E-Discovery Law Alert : New York & New Jersey Attorneys for Electronic Discovery and Corporate Information Management Law

Although courts have previously shifted discovery costs in class actions, Boeynaems appears to be the first case in which costs were shifted in the pre-certification stage. The decision could prove to be an important and useful precedent for defendants in putative class actions, particularly when they are facing substantial pre-certification discovery costs and plaintiffs’ demands have become unreasonable. The decision is also noteworthy for the Court’s frank discussion of the strategic implications of unbalanced discovery costs and the notion that class action plaintiffs and their attorneys should be willing to make an investment in their case by sharing discovery costs. While class action defendants will still face significant discovery costs, Boeynaems may help stem the tide of burdensome requests by plaintiffs by providing defendants with ammunition in arguing that plaintiffs should foot the bill for at least a portion of the discovery they seek.

The court declines to disallow remaining costs on the grounds argued by plaintiffs (e.g., TiFF conversion costs; copying/”blowback” costs purportedly not documented; document productions purportedly not delivered; professional fees re visual aids). Furthermore, although the court takes note of the Third Circuit's well-reasoned opinion in Race Tires Am., Inc. v. Hoosier Racing Tire Crop. [sic], ––– F.3d ––––, 2012 WL 887593 (3d Cir. Mar.16, 2012), the court concludes that in the absence of directly analogous Ninth Circuit authority, and in view of the court's prior order in connection with the Blockbuster subscriber plaintiffs' motion for review of the clerk's taxation of costs, broad construction of section 1920 with respect to electronic discovery production costs --under the facts of this case --is appropriate.

See also Petroliam Nasional Berhad v. GoDaddy.com, Inc., No. C 09-5939 PJH, at *4 (N.D. Cal. May 8, 2012) (disregarding the Race Tires opinion and permitting broader range of electronic discovery production costs).

On June 14, 2012, the stakes were raised significantly when Race Tires and Dirt Motor Sports petitioned for a Writ of Certiorari seeking review of the Third Circuit’s decision by the United States Supreme Court. The Petition can be found here. The Petitioners highlighted the split among the circuits, and argued that the Third Circuit failed to appreciate and properly interpret the plain language reference to copying of “any materials” as set forth in the amended statute by holding that “only scanning and file format conversions” could be considered “making copies” under §1920. Noting that “the issue of who will bear costs associated with electronic discovery is faced by nearly every litigant in every lawsuit,” and controlling these costs “has become an important aspect of any litigation strategy,” the Petitioners argued that the Third Circuit’s approach “ignores the plain language of ‘making copies of any materials’ and is an outdated approach to assessing recovery for modern discovery demands.”

The Petitioners relied heavily on the interpretation of §1920(4) by the Federal Circuit in In re Ricoh, Ltd. Patent Litig, 661 F.3d 1361, 1365 (Fed. Cir. 2011). The Ricoh court held that the amended §1920(4) specifically contemplates that the “costs of producing a document electronically can be recoverable.” In the Petitioners’ view, because the Ricoh court did not limit recovery to any subset of activities performed by e-discovery vendors, the “Federal Circuit would presumably permit all of the various categories identified by the Third Circuit.” (A curious argument given that the Federal Circuit was expressly applying the regional circuit law of the Ninth Circuit in interpreting §1920(4) in that case, and, as Race Tires shows, other circuits differ markedly in their interpretation of the statute). Petitioners further argued that Ricoh and other decisions that have allowed recovery of broad e-discovery costs highlight the split in the circuits (specifically a conflict with decisions out of the Federal, Ninth, Seventh and Fifth Circuits) and that the Third Circuit had failed to appreciate the significance of the 2008 amendment to §1920(4). Interestingly, Petitioners stressed that that the plain meaning of the word “make” in subsection 4 connotes a process of document preparation that encompasses more than copying in the traditional, pre-electronic age sense.

