. Super. Aug. 18, 1997) (―It is within the power of this Court to compel the
live testimony of a non-resident officer, director or managing agent of a Delaware corporate
[party] which has availed itself to the jurisdiction of this Court.‖); Dalton v. Am. Inv. Co., 1981
WL 7619, at *1 (Del. Ch. June 9, 1981) (noting court‘s discretionary authority to order
deposition at a particular location); Lasher v. Sterwin Labs., 1980 WL 10017, at *1-2 (Del. Ch.
Jan. 28, 1980) (ordering defendant corporation to produce witnesses for deposition in Delaware);
7 Daniel R. Coquillette et. al, Moore’s Federal Practice—Civil § 30.03 (3d ed. 2013); 8A
Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure
§ 2107 (3d ed. 2010) (―A [third party] subpoena is not necessary if the person to be examined
[by deposition] is a party or an officer, director, or managing agent of a party.‖ (footnotes
omitted)); see also Ct. Ch. R. 43(b) (noting that a party at trial may call ―an officer, director or
managing agent of a public or private corporation or of a partnership or association which is an
adverse party, and interrogate the witness thus called by leading questions and contradict and
impeach the witness in all respects as if the witness had been called by the adverse party‖).