Capping e-discovery costs: a hybrid solution to e-discovery abuse.

• Author: Mazanec, Karel

TABLE OF CONTENTS INTRODUCTION I. THE RISING COST OF E-DISCOVERY A. Key Differences Between Traditional Discovery and E-Discovery B. The Cost of E-Discovery C. The American Rule Governing E-Discovery Costs D. Exploitation of the American Rule II. FAILED REFORMS A. 2006 Amendments to the Federal Rules of Civil Procedure B. 28U.S.C. [section] 1920 III. THE PROPOSED SOLUTION: A HYBRID RULE A. Model Language for the Proposed Hybrid Rule IV. COUNTERARGUMENTS A. Potential Problems with a Hybrid Rule B. Maintaining the Status Quo C. The English Rule: Loser Pays CONCLUSION INTRODUCTION

E-discovery, or the process that compels litigants to share electronically stored information and documents, has become the most prominent form of information sharing in modern-day litigation. It is also the most expensive. Data is produced at rates never thought possible. Documents are backed up many times over and replicated many times more. The information is then stored indefinitely, accruing to vast volumes which make traditional paper discovery file-box storerooms pale in comparison. Producing this electronically stored information during discovery becomes incredibly expensive. (1)

Rising e-discovery costs over the past several decades have made the current system for allocating discovery expenses prone to exploitation. (2) Because the current discovery rules were designed to deal with paper discovery, they place the burden of e-discovery costs largely on the producing party. (3) Plaintiffs take advantage of this and leverage high e-discovery costs to settle weak, meritless, and even frivolous claims. (4) By intentionally making overbroad e-discovery requests, requesting parties drive up the producing party's e-discovery bill. (5) Producing parties have no choice but to settle or pay exorbitant discovery costs--regardless of whether they are likely to win or lose on the merits of the actual case. (6)

Some courts have attempted to solve this problem by shifting e-discovery costs under 28 U.S.C. [section] 1920. (7) Section 1920 allows for courts to tax certain litigation costs against the losing party. (8) This method does not adequately address the problem, however, because it vests the court with an optional and controversial power instead of creating a set, predictable rule. (9) Consequently, courts sparsely use and unevenly apply [section] 1920 to tax e-discovery costs, leaving the parties uncertain as to a suit's e-discovery cost allocation. (10) Nevertheless, proposals for a universal taxation rule are not without merit because many address the underlying causes behind the e-discovery abuse phenomenon. (11) Still, such a narrow approach to the problem often excludes creation, third-party vendor, and review costs, and therefore does not go far enough to dissuade requesting parties from inflating the e-discovery bill. (12)

Unsurprisingly, reforming the rules for allocating e-discovery costs, particularly cost shifting, has become a popular topic among scholars. Professor Redish has proposed a rule that would shift costs for discovery requests involving a significant amount of information that is not reasonably accessible to the producing party. (13) Judge Hedges has suggested, "If discovery is sought that is relevant to a claim or defense, the producing party [should] bear the costs. If the requesting party can show good cause for 'expanded' discovery under Federal Rule of Civil Procedure 26(b)(1), it [should] bear the costs." (14) Since 1994, Professors Cooter and Rubinfeld have advocated a model in which the responding party would "bear the costs of reasonable compliance up to a level deemed appropriate for this class of cases, beyond which the reasonable costs of complying with further discovery requests would shift to the plaintiff." (15)

Regardless of the model, scholars have discussed the importance of the "American" rule--which makes each party responsible for their own litigation costs and effectively places the burden of e-discovery on the producing party--and protecting American plaintiffs' rights to bring meritorious suits. (16) Most agree that a pure "English" rule, or loser pays rule, would make the litigation system inaccessible to poor and risk-adverse plaintiffs. (17) Instead of filing meritorious claims, plaintiffs would be too scared to risk losing the suit for fear of having to pay for all of the e-discovery costs. (18) In fact, some critics take the extreme view that all cost shifting, both under [section] 1920 and under any version of the loser pays rule, is too harmful and oppressive to requesting parties. (19) Others, like Professor Fitzpatrick, simply highlight risks associated with cost shifting and stress that cost shifting is not the only viable solution to resolve current trends in discovery abuse. (20)