While predicting which cases the Supreme Court will deem appropriate for review is generally not a productive exercise, the Court’s treatment of the Race Tires Petition may be seen as a barometer as how seriously the judiciary generally is viewing the issue of spiraling e-discovery costs. Until we hear from the High Court, however, we stand by our prior recommendation to carefully document costs for all e-discovery vendor activities and be prepared to present those costs for reimbursement under §1920 if you prevail in your case.

Mark S. Sidoti is the Chair of the Gibbons E-Discovery Task Force.

On May 14, 2012, in a move that appears to be more "give 'em enough rope" and less an "about face" Judge Peck issued an order reconsidering his prior denial of plaintiffs' request to stay defendant's ESI production. In his order, Judge Peck noted that defendants consented to the stay, and, further, that "[j]urisdictional discovery regarding Publicis, and discovery between plaintiff and MSL unrelated to MSL's ESI production, are not stayed." As such, Judge Peck specifically observed that "[p]laintiffs' May 9, 2012 objections to my prior denial of the stay (Dkt. No. 190) are moot."

So what will happen next? Our crystal ball is out of service, but we certainly do not think it likely that Judge Carter will remove Judge Peck from the case. Thus, whatever the result on plaintiffs' pending motions, you can be sure that the fireworks will continue and this case will continue to be hotly litigated for some time.

Phillip J. Duffy is a Director on the Gibbons E-Discovery Task Force.

Against this background, District Judge Carter clearly had much to contend with in reviewing and considering plaintiffs' objections. The Court began by summarizing plaintiffs' arguments, to the effect that Judge Peck’s decision was erroneous and contrary to law because the ESI protocol lacks "generally accepted reliability standards" and, as such, its use violates Fed. R. Civ. P. 26 and Fed R. Evid. 702, and that Judge Peck failed to hold an evidentiary hearing and therefore adopted the protocol on an insufficient record and further went beyond the record by considering documents not discussed in the parties initial submissions. Although Judge Carter next proceeded to set forth the case law establishing the applicable "highly deferential standard of review", the Court might just as well have started or even abbreviated its discussion with the concluding sentence of its opinion: "[t]he Court reminds the parties that it affords Judge Peck's non-dispositive rulings great deference and that magistrate judges generally have broad latitude with respect to discovery issues."

Judge Carter adopted Judge Peck's rulings, characterizing them as well-reasoned and generally praising their consideration of the "potential advantages and pitfalls" of predictive coding software. Rejecting plaintiffs' objections, the Court specifically noted that the protocol contained "standards for measuring the reliability of the process" and that "the protocol builds in levels of participation by Plaintiffs." The Court highlighted plaintiffs’ ability to raise concerns about the relevance of culled documents with Judge Peck before final production and found "insufficient evidence" to conclude that the parties’ use of predictive coding software would deprive plaintiffs of "liberal discovery."

The Court also found plaintiffs' reliability arguments "premature" and rejected their arguments regarding the need for an evidentiary hearing, explaining that "if the method appears unreliable as the litigation continues and the parties continue to dispute its effectiveness," Judge Peck could hold the evidentiary hearing later to address those issues. Judge Carter concluded the point by noting that "if the method provided in the protocol does not work or if the sample size is indeed too small to properly apply the technology, the Court will not preclude Plaintiffs from receiving relevant information, but to call the method unreliable at this stage is speculative." In concluding his review, Judge Carter observed "[t]here simply is no review tool that guarantees perfection" and specifically identified the risks inherent in manual and keyword searching. Ultimately finding no basis to disturb Judge Peck's findings that the use of predictive coding software was "more appropriate than keyword searching" in "this particular case," Judge Carter upheld Judge Peck's rulings and denied plaintiffs' objections.

In our initial blog posting discussing Judge Peck's decision, we indicated that Da Silva Moore is significant because it opened the door for parties to consider the use of computer assisted review in appropriate cases without the fear that a party or judge will resist based on a perceived lack of acceptance. Judge Carter's adoption of Judge Peck's rulings constitutes a big, bold underlining of that statement, and regardless of the outcome of any further proceedings, we can expect a great deal of interest in and use of predictive coding technology going forward.

