Parent Company Ordered to Produce Documents in Response to Request to Subsidiary Where Parent and Subsidiary Shared Servers and Databases

September 17, 2014

Plaintiff Dri-Steem Corporation ("Dri-Steem") sought production of documents in the possession and control of the defednant's parent company National Environmental Products, Ltd. ("National"), via its wholly-owned subsidiary NEP Inc., dba Neptronic ("NEP"). Dri-Steem asserted that NEP has custody and control of the requested documents because it can secure them from National to meet its business and litigation needs, as demonstrated by NEP's ability to obtain highly confidential National documents and information at will.

Although NEP had already been given an opportunity to brief the issue, NEP did not dispute the relevancy of the requested discovery under Rule 26, nor did it provide any argument or evidence to dispute that it has access or control over these documents in order to meet its own business needs. Instead, NEP asserted that it does not have possession and control of the documents.

The district court noted that "[n]umerous courts have concluded that a parent corporation has a sufficient degree of ownership and control over a wholly-owned subsidiary that it must be deemed to have control over documents located with that subsidiary." But the contrary "is not necessarily true. A subsidiary will be deemed to have possession, custody or control of documents held by its parent company only in certain circumstances. See In re Uranium Antitrust Litigation, 480 F.Supp. 1138, 1152-53 (N.D.I11.1979). If, for example, there exist circumstances that indicate some form of "control" by the subsidiary over the documents and information sought -- even if the documents or other information are in the possession of the parent -- the subsidiary may be required to produce the requested data or at least to make a good faith effort to do so. Id. Where the relationship is such that the subsidiary can secure documents of the parent to meet its own business needs, courts have not permitted the subsidiary to deny control for purposes of discovery by an opposing party. See e.g., First National City Bank v. Internal Revenue Service, 271 F.2d 616, 618 (2d Cir.1959) (where there is access to the documents when the need arises in the ordinary course of business, there is sufficient control when the need arises because of governmental requirements); Cooper Industries v. British Aerospace Corporation, 102 F.R.D. 918, 919 (S.D.N.Y.1984) (where wholly-owned defendant subsidiary was the marketer and servicer of parent's aircraft in the United States, it was found "inconceivable" that subsidiary could not obtain aircraft manuals and related documents); Compagnie Francaise D'Assurance Pour le Commerce Exterieur v. Phillips Petroleum Co., 105 F.R.D. 16, 35 (S.D.N.Y.1984) (agent organization should be required to produce documents held by its principals)"

Summarizing the law in this district, the district court noted that "[d]istrict courts in this circuit have found that a wholly-owned subsidiary has access and control over documents in the possession of its parent corporation when it markets the products of the parent company, when the two companies share databases dealing with a variety of documents and records, and when the subsidiary is able to obtain high-level documents from the parent company when it requests them. See Choice-Intersil Microsystems, Inc. v. Agere Sys., Inc., 224 F.R.D. 471, 473 (N.D. Cal. 2004)."

Applying that standard to the facts at hand, the district court then found that the subsidiary should be required to produce the documents. "In this case, the Court finds that the facts are substantially similar -- NEP does not dispute that it exclusively assists in the sale of the National product in the United States, that it shares servers and databases with National, that it shares a director, phone numbers, e-mail addresses, and a website with National, nor does it dispute that it is able to obtain high level or confidential documents from National upon request. Therefore, NEP has sufficient control over the documents and must produce them as requested."

Dri-Steem Corporation v. NEP, Inc., Case No. 1:14-cv-00194 (D. Or. Sept. 2014)

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