It is no secret that a large-scale document production, especially one involving extensive ESI, can come at a high cost. Although courts have been split in deciding which party is responsible for bearing this cost, the New York Appellate Division, First Department determined last week that the cost of searching for, retrieving and producing ESI should be borne by the producing party.
In U.S. Bank Nat. Assoc. v. GreenPoint Mortgage Funding, Inc., 2012 N.Y. Slip Op 01515 (N.Y. App. Div. Feb. 28, 2010), plaintiff, assignee of securitized mortgage loans, sued defendant, originator of the loans, for “gross violations” of the representations and warranties regarding the attributes of the loans and the policies and practices under which the loans were originated, underwritten and serviced.
In February 2009, plaintiff served defendant with their first request for production of documents. Rather than producing the documents requested, on April 28, 2009, defendant submitted a letter to the court seeking a ruling on, among other things, whether the production should be conditioned on plaintiff’s confirmation that it would pay the cost of production. On December 11, 2009, defendant moved to stay discovery and for a protective order conditioning production of discovery on compliance with a protocol that provided that each party would pay for its own discovery requests. Plaintiff opposed the motion arguing that they should not have to bear the costs of production, which could run into the millions of dollars. On April 13, 2010, the court denied defendant’s motion for a protective order but endorsed its contention that the party seeking discovery bears the cost of production.
The Appellate Division pointed out that this area of law has become unsettled as a result of the high cost of locating and producing ESI. While some courts have held that the requesting party should bear the entire cost of discovery, others, including the Southern District of New York in Zubulake v. UBS Warburg, LLC, 217 F.R.D. 309, 317-318 (S.D.N.Y. 2003), have held that the cost should fall on the producing party.
The Appellate Division determined that Zubulake presents the most practical framework for allocating discovery costs. Zubulake requires, consistent with the Federal Rules of Civil Procedure, “the producing party to bear the initial cost of searching for, retrieving and producing discovery, but permits the shifting of costs between the parties.” When determining whether costs should be shifted, the court continued, courts should follow the seven Zubulake factors, which 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 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.
The Appellate Division found this rule controlling for three reasons. First, requiring the producing party to bear its own costs of discovery supports “the strong public policy favoring resolving disputes on their merits.” Second, commentators and courts have recently called into question the validity of the “requestor pays” rule. Third, this standard is consistent with the long-standing New York rule that expenses incurred in connection with disclosure are to be paid by the respective producing parties and said expenses may be taxed as disbursements by the prevailing party.
The Appellate Division applied this rule and determined that defendant’s motion for a protective order was premature. Defendant should have first made a motion to limit or strike plaintiff’s discovery request on the ground that it was overly broad, irrelevant, or unduly burdensome. If defendant believed costs for producing ESI were still prohibitive after resolution of that motion, defendant should have then filed a motion for the costs to be shifted to the plaintiff. Because the record contained no evidence supporting defendant’s proposed fee structure, the court refused to offer an opinion on the propriety of shifting costs in this matter.
Whether other jurisdictions follow New York’s lead is yet to be seen. Stay tuned to ediscoverylawreview.com for further details and analysis of this emerging issue.