Never assume that the other side will be paying for your e-discovery costs. A New York state court recently rejected a party's crafty strategy of (a) telling its opposition in writing that it expected them to pay for the costs of production; and (b) taking the opposition's failure to respond as acquiescence to a $67,000 bill.
Plaintiffs filed suit for breach of contract in a construction case, Silverman v. LeMadre Development, LLC et al., No. 08-603231 (N.Y. Sup. Ct. 2008). Plaintiffs requested that the defendants produce electronically-stored information (ESI) as part of the discovery process. In response, defendants sent a letter in July 2010 reminding plaintiffs' of a so-called obligation to pay for costs incurred in producing ESI. Defendants' letter asked the plaintiffs to respond within two business days "so that [the defendants] can proceed as promptly as possible with [plaintiffs'] demand."
Plaintiffs did not reply to the letter. Nonetheless, defendants went ahead and produced more than 7,000 pages of ESI at the cost of $67,000. Two months later, they filed a motion to compel the plaintiffs to pay for the costs on the grounds that the plaintiffs' silence constituted an agreement to do so.
Not so. In a Nov. 2010 order, New York Supreme Court Justice Eileen J. Bransten ruled that the defendants could not shift the cost of e-discovery to plaintiffs under a "silence is acquiescence" rationale. Citing Russell v. Raynes Associates Ltd. Partnership, 166 AD2d 6 [1st Dept 1991], the court held that plaintiffs had no legal duty to respond to the letter, so their lack of response could not be deemed acquiescence.
Defendants' choice of case citations did not help their case. Relying heavily on T.A. Ahern Contractors Corp. v. Dormitory Authority, 24 Misc 3d 416 (Sup Ct, NY County 2009), defendants asserted that "the party seeking discovery bears the cost incurred in its production. But the Ahern court itself had earlier declined to compel production of each party's requests for electronic discovery until each party agreed to cover the costs of producing the data that party requested. Here, there was no such explicit agreement, whether voluntary or court-ordered.
Defendants then cited Waltzer v. Tradescape & Co., LLC, 31 AD3d 302 [1st Dept 2006], which concerned retrieval of deleted ESI. But in this case, the data was readily available. Finally, defendants cited Lipco Elec. Corp. v. ASG Consulting Corp., 4 Misc 3d 1019(A)(Sup Ct, Nassau County 2004) in which a separate program was needed to search and extract data, as well as a relational database to store the data and another program to read and collate it. Here, defendants' ESI retrieval process was much less complex.
This decision suggests several factors for determining when and whether e-discovery production costs can be allocated between the parties:
- The presence (or lack thereof) of a clear agreement between the parties to allocate production costs.
- Whether the data is readily accessible or difficult to retrieve.
- Whether special tools/programs are required to organize and review the retrieved ESI.
But could this dispute have been avoided altogether? According to a 2010 New York State Unified Court System report, the New York state court system has adopted Commercial Division Uniform Rule 8(b) and Uniform Trial Court Rule 202.12(c)(3), requiring parties to meet-and-confer on ESI-related issues before the preliminary conference in court. It is just one example of how state courts are trying to catch up to the avalanche of cases that involve e-discovery issues. In this case, perhaps if the parties had communicated more efficiently about their expectations for ESI production, they would have been spared the expense of litigating who would bear the expense.