Phillip J. Duffy is a Director on the Gibbons E-Discovery Task Force.

Succintly framing the issue, the Race Tires Court stated “the question presented here is whether §1920(4) authorizes the taxation of an electronic discovery consultant’s charges for data collection, preservation, searching, culling, conversion, and production as either ‘exemplification [or] the …making [of] copies of any materials where the copies are necessarily obtained for use in the case.’” Writing for the panel, Judge Vanaskie prefaced the holding by conceding that the cost burdens of e-discovery are quite real and onerous, and becoming increasingly so. He also noted the 2008 amendments to §1920(4) which, in a nod to today’s digital world, clearly broadened the scope of cost recovery by replacing “copies of papers” with “the costs of making copies of any materials.” However, after carefully outlining the legislative history of §1920, the Court found that broad-based cost recovery for most e-discovery activities simply exceeds the statutory mandate.

The Court made short work of defendants’ claim that the e-discovery activities encompassed “exemplification” under the statute, holding that the term applied only to the production of “illustrative evidence or the authentication of public records.” The ESI services provided in this case served neither end.

Moving on to the “copying” element of the statute, the Court held that certain of the vendor activities --including conversion of the native files to TIFF images, the scanning of documents for the purpose of creating digital duplicates and the copying of the videos to DVD -- clearly fall within the definition of copying as contemplated by the language and legislative history of §1920(4). The charges for those services, however, totaled only approximately $30,000 - a fraction of the total ESI costs incurred and awarded. The Court specifically noted that the fact that the e-discovery services are “indispensable” to the discovery process, involve “highly technical” expertise or result in significant cost savings -- factors cited by other courts in support of broader cost awards -- are simply not appropriate criteria by which to assess taxability under the plain language of the statute. Citing numerous decisions denying ESI processing costs that do not entail “making copies,” Judge Vanaskie pointedly opined that contrary decisions that allowed the taxation of “all, or essentially all,” e-discovery costs charged by consultants, including that by the District Judge in the Race Tire case, are “untethered from the statutory mooring.” Importantly, however, the Court further noted that the presumption under the Federal Rules that parties bear their own e-discovery expenses can be tempered, where appropriate, by a cost shifting application under Rule 26(c)’s  proportionality scheme.

In sum, the Race Tires decision has significantly slowed the momentum towards broad-based shifting of ESI costs for prevailing parties pursuant to 28 U.S.C. §1920(4), certainly within the Third Circuit. However, unless and until the Supreme Court provides guidance on this issue, the option to seek such costs in other jurisdictions remains viable. Regardless of jurisdiction, prevailing parties should always at least seek reimbursement of copying expenses, including conversion, scanning and other duplication related costs, for both paper and ESI, and ensure that to accomplish this, their vendors clearly document the costs involved in those activities from the outset of their involvement in the case.

Mark S. Sidoti Chairs the Gibbons E-Discovery Task Force.

While acknowledging the lack of clarity in the New York Civil Practice Law and Rules (“CPLR”) and local court rules and the conflicting case law on the issue of cost allocation in New York State Courts, the First Department disagreed with the GreenPoint trial court’s finding, stating that:

We are now persuaded that the courts adopting the Zubulake standard are moving discovery, in all contexts, in the proper direction. Zubulake presents the most practical framework for allocating all costs in discovery, including document production and searching for, retrieving and producing ESI. As noted, Zubulake requires, consistent with the Federal Rules of Civil Procedure, the producing party to bear the initial cost of searching for, retrieving and producing discovery, but permits the shifting of costs between the parties.

(Emphasis added). The Court went on to list the seven cost shifting factors of Zubulake (see 217 F.R.D. at 322) and cautioned that motion courts “should not follow these factors as a checklist, but rather, should use them as a guide to the exercise of their discretion in determining whether or not the request constitutes an undue burden or expense on the responding party.” The Court called GreenPoint’s motion for a protective order “premature” and found that, given the undeveloped evidence in the record concerning ESI in the underlying litigation, there was “no occasion … for us to opine on the propriety of shifting costs in this matter.” The Court remanded to the trial court with a direction to GreenPoint to bear its own discovery costs, subject to reallocation on a proper showing.

