American Home v. Toutelectric,
| Decision Date | 17 December 2002 |
| Docket Number | No. A093974.,A093974. |
| Citation | 128 Cal.Rptr.2d 430,104 Cal.App.4th 406 |
| Court | California Court of Appeals Court of Appeals |
| Parties | AMERICAN HOME ASSURANCE COMPANY et al., Plaintiffs and Respondents, v. SOCIÉTÉ COMMERCIALE TOTÉLECTRIC, Defendant and Appellant. |
Lewis, D'Amato, Brisbois & Bisgaard; David E. Reynolds; Kenneth D. Watnick; Los Angeles, Counsel for Plaintiff and Respondent: American Home Assurance Company and AIU Insurance Company.
Hellring, Lindeman, Goldstein & Siegal; Stephen L. Dreyfuss; John A. Adler, Laguna Beach; Counsel for Amicus Curiae: French-American Chamber of Commerce in the United States, Inc.
In Soc. Nat. Ind. Aero. v. U.S. Dist. Court (1987) 482 U.S. 522, 107 S.Ct. 2542, 96 L.Ed.2d 461 (Aerospatiale), the United States Supreme Court rejected the idea that discovery in a foreign country subscribing to the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters ("the Hague Convention") must first proceed under the Hague Convention before discovery is attempted under federal rules. The court deemed such a requirement both unwise and inconsistent with the text of the Hague Convention. (Id. at pp. 542-543, 107 S.Ct. 2542.) It held that the interests of international comity demanded a "more particularized analysis" involving "prior scrutiny in each case of the particular facts, sovereign interests, and likelihood that resort to [Hague Convention] procedures will prove effective." (Id. at p. 544, 107 S.Ct. 2542.)
We hold that the rule of first resort to the Hague Convention announced in Volkswagenwerk Aktiengesellschaft v. Superior Court (1981) 123 Cal.App.3d 840, 858, 176 Cal.Rptr. 874 (Volkswagenwerk) has been superseded by the balancing test provided in Aerospatiale. We also conclude that the Aerospatiale court's interpretation of the Hague Convention has nullified the holding of Pierburg GmbH & Co. KG v. Superior Court (1982) 137 Cal.App.3d 238, 244, 186 Cal.Rptr. 876 (Pierburg) that a litigant cannot waive the requirement of first resort by failing to demand compliance with the Hague Convention. In this case, the tactics of the party responding to discovery were so inconsistent with Hague Convention procedures that the trial court properly found the party had waived the right to insist on those procedures.
Société Commerciale Toutélectric ("Toutélectric"), a French corporation, appeals from a default judgment requiring it to pay $25,343,720.58 to the American Home Assurance Company and AIU Insurance Company (collectively, "American Home"). The court entered Toutélectric's default after striking its answer to American Home's complaint, as a discovery sanction for Toutélectric's failure to produce three witnesses for deposition. Toutélectric contends the court erred by refusing to apply Hague Convention discovery procedures. We affirm the judgment.
The first amended complaint alleged the following scenario: Electric Engineering Company ("EEC"), a Florida corporation wholly owned by Toutélectric, obtained payment and performance bonds from American Home in connection with a contract providing for EEC to construct a power plant in California. Toutélectric guaranteed EEC's obligations on the bonds. When EEC and Toutélectric realized that EEC was not going to be able to complete the construction project, they developed a strategy to shift their liability to American Home. Without informing American Home of the problems with the project, they asked it to issue security riders that would raise the amount of the bonds. American Home did so, increasing its exposure to $2,543,800.
When EEC was declared in default and terminated from the project, it misled American Home about the merits of the claims against EEC by subcontractors and suppliers, and about its defenses to those claims. EEC filed suit against American Home, among others, taking the position that American Home had no obligation to complete the project or pay the obligees on the bonds. EEC and Toutélectric then conspired with various lawyers, who represented both American Home and EEC despite the parties' conflict of interest, in an extended effort to avoid indemnifying American Home. American Home was persuaded to take over EEC's claims against the bond obligees, after EEC dropped its lawsuit. American Home filed its own declaratory relief action, which was transferred to bankruptcy court.
