Litigation Cost Control in the Digital Age

With new judicial opinions being issued every month on the topic, the allocation of e-discovery costs is probably one of the fastest-growing areas in e-discovery jurisprudence.

Given that the price tag associated with e-discovery can be staggering, some of the most intense arguments in a lawsuit can ensue over which party will foot the bill to collect, restore, process and produce the enormous volumes of electronic evidence that is discoverable in many of today's legal proceedings.

Of course, the producing party advocates a reduction in the scope of the document request or, in the alternative, seeks to shift costs to the requesting party. Conversely, the requesting party often seeks the broadest possible universe of documents, with all costs borne by the producing party. With discovery costs representing 50% of litigation costs in the average case ' and up to 90% of the litigation costs in cases in which it is actively used ' what litigator would not launch a strong fight over cost allocation?

Caught in the middle of such disputes, courts are attempting to establish a reasonable, equitable and common sense approach to cost allocation in e-discovery. However, the state of the law in this context is unsettled, inconsistent and highly case-specific, at best. What must counsel facing large-scale e-discovery understand when it comes to discovery costs in the digital age?

Become Familiar With the Case Law

No clear protocol has developed establishing which party should bear the cost of identifying, retrieving, restoring, converting and producing electronic documents and e-mail.

Under traditional discovery rules, each side typically bears the cost of producing its own documents. See Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 358 (1978). But in the area of electronic evidence jurisprudence, a few notable court opinions are challenging tradition. In a line of cost-shifting case law, courts are exhibiting a willingness to entertain cost-shifting arguments to protect the producing party from “undue burden or expense.” See, eg, Playboy Enters., Inc. v. Welles, 60 F.Supp.2d 1050 (S.D. Cal. 1999).

One such cost-shifting case that has generated a tremendous amount of discussion since its issuance last summer is Zubulake v. UBS Warburg, 217 F.R.D. 309 (S.D.N.Y.), further relief granted, 216 F.R.D. 280 (S.D.N.Y. 2003), recon. den., 2003 U.S. Dist. LEXIS 18771 (S.D.N.Y. Oct. 22, 2003). Zubulake involved an individual plaintiff bringing a discrimination action against her former employer.

Understand the Difference Between Accessible and Inaccessible Data

In Zubulake, the court made it clear that cost-shifting is not appropriate in most situations. Rather, a determination of whether production of e-documents is unduly burdensome or expensive turns primarily on whether the documents are kept in an accessible or inaccessible format. Accessible format is data stored in a readily usable format and that does not need to be restored or manipulated to be usable, such as data contained on a hard drive or active server. For accessible data, the traditional rules of discovery apply: Just as in the paper world, the producing party will be required to pay for production. Applying this idea to the facts of the case, the Zubulake court stated that: “[I]t would be wholly inappropriate to even consider cost-shifting. [The Defendant] maintains the data in an accessible and usable format, and can respond to Zubulake's request cheaply and quickly.”

Cost-shifting is likely to be deemed more appropriate in situations, such as that in Zubulake, where the burden of e-discovery falls

disproportionately on one of the parties. When the obligations of each party to the lawsuit are similar (eg, when one large corporation sues another), disputes are less likely to arise, and, if they do arise, courts are less likely to shift costs.

According to the Zubulake court, a judge should consider cost-shifting arguments only for inaccessible data ' information that is not easily retrieved, such as data on a back-up tape or data that has been erased, fragmented or damaged. Specifically, Zubulake set forth a seven-factor test to determine whether costs should be shifted to the requesting party. These factors, in order of importance, are:

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. The relative ability of each party to control costs and each party's incentive to do so.

6. The importance of the issue at stake in the litigation.

7. The relative benefits to the parties of obtaining the information.

In applying the test, the Zubulake court found that factors 1 through 4 weighed against cost-shifting, the fifth and sixth were neutral, and the seventh favored cost-shifting. The court determined that 25% of the cost of restoring, processing and producing the inaccessible data should be shifted to the plaintiff.