Notably, the appellate court’s decision rejected GreenPoint’s citation of the purported “merits” of the “requestor pays” rule, i.e., encouraging parties to self-regulate the scope of their discovery demands and discouraging parties from placing unnecessary and oppressive costs on an opponent. In doing so, the Court cited the strong public policy of resolving disputes on their merits through fair and fulsome discovery and the risk that litigants (particularly individuals) may be deterred from bringing meritorious claims due to the high costs of discovery. Finally, the Court cited the long-standing rule in New York providing that a prevailing litigant may be able to tax expenses incurred in connection with certain disclosure as “disbursements.”

GreenPoint may prove a welcome decision to the New York practitioner, if only in the certainty it provides. Its mandate enables a practitioner to clearly advise her client as to which litigant, in the first instance, is responsible for the costs of e-discovery: the producing party is initially to incur the cost of searching for, retrieving and producing both electronically stored information and physical documents that have been requested as part of the discovery process. Until GreenPoint, New York case law had been unclear on -- and oftentimes in direct conflict with -- this principle.

Elizabeth Ann Fitzwater is Counsel to the Gibbons Business & Commercial Litigation Department and a member of the Gibbons E-Discovery Task Force.

In response, Plaintiffs sought a more meaningful sample and ultimately requested an order (1) requiring KPMG to preserve all hard drives of departed employees and (2) directing KPMG to provide Plaintiffs with five hard drives for inspection to “determine whether this issue is even worth fighting about.” As noted by Plaintiffs, “it would be difficult, if not impossible to generate search terms without the opportunity to first determine what the hard drives contain.” Nonetheless, in Judge McMahon’s view, KPMG was not advancing the ball because of its decision not to provide any hard drives for inspection. Ultimately, while the Motion to Certify was pending, Judge Cott ordered preservation of all existing hard drives of former employees until otherwise ordered by him or the parties had reached an agreement regarding methodology to obtain the appropriate sample.

In affirming this decision, Judge McMahon did not let anyone off the hook. She took particular umbrage that no one sought clarification of whether the stay precluded negotiation of the appropriate inspection and sampling procedure so that discovery could “proceed in a meaningful way” while the Motion to Certify was pending. In some terse dicta, she explained that “I cannot begin my discussion of this dispute without recognizing that a complete misinterpretation by everyone of the discovery stay I imposed seems to have contributed to the parties’ inability to agree on a sampling methodology.”

Although Judge McMahon acknowledged that other courts have been hesitant to apply a proportionality test to preservation duties, she made clear that Judge Cott was backed into a corner when he cast a very wide preservation net because the party seeking relief had thwarted his ability to conduct a proportionality analysis. The Court agreed that Judge Cott had no choice but to order preservation of the hard drives of all former employees who she had little trouble holding were “key players” under Zubulake v. UBS Warburg LLC IV, 220 F.R.D. 212, 217-18 (S.D.N.Y. 2003) (“Zubulake IV”), meaning that they were “likely to have relevant information.” As stated by Judge McMahon, if a party withholds information that might help streamline discovery in this type of case, that party should “reasonably anticipate” that each employee or audit associate who would be receiving an opt-in notice should be deemed a potential plaintiff in the matter.

Although this case may cause defendants in class actions to cower at the prospect of potential pre-certification preservation obligations, the Pippins decisions must be read in the context of the parties’, in particular defendants’, failure to cooperate in the early stages of the e-discovery process. Parties resisting wholesale or perceived overextensive preservation and production demands must take care when making proportionality arguments to preface those arguments with clear indicia of cooperation in the early stages of discovery. Objecting parties must, in short, provide the court with the tools necessary to clearly assess the extent of the purported burden, the costs involved and in some cases the lack of relevant information relating to the objected demands. While it is undoubtedly true that this level of cooperation may require disclosing more than a party may initially want, and entail risk in the sense that the sampling may result in evidence that weighs in favor of broader preservation or disclosure, Pippins clearly demonstrates the downside risk to taking the alterative approach.