This Note proposes a new solution to the problem. Specifically, it proposes a hybrid rule that would cap e-discovery costs paid by the producing party at one-half the value of the claim in question. This hybrid rule takes the best from both the American and English rules and would balance plaintiff and defendant interests to make e-discovery costs manageable and proportional to each suit. (21) Producing parties would be required to pay the e-discovery costs initially, as the current American rule dictates. But because the hybrid rule would shift the cost to the requesting party once the e-discovery expenses passed the halfway mark, producing parties would be shielded from exploitation--much like producing parties are shielded under the English rule. The proposed hybrid rule would therefore keep the incentives for plaintiffs to pursue meritorious claims without fear of being stuck with the final e-discovery bill, but also provide incentives for requesting parties to narrow their discovery requests lest they surpass the cap and be required to pay the rest of the bill. The rule would further encourage efficient settlement and foster cooperation of both the parties to keep e-discovery costs down across the board.

Part I of this Note sets out the background information and the problem with rising e-discovery costs and e-discovery exploitation under the status quo. Part II explains why the major reforms in this field have failed to adequately address this problem. Part III explains this Note's proposed solution. Lastly, Part IV analyzes the major counterarguments against the proposed solution.

1. THE RISING COST OF E-DISCOVERY

   Advances in modern technology have caused the production of information at incredible rates, which in turn has driven the cost of e-discovery skyward. Due to major differences between traditional discovery and e-discovery, chief among which is the sheer disparity in volume of stored information, traditional discovery costs have been far superseded by incredible modern e-discovery costs. Requesting parties have capitalized on this trend and use it to force arbitrarily high settlements from producing parties who have no choice but to settle or pay the even higher price of e-discovery.

   1. Key Differences Between Traditional Discovery and E-Discovery

      There are a myriad of differences between traditional discovery and e-discovery that explain the diverging costs. Traditional discovery was designed mainly for managing paper documents. (22) E-discovery deals with electronically stored information (ESI). (23) Applying the traditional discovery rules to ESI has resulted in an explosion in the volume of discoverable information. Simply put, companies and people today store more information in electronic format than was ever feasible via paper.

      First, the widespread use of technology results in the creation of more information. Whereas companies and individuals certainly documented important transactions and communications before the computer age, the availability and pervasive use of computers, the internet, email, smartphones, and scanning methods now allow for documentation in a greater volume. (24) Ordinary, day-to-day activities of companies now generate information which traditionally went unrecorded. (25) Business communication is a prime example. Conventional means of communication such as the telephone, the postal service, and even face-to-face interaction are often replaced by e-mail, instant messaging, or collaboration software, all of which leave electronic records. (26) Consequently, communications not warranting documentation before the widespread use of e-mail are now commonly saved, backed up, and stored in company archives. (27)

      The scope of this automated record trail is vast. As noted by one commentator, "virtually every aspect of an employee's daily tasks creates some type of ESI." (28) In 2006, an average employee created nearly 800 megabytes of electronic information. (29) In 2007, the average employee sent and received 135 e-mails each day. (30) Similarly, a mid-sized company with 500 employees generated more than 17.5 million e-mails each year. (31) And a single large corporation "can generate and receive millions of emails and electronic files each day." (32)

      This is made possible by the availability of cheap and effective electronic storage. Communication that used to require file cabinets, storerooms, and excess space can now be stored on external hard drives or backup tapes requiring a tiny fraction of that storage room. (33) An average small business today has the electronic storage capacity equivalent to 2000 four-drawer file cabinets capable of holding 10,000 sheets of paper each. (34) Bigger businesses frequently store much more, utilizing thousands of large-capacity storage devices with terabytes of storage space. (35) Even though lack of space often necessitated the shredding and disposal of old documents, companies now often keep stored information "because there is no compelling reason to discard it." (36) In fact, it may cost more to effectively discard ESI than to keep it, as electronic forms of information tend to be extremely difficult to...