Reining in the Costs of E-Discovery: Amendments to Federal Rules & Where We Are Headed

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1 ACC Litigation Committee Quick Hit Reining in the Costs of E-Discovery: Amendments to Federal Rules & Where We Are Headed Ignatius A. Grande March 25, 2014

2 Rules Amendment Process After a multi-year effort, on August 15, 2013, the Civil Rules Advisory Committee released proposed amendments to the Rules of Civil Procedure for public comment The public comment period recently finished on February 18, comments were submitted on the Advisory Committee website. 2

3 Focus of Proposed Amendments The Advisory Committee on Civil Rules described its focus on three areas: 1. Proportionality in discovery; 2. Cooperation among lawyers; and 3. Early and active judicial case management The stated desire behind these 2013 proposals is the need to reduce the burdens of modern discovery. 3

4 Proposed Change to Rule 26 Proportionality Proposed FRCP 26(b)(1) would include the following new language regarding the scope of discovery: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party s claim or defense and proportional to the needs of the case considering the amount in controversy, the importance of the issues at stake in the action, the parties resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within the scope of discovery need not be admissible in evidence to be discoverable. 4

5 Reason for Proposed Change By incorporating the Cost-Benefit Analysis language of Rule 26(b)(2)(C)(iii) into Rule 26(b)(1), the Committee believes the scope of costly discovery will be narrowed. Courts will be encouraged to act on its own and limit the scope of discovery if the court finds that the discovery burdens exceed the discovery benefits. Aim is that courts will have a more uniform and consistent application in limiting the discovery burdens on litigants. 5

6 Proposed Rule 37(e) Sanctions 37(e)(1) Curative Measures; Sanctions. If a party failed to preserve discoverable information that should have been preserved in the anticipation or conduct of litigation, the court may (A) permit additional discovery, order curative measures, or order the party to pay the reasonable expenses, including attorneys fees caused by the failure (B) impose any sanction listed in Rule 37(b)(2)(A) or give an adverse-inference jury instruction, but only if the court finds that the party's action: * (i) caused substantial prejudice in the litigation and were willful or in bad faith; or * (ii) irreparably deprived a party of any meaningful opportunity to present or defend against the claims in the litigation. 6

7 Proposed Rules Would Create 3 Tiers of Sanctions 1. Failure to Preserve = Curative Measures 2. Failure to Preserve + Substantial Prejudice + Willful or Bad Faith = 3. Failure to Preserve + Irreparable deprivation of opportunity to present or defend against a claim = Rule 37(b)(2)(A) Sanctions including adverse inference instruction and default Rule 37(b)(2)(A) Sanctions including adverse inference instruction and default 7

8 Why Change the Spoliation Rules? Need for uniform spoliation standards Need to create a limitation on case-altering sanctions for non-prejudicial/non-willful spoliation of information Feeling that certain judges sanction too easily for situations that weren t intended. Need to rein in over-preservation (Rule proposed by Magistrate Judge Francis may also be considered) 8

9 The Cost of Preservation Fortune 200 companies average between $621,880 and $2,993,567 in discovery costs per case. On corporation is currently preserving 57.6 percent of its company , due to litigation holds, amounting to 203 terabytes. This would be 20 times the amount of the printed collections of the Library of Congress. Another corporation preserved 1.2 million backup tapes for 8 years (each of which holds up to 100 GBs of data) for case. Preservation of the tapes cost nearly $40 million, but the corporation never had to retrieve a single document from the tapes. 9

10 Cost Shifting Other Method to Reduce Discovery Costs Traditional American paradigm of forcing each party to bear its own costs has been challenged by one-sided and tremendous expenses associated with electronic discovery. Cost Shifting can strategically be used in cases and motions. Best case scenario for corporate defendant is for discovery to be denied, however, cost shifting should be sought where requesting party demonstrates a real likelihood that the discovery would lead to relevant evidence but the cost is prohibitive. 10

11 Zubulake Seven-Factor Test (Priority to First Two Factors) 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 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. 11

12 Not Reasonably Accessible Rule 26(b)(2)(B) Under Rule 26(b)(2)(B), a party does not have to produce data that is not reasonably accessible because of undue burden or cost However, upon the requesting party s motion, the responding party must show that the information is not reasonably accessible Even if that showing is made, the court may still order its production if the requesting party demonstrates good cause The court may specify conditions for the discovery (costshifting) 12

13 Cost Shifting Cases Boeynaems v. LA Fitness Int l, LLC, 285 F.R.D. 331 (E.D. Pa. 2012) Court applied doctrine to pre-class certification discovery in a putative class action, shifting significant costs from the corporate defendant to plaintiffs counsel. The court wrote, If the plaintiffs have confidence in their contention that the Court should certify the class, then the plaintiffs should have no objection to making an investment. Schweinfurth v. Motorola, Inc., 2008 U.S. Dist. LEXIS (N.D. Ohio Sept. 30, 2008) Court ordered cost-sharing on the ground that the massive discovery sought could be used as a weapon to compel settlement. 13

14 Post Judgment Cost Shifting to Prevailing Party In mid-2000s, post trial cost-shifting started becoming norm in certain states, including Pennsylvania & California. In 2012, 3rd Circuit Court of Appeals issued Race Tires opinion, which noted that language of 1920(4) did not allow for wholesale shifting of e-discovery costs after trial and limited the costs that could be shifted. Later in 2012, the Supreme Court issued the Taniguchi opinion, which gave a strict construction of 1920(6), which deals with interpreters,. Post Trial Cost Shifting is currently not a real option unless new legislation is passed. 14

15 What the future holds We await news on the direction of the proposed amendments The Committee will convene in Portland on April to discuss the comments to the proposed amendments. Real test will be how amendments are eventually applied by courts with regard to preservation, sanctions & proportionality. Move toward national preservation standard to reduce costly over-preservation. 15

16 What the future holds (cont.) Increased efforts by companies to make cost efficient and defensible preservation and collection decisions. Revisiting Post Trial Cost Shifting legislation in light of Race Tires and inapplicability of Increased utilization of FRCP 26 to limit discovery to be proportional & requests for cost shifting when appropriate. 16

17 Questions? Ignatius A. Grande Hughes Hubbard & Reed LLP One Battery Park Plaza New York, NY (212)