Sandro G. Ocasio is an Associate on the Gibbons E-Discovery Task Force.

In addressing plaintiffs' objections, Judge Peck underscored the cost-savings rationale expressed in his article and carried over to his decision: "computer-assisted review 'works better than most of the alternatives, if not all of the [present] alternatives. So the idea is not to make this perfect, it's not going to be perfect. The idea is to make it significantly better than the alternatives without nearly as much cost.'" Consistent with Judge Peck's directive, the parties submitted a Joint ESI Protocol, which Judge Peck "so ordered " despite plaintiffs' continuing objections.

On February 22, 2012, plaintiffs filed objections to Judge Peck's rulings with District Judge Carter. In sum, plaintiffs contended Judge Peck's acceptance of defendants' protocol allowed defendants to violate FRCP 26(g)'s requirement to certify defendants' document production is complete and further is not sufficiently reliable to pass muster under Federal Rule of Evidence 702 and the U.S. Supreme Court's decision in Daubert. In the opinion, Judge Peck addressed and ultimately dismissed plaintiffs' objections. The Court reasoned that plaintiffs misunderstood Rule 26(g), which does not require such certification and observed that it would be impossible to certify the completeness of a document production of this magnitude. Moreover, Judge Peck stated that Rule 702 and Daubert are inapplicable to the manner in which parties search for documents in discovery. Judge Peck also explained, in detail, the reasons for his decision to endorse predictive coding in appropriate cases and took the time to offer some "lessons for the future."

In sum, the Court found the use of predictive coding appropriate in Da Silva Moore based on the parties' agreement with the concept, the vast data set of more than 3 million documents, the superiority of computer-assisted review to the alternatives (manual review or keyword searches) the need for cost effectiveness and proportionality under FRCP 26(b)(2)(C) and the “transparent” process defendants proposed.

In this regard, Judge Peck stressed the importance of cooperation among counsel and reiterated the Court's endorsement of The Sedona Conference® Cooperation Proclamation. Moreover, and notwithstanding plaintiffs' expressed concerns, Judge Peck praised defendants' transparency and credited their agreement to provide to plaintiffs all of the documents used to create the seed set, both relevant and non-relevant, as essentially paving the way for the Court's decision.

So, what does all of this mean? Is predictive coding the only way to proceed with large scale document review in the future? Will it eliminate the need for attorney involvement in the document review process? Is computer assisted review the panacea that frustrated and cash strapped litigants have been searching for to solve the incredible cost and manpower burdens of e-discovery. Well, the short answer to these questions is "no." As Judge Peck made clear in his opinion, the Court did not order the use of predictive coding, the parties agreed to it (at least some form of it); there is no requirement that computer-assisted review be used in all cases. Nor, the Court was careful to note, is Da Silva Moore a pronouncement that the ESI Protocol used in that case (which is attached to the opinion will be appropriate in other cases that use predictive coding. Finally, the Court avoided endorsing any particular e-discovery service provider or technology.

As for the continued need for attorney involvement in the review process, as noted in this blog's prior June 2011 posting, while e-discovery software may make lawyers more efficient, "human knowledge, reaction and intuition as to facts, issues and nuances of legal theories make the role of the live attorney indispensable." Indeed, Judge Peck acknowledged as much in his opinion: "[t]he Court recognizes that computer-assisted review is not a magic, Staples-Easy-Button, solution appropriate for all cases. The technology exists and should be used where appropriate, but it is not a case of machine replacing humans: it is the process used and the interaction of man and machine that the courts need to examine."

Da Silva Moore is most significant in that it opens the door for parties to consider the use of computer assisted review or predictive coding in appropriate cases without the fear that a party or judge will resist on the basis that no court has accepted the use of this modern technology in the e-discovery process. The courts have now officially “taken the plunge,” and we predict that the pool will get crowded quickly.

