Wisconsin Lawyer: E-Discovery: Who Pays?:

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    E-Discovery: Who Pays?

    Wisconsin courts have not expressly addressed cost shifting involving discovery of electronically stored information. Recent rule amendments provide an ad hoc balancing test, which should be supported by common-sense efforts to reach agreements with opposing counsel in these situations.

    Timothy D. Edwards

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 85, No. 10, October 2012

    E-DiscoveryThe general presumption in state and federal court litigation is that each party should bear its own costs of production during the discovery process.1 This presumption can lead to unfair results when discovery requires the production of electronically stored information (ESI), which can be expensive and time-consuming. In certain situations, the high cost of producing ESI may justify a departure from the standard presumption that each party bears the costs of its own production and allow for the imposition of costs on the nonproducing party. This is called "cost-shifting."

    This article tracks the appropriate standard for analyzing a request for cost-shifting in ESI disputes in Wisconsin courts. To understand how this standard has evolved, it is necessary to outline the cost-shifting analysis that preceded adoption of the 2006 amendments to the Federal Rules of Civil Procedure and the developments that have followed, including the 2010 amendments to the Wisconsin Rules of Civil Procedure. This article concludes with practical tips to assist attorneys who are dealing with cost-shifting disputes in state or federal litigation.

    Pre-2006 Cost-shifting: The Zubulake Standard

    Before the 2006 amendments were enacted, the U.S. District Court for the Southern District of New York set forth a balancing test for assessing cost-shifting requests involving ESI.2 The Zubulake inquiry involves three steps. First, the court must determine whether the requested data is accessible or inaccessible, as gauged by the physical accessibility and usability of the requested information (active, online data being the most accessible; erased or fragmented data being the least accessible). According to the Zubulake court, inaccessible data is "not readily usable. Backup tapes must be restored using a process, fragmented data must be de-fragmented, and erased data must be reconstructed, all before the data is usable."3

    If the information is accessible, Zubulake calls for the production of a representative sample for the parties to conduct an assessment of the costs and benefits of full production.4 Based on this information, the court applies a seven-factor test to address the equities of cost-shifting, which are listed below in order of importance:

    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, compared to the resources available to each party;
    5. Each party's relative ability 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.5

    Zubulake is widely recognized as the leading case with respect to cost-shifting involving ESI in the federal courts. The factors set forth in Zubulake have survived the 2006 amendments, sometimes in modified form, and they continue to emerge in cost-shifting disputes across the country.

    The 2006 Amendments and the Evolution of the Wisconsin Standard

    The 2006 amendments to the Federal Rules of Civil Procedure pertaining to electronic discovery contemplate a two-step test for assessing a cost-shifting request. In most cases, the responding party must show that the requested information is "not reasonably accessible because of undue burden or cost" (subject to the definition of accessible used in Zubulake).6 After this showing is made, the requesting party must show good cause for requiring the information to be produced.7 While there is no bright-line rule for assessing good cause, the Advisory Committee provided a list of factors to consider in making this assessment:

    1. The specificity of the discovery requests;
    2. The quantity of information available from other and more easily accessed sources;
    3. The failure to produce relevant information that seems likely to have existed but is no longer available on more easily accessed sources;
    4. The likelihood of finding relevant, responsive information that cannot be obtained from other, more easily accessed sources;
    5. Predictions as to the importance in usefulness of the information;
    6. The importance of the issues at stake in the litigation; and
    7. The parties' resources.8

    Obviously, these factors closely resemble those set forth in Zubulake. Although the Advisory Committee's notes are not binding, they should be afforded considerable weight by the district courts in assessing cost-shifting requests. The factors referred to above provide crucial guidance for attorneys trying to preserve, discover, and process electronic data.

    Cost-shifting in Wisconsin

    For many years, disputes regarding the proper scope of discovery in Wisconsin have been resolved by reference to Wis. Stat. section 804.01(3) (part of the Wisconsin Rules of Civil Procedure), which allows a party to seek an appropriate order "for good cause shown" to protect a party or person from "annoyance, embarrassment, oppression or undue burden or expense...."9 In applying this balancing test, Wisconsin courts have recognized that the party seeking discovery "will not be permitted to do so by raising conclusory assertions of relevance" in the face of specifically laid-out costs.10 However, there are no reported cases in Wisconsin that address the issue of cost-shifting in the ESI context.

    The 2010 amendments to the Wisconsin Rules of Civil Procedure identified an ad hoc standard for assessing cost-shifting in electronic discovery disputes. When read in their totality, the 2010 amendments envision a proactive process of interaction between the parties that is grounded in the meet-and-confer requirement that frames all discovery disputes. Under the amendments, the parties are required to meet and confer before serving a request for production of documents or responding to an interrogatory that allows for the production of business records in lieu of an interrogatory answer.11 The stated purpose of this requirement is to "reduce the ultimate cost" of electronic discovery – a central component of the cost-shifting analysis.12 With respect to cost-shifting, the court provided as follows:

    "Parties may not be able to reach consensus on how discovery of electronically stored information is to be managed. ... In determining whether to issue an order relating to discovery of electronically stored information, the circuit court may compare the costs and potential benefits of discovery. ... It is also appropriate to consider the factors specified in the Advisory Committee notes to Fed. R. Civ. P. 26(b)(2)(B): (1) the specificity of the discovery request; (2) the quantity of information available from other and more easily accessed sources; (3) the failure to produce relevant information that seems likely to have existed but is no longer available on more easily accessed sources; (4) the likelihood of finding relevant, responsive information that cannot be obtained from other, more easily accessed sources; (5) predictions as to the importance and usefulness of the further information; (6) the importance of the issues at stake in the litigation; and (7) the parties' resources."13

    As noted above, the 2010 amendments envision an ad hoc balancing test for resolving electronic discovery cost-shifting disputes. This is an optional test that applies the balancing test set forth in Wis. Stat. section 804.01(3) and the specific cost-shifting factors employed in rule 26(b)(2)(B) of the Federal Rules of Civil Procedure. Given the optional nature of this test, the Wisconsin cost-shifting analysis is somewhat fluid, inviting the application of other factors, such as those set forth in the Zubulake test. Because there are no published Wisconsin cases that apply this standard, the Wisconsin Supreme Court's reference to rule 26(b) as one baseline for resolving cost-shifting disputes invites reference to federal law as persuasive authority.

    The 2010 amendments set forth a number of substantive changes that affect cost-shifting. First, the rules now require the parties to meet and confer regarding electronic discovery before document requests are served. Second, the rules provide an optional framework for addressing cost-shifting issues. In contrast, the Federal Rules of Civil Procedure provide a mandatory, multifactor test that resembles the Zubulake framework. Despite these differences, Wisconsin attorneys must continue to turn to federal law for guidance on these issues until the Wisconsin courts provide additional guidance.

    Federal Case Law

    Very little case law in the Seventh Circuit addresses cost-shifting in connection with electronic discovery.14 The U.S. District Court for the Eastern District of Wisconsin addressed the issue of cost-shifting in the ESI context before the 2006 amendments to the Federal Rules of Civil Procedure took effect.15 In Hagemeyer North America Inc. v. Gateway Data Sciences Corp., the plaintiff filed a motion to compel the production of a full back-up set of Gateway's emails and also insisted that Gateway search all its back-up tapes for emails containing specific search terms.16

    In response, Gateway argued that the plaintiff should share the cost of restoring the back-up tapes, given the burdensome nature of the search. Noting the presumption that "the responding party must bear the expense of complying with discovery requests," the court cited rule 26(b)(2)'s proportionality test, and the Zubulake opinion, as exceptions to this general proposition.

    How should attorneys deal with cost-shifting disputes?

    Discovery of electronically stored information can be expensive and time-consuming. Author Tim Edwards has some advice for attorneys facing these costs. Video available online only at www.wisbar.org/wl/e-discovery.

    The court then addressed different approaches to cost-shifting, starting with the rule 26(c) balancing test, which is designed to protect the parties from undue burden or expense and allows courts to condition production on payment by the requesting party.17 Noting that the Seventh Circuit Court of Appeals has not adopted a test for cost-shifting involving electronic discovery, the court concluded that Zubulake improved the cost-shifting analysis set forth in rule 26(b)(2) (before the 2006 amendments) by making the overall analysis more "dependent on the facts of the case."

    As a result, the court concluded that the seven-factor Zubulake test was the most appropriate and employed an incremental approach by requiring Gateway to restore a sample of back-up tapes and inviting the parties to make additional submissions regarding the cost or expense associated with either option.18

    In a case brought in the U.S. District Court for the Western District of Wisconsin, Magistrate Judge Stephen Crocker addressed the issue of cost-shifting in a retaliation claim brought by a former county employee, who said that he was terminated for complaining about alleged improper child-support billing. The plaintiff served a comprehensive request for production of documents seeking "all documents, notes, memos, e-mails, and metadata of any Lincoln County official" regarding the "reorganization or restructuring of the Lincoln County Child Support Agency." The responsive documents included approximately four terabytes of data extracted from the computers of several Lincoln County employees and officials.19 Following negotiations, the defendant filed a motion for protective order invoking the cost-shifting provisions set forth in Zubulake and the 2006 amendments to rule 26(b)(2)(C).

    The court appears to have applied both standards; it set an incremental schedule for the production of the requested ESI. Noting that the "issues at stake in this lawsuit are important" and that the "potential damages are low," the court concluded that the "cost of engaging in the ESI search Plaintiff needs is disproportionate to the available recovery."20 In this respect, the court posed a critical question: "is it worth it to spend tens of thousands of dollars to explore ESI that might reveal a smoking gun, but is equally likely to reveal nothing much?"21

    Based on these considerations, and others, the court concluded that ESI discovery would proceed incrementally and that the initial search would be limited to specific emails stored on the defendant's hard drive by using the "narrowest set" of relevant search terms.22 The court further ordered that the parties would divide the costs of conducting the searches, and the defendants would be required to pay 100 percent of the cost of a privilege/relevance review.23

    Many federal cases in addition to Haka and Hagemeyer provide guidance regarding the appropriate standard for cost-shifting in Wisconsin. While a complete overview of these cases is beyond the scope of this article, a few are worth noting. In a very complicated ESI dispute involving significant volumes of data, the U.S. District Court for the Western District of Tennessee provided relief to the producing party, noting that the cost of producing responsive data would be millions of dollars (not including the additional millions for privilege review).24

    In another case, the court determined that rule 26 allowed for cost-shifting and required the parties to split a $60,000 search for accessible data.25 In a somewhat different context, the U.S. District Court for the Northern District of Illinois ordered the requesting party to bear 75 percent of the cost of restoration, search, and production associated with ESI on 94 back-up tapes.26

    These cases illustrate how cost-shifting is applied in a number of settings, including searches for accessible data and the restoration of legacy data on back-up tapes. While the cases are instructive, there is no bright-line or mathematical formula for resolving cost-shifting questions. If there is specific data that is easily accessible and not voluminous, cost-shifting is rarely applied. If there is considerable data involved, in multiple locations and formats, and the requesting party seeks a wide array of information, cost-shifting is more appropriate. If voluminous data is inaccessible and unlikely to be relevant, cost-shifting is almost certain. No single factor will drive the outcome in this analysis.

    Suggestions for Attorneys

    Electronic discovery can be very expensive, and it poses "unique problems" that do not apply to conventional discovery of paper documents.27 First, electronic discovery can require the preservation and production of large volumes of data in multiple locations and multiple formats. By definition, electronic data is transitory because it can be transmitted to multiple locations through multiple users. Electronic data can be difficult to access, which may require the assistance of a technical expert. Finally, processing costs can be substantial, especially when privileged information must be extracted from the data set.28 In some cases, the cost of preserving, processing, and producing electronic data can be staggering.

    For these reasons, courts no longer accept the presumption that requires the responding party to pay all expenses associated with its production efforts. In Wisconsin, there is a specific process in place, starting with the meet and confer, that is designed to focus the parties on issues involving ESI early on to keep costs down. Here, the definition of zealous advocacy must be reexamined in favor of a targeted discussion regarding likely sources of data, form of production, costs, and other, related issues. This saves time and money.

    In every case, the parties should meet and confer as soon as possible to identify and discuss the potential sources of electronically stored information. This discussion requires transparency and a willingness to consider different options that reduce the cost of electronic discovery. Sampling or search terms should be considered in cases involving large amounts of data, particularly when inaccessible data adds expense to the production process. Protective orders that include "claw-back" provisions and related protections can lower production costs and expedite discovery.29 If necessary, the parties should meet and confer regularly to address ESI issues, even after the statutory obligation has expired.

    In drafting discovery requests that seek ESI, counsel should use specific, targeted requests that are directed toward the most likely source of relevant information. Broad, invasive, boilerplate requests will not work and should be avoided. A document request that seeks "all inspection reports for the X-Widget from 2009-2011" will usually be much more effective than a request seeking "all documents related to, concerning or otherwise addressing the X-Widget from 2006 to the present date."

    Timothy D. EdwardsTimothy D. Edwards, Wayne State 1989, is a partner at Axley Brynelson LLP, Madison. He is chair of the firm's electronic discovery and record management team. He can be reached at TEdwards@axley.com.

    In all cases, counsel should anticipate the cost-shifting factors and carefully draft their discovery requests (and responses) with an eye toward each factor in the event of a later disagreement. Throughout this process, counsel should carefully document and verify good-faith efforts to resolve these issues, because doing so will create the necessary record if court intervention is required to address cost-shifting disputes.

    The key to making electronic discovery work in complicated cases is education and cooperation between counsel.30 Courts across the country are now insisting on cooperation between the parties, particularly in cases involving the discovery of ESI. The reason is simple: it is literally impossible to conduct meaningful discovery with ESI without the early exchange of vital information regarding the source, accessibility, relevance, and cost of production. If the parties work together and abandon the "hide the ball" philosophy of discovery that plagues our profession, this process becomes less expensive, and more productive, for the parties and the court.

    Endnotes

    1 Oppenheimer Fund Inc. v. Sanders, 437 U.S. 340, 358 (1978) ("[t]he presumption is that the responding party must bear the expense of complying with discovery requests").

    2 Zubulake v. UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2003).

    3 Id. at 320 & n.61.

    4 Id. at 324.

    5 Id. at 322.

    6 Fed. R. Civ. P. 26(b)(2)(B).

    7 Id.

    8 Id. advisory committee's note – 2006.

    9 Wis. Stat. § 804.01(3)(a).

    10 Vincent & Vincent Inc. v. Spacek, 102 Wis. 2d 266, 273, 306 N.W.2d 85 (Ct. App. 1981).

    11 Wis. Stat. § 804.01(2)(e) supreme court note – 2010.

    12 Id.

    13 Id.

    14 Haka v. Lincoln Cnty., 246 F.R.D. 577 (W.D. Wis. 2007).

    15 Hagemeyer N. Am. Inc. v. Gateway Data Sci. Corp., 222 F.R.D. 594 (E.D. Wis. 2004).

    16 Id. at 599.

    17 Id. at 601.

    18 Id. at 602-03.

    19 A terabyte is 1024 gigabytes, more than a trillion bytes, equal to 500 billion typewritten pages.

    20 Haka, 246 F.R.D. at 579.

    21 Id.

    22 Id.

    23 Id.

    24 Medtronic Sofamor Danek Inc. v. Michelson, 229 F.R.D. 550, 552 (W.D. Tenn. 2003).

    25 Multitechnology Servs. L.P. v. Verizon Southwest, 2004 WL 1553480 at *2 (N.D. Tex. 2004).

    26 Wiginton v. CB Richard Ellis Inc., 229 F.R.D. 568, 569-70 (N.D. Ill. 2004).

    27 Custodian of Records for the Legis. Tech. Servs. Bureau v. State, 2004 WI 65, ¶ 62, 272 Wis. 2d 208, 680 N.W.2d 792 (Abrahamson, C.J., concurring).

    28 Id.

    29 A claw-back provision allows a party to recover privileged information that is inadvertently produced to the other party.

    30 Custodian of Records, 2004 WI 65, ¶ 63, 272 Wis. 2d 208.




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