New England Biz Law Update
When Henry David Thoreau wrote that “the process of discovery is simple,” he surely did not have litigation in mind. And even if he did, that was in 1849.
As Judge Scheindlin has remarked in her widely regarded Zubulake decision, things have certainly changed since then. Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, (S.D.N.Y. 2003).
Recent times have seen a revolution in how human beings create, share and store information. From the beginning of civilization until 2003, we generated 5 billion gigabytes of data. That is, by all measures, a great deal of information; 1 gigabyte translates to roughly 500,000 typewritten pages. But consider that, between 2003 and 2010, we produced 5 billion gigabytes of data every two days. By 2013, we will produce that much data every 10 minutes. Id.
These technological leaps and bounds have transformed how the world does business. It has also presented a potentially expensive problem in the context of civil litigation, in which “vigorous and expansive discovery” is thought to be a “cornerstone” of the judicial process.
“As individuals and corporations increasingly do business electronically … the universe of discoverable material has expanded exponentially. The more information there is to discover, the more expensive it is to discover all the relevant information until, in the end, discovery is not just about uncovering the truth, but also about how much of the truth the parties can afford to disinter.” Zubulake, 217 F.R.D. at 311 (internal quotes omitted).
The more electronically stored information (ESI) a responding party has in its possession, the more expensive discovery can get. For that reason, when one party possesses most of the information relevant to a dispute, such as in class actions, that party will bear a disproportionate amount of the discovery related costs.
That is the position in which LA Fitness International, LLC found itself when faced with a purported class action alleging it deceived members who desired to terminate their gym memberships. See Boeynaems v. LA Fitness Int’l, LLC, ___ F. Supp. 2d ___, 2012 WL 3536306 (E.D. Pa. Aug. 16, 2012).
In Boeynaems, the named plaintiffs sought to certify a class of anyone who joined an LA Fitness Club and later cancelled or sought to cancel his membership. Discovery was limited to whether plaintiffs could pursue their claims as a class under Rule 23. The named plaintiffs sought discovery to demonstrate that LA Fitness’s membership cancellation policies and practices were set and followed nationally, and thus common issues predominated over individual ones.
LA Fitness balked at the cost associated with responding to the plaintiffs’ discovery demands. It estimated that it would cost nearly $600,000 to collect and review the sources of ESI requested by the plaintiffs.
While Rule 26(b)(2)(B) provides that a party need not produce ESI that is “not reasonably accessible because of undue burden or cost,” unless the requesting party can show “good cause,” LA Fitness’s ESI was not “inaccessible.”
Rather, the sheer volume of ESI in LA Fitness’s possession — “accessible” though it may be — presented the greatest burden. LA Fitness had “millions of items” of ESI that would fall within the plaintiffs’ request. Boeynaems, 2012 WL 3536306 at *3.
There is a longstanding “presumption that the responding party must bear the expense of complying with discovery requests.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 358 (1978).
That presumption, however, is subject to a court’s discretion under Federal Rule of Procedure 26(c) to protect a party from “undue burden or expense” in responding to discovery requests, including orders conditioning discovery on the requesting party’s payment of the costs of discovery. Id.
In the ESI context, Zubulake is still widely regarded as the leading opinion for determining whether cost-shifting is appropriate. Zubulake contemplates a seven-factor test to govern cost-shifting for ESI. The most important factors are whether the “request is specifically tailored to discover relevant information,” and the “availability of such information from other sources,” as well as the total cost of production compared to the amount in controversy, and the total cost in relation to the resources available to each party. Zubulake, 217 F.E.D. at 322.
But to even get to the cost-shifting analysis under Zubulake, the ESI must be deemed “inaccessible.” According to Judge Scheindlin, the question of whether production subjects a party to undue burden or expense “turns primarily on whether it is kept in an accessible or inaccessible format.” Id. at 318 (emphasis in original).
The court deemed only back-up tapes and “fragmented” or damaged data as truly “inaccessible.” For sources of data deemed “accessible,” such as “active” email files, the court noted “it would be wholly inappropriate to even consider cost-shifting.” Id. at 320.
Several other courts have followed that logic, refusing to consider cost-shifting when data is not “inaccessible,” regardless of how expensive a production of the “accessible” data may be. See, e.g., Helmert v. Butterball, LLC, 2010 U.S. Dist. LEXIS 60777 (E.D. Ark. May 27, 2010) (“… [c]ourts should not consider cost shifting when ESI is kept in an accessible format”); Nogle v. Beech Street Corp., 2012 U.S. Dist. LEXIS 121927, *21 (D. Nev. Aug. 27, 2012) (same).