Phillip J. Duffy is a Director on the Gibbons E-Discovery Task Force.

District Judge Dickinson R. Debevoise ultimately affirmed Magistrate Judge Michael Shipp’s modification of the existing discovery order -- finding not only “good cause” to do so, but even “manifest injustice” if the order was not modified. See Waldorf v. Shuta, 142 F.3d 601, 1998 U.S. App. (3d Cir. 1998). Judge Debevoise also took the opportunity to provide guidance for parties to keep in mind when discussing and proposing search terms. In particular, the Court reasoned that the parties should have been more diligent before agreeing to the broad search terms, and listed the following factors for parties to consider when evaluating proposed search terms:

1. the scope of the documents searched and whether the search is restricted to specific computers, file systems, or document custodians;
2. any date restrictions imposed on the search;
3. whether the search terms contain proper names, uncommon abbreviations, or other terms unlikely to occur in irrelevant documents;
4. whether operators such as ‘and,’ ‘not,’ or ‘near’ are used to restrict the universe of possible results; and
5. whether the number of results obtained could be practically reviewed given the economics of the case and the amount of money at issue.

As a practical matter, litigants should pay attention to Judge Debevoise’s guideposts before agreeing to a broad set of search terms. An eagerness to agree up front to a discovery plan and avoid a fight may only delay the inevitable if the search terms picked are so broad as to result in an unduly burdensome stack of material to review. Moreover, courts have become more willing to examine “what’s at stake” in a case before ordering broad-based discovery; and seeking a more limited discovery order early in the case can avoid unnecessary expense later on.

Jennifer Marino Thibodaux is an Associate on the Gibbons E-Discovery Task Force.

With respect to preservation, the parties are to agree on the scope and methods for preservation and discuss whether to disclose the dates, contents and recipients of “litigation hold” notices. The parties are required to discuss methods for search and review, including potential keyword searches, date restrictions, and whether backup files should be searched. In discussing the production of electronic documents, the parties should confer about the format for production (e.g., native, TIF), the timing of productions and the number of expected custodians. Parties must also address the issue of privileged material, inadvertent production/claw-back agreements and whether the parties have discussed a Rule 502(d) order (which have been addressed in other blog submissions). Click here for Rule 502/clawback blog posts, here for inadvertent production blog posts and here for inadvertent disclosure blog posts. The Submission also asks the parties to estimate the cost of electronic discovery and address any cost-shifting or sharing agreements. In recognition of the fact that knowledge concerning e-discovery issues and obstacles may develop during the case, the Submission contemplates that additions and modifications may be required.

Attorneys may anticipate a more in-depth inquiry concerning e-discovery from the federal bench during the pilot program and should be prepared to discuss these issues with their clients, opposing counsel and judge at the outset of the litigation. For more information on other parts of the pilot program, including motion and final pretrial conference procedures, click the Report and the Gibbons Business Litigation Alert.

Paul A. Saso is an Associate on the Gibbons E-Discovery Task Force.

Rule 502(b) addresses inadvertent disclosure and identifies the circumstances in which disclosure of protected information will operate as a waiver. According to the rule, there is no waiver so long as: (1) the disclosure was inadvertent; (2) reasonable steps were taken to prevent disclosure; and (3) prompt, reasonable steps were taken to rectify the error once it was discovered. Judge Grimm notes there has been “a surprising amount of disagreement” among courts regarding the inadvertence requirement, and he criticizes courts for injecting reasonableness into the determination of inadvertence, thereby conflating the first and second requirements. He strongly rejects this approach, commenting that production is either inadvertent or it is not. Judge Grimm also criticizes courts that have demanded extraordinary measures to satisfy the reasonableness requirement of Rule 502(b)(2). In this regard, he explains that the Rule is designed to encourage the use of cost effective computer-based analytical methods to conduct pre-production reviews for privilege and warns that requiring extraordinary measures defeats the purpose:

Rule 502 will never reach its intended goal of reducing the cost of ESI discovery and encouraging the use of computer analytical review methodology if courts demand near-perfection in pre-production precautions.

