Shifting The Costs Of E-Discovery To Your Opponent In Litigation

Article by Charles E. Dorkey III, Thomas I. Sheridan III, Steven R. Schoenfeld

An important decision of the United States District Court for the Southern District of New York (Zubulake v. UBS Warburg LLC) has made it more difficult to shift costs of production of electronically stored data to the requesting party.

Documentary discovery—where one party seeks the production of documents by another party— is often one of the most costly aspects of litigation. Costs of paper-based discovery to the responding party can be high. But costs of production of electronic documents can be even higher, given the potentially huge volume of electronic data that can be stored for negligible costs.

The general presumption under the Federal Rules of Civil Procedure is that costs of production should be borne by the responding parties. When faced with a request to produce electronic data in discovery, however, responding parties have successfully convinced courts to shift costs to the requesting parties by establishing that the request will impose an undue burden or expense. The case that established the factors that courts consider to determine if the request will impose an undue burden or expense is Rowe Enterprises, Inc. v. William Morris Agency.

Some commenters feared that Rowe was skewed in favor of shifting costs of e-discovery to the requesting party—that it would lead to almost automatic cost-shifting in these circumstances. Their fears seem to have been shared by the Court in Zubulake, which decided that flaws in the Rowe test and its application biased the test in favor of cost-shifting.

Zubulake, a salesperson terminated by UBS, filed suit alleging gender discrimination and retaliation. During discovery, Zubulake requested the production of e-mails concerning her, sent and received by UBS employees. Unsatisfied with UBS’ production of approximately 100 pages of e-mail, Zubulake moved to compel the production of additional, electronically archived e-mails from the accounts of five UBS employees. UBS opposed Zubulake’s motion on the grounds that the requested e-mails duplicated materials already produced and that the burden created by producing the requested e-mails outweighed the potential benefit. If the Court granted the motion, however, UBS sought an order shifting costs of production to Zubulake.

The Court reiterated the presumption that cost-shifting is inappropriate unless the discovery imposes an undue burden or expense on the responding party. In e-discovery cases, whether production is unduly burdensome turns primarily on whether or not the information is in a format that is readily accessible. Generally, cost-shifting will not be permitted for e-discovery of active data, which may be accessed in seconds. At the other end of the spectrum, courts will consider a cost-shifting analysis for e-discovery of information that is archived on, for example, backup tapes that must be electronically restored before the information can be accessed.

Modifying the Rowe test somewhat, the Court examined the following seven factors to determine if the Zubulake’s e-discovery request would impose an undue burden or expense on UBS:

1. the extent to which the request is specifically tailored to discover relevant information;
2. the availability of the 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.

Importantly, the Court did not consider these factors in a vacuum. It ordered UBS to retrieve a sample of the requested information from backup tapes before deciding whether to shift discovery costs to Zubulake. This approach, which has precedent in at least one other case, provides courts with a more informed record upon which to complete their cost-shifting analysis. It also is attempts to address a catch-22: claimants reasonably believe that there may be relevant electronic evidence to support their claim, but they are often not in a position to defend against an attempt to shift costs to them until after the information is produced. When courts make a cost-shifting decision before the information is produced, they tend to order that requesting parties bear the costs of e-discovery of information that supports their claim.

In considering the seven factors, a court is likely to be influenced by the absence or extent of damning evidence in the sample. That is, the more damning the evidence in the sample, the less likely a court will be to order cost-shifting, on the basis that it would not be fair to do so. In Zubulake, for example, the Court ordered UBS to bear 75% of the discovery costs, because the sample contained some damning, although merely circumstantial, evidence that supported Zubulake’s claim of gender discrimination. This damning evidence in the sample may have indicated to the Court that there was likely to be additional damning evidence in the remaining backup tapes. But the sample failed to produce evidence that could have been even more damning, in the form of direct evidence (which is usually necessary to succeed in a claim of gender discrimination). Accordingly, the Court ordered that a more modest portion (25%) of the costs be shifted to Zubulake. Had the sample contained direct evidence, it is unlikely that any costs would have been shifted to Zubulake.