Efforts to Obtain Discovery from Overseas Subsidiary Must Meet Specific Factors

The focus was clarified recently as to when documents can be obtained from a foreign subsidiary of a US parent company involved in federal litigation. In Sicav v. Wang, 2014 U.S. Dist. LEXIS 81098 (S.D.N.Y. June 12, 2014), plaintiffs brought a securities class action against a Nevada holding company with subsidiaries in China and sought the production of documents from the overseas subsidiary. The court identified four factors that must be established to require the parent company to produce documents because it had the “legal right, authority, or ability” to obtain documents from the subsidiary:

1. The degree of ownership and control exercised by the parent over the subsidiary;
2. A showing that the two entities operated as one;
3. Demonstrated access to documents in the ordinary course of business; and
4. An agency relationship.

The court concluded that the parent company in this instance exerted little, if any, control because it did not participate in the subsidiaries’ decision-making process, did little to monitor the subsidiaries’ activities and did not independently verify the subsidiaries’ financial information. The parent company did not share employees or an office. The corporate form was respected. The parent company had to go through a cumbersome process to even obtain documents from its subsidiaries. The court found no intra-corporate relationship to require documents to be produced.

The court’s holding underscores the need to establish a legal right, authority or ability to obtain documents from a corporate subsidiary. If there had been an overlap of employees or a sharing of bank accounts, document production would have been compelled.