Update: Due to a problem with my HTML, I published a garbled version of this article this morning. Here’s the corrected version!
The case of the day is Costa v. Kerzner International Resorts, Inc. (S.D. Fla. 2011). Jennifer Costa, who had been a guest at the Atlantis Resort in the Bahamas, sued the resort’s on behalf of a purported class of similarly disgruntled guests, sued Kerzner International Resorts, Inc., Kerzner International North America, Inc., Kerzner International Marketing, Inc., and PIV Inc., for unfair and deceptive practices. The claim was that the defendants charged a “mandatory housekeeping gratuity and utility service fee”, but that the whole fee did not go to the housekeepers as a gratuity or to pay for utility service.
The defendants objected to Costa’s requests for production of documents and interrogatories on the grounds that the information they sought was in the possession, custody, or control of the Bahamian affiliates. Costa moved to compel responses.
The magistrate judge held that the defendants, all US firms, satisfied the three-part test for possession, custody, and control set out in Steele Software Systems v. Dataquick, 237 F.R.D. 561 (D. Md. 2006). First, he noted that the defendants were part of a “unified corporate structure” with the Bahamian entities, and that they had control of the relevant information because “a subsidiary has access to and control over documents held by a foreign parent corporation, particularly when there is a close working relationship on a common transaction and the subsidiary could easily obtain the documents when it is in its interest to do so.” Second, the Bahamian affiliates were directly connected to the transactions at issue to the case, because the defendants transferred the fees collected to the Island Hotel Company, one of the Bahamian firms. Finally, the Bahamian affiliates would benefit from a victory for the defendants in the litigation, as the parent company would ultimately be responsible for damages to the plaintiff class.
The defendants asserted that Costa should make first resort to the Hague Evidence Convention, an argument the magistrate judge rejected out of hand in light of Aerospatiale. But the court seemed to regard Aerospatiale as support for a blanket rule that discovery aimed at foreign parties is always proper under the Federal Rules of Civil Procedure. In fact, Aerospatiale merely rejected the proposed rule that discovery aimed at foreign parties is never proper under the FRCP and must always proceed under the Convention. Probably the court should have engaged in a more detailed analysis of the requirements of comity in the particular circumstances of the case.