Of course, a party can incur enormous costs for producing data deemed “accessible” under the Zubulake framework. See Rodney A. Satterwhite and Matthew J. Quatrara, “Asymmetrical Warfare: The Cost of Electronic Discovery in Employment Litigation,” 14 Rich. J.L. & Tech. 9 (“It is quite conceivable, even likely, that a party will be unable to access certain categories of ESI because of the ‘undue burden or cost’ even when those categories do not fall within one of the now narrow categories of ‘inaccessible’ ESI defined by Zubulake”).
The distinction between “accessible” and “inaccessible” ESI in Zubulake ignores that reality, as well as the potentially astronomical expenses associated with producing “accessible” ESI.
In practical terms, that may not be a great concern in cases in which both sides possess a comparable amount of ESI, and thus both “have an incentive to agree on methods for controlling the cost of preserving, searching, and producing discoverable information.” Satterwhite and Quatrara, 14 Rich. J.L. & Tech. 9.
But this theory of mutually assured destruction in the discovery context is inapplicable when, as in Boeynaems, the discovery burden is not shared equally by plaintiff and defendant. As commentators have noted, “in civil litigation where one side has a significantly higher volume of ESI … the incentive for bilateral cooperation on discovery issues is significantly diminished.” Id.
In Boeynaems, Judge Baylson recognized the problem of disproportionate discovery burdens as particularly acute in the context of expansive discovery in support of a motion to certify a class.
In considering whether to shift LA Fitness’s cost of production to the named plaintiffs, the court noted that one “important aspect of this case is that discovery is asymmetrical.” Boeynaems, 2012 WL 3536306, *3.
The named plaintiffs had very few, if any, documents relevant to the dispute, whereas LA Fitness “has millions of documents and millions of items of [ESI].” Virtually all discovery in the case would be directed to LA Fitness, and “the cost of production of these document is a significant factor in the defense of the litigation.” Id. A party subject to a disproportionate discovery burden is more susceptible to settlement pressure based on a desire to avoid those costs, rather than based on the merits.
Expressing his view that “discovery burdens should not force either party to succumb to a settlement that is based on the cost of litigation rather than the merits of the case,” Judge Baylson held:
“where (1) class certification is pending, and (2) the plaintiffs have asked for very extensive discovery, compliance with which will be very expensive, that absent compelling equitable circumstances to the contrary, the plaintiffs should pay for the discovery they seek. If the plaintiffs have confidence in their contention that the Court should certify the class, then the plaintiffs should have no objection to making an investment. Where the burden of discovery expense is almost entirely on the defendant, principally because the plaintiffs seek class certification, then the plaintiffs should share the costs.” Id. at 11-12.
Importantly, Judge Baylson did not require LA Fitness to demonstrate that its ESI was “inaccessible” in order to merit cost-shifting. On the contrary, the plaintiffs sought to require LA Fitness to produce ESI form “active” email files and other accessible sources.
Because LA Fitness had borne all costs of plaintiffs’ class discovery to date, and because LA Fitness would bear a disproportionate share of the class discovery burden in the case going forward, the court deemed it appropriate “that the cost burdens must now shift to Plaintiffs.” Id. at 12.
The court ordered the named plaintiffs to pay 100 percent of the costs incurred in responding to their requests going forward — including the salaries of in-house counsel and paralegals involved in gathering responsive information —- subject to the named plaintiffs’ right to withdraw their requests if they deem the endeavor too expensive.
The court tempered its holding to note that “in the absence of a putative class action, where a party or counsel is unable to afford assuming the other party’s costs of discovery, cost shifting may not be appropriate.” Id. at 4 n.4.
In addition to Boeynaems, one other recent decision has also discarded the accessibility distinction in the context of a putative class action, noting that “Rule 26(b)(2)(C) gives the court the ability to ‘limit the frequency or extent of discovery’ — regardless of accessibility — whenever the ‘burden or expense of the proposed discovery outweighs its likely benefit.’” Adair v. EQT Production Co., 2012 U.S. Dist. LEXIS 75132, *12 (May 31, 2012) (emphasis added).
Corporate litigants, heretofore subject to disproportionate discovery burdens solely because they have more information, will certainly see this as a welcome burgeoning trend, even if presently limited to the class action context.
Focusing on the issue of asymmetrical discovery burdens, rather than on the somewhat artificial distinction between “accessible” and “inaccessible” ESI, safeguards against pressures aligning against one party to produce outcomes driven by cost rather than by the merits of a particular claim or defense.