A subcontractor filed a lawsuit known as the Valley Engineers action against EEC and American Home in Yuba County Superior Court. EEC removed that case to federal district court. The lawyers representing EEC and American Home persistently acted against American Home's interests in this litigation, concealing relevant information from American Home, refusing to produce documents during discovery, and unsuccessfully attempting to conceal damaging information by inking out portions of notes of a key meeting. As a result of this suppression of evidence, American Home's answer and defenses were stricken, and the Valley Engineers case went to trial on damages alone. Faced with the prospect of consequential and punitive damages as a result of the fraudulent conduct of its attorneys, orchestrated by EEC and Toutélectric, American Home settled the case for an amount substantially exceeding its obligations under the payment and performance bonds.
In October 1996, American Home served Toutélectric with the first amended complaint, in accordance with the service requirements of the Hague Convention. In December 1997, the trial court denied Toutélectric's motion to quash for lack of personal jurisdiction. Writ petitions to this court and the California Supreme Court were denied in February and April 1998. The United States Supreme Court denied certiorari in June 1998.
While Toutélectric was still contesting the trial court's jurisdiction, the court directed American Home, EEC, and Francis Royer, an individual defendant and officer of EEC and Toutélectric, to brief the issue of whether the Hague Convention governed discovery propounded to Royer. American Home relied on Aerospatiale, supra, 482 U.S. 522, 107 S.Ct. 2542, 96 L.Ed.2d 461, for the proposition that Hague Convention procedures are merely optional. It contended Royer had not met his burden of showing that discovery under the Hague Convention would be effective, noting his claim that France had exercised its right under the Hague Convention to bar the production of documents in discovery. American Home claimed its ability to depose Royer would be severely restricted under the Hague Convention, because Royer could refuse to attend, a diplomatic officer rather than counsel would ask the questions, and no follow-up questioning would be permitted. American Home also argued that the Hague Convention, which required the involvement of the French government in the discovery process, would create substantial delays.
In their initial briefing, EEC and Royer argued that Volkswagenwerk, supra, 123 Cal.App.3d 840, 176 Cal.Rptr. 874, required first resort to the Hague Convention. However, in response to American Home's brief, EEC and Royer conceded that Aerospatiale was controlling, and "[t]here is no automatic blanket rule that the Hague [Convention] should, or should not apply." They claimed the balancing of interests contemplated in Aerospatiale favored application of the Hague Convention. While document requests were not permitted, they noted that requests for admission were allowed, and asserted that many of the documents sought by American Home could be obtained elsewhere. Regarding depositions, they stated: "All that is required of Plaintiffs is careful drafting of their required questions for submission to Mr. Royer."
At a hearing on the matter in December 1997, counsel for EEC and Royer said she now believed French law permitted "very specific" document requests, although she was not certain. She was trying to get authority from a French attorney on this point. The court applied the Aerospatiale test, and decided the sovereign interests of the United States and France concerning discovery were "a wash." Royer had repeatedly participated in discovery "when to do so was productive to his interest," noted the court. While the court believed the Hague Convention might or might not prove an effective means of discovery, it anticipated frequent discovery disputes based on the parties' behavior to date, and deemed the Hague Convention procedures "cumbersome." The court concluded that California discovery procedures would apply, but with court supervision to prevent discovery from becoming "broad and abusive." It ordered American Home to translate its discovery requests into French.
The court decided its ruling on the Hague Convention would not apply to Toutélectric, which had yet to appear in the case. However, the court commented:
American Home served Toutélectric with a first request for production of documents in July 1998. Toutélectric objected that the request exposed it to criminal and civil sanctions under French law, and stated that France had not adopted the Hague Convention provisions permitting the service of document production requests. Evidently the court overruled the Hague Convention objections in an unreported telephone conference hearing, and found that the sanctions contemplated by French law were limited to documents containing financial, technical, or trade secret information. On September 4, 1998, Toutélectric produced six pages of documents.
On ...
To continue reading
Request your trial