Judge Grimm concludes his article with a discussion of Rule 502(e), which allows parties to enter into binding agreements regarding the effect of disclosure of protected information. Through such agreements, parties can establish criteria for non-waiver and the claw back of documents that may be different (broader or more restrictive) than the criteria set forth in Rule 502. For example, parties can agree that documents may be clawed back regardless of whether they were intentionally or inadvertently produced and regardless of whether any precautions, reasonable or otherwise, were taken to avoid disclosure. As Judge Grimm points out, however, some courts have refused to fully enforce such agreements. Such decisions thwart the purpose of the rule and present a “sober lesson” for lawyers. Judge Grimm advises lawyers to be careful in preparing agreements under Rule 502(e), warning:

When drafting a non-waiver agreement under Rule 502(e) and Rule 26(b)(5)(B), painstaking care should be taken to ensure that the agreement clearly addresses both pre-production and post-production obligations. Otherwise, the parties run the risk that the court will make its waiver determinations in accordance with Rule 502(b)(2) and (3) instead of the non-waiver agreement.

Judge Grimm concludes his article by noting that Rule 502 is clearly written and should be sufficient to fulfill its purposes of clarifying and limiting the effect of disclosure of protected information and reducing the costs associated with pre-production review. The rule, however, “has not fulfilled it purpose, mainly because parties have overlooked it and courts have not construed it consistently with its purpose . . . .” Perhaps if courts and lawyers carefully digest Judge Grimm’s thorough exposition of the issues involved in application of Rule 502, the rule’s fundamental purpose may yet be fulfilled.

The Silverman court also noted that the “First Department recently stated that it saw ‘no reason to deviate from the general rule that, during the course of the action, each party should bear the expenses it incurs in responding to discovery requests.’” Silverman, 2010 N.Y. Slip Op. at *4 (quoting Clarendon Nat. Ins. Co. v. Atl. Risk Mgmt., Inc., 59 A.D.3d 284, 286 (1st Dept. 2009)). Reading this First Department precedent together with the cases cited by defendants, the Silverman court held that “the requesting party bears the cost of electronic discovery when the data sought is not ‘readily available.’ Data is not readily available upon a showing of undue burden by the producing party to obtain the data.” Id. The mere fact that data is “interspersed” with non-responsive documents or that the data required processing did not establish an undue burden.

Additional discussion concerning this issue can be found here.

Paul A. Saso is an Associate on the Gibbons E-Discovery Task Force.

Several New York state courts, however, reject the Zubulake seven factor cost-shifting approach and generally continue to apply New York’s standard “requester pays” rule. One New York state trial court has held that “cost shifting of electronic discovery is not an issue in New York, since courts have held that, under the CPLR, the party seeking discovery should incur the costs incurred in production of discovery material. . . . The court need only determine whether the material is discoverable and whether the party seeking the discovery is willing to bear the cost of production of the electronic material.” Lipco Elec. Corp. v. ASG Consult. Corp., No. 8775/01, 2004 WL 1949062, at *6, *9 (Sup. Ct. Nassau Co. Aug. 18, 2004). Another New York state trial court held that the requesting party was responsible for the cost of electronic discovery and expressly rejected the cost-shifting analysis performed by New York federal courts. T.A. Ahern Contractors Corp. v. Dormitory Auth. of the State of N.Y., 2009 WL 806779, at *5 (Sup. Ct. New York Co. Mar. 19, 2009) (finding that the requester-pays model provided the proper incentives for parties to avoid “formulat[ing] overly broad discovery requests which have the effect . . . of placing unnecessary and oppressive (even prohibitive) costs upon an opponent”).

Given this rule, New York state court litigators should well consider whether their clients are prepared to pay for the collection and production of inaccessible ESI before making any request for ESI that is likely to be stored only in backup tapes or other hard to search and retrieve locations.

Paul A. Saso is an Associate on the Gibbons E-Discovery Task Force.