Other courts have used different multifactor balancing tests, with different weightings, to determine cost allocation. In Rowe Entertainment v. William Morris Agency, 205 F.R.D. 421 (S.D.N.Y.2002), for instance, the court used a test applying the following eight factors:

1. Weighing specificity of requests;
2. Likelihood of discovering critical information;
3. Availability of information from other sources;
4. Party's purpose for keeping requested data;
5. Relative benefits of production;
6. Costs of production;
7. Parties' relative abilities and incentives to control costs; and
8. Parties' resources.

Although there is no clear consensus among the courts, the conventional wisdom holds that Zubulake will become the standard test applied in cost-shifting cases.

Consider Data Sampling

In another attempt to control costs, courts are looking to data-sampling protocols ' searching a small number of hard drives, servers, back-up tapes and similar repositories to determine whether relevant evidence is likely to be found before ordering collection, analysis and production of the entire universe of data. Zubulake, and several cases before it, relied on data sampling to determine whether producing a larger volume of electronic evidence is worth the cost. See Murphy Oil USA, Inc. v. Fluor Daniel, Inc., 2002 WL 246439 (E.D. La. Feb. 19, 2002).

When sampling is used, the requesting party chooses a small selection of data for the producing party to restore, search and produce ' usually from inaccessible sources, such as back-up tapes, where restoration and production costs can be high. The court then evaluates the effectiveness of sample search and fashions an appropriate production and cost-allocation order, based on whatever multifactor test the court deems appropriate.

Investigate Your Client's & Opponent's Electronic Data Infrastructure

Whether representing the requesting or producing party, counsel must understand the client's technical infrastructure to effectively argue for or against cost-shifting. The producing party's attorney must be familiar with the basic framework of the client's computer systems with respect to active, archived and deleted data. Counsel for the requesting party must conduct enough due diligence to be able to craft a sufficiently narrow document request. The requesting party's attorney must also weigh the possible financial cost-shifting consequences should the court find the request overly broad or unduly burdensome on the producing party. This investigation will require extensive discussions with the client's IT staff and, depending on the attorney's level of comfort with technology, it may be advisable to retain an e-discovery expert to assist with the process. It is important that this investigation commence very early in litigation, because an argument for cost-shifting is rendered less compelling when made in the shadow of an impending discovery deadline.

Prepare for the Cost-shifting Fight

The disparate rulings on case law provide counsel with an opportunity to be a zealous advocate for a client. Counsel for both parties should become familiar with the various cost-shifting approaches, and then tailor cost-shifting strategies accordingly. This means, at a minimum, becoming familiar with ' and, if necessary, engaging in discovery on ' the location, type and amount of potentially discoverable data, determining whether the data is in an accessible or inaccessible format, and then quantifying the resources, time and costs involved in retrieving, reconstructing and producing the data.

Parties should examine the opponent's estimates of burden and expense, and present contrary estimates, if necessary. At this stage, it is necessary to obtain time and cost estimates from e-discovery service providers.

Requesting parties also should work to identify which of their opponents' inaccessible data would most likely yield the largest amount of the most useful evidence, and should target the most promising subset for sampling. Once the samples are identified and the foundation is laid, counsel should be prepared to make a convincing presentation to the court, complete with supporting documentation from an e-discovery service provider, about why production should or should not be required, and, if required, why ' in fairness ' the other side should pay for it.

Conclusion

Approximately 3 years ago, in Danis v. USN Communications, 2000 WL 1694325 (N.D. Ill. Oct. 23, 2000), Magistrate Judge Schenkier stated: “At some point, a party and/or its attorneys must be held responsible for knowing what documents are discoverable and where to find them.” He prefaced this statement by reasoning that we cannot create a loophole in the discovery rules by allowing counsel to argue: “Judge, we just didn't know those tapes existed.”

Case law in the last 3 years, most notably the Zubulake decision, has expanded the Danis duty to “know your e-data.”

But attorneys representing today's organizations must know more than where electronic evidence resides; they also have a duty to know whether that data is accessible (ie, how easily it can be restored and produced) and how much it will cost to restore, search and produce the data in discovery.

While not all lawsuits involving electronic documents will foster cost-shifting debates, when the stakes are high and the data is complex, counsel should be prepared for significant cost-shifting battles.

