The new paradigms of e-discovery and cost-shifting: determining who pays for electronic discovery.

• Author: Iqbal, Mohammad

FEDERAL Rule of Civil Procedure 34 has permitted discovery of electronic information since 1970, but the volume of electronic documents has grown exponentially during the Internet revolution in which we live. (1) Today, the vast majority of documents exist in the form of emails, word processing documents, or spreadheets, and one estimate indicates that ninety-five percent of all documents are now created electronically. (2) In 2004, an estimated thirty billion emails were sent daily, and in 2006, the number is expected to double. Because digitally-stored data takes up significantly less space than paper, over seventy percent of electronic information is currently stored on laptops, cell phones, voice mail servers, personal digital assistants (PDAs), and backup tapes rather than in document warehouses.

Computerized data is discoverable if it is relevant. (3) Discovery of electronic documents is a relatively simple matter when the information requested is readily accessible. However, discovery becomes problematic when electronic information is no longer available by merely recalling it, but requires special programming tools or experts to extract it from its stored location into a useable format. The cost of identifying, gathering, reviewing for privilege, and producing electronic documents is high. For example, in one case, the cost of recovering data was estimated at $9.75 million. (4) These astronomical expenses stem from the sheer magnitude and redundancy of data on backup tapes. (5)

Prior to the dominance of today's computer age, cost sharing in discovery was not a very dynamic topic. Several cases had addressed the issue, creating a solid body of common law from which to draw guidelines. Now, however, technology has created new paradigms for discovery, and it is redefining modern litigation strategies and tactics. The scope of electronically recorded information is considerably broader than most people recognize. (6) This process is evolving rapidly as new technologies, their use, misuse, and abuse give rise to new causes of action and remedies. Because of the potential costs associated with many electronic discovery requests, cost-shifting is one of the most hotly contested issues in electronic discovery.

The issue regarding who pays for electronic discovery is unsettled, inconsistent, and highly case-specific. (7) Several judicial approaches have been applied to decide whether the cost of production is shifted to the requesting party. The law of electronic discovery is beginning to emerge, but most issues are so unexplored that judges must still develops the majority of the law in this area. (8) Electronic discovery technology is developing faster than the law of electronic discovery, and it is likely that electronic discovery issues presented to courts will outpace prior judicial decisions. Although the endpoint of the process is unknown, recent court decisions provide some guidance on electronic discovery planning.

This article examines the legal framework that has been used historically to allocate discovery costs and recent cases that address the issue of electronic discovery. The article also compares and summarizes significant judicial holdings and factors analyzed in the courts' cost-shifting analysis and concludes with an overview of emerging trends and best practices in discovery planning.

1. Principles of Discovery

   Under the federal discovery rules, the general presumption requires the responding party to bear the expense of complying with discovery requests. The responding party may invoke the district court's discretion to grant orders protecting the responding party upon a showing of "oppression" or "undue burden or expense." The court may then shift all or part of the cost to the requesting party. (9) On the other hand, the responding party cannot attempt to hide a needle in a haystack by mingling responsive documents within numerous non-responsive documents. (10) As a rule, data kept in electronic form are discoverable in electronic form. (11) It is a well-accepted proposition that "deleted" computer files, emails, or other files, are subject to discovery, if they are retrievable. (12)

   Neither Federal Rule of Civil Procedure 26(c) nor Rule 34 defines the terms "oppression" or "undue burden or expense" except that the burden or expense of a discovery request must be proportionate to the need for discovery. (13) Though the proportionality test was introduced to encourage judges to deal with discovery abuse, judges are left without clear direction and must decide cost-shifting motions by referencing the proportionality provisions in cases. Judges then must attempt to apply the provisions accurately. (14) In electronic discovery, questions of "undue burden and expense" arise when the requesting party asks for data that is not readily retrievable. For example, data that has been "deleted," is not readily retrievable because it is stored only on backup tapes, it is on outdated systems, or it is no longer available in electronic media. Production of such data may require restoration of backup tapes or use of special computer software to search for and retrieve the requested data. In such circumstances, the producing party frequently argues that cost of production is an undue burden and should be shifted to the propounding party.

2. Burden Analysis

   Cost-shifting is the most controversial topic in electronic discovery today because there is a marked increase in the cost of electronic discovery in comparison to its counterpart, paper discovery. Two reasons account for this surge in cost-shifting analysis. First, there has been an exponential increase in discoverable information, requiring litigants and their attorneys to review thousands, if not millions, of pages of electronically stored information. In other words, where yesterday's document production involved a box of paper, today's production for one case may fill several rooms. (15) Second, digital information tends to exist in duplicate form in various locations, and litigants may legitimately cast their discovery net wider to search for relevant information. For example, a demand by a litigant to produce "all computerized files, emails, voice mails, work files, desk files, calendars and diaries, and any other locations and sources if materials of the type to be produced might plausibly be expected to be found there" may require a search of all active computers and restoration and search of every back up tape. (16) This type of search is generally costly, and the responding parties frequently question the need for such an expensive search, referring to it as an "undue burden." The cost of searching for electronic documents is what separates electronic discovery from its paper counterpart. As one scholar put it: "In the digital world, discovery is the same--but different. Bytes and bits can mean a lot of bucks." (17)

   Consequently, some courts have automatically assumed that an undue burden or expense arises simply because electronic evidence is involved. (18) However, this view has been criticized as nonsensical. (19) Overall, cost-shifting efforts have yielded mixed results. Some courts have asked a requesting party to pay for the cost of production while others have not, denying claims on the ground that costs involved, though substantial, were not unduly burdensome. (20) In the past few years, courts have started formulating a legal framework to resolve issues in cases where the burden of e-discovery outweighs its benefits. The following section discusses recent developments in case law that address the proportionality test and cost-shifting issues.

3. Cost-Shifting Case Law

   Many courts have addressed the issue of cost-shifting with respect to electronic discovery, and the courts' conclusions, although often consistent, do not provide a single black and white answer regarding electronic discovery. Rowe Entertainment, Inc. v. The William Morris Agency (21) has been described as the gold standard for courts resolving cost-shifting disputes in electronic discovery. (22) Prior to the Rowe case, Anti-Monopoly, Inc. v. Hasbro, (23) was a frequently cited case in which plaintiff requested certain electronic documents that required defendant to create a special retrieval program to extract the documents. The Hasbro court held that the requested discovery imposed an undue burden, and therefore cost-shifting was proper. The court went on to hold that a party's ability to pay was not a valid basis for deciding whether or not the cost should be shifted. However, in In re Brand Name Prescription Drugs Antitrust Litigation, (24) where a litigant was required to search thirty million pages of documents at a cost of $70,000 to retrieve and produce email data, cost-shifting was denied. The court emphasized the responding party's (defendant's) choice of record-keeping method and held that if a party chose an electronic storage method, then the necessity of retrieving those records was a foreseeable risk. The court held that the requesting party (plaintiffs) should not bear a cost over which they had no control. However, weighing the costs of production, the relative burdens to parties, and the benefits to the responding party, the court required plaintiffs to narrow their discovery requests.

   Similarly, other courts have ordered cost-shifting to require parties to focus their requests. For example, in Kormendi v. Computer Assocs. Int'l, Inc., the court required the requesting party to bear the cost of the email search to incentivize the requesting party to narrow its searches. (25) In Byers v. Illinois State Police, plaintiffs moved for an order compelling the defendant to produce archived emails. (26) The court held that, based on the cost of the proposed search and the plaintiffs' failure to establish that the search would likely uncover relevant information, the plaintiffs were entitled to the archived emails only if they were willing to bear...