In Boeynaems v. La Fitness Int'l, 2012 U.S. Dist. LEXIS 115272 (Aug. 16, 2012 E.D. of P.A.), the court expresses its firm view that discovery burdens should not force a party to succumb to an unmerited settlement. Id. at *36. In what the court found to be an issue of first impression, it ordered plaintiffs to pay, in advance, for the whole cost of all the additional discovery they seek prior to class certification.
The court is especially sensitive to the fact that treating a civil action as a class action “dramatically increases the economic pressure on the defendant.” Id. at *7-8. Asymmetrical discovery costs in the class action context are a large and immediately felt component of that economic pressure. Id. at *9-13.
In this case, the five named plaintiffs allege breach of contract and unfair trade practices related to their attempts to cancel their membership with defendant L.A. Fitness. (Say it with me: “I want to quit the gym!”). The potential class would likely number in the thousands or tens of thousands. Whereas plaintiffs, even in aggregate, have “very few documents,” the defendant has “millions of documents and millions of items of electronically stored information . . . .” Id. at *9. The “Defendant has borne all of the costs of complying with Plaintiff’s discovery to date,” (Id at *36) and “[v]irtually all of [the outstanding] discovery will be directed to Defendant.” Id. at *10.
With little to lose and much to gain, plaintiffs in such a case can become incentivized to make the process as expensive as possible for the defendants. Extortion is another name for this practice. Id. at *12 (quoting a well-rounded discussion of the issues by John C. Coffee, The Regulation of Entrepreneurial Litigation: Balancing Fairness and Efficiency in the Large Class Action, 54 U. Chi. L. Rev. 877, 893 (1987)).
Here, for example, despite the defendant’s production and attempts at cooperation, there have been four separate discovery conferences, a motion to compel, and related pleadings and letters. The court notes with apparent exasperation that, “[t]he dialogue back and forth between counsel is similar to a Verdian opera scene where a tenor and a bass boast of their qualities to compete to win over the fair princess.” Id. at *5-6.
Rule 26(c) invests courts with authority to step in and curtail overzealous discovery. This includes cost shifting — making parties put their money where its mouth is, so to speak. Here, the court called a spade a spade and specifically directed its words to plaintiffs’ counsel: “If Plaintiffs' counsel has confidence in the merits of its case, they should not object to making an investment in the cost of securing documents from Defendant and sharing costs with Defendant.” Id. at *12-13.
The Discovery “Fence”
In ruling on plaintiffs’ motion to compel, the court begins with its “discovery fence” analogy. Simply stated, facts within the fence are discoverable and should be produced; facts outside need not be produced. Id. at *7. The “fence” should be a “flexible fence” that bulges or contracts as case specific circumstances require and as new information changes the judge’s perception about what is fair. Id. Also, the court reminds us that each party can and should conduct its own investigation of matters inside and outside of the fence rather than exclusively relying upon fact gathering by the opposing party. Id.
Though not expressly stating a policy of bifurcation in all cases involving pre-class certification discovery, the court applies its “fence” analogy based upon the needs for discovery at the particular stage of the case. The court describes the present stage as follows:
[T]he U.S. Supreme Court’s decision in Dukes requires Plaintiffs to establish that "common questions generate common answers 'apt to drive the resolution of the litigation'" — in other words, that Plaintiffs show "a common course of conduct in which the defendant engaged with respect to each individual." (quoting Dukes, 131 S. Ct. at 2551). Thus, under Dukes, the most relevant discovery at this stage of the case is that which will illuminate the extent to which Defendant's membership cancellation policies and practices are set and followed nationally; Plaintiffs must show either that individual managers have no discretion or that there is a "common mode of exercising discretion that pervades the entire company." (quoting Dukes, 131 S. Ct. at 2553-55).
Boeynaems, 2012 U.S. Dist. LEXIS 115272, *23.
Thus, documents “inside” the fence include those pertaining to practices and policies applicable to joining or cancelling membership and to how managers and employees should respond to requests for cancellation. Also permitted are “a reasonable number” of (already produced) customer-related files, documents reflecting defendants’ use of preprinted forms, electronically stored information pertaining to all of the above, a cache of paper documents stored off-site for defendants by Iron Mountain, and documents reflective of the discretion of local managers.
Outside the fence, and therefore not discoverable at this time, are requests for production of “all” documents pertaining to “general” categories. Also not discoverable are requests targeted to discovering whether decisions were made at a particular level, internal memoranda other than identified above, consumer complaints, and documents reflecting how cancellation notices are processed.
Cost Shifting Prior to Class Certification
Having resolved “what” is discoverable at this stage, the court proceeds to decide “who” should bear the cost. The answer you know. The scope of the court’s holding, however, is interesting:
The Court concludes that where (1) class certification is pending, and (2) the plaintiffs have asked for very extensive discovery, compliance with which will be very expensive, that absent compelling equitable circumstances to the contrary, the plaintiffs should pay for the discovery they seek.
Id. at *34.