With new judicial opinions being issued every month on the topic, the allocation of e-discovery costs is probably one of the fastest-growing areas in e-discovery jurisprudence.

Given that the price tag associated with e-discovery can be staggering, some of the most intense arguments in a lawsuit can ensue over which party will foot the bill to collect, restore, process and produce the enormous volumes of electronic evidence that is discoverable in many of today's legal proceedings.

Of course, the producing party advocates a reduction in the scope of the document request or, in the alternative, seeks to shift costs to the requesting party. Conversely, the requesting party often seeks the broadest possible universe of documents, with all costs borne by the producing party. With discovery costs representing 50% of litigation costs in the average case ' and up to 90% of the litigation costs in cases in which it is actively used ' what litigator would not launch a strong fight over cost allocation?

Caught in the middle of such disputes, courts are attempting to establish a reasonable, equitable and common sense approach to cost allocation in e-discovery. However, the state of the law in this context is unsettled, inconsistent and highly case-specific, at best. What must counsel facing large-scale e-discovery understand when it comes to discovery costs in the digital age?

Become Familiar With the Case Law

No clear protocol has developed establishing which party should bear the cost of identifying, retrieving, restoring, converting and producing electronic documents and e-mail.

Under traditional discovery rules, each side typically bears the cost of producing its own documents. See Oppenheimer Fund, Inc. v. Sanders , 437 U.S. 340, 358 (1978). But in the area of electronic evidence jurisprudence, a few notable court opinions are challenging tradition. In a line of cost-shifting case law, courts are exhibiting a willingness to entertain cost-shifting arguments to protect the producing party from “undue burden or expense.” See, eg , Playboy Enters., Inc. v. Welles , 60 F.Supp.2d 1050 (S.D. Cal. 1999).

One such cost-shifting case that has generated a tremendous amount of discussion since its issuance last summer is Zubulake v. UBS Warburg , 217 F.R.D. 309 (S.D.N.Y.), further relief granted , 216 F.R.D. 280 (S.D.N.Y. 2003), recon. den ., 2003 U.S. Dist. LEXIS 18771 (S.D.N.Y. Oct. 22, 2003). Zubulake involved an individual plaintiff bringing a discrimination action against her former employer.

Understand the Difference Between Accessible and Inaccessible Data

In Zubulake, the court made it clear that cost-shifting is not appropriate in most situations. Rather, a determination of whether production of e-documents is unduly burdensome or expensive turns primarily on whether the documents are kept in an accessible or inaccessible format. Accessible format is data stored in a readily usable format and that does not need to be restored or manipulated to be usable, such as data contained on a hard drive or active server. For accessible data, the traditional rules of discovery apply: Just as in the paper world, the producing party will be required to pay for production. Applying this idea to the facts of the case, the Zubulake court stated that: “[I]t would be wholly inappropriate to even consider cost-shifting. [The Defendant] maintains the data in an accessible and usable format, and can respond to Zubulake's request cheaply and quickly.”

Cost-shifting is likely to be deemed more appropriate in situations, such as that in Zubulake, where the burden of e-discovery falls

disproportionately on one of the parties. When the obligations of each party to the lawsuit are similar (eg, when one large corporation sues another), disputes are less likely to arise, and, if they do arise, courts are less likely to shift costs.

According to the Zubulake court, a judge should consider cost-shifting arguments only for inaccessible data ' information that is not easily retrieved, such as data on a back-up tape or data that has been erased, fragmented or damaged. Specifically, Zubulake set forth a seven-factor test to determine whether costs should be shifted to the requesting party. These factors, in order of importance, are:

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. The relative ability of each party to control costs and each party's incentive to do so.

6. The importance of the issue at stake in the litigation.

7. The relative benefits to the parties of obtaining the information.

In applying the test, the Zubulake court found that factors 1 through 4 weighed against cost-shifting, the fifth and sixth were neutral, and the seventh favored cost-shifting. The court determined that 25% of the cost of restoring, processing and producing the inaccessible data should be shifted to the plaintiff.

