New York's First Department Adopts Even More Of Zubulake
On February 28, 2012, the Appellate Division, First Department, issued its decision in U.S. Bank N.A. v. GreenPoint Mortgage Funding, Inc., 2012 N.Y. App.Div. LEXIS 1487, which adopted the standards established in the SDNY's 2003 landmark decision in Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (SDNY 2003). In its decsion, he First Department held that the party producing electronically stored information ("ESI") bears the the burden of paying for the production. This unanimous decision represents a reversal of several New York trial court rulings holding that the party requesting disclosure had the obligation to pay for its production.
As is often the case, interesting appellate decisions can be the product of discovery disputes that have a high chutzpah quotient. Here, not only did GreenPoint seek to have plaintiff pay for its ESI production, it went a step further in demanding that plaintiff pay for the cost of GreenPoint's attorneys' pre-production time in performing a pre-production privilege review. Would this appeal have been filed if attorneys' fees had not been in the mix?
Several weeks ago, I reported here about the First Department's adoption (in Voom H.D. Holdings) of Zubulake's standards for addressing the spoliation of ESI evidence. In U.S. Bank N.A. v. GreenPoint Mortgage Funding, Inc., the court has turned to Zubulake yet again, in the absence of any guidance in the CPLR concerning ESI disclosure cost allocation. Although it is unclear whether the other New York appellate departments will similarly embrace Zubulake, the decision harmonizes state and federal discovery practice in Manhattan courts, if not upstate.
Therefore, it is all the more important for the practitioner to appreciate that Zubulake's cost allocation mandate is by no means absolute. Under Zubulake, the producing party must only bear "the initial cost of searching for, retrieving and producing discovery". The decisions sets forth seven factors for courts to consider in evaluating whether to shift all or part of the cost of ESI production back to the requesting party. For example, costs may be shifted back to the requesting party if: (1) the request is not tailored to discover relevant information; (2) the discovery can be obtained from other sources; (3) the cost of production as compared to the amount in controversy; (4) the cost of production, compared to the resources available to the parties; (5) the relative ability of each party to control costs and their incentive to do so; (6) the importance of the stakes in the litigation; and (7) the relative benefit to the parties of obtaining the information at tissue.
We should expect that state court practitioners, seeking to avoid having their clients bear the costs of ESI production alone, will shortly be committing these seven factors to memory.
New York practitioners should stay abreast of important new rules and proposed rules governing E-discovery in both the state and federal courts in New York. As reported by
Duane Morris reported today concerning a decision in Race Tires America, Inc. v. Hoosier Racing Tire Corp., 2011 U.S. Dist. LEXIS 48847 (W.D. Pa. May 6, 2011). There, the U.S. District Court for the Western District of Pennsylvania held that the prevailing defendants at trial may recover a whopping $367,000 in e-discovery costs because such costs are the modern-day equivalent of duplication costs. Although the court took care to limit its ruling to the "unique" facts associated with this case, should litigants consider more narrowly tailoring their discovery requests and seeking early agreement on the scope of electronic productions? Following an affirmance of an award of summary judgment to defendants by the Third Circuit, the defendants sought to recover their costs—the vast majority of which were related to e-discovery. The plaintiff objected, contending that the costs were not taxable pursuant to 28 U.S.C. § 1920(4), which permits recovery of "[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case." The issue before the district court was the applicability of § 1920(4) to electronically stored information, an issue which has not yet been addressed by the Third Circuit. In its ruling, the district court first focused on the words "exemplification" and "copying." While recognizing that these terms "originated in and were developed in the world of paper," it viewed the steps a vendor takes to produce electronic data as the "electronic equivalents of exemplification and copying." Defendants were able to demonstrate that plaintiff aggressively pursued e-discovery under the case management plan, and the court found that the requirements and expertise necessary to retrieve and prepare documents for production were an indispensable part of the discovery process. Although the district court limited the holding to the facts presented by the case, it is likely that the expanded view of 1920(4) will be debated in other district courts around the United States in the months to come. Although many courts have attempted to allocate the costs of e-discovery fairly before a party undertakes this obligation, this cases suggests that courts may seek to revisit the allocation of e-discovery costs following entry of judgment. According to the decision, it is up to the party seeking to recover these costs to demonstrate that the costs at issue were incurred for the sole purpose of complying with an adversary's demands rather than, for example, improving the appearance of documents for trial presentation purposes.
Are defendants in New York product liability and toxic tort litigation better off in federal court than in state court? Federal court discovery rules certainly are more liberal than state court discovery rules. There, plaintiff’s experts are subject to deposition and, if appropriate, Daubert challenges. In contrast, state court provides only minimal expert disclosure. However, state court rules concerning the production of electronically stored information (“ESI”) may be more favorable to corporate defendants litigating in state court. In state court, the general rule is that the requesting party pays for the defendant’s ESI retrieval. In federal court, the court will apply “proportionality” concepts, and balance the importance of the discovery with the burden on the producing party. Thus, the result of the burden shifting analysis is somewhat more complex and subject to more variables. As reported in this space on November 4, 2009,
The Manual For State Trial Courts Regarding Electronic Discovery Cost-Allocation, authored by the Joint E-Discovery Subcommittee of the 