Electronic Data Discovery: Disclosure And Production

Article by Kerry A. Brennan, Charles R. Ragan, Amy C. Gross

As companies and individuals increasingly do business electronically, litigants are confronting new and different issues relating to the disclosure and production of electronic data. Because of the ease with which electronic records are created and stored, the sheer volume of potentially relevant material has increased exponentially. For example, it is projected that in 2003, over 1.5 billion e-mail messages a day will be sent in the United States, nearly as many pieces of mail processed by the U.S. Postal Service in a year.

Discovery is further complicated when the electronic data is not readily accessible or exists on media that must be restored at considerable expense before it can be reviewed. Although federal court rules usually provide that a responding party bears the expense of complying with a discovery request, the factors guiding whether a court should shift to the requesting party the costs of producing electronic data continue to evolve. Most recently, in Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243, 2003 WL 21087884 (S.D.N.Y. May 13, 2003), the court ruled with respect to electronic data, including offline storage media, that cost-shifting to the requesting party should be considered only when such data is inaccessible. Further, the court set forth a seven-factor, cost-shifting test focusing on the importance of the sought-after evidence compared with the actual cost to produce the inaccessible electronic data. The court enumerated five different types of data ranging from readily accessible to substantially inaccessible.

Under the Federal Rules of Civil Procedure, parties are generally entitled to discover relevant and non-privileged documents and things. Since 1970, the definition of "document" has included "data compilations from which information can be obtained." Fed. R. Civ. P. 34(a). Courts have generally agreed that this definition includes back-up files, deleted files, and archival tapes for voice mail and e-mail. See, e.g., Kleiner v. Burns, No. 00-2160-JWL, 2000 WL 1909470 (D. Kan. Dec. 15, 2000). The Rules also require parties to make initial disclosures at the outset of discovery including "a copy of, or a description by category and location of, all documents, data compilations and tangible things" that may be used to support the claims or defenses asserted in the litigation. Fed. R. Civ. P. 26(a)(1)(B). The 1993 Advisory Committee Notes to Rule 26 confirm that the initial disclosure obligation encompasses "computerized data and other electronically-recorded information." Electronic form may be more useful to the requesting party in the trial preparation and trial process and may be less costly to the responding party. At least one court has ordered that a requesting party was not required to pay for paper copies where the responding party failed to disclose that it maintained certain of the material sought in electronic form. In re Bristol-Myers Squibb Securities Litigation, 205 F.R.D. 437, 441 (D.N.J. 2002).

In federal court there is a presumption that the responding party must bear the expense of complying with discovery requests. See, e.g., Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 358 (1978). A court may in its discretion, however, grant an order limiting discovery if it determines that "the burden or expense of the proposed discovery outweighs its likely benefit, taking into account the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the litigation, and the importance of the proposed discovery in resolving the issues." Fed R. Civ. P. 26(b)(2). One of the ways to address the undue burden and expense is to require the requesting party to pay for the discovery sought.

The first case to provide meaningful guidance on cost shifting with respect to electronic data was Rowe Entertainment, Inc. v. William Morris Agency, Inc., 205 F.R.D. 421 (S.D.N.Y. 2002). In Rowe, the plaintiffs sought discovery of e-mail from numerous defendants, each of whom retained e-mail by different methods. The court outlined an eight-factor test for cost-shifting in electronic data discovery requests. The Rowe court concluded that the plaintiffs should bear the costs of obtaining e-mail discovery from each of the defendants. The Rowe test has been adopted in several other jurisdictions. See, e.g., Medtronic Sofamor Danek, Inc. v. Michelson, No. 01-2373-M1V, 2003 LEXIS 8587 (W.D. Tenn. May 13, 2003) (responding party ordered to produce data on user files at its expense in electronic or paper format at choice of requesting party, and 30% of costs to restore backup data to be borne by requesting party); Byers v. Illinois State Police, No. 99 C 8105, 2002 WL 1264004 (N.D. Ill. June 3, 2002) (the requesting parties were required to pay for a license relating to an old e-mail program and the responding party was required to bear the cost for the review of the e-mails); Antioch Co. v. Scrapbook Borders, Inc., 210 F.R.D. 645 (D. Minn. 2002) (court ordered mirroring of defendants’ computer equipment where requesting party agreed to bear expense of recovering deleted computer data); Murphy Oil USA, Inc. v. Fluor Daniel, Inc., No. Civ.A 99-3564, 2002 WL 246439 (E.D. La. February 19, 2002) (court ordered requesting party to pay for expert to extract e-mail from responding party’s back-up tapes).