Thus, not only does Boeynaems appear to be the first decision to order cost shifting in the context of pre-certification discovery, but the court announces a legal presumption in favor of cost shifting. The plaintiff pays unless it can rebut the presumption with evidence of “compelling equitable circumstances to the contrary.” This is precisely the opposite presumption generally applied. Compare Zubulake v. UBS Warburg LLC (“Zubulake I”) 217 F.R.D. 309 (S.D.N.Y. 2003) (“In order to maintain the presumption that the responding party pays, the cost-shifting analysis must be neutral; close calls should be resolved in favor of the presumption [that responding party pays under the American Rule]).
There are also a number of aspects of the court’s reasoning that stand out in this case.
First, whereas many decisions addressing cost shifting have essentially ‘split the baby’1 and ordered the parties to share the costs of disputed discovery, this court ordered the entire cost of all remaining discovery to be ‘borne’ by the plaintiffs alone. If plaintiffs elect to proceed with the discovery, defendants are to present them with a bill in advance, which must be paid prior to the defendant’s obligation to begin producing documents. Implicit in the court’s reasoning is that defendants have already paid their fair share for a reasonable amount of discovery given the needs of the case. See id. at *35-36.
Boeynaems is also noteworthy in that the court did not just consider the cost of converting certain data from a form that had previously been identified as “not reasonably accessible” under Rule 26(b)(2)(B) into a more usable form. In deference to the American Rule and the wide scope of Rule 26, some decisions have treated the “not reasonably accessible” language as a limitation on cost shifting. For example, ordering cost shifting for the technical effort of retrieving data from backup tapes and placing it in a more useable form, but denying cost shifting for legal review or the production of data that is readily accessible.
The language of Rule 26(b)(2)(B), which happens to be the only explicit reference to cost shifting found in the rules, is derived from the outdated and never completely accurate reasoning of the Zubulake decisions. In Zubulake I, Judge Scheindlin posits: “whether production of documents is unduly burdensome or expensive turns primarily on whether it is kept in an accessible or inaccessible format.” “Whether electronic data is accessible or inaccessible turns largely on the media on which it is stored.” Zubulake I then proceeds to set forth five categories of electronic data storage, which it ordered from most accessible to least accessible, finding that generally, only the last two categories (the least accessible) are properly considered for cost shifting. See Zubulake, 217 F.R.D. at 318.
In the second Zubulake decision, the court speaks even more clearly: “It is worth emphasizing again that cost-shifting is potentially appropriate only when inaccessible data is sought. When a discovery request seeks accessible data — for example, active on-line or near-line data — it is typically inappropriate to consider cost-shifting.” Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 284 (S.D.N.Y. 2003) & 289-90 (setting forth the basis for its reasoning to only shift the cost of restoring backup tapes and not the whole cost of production). Not only are Zubulake’s highly specific comments on technology costs subject to becoming (and, in fact, are) dated, but these decisions miss the larger point that at some level, the sheer amount of the data or documents, regardless of form, can be unduly burdensome to search, retrieve, review and produce. Given that the volume of data is growing at an ever increasing rate — more than doubling every two years2— volume becomes and independent factor in the “burdensomeness” of the task, at least from a practical standpoint. The common sense principle of “proportionality” has a role to play in preventing the discovery costs from swallowing the litigation. Volume, as well as data format, must be weighed against the needs of the case.
The Boeynaems approach is not restricted by a consideration of data format or storage location. Regardless of whether the data came off a backup tape, was sitting in a box in Iron Mountain, or was accessible directly from defendants’ email systems, if plaintiffs insist this information must be produced, they will have to pay for it.
The Boeynaems protocol also considers the whole cost of everyone involved in production, not just the discovery vendor’s time to restore backup tapes. For example, the protocol even includes “the appropriately allocated salaries of individuals employed by Defendant who participate in supplying the information which Plaintiffs request, including managers, in-house counsel, paralegals, computer technicians and others involved in the retrieval and production of Defendant's ESI.” Id. at *36.
Finally, Boeynaems is unique in that the court went beyond a consideration of “the parties’ resources” in its determination of “undue burden” under Rule 26(b)(2)(C). The court factored in the resources of counsel. That is, it actually worked to counsel’s disadvantage to be found a “very successful and well regarded” firm “which has had outstanding successes for many years in prosecuting class actions, winning hundreds of millions of dollars for their clients.” Id. at *13. Conversely, “[i]n the absence of a putative class action, where a party or counsel is unable to afford assuming the other party's costs of discovery, cost shifting may not be appropriate.” Id. at *13, N.4.
In the particular context in which Boeynaems was decided, even this potentially controversial reasoning makes a certain amount of sense. Plaintiffs’ counsel has a financial interest in the case that far exceeds that of any of its individual clients in the potential class — both in terms of risk (cost) and potential reward. It is unrealistic to pretend that counsel is not making the strategic decisions in prosecuting plaintiffs’ claims largely on this basis.
Class action plaintiffs and defendants will no doubt disagree on whether Boeynaems got it right. Its central message, however, is unassailable — asymmetrical discovery and economic pressure should not be permitted to force an unmerited settlement. At least in Judge Baylson’s court in the Eastern District of Pennsylvania, both sides can expect to be