CHINA ESQUIRE

While this is not directly China relevant, this is helpful to know for anyone representing Chinese clients (or any client) in federal court. There has been much coverage about the Qualcomm discovery sanctions mess where Day Casebeer and Heller Ehrman attorneys were sanctioned and reported to the California State Bar to professional ethics violations. This should serve as a warning to you: follow the discovery rules and take the high road. Produce what you must produce, object only when appropriate, and do not engage in dilatory tactics.

In case you haven’t been following, a brief summary from the California Bar Journal:

A federal magistrate’s ruling last month that wireless giant Qualcomm committed a “monumental discovery violation” in a patent infringement case should serve as a cautionary tale to lawyers who handle complex litigation, say legal experts. The judge’s findings highlighted issues involving electronic discovery, the division of labor and responsibilities in matters involving corporate clients and outside counsel, and the predicament faced by lawyers accused of misconduct who cannot defend themselves because of the attorney-client privilege.

San Diego Federal Magistrate Judge Barbara L. Major sanctioned Qualcomm for withholding “tens of thousands of e-mails” in a lawsuit it brought against Broadcom Corp. and ordered Qualcomm to pay Broadcom’s legal bills, which total more than $8.568 million. In an unusual move, she also referred six of Qualcomm’s outside attorneys, whom she described as “talented, well-educated and experienced,” to the State Bar for discipline. She chose not to sanction 13 other lawyers involved in the litigation.

Major said her review led “to the inevitable conclusion that Qualcomm intentionally withheld tens of thousands of decisive documents from its opponent in an effort to win this case and gain a strategic business advantage over Broadcom. Qualcomm could not have achieved this goal without some type of assistance or deliberate ignorance from its retained attorneys.”

For those of you who have not litigated, I would dare say that this type of scorched-earth litigation where documents are not produced (and hidden under a large number of technical and meaningless objections and privilege claims) is fairly common, particularly among the larger firms where clients pay a lot of money to “play hardball”. Having been the recipient of hardball tactics, usually by larger, more “prestigious” firms, I can affirm that this is quite common. Except for the first time, attorneys were not only caught red-handed, but skewered by the judiciary and public opinion.

Some suggestions from Professor David McGowan in the same article:

1. Division of labor. Where outside counsel are not directly responsible for discovery, they must take steps to protect themselves.

2. Responsibility should follow authority. Firms that do not have responsibility for the actual collection and/or selection of documents should not sign discovery responses relating to document production or make representations about the completeness of discovery. If the client insources, it should take responsibility for the completeness of discovery.

3. If labor is divided, demand an advance privilege waiver for communications relevant to any discovery disputes.

4. Don’t trust standard procedures or formal systems. Don’t trust; verify.

5. Try to de-bias yourself. Appoint one member of the team to be devil’s advocate. Write a list of conditions that would have to exist for the document to be unresponsive and ask if all the necessary conditions exist.

6. Err in favor of production.

7. The more you have to explain a decision to withhold, the less likely a court is to buy it.

8. The more you don’t want to produce a document, the more important it is to produce it.

9. Be prepared to walk away.

10. Associates: You have to look out for yourselves. If you feel strongly about production, fight for it.

11. If you mess up, fess up.

I think these suggestions make sense for any litigator.

Okay, so how does this affect Chinese litigants? Drastically. I have dealt with many Chinese companies over the years who never want to play the discovery game and attempt to hide their documents or ask their counsel to not turn over damaging evidence. You cannot do that. The scope of discovery is laid out in Federal Rule of Civil Procedure 26(b), not your client’s desires. Oftentimes Chinese clients will refuse to turn over org charts, company financials, stock certificates, etc. Press them for the information–gently, but firmly. It is confidential information, but the minute they got themselves into litigation, it’s open season.

So what can you do with stubborn Chinese clients? Four things:

• Warn them that they can be sanctioned for discovery abuse. This includes not only monetary sanctions, but if the tactics are dilatory enough, terminating sanctions have been applied. (not to mention negative inferences and issue preclusion) Judge William Schwarzer, of Rutter Group fame, taught a class at Hastings about federal pretrial litigation. He warned us over and over that terminating sanctions can be justified, especially with busy judges who want to clear their dockets.
• Make sure you get a protective order under FRCP 26(c). And if its confidential enough, make sure there is an “Attorney’s Eyes Only” category. Honestly, I don’t know how effective they are, but at least you have some protection for your secret information. And once you have it, use it as leverage to force your clients to turn information over.
• Warn them that if they refuse to turn over information and instead try to settle every case quickly, they will become a target for lawsuits. When I was litigating environmental and toxic tort cases, our major clients always allowed us to fight to the death so that they had a reputation for not tolerating B.S. lawsuits.
• I don’t recommend this often, but you can always drop them as a client.

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