In Zubulake, an individual plaintiff in a discrimination suit requested that the defendant corporations produce e-mail that were stored on various media, including active user e-mail files, optical disks, and back-up tapes. As a threshold matter, the court determined that it was likely that all requested e-mails had not been produced in paper form. Defendants had produced only 100 pages of e-mails, while plaintiff had produced 450 pages, and defendants could not represent that all e-mails had been produced. The Zubulake court next held that the presumption that the responding party should bear the costs of complying with discovery requests equally applies to electronic data, and that cost-shifting should only be invoked when electronic data discovery would impose an "undue burden" on the responding party.

The Zubulake court described five categories of electronic data, listed in order from most to least accessible: (1) active, online data used to create, process, or access electronic records; (2) near-line data, typically housed in a robotic storage device until the records are retrieved; (3) offline storage or archives, traditionally used for disaster or archival purposes; (4) backup tapes of compressed data, which are typically not organized for retrieval of individual files or documents, which makes restoration time-consuming and expensive; and (5) erased, fragmented, or damaged data, which requires significant processing to recover. The first three categories of data, the court found, are generally considered accessible, while the latter two are generally identified as inaccessible. The court ruled that a responding party should typically pay the costs of producing accessible electronic data and that cost shifting should only be considered when the electronic data is inaccessible. Therefore, the court ordered the defendants to produce all responsive e-mails existing on optical disks or active servers at its own expense.

The Zubulake court found that the Rowe test was incomplete under the requirements of Rule 26 and set out a new seven-factor test to consider cost-shifting for inaccessible electronic data:

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.

Zubulake, 2003 WL 21087884, at *11.

The court noted that the Rowe test did not address the amount in controversy or the importance of the issues at stake, two criteria identified in Rule 26(b)(2). The Zubulake court reasoned that weighing the costs of producing inaccessible electronic data against the amount in controversy could make the production costs seem comparatively small, and thus not unduly burdensome. The Zubulake court also eliminated the Rowe factor addressing the responding party’s purposes for maintaining the requested data, reasoning that such purpose had no bearing on accessibility or production costs.

The court urged that the seven factors should not all be weighed equally. The most important factors are the first two, which derive from the marginal utility test developed in McPeek v. Ashcroft, 202 F.R.D. 31 (D.D.C. 2001). Of secondary importance are cost factors. Next, while the importance of the issues at stake will rarely come into play, this factor, according to the court, could dominate the others. Finally, because the relative benefits to the parties of obtaining the information will typically go to the requesting party, the court would place less importance on this factor.

The Zubulake court noted the difficulty of proving the existence or marginal utility of relevant information in inaccessible and unrestored electronic data. The court recommended that a full factual record be developed prior to employing the cost-shifting test. Following McPeek, the court suggested that a sampling of the inaccessible electronic data, here back-up tapes of e-mails, be restored in order to determine the tangible evidence offered by the data as well as the costs of restoration. The court will consider cost-shifting after the test run is conducted.

If adopted by other courts, the Zubulake decision’s emphasis on the amount in controversy and the resources available to the parties makes it far more likely that large company defendants will be required to bear the often substantial costs of electronic discovery. Companies, accordingly, should carefully consider what information they retain. Clearly, companies should have policies to ensure the preservation in hard copy or electronic formats of information essential for business operations or legal requirements. Once on notice of a governmental inquiry or potential litigation claim, or due to industry-specific regulatory requirements, companies must preserve all relevant information. Absent such a duty, however, a company can reduce its storage expenses and its potential future costs of document review if it has a well-defined and enforced policy for eliminating data that is unnecessary to ongoing operational or legal needs.

Once a litigation is commenced, parties should take the opportunity offered by the Rule 26(f) mandatory scheduling conference to reach agreement with the other parties on the scope of electronic data to be produced. This may aid in reducing the potential for expensive discovery disputes.

Although many courts have shifted to the requesting party the burden for recovery of electronic data, whether accessible or inaccessible, the Zubulake decision suggests that courts may scrutinize whether the requested electronic data creates an undue burden for the responding party. While the Zubulake court held that a responding party should generally bear the cost of producing accessible electronic data, the court also recognized that there is not a bright line between accessible and inaccessible electronic data. To the extent the Zubulake is followed, courts will need to flesh out the type of electronic data that should be deemed "accessible" and on that basis made available by responding parties.