By Nick Kyriakopoulos
Those familiar with responding to discovery requests seeking electronically stored information (“ESI”) know there is a general presumption that the responding party bears the expense of complying with the discovery requests. This presumption may be overcome to allow cost-shifting when discovery requests impose an undue burden on the responding party. A recently issued opinion from the Federal District of New Jersey, in which the Court denied a cost-shifting request, underscores that courts require responding parties to bear a heavy burden before any costs will be shifted to the other side.
In the case of Juster Acquisition Co., LLC v. N. Hudson Sewerage Auth., the District Court’s opinion made it clear that cost-shifting is unlikely, even when discovery requests seek duplicative information already produced in hard copy. No. 12-3427, 2013 U.S. Dist. LEXIS 18372, at *14 (D.N.J. Feb. 11, 2013). The Court reasoned that because litigants with significant resources absorb the cost of ESI discovery, projected discovery costs in the range of $6,000 to $16,000 are “not so substantial” as to warrant fee-shifting. Id. at *15. The opinion is also noteworthy because the Court denied Defendant’s request for a protective order with regard to 67 broad searches requested by Plaintiff. Id. at *7.
The dispute in Juster arose after Plaintiff, an investment firm, and Defendant, a public utility authority, failed to consummate a business engagement for the purposes of refinancing and recapitalizing Defendant’s debt obligations. The two parties negotiated and executed a term sheet containing a binding exclusivity provision that Plaintiff argued prevented Defendant from implementing a refinancing plan without the employment of Plaintiff. Id. at *3. Plaintiff alleged that Defendant took its work-product and proceeded to close a deal without Plaintiff, in violation of the exclusivity provision contained in their initial term sheet. Id. at *3. Plaintiff claimed damages in excess of $41 million. Id.
Five months into the litigation, after Defendant had already produced approximately 8,000 pages of responsive documents and complied with 100 electronic word search terms, Plaintiff requested an additional 67 searches. Id. at *5. The 67 requested searches included broad terms such as “SEC,” “fee,” “debt,” and “tax!” Id. at *7. Defendant argued that these search terms were too broad and that the searches would retrieve duplicative information already produced in hard copy. Id. at *5-6. For these reasons, Defendant argued that it was entitled to a protective order; alternatively, should the court deny the request for a protective order and require the searches, Defendant requested an order requiring Plaintiff to pay the costs associated with conducting the searches. Id. at *5-6.
The Court made short work of Defendant’s request for a protective order: it was denied without much scrutiny as to the broadness of the search terms. Id. at *8. Although the Court admitted that “at first blush,” the 67 search terms appeared “somewhat broad,” the Court determined that Defendant failed to show how they were unreasonably cumulative and therefore Defendant lacked good cause for a protective order. Id.
In its assessment of Defendant’s cost-shifting requests the Court applied the test set forth in Zubulake v. Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003) to determine if Defendant was entitled to discovery fees. Under Zubulake, a court will determine whether discovery costs should be shifted based on a seven-factor test, which is weighted more or less in the following order:
(1) the extent to which the request is specifically tailored to discover relevant information; (2) the availability of such information from other sources; (3) the total cost of production, compared to the amount in controversy; (4) the total cost of production; (5) the relative ability of each party to control costs and its incentive to do so; (6) the importance of the issues at stake in the litigation; and (7) the relative benefits to the parties of obtaining the information. Juster, 2013 U.S. Dist. LEXIS at *14 (citing Zubulake, 216 F.R.D at 284).
The Court proceeded to apply the seven factors and found that fee-shifting was not warranted.
First, the Court found that Plaintiff’s ESI requests, despite employing broad search terms, were sufficiently tailored because they were restricted to the time period of 2011 to 2012. Id. at *13. The Court also noted that the parties had previously agreed in writing that each would bear its own costs in connection with producing discovery. Id. Thus, this factor weighed in favor of Plaintiff.
Second, the Court stated that it was “irrelevant” that Defendant had already turned over 8,000 pages of documents because “production of information in ‘hard copy’ does not preclude a party from receiving that same information in computerized/electronic form.” Id. at *14. Furthermore, neither Plaintiff nor Defendant actually knew what the requested searches would turn up until Defendant actually performed the search. Id. at *13.
Factors three through five concerned the financial dimensions of the discovery request. The Court’s discussion of these factors proved the most interesting in terms of addressing fee-shifting requests in the context of commercial litigation. Defendant argued that it would cost $6,000 to $16,000 to process the word searches and eliminate duplicates; Plaintiff asserted that this was a $41 million dollar case and that the discovery costs were “negligible” in comparison to Defendant’s resources. Id. at *15. The Court determined that factors three through five weighed in favor of Plaintiff. Id. Because the amount of damages at stake in the litigation was great and because of Defendant’s ability to absorb the cost of the requested ESI discovery, discovery costs were not so substantial as to warrant fee-shifting. Id.
The Court stated that factors six and seven were less critical to the fee-shifting analysis in this case and, in short, that neither factor weighed one way or the other. Nevertheless, the Court, in concluding that the Zubulake factors weighed in favor of Plaintiff, also added that the principles of fundamental fairness further supported its denial of Defendant’s fee-shifting requests. Id. at *17. This was because the parties both previously agreed to pay their own costs in producing discovery. Id.
There are some key points to take away from this opinion. First, when litigation involves parties with significant resources, do not expect a court to grant a request to shift fees associated with responding to ESI requests. If a party can afford to pay, expect that the court will oblige it to do so. Second, do not expect a court to scrutinize proposed search terms as it may when a case involves litigants unable to foot the bills for ESI requests. The Juster opinion suggests that broad search terms limited to a specific one-year period are sufficiently tailored. Furthermore, if the amount of damages at stake in a case is great, this opinion suggests that a $6,000 to $16,000 cost for an ESI search is more or less a drop in the bucket. Finally, if a party is going to make a request to the court to shift fees associated with ESI, the request is more genuine when that same party has not previously promised in writing to pay its own costs.
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Nick Kyriakopoulos is an associate in Foley and Lardner LLP’s Detroit office.
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