Nine Points Impacting E-Discovery Costs

There was a time when state court civil disputes did not involve the risk of astronomical e-discovery costs. That time has passed. Just as e-discovery in federal courts reaches some semblance of uniformity, the fifty (very independent) states have begun to realize that discovery in the Digital Age will necessarily involve "staggering" amounts of electronically stored information (ESI).

Since 2003, 30 states have adopted rules or enacted statutes that specifically address ESI management, preservation and production in civil disputes. New York and seven other states have developed their own methods for managing e-discovery, while California (and 21 states like it) generally follows the Federal Rules of Civil Procedure. The remaining 20 states (e.g., Illinois) have yet to adopt any e-discovery rules, but most recognize "the increasing reliance on computer technology," and some explicitly (by judicial interpretation of existing discovery rules) obligate civil litigants to produce ESI as part of their state's existing discovery obligations.

Although all 50 states have somewhat different approaches to managing e-discovery, there are a few trends in how states treat e-discovery that impact costs.

Some of the important trends include:

1.   Discretionary Cost-Shifting. While the federal rules are silent on who should bear the cost of retrieving "inaccessible data," certain states (e.g., Texas) require that a judge order a party requesting inaccessible data to incur the cost of producing it. Other states (like California and Mississippi) give the judge the option to shift the cost of producing "inaccessible" ESI. Given that the retrieval and production of "inaccessible data" can easily cost hundreds of thousands of dollars, the discretion (or obligation) to shift those costs can have a significant impact on the litigation budget.
 

2.   The Meet and Confer. Some states (like New York and Delaware) have made the "meet and confer" the cornerstone of their methodology for managing e-discovery, while other states have abandoned the requirement altogether. Do not miss this opportunity to seize control of the e-discovery process. Skipping an early “meet and confer” may appear to save money and avoid the aggravation of dealing with the "unreasonable" opposition; however, more progressive literature on e-discovery suggests that the "meet and confer" actually saves costs in the long-run and helps insulate the parties against the risk of e-discovery "do-overs" and even more severe sanctions.
 

3.   Safe Harbor. Federal Rule of Civil Procedure 37(e) forbids a court from ordering sanctions against a party who has destroyed potentially relevant ESI "as a result of the routine, good-faith operation of an electronic information system." Although practitioners debate how "safe" the harbor really is in federal courts, several states have eliminated the "safe harbor" altogether. This means that litigation holds in state courts should be implemented as soon as litigation is reasonably anticipated.


4.   Sanctions. It also is important to know what activities (or failure to act) will prompt the court in your jurisdiction to levy sanctions. Counsel should not assume (especially in states that don't follow the federal rules) that state courts will levy sanctions in the same manner and for the same conduct as federal courts. This analysis will inform your discovery strategy and help insulate against the risk of state court sanctions.

 

Although there is no substitute for becoming familiar with each state's e-discovery rules before formulating an e-discovery plan, there are a few fundamental practices that will help manage e-discovery costs (and help avoid sanctions) regardless of your jurisdiction.  Savvy litigants should:

1.   Budget for e-discovery costs in every case (based on the rules of the jurisdiction where the dispute is venued) so that you (and your outside counsel) are forced to address how the state's approach to e-discovery might affect your case.


2.   Discuss e-discovery issues and attempt reach agreement about the parameters of ESI preservation and production as early in the case as practical regardless of whether your jurisdiction requires a “meet and confer.” If the state court rules do not require a “meet and confer” and the opposition refuses, ask the court to order the parties to meet and discuss e-discovery.


3.   Know the most likely circumstances where the jurisdiction has awarded sanctions in e-discovery cases.


4.   Oversee the data collection process in your cases, but try to avoid having your internal IT department collect the data.


5.   Document the steps taken to prevent the destruction of potentially relevant ESI
In additional to local counsel, good resources to check on current state court discovery rules and decisions are maintained by Kroll Ontrack.
 

This article was originally published by Steven Hunter, a Quarles & Brady partner, in Inside Counsel

WI Supreme Court Continues to Debate E-Discovery Amendments

          

On July 6, 2010, the Wisconsin Supreme Court set the date for the next and final hearing regarding amendments to the state rules of civil procedure that relate to the discovery of electronically stored information. The hearing will take place on September 30, 2010 at 9:30 a.m. at the State Capitol in Madison. The Court will accept written comments from the public until August 31, 2010. 

By a 4-3 vote, the Court has already adopted amendments to Wis. Stat. §§ 802.10, 804.01, 804.08, 804.09, 804.12 and 805.07 to address e-discovery. However, the amendments are subject to revision following public comment and the hearing on September 30, 2010. The amendments will become effective January 1, 2011. 

As the 4-3 voting split indicates, the Court is not of one mind regarding the amendments. While all of the Justices agree that the rules should be amended to address e-discovery, there are three key issues regarding which the Court remains divided: 

 

(1) whether the rules should require parties to meet and confer on e-discovery at the outset;

(2) whether the rules should include a “claw-back” provision; and

(3) whether the rules should expressly provide for cost-shifting. 

 

Currently, the amendments include a mandatory meet and confer provision regarding e-discovery and do not include claw back or cost shifting provisions.  Under the circumstances, and because the Court is divided, it looks as though the public has a meaningful opportunity not only to be heard, but to affect the ultimate outcome.

In large part, the disagreement between the Justices is based on their varied understandings regarding what cases the rules are most likely to apply to, because not every case involves significant e-discovery.  The dichotomy is as follows:

  • Justices who focus on smaller, less complicated disputes tend to oppose mandatory e-discovery conferences as well as express “claw back” and cost-shifting procedures. 
  • Justices who focus on complex commercial disputes, which frequently involve extremely costly and extensive e-discovery tend to be in favor of mandatory e-discovery conferences, claw back and cost-shifting provisions. 

 Chief Justice Abrahamson has appealed to the public to focus on these particular issues when submitting written comments. As a result, it is worth considering each side of the debate.

 

Mandatory early e-discovery conferences:  Those in favor of an early, mandatory e-discovery conference argue that if the parties confer before discovery, they can reduce the ultimate cost of discovery and head off future disputes before they develop. Those opposed note that the conference is a waste of time in the majority of cases, which are typically small, less complicated disputes in which neither party will request or receive much in the way of e-discovery. Those opposed also note that there is no rule that would prevent parties in complex commercial disputes from meeting and conferring independently in the absence of a rule requiring the parties to meet.  Current vote:  five in favor of this rule, two against (5-2).

 

Claw back provisions:  Those in favor of an express claw back provision note that in cases involving voluminous e-discovery productions, it is extremely expensive and time-consuming for the producing party to review every single document and file prior to production to determine if it contains privileged information. They argue that a claw back provision is necessary to alleviate the producing parties burden by allowing a party who inadvertently produces privileged information to demand its return and prohibit the receiving party from using the privileged information. Those opposed note that an effective claw back rule is both procedural and evidentiary to the extent that it must address whether the privileged information remains privileged despite having been produced. They argue that the claw back rule is best addressed at a later time, when amendments to the rules of evidence can also be considered to avoid inconsistencies between the procedural and evidentiary provisions. Current vote:  three in favor of this rule, four against (3-4).

 

Cost-shifting:  Finally, those in favor of a provision authorizing cost shifting argue that the court should be expressly empowered to make a requesting party pay for the unduly burdensome discovery it seeks. Those opposed only disagree to the extent that they argue that the current rules of civil procedure already authorize the court to require a requesting party to pay for unduly burdensome discovery. They cite Wisconsin case law in support of their position, and note that federal cases provide persuasive authority regarding the circumstances under which cost shifting is appropriate.  Current vote:  three in favor of this rule, four against (3-4).

 

Whether the current distribution of votes will change likely depends on the volume and nature of written comments the Court receives before August 31, 2010, as well as the persuasiveness of any argument the Court hears at the public hearing on September 30, 2010. 

 

Let the arguments begin . . .

The Reality of Cost-Shifting

The reality of cost-shifting is that it is not always available to a responding party. In order to manage risk associated with the cost of electronic discovery, legal counsel should be aware of circumstances where responding parties have received the benefit of a cost-shifting analysis and conversely, where it has been denied. 

Courts do not want responding parties to pay for a plaintiff's fishing expedition. Therefore, courts may shift costs to the requesting party as an incentive to narrowly tailor the discovery request where there is a low likelihood that discovery will produce relevant evidence. Delta Financial Corp. v. Morrison, 13 Misc. 3d 604, 611-12, 819 N.Y.S.2d 908 (Sup 2006) (ordering requesting party to pay expenses of searching restored backup tapes for e-mail and electronic documents because the Court was "not entirely convinced that relevant and responsive documents would be found").

Courts employ cost shifting to protect the producing party from undue burden. Therefore, courts weigh the benefit of discovery versus the burden under the proportionality test of Rule 26(b)(2)(C). Thus, even where the plaintiff is not fishing and the evidence will be beneficial to disposing of the issues, courts may limit discovery or employ cost-shifting if the burden to produce the requested data is disproportionately higher than the benefit. Christian v. Central Record Service, 2007 WL 3094513 (W.D. Ark. 2007) (relevant evidence was precluded from discovery when the expense of discovery outweighed the benefit).       

Moreover, notwithstanding the legal analysis, responding parties have been denied the benefit of cost-shifting after engaging in deceptive practices. Wachtel v. Guardian Life Ins. Co., 239 F.R.D. 376, 67 Fed. R. Serv. 3d 1 (D.N.J. 2006) (court rejected defendant's request to shift cost of restoring and producing e-mail from its backup tapes because of defendant's continued discovery misconduct).

Finally, legal counsel should remember that even if cost-shifting is permitted, only direct costs of restoration will be obtainable. Therefore, responding parties should consider the resources and costs required for restoration and production up front and plan accordingly. Semsroth v. City of Witchita, 239 F.R.D. 630 (court rejected the responding party's argument that additional time to review email after it is retrieved is subject to cost-shifting).

 

As a practical matter, it is only possible to obtain the benefit of a cost-shifting analysis by courts when records are considered to be inaccessible. Upon a finding of inaccessibility, courts will likely shift costs to the requesting party where it is unclear whether the requested data will be beneficial to resolving the issues. Moreover, even where there is a benefit, courts will protect the producing party from undue burden by shifting costs where the expense and burden of producing the data outweigh the benefit of the evidence. However, legal counsel should remember that even where the legal analysis militates in favor of the responding party, courts limit cost-shifting to the direct costs of discovery and deny recovery where responding parties use deceptive practices.