Other courts have used different multifactor balancing tests, with different weightings, to determine cost allocation. In Rowe Entertainment v. William Morris Agency , 205 F.R.D. 421 (S.D.N.Y.2002), for instance, the court used a test applying the following eight factors:

1. Weighing specificity of requests;
2. Likelihood of discovering critical information;
3. Availability of information from other sources;
4. Party's purpose for keeping requested data;
5. Relative benefits of production;
6. Costs of production;
7. Parties' relative abilities and incentives to control costs; and
8. Parties' resources.

Although there is no clear consensus among the courts, the conventional wisdom holds that Zubulake will become the standard test applied in cost-shifting cases.

Consider Data Sampling

In another attempt to control costs, courts are looking to data-sampling protocols ' searching a small number of hard drives, servers, back-up tapes and similar repositories to determine whether relevant evidence is likely to be found before ordering collection, analysis and production of the entire universe of data. Zubulake, and several cases before it, relied on data sampling to determine whether producing a larger volume of electronic evidence is worth the cost. See Murphy Oil USA, Inc. v. Fluor Daniel, Inc., 2002 WL 246439 (E.D. La. Feb. 19, 2002).

When sampling is used, the requesting party chooses a small selection of data for the producing party to restore, search and produce ' usually from inaccessible sources, such as back-up tapes, where restoration and production costs can be high. The court then evaluates the effectiveness of sample search and fashions an appropriate production and cost-allocation order, based on whatever multifactor test the court deems appropriate.

Investigate Your Client's & Opponent's Electronic Data Infrastructure

Whether representing the requesting or producing party, counsel must understand the client's technical infrastructure to effectively argue for or against cost-shifting. The producing party's attorney must be familiar with the basic framework of the client's computer systems with respect to active, archived and deleted data. Counsel for the requesting party must conduct enough due diligence to be able to craft a sufficiently narrow document request. The requesting party's attorney must also weigh the possible financial cost-shifting consequences should the court find the request overly broad or unduly burdensome on the producing party. This investigation will require extensive discussions with the client's IT staff and, depending on the attorney's level of comfort with technology, it may be advisable to retain an e-discovery expert to assist with the process. It is important that this investigation commence very early in litigation, because an argument for cost-shifting is rendered less compelling when made in the shadow of an impending discovery deadline.

Prepare for the Cost-shifting Fight

The disparate rulings on case law provide counsel with an opportunity to be a zealous advocate for a client. Counsel for both parties should become familiar with the various cost-shifting approaches, and then tailor cost-shifting strategies accordingly. This means, at a minimum, becoming familiar with ' and, if necessary, engaging in discovery on ' the location, type and amount of potentially discoverable data, determining whether the data is in an accessible or inaccessible format, and then quantifying the resources, time and costs involved in retrieving, reconstructing and producing the data.

Parties should examine the opponent's estimates of burden and expense, and present contrary estimates, if necessary. At this stage, it is necessary to obtain time and cost estimates from e-discovery service providers.

Requesting parties also should work to identify which of their opponents' inaccessible data would most likely yield the largest amount of the most useful evidence, and should target the most promising subset for sampling. Once the samples are identified and the foundation is laid, counsel should be prepared to make a convincing presentation to the court, complete with supporting documentation from an e-discovery service provider, about why production should or should not be required, and, if required, why ' in fairness ' the other side should pay for it.

Conclusion

Approximately 3 years ago, in Danis v. USN Communications, 2000 WL 1694325 (N.D. Ill. Oct. 23, 2000), Magistrate Judge Schenkier stated: “At some point, a party and/or its attorneys must be held responsible for knowing what documents are discoverable and where to find them.” He prefaced this statement by reasoning that we cannot create a loophole in the discovery rules by allowing counsel to argue: “Judge, we just didn't know those tapes existed.”

Case law in the last 3 years, most notably the Zubulake decision, has expanded the Danis duty to “know your e-data.”

But attorneys representing today's organizations must know more than where electronic evidence resides; they also have a duty to know whether that data is accessible (ie, how easily it can be restored and produced) and how much it will cost to restore, search and produce the data in discovery.

While not all lawsuits involving electronic documents will foster cost-shifting debates, when the stakes are high and the data is complex, counsel should be prepared for significant cost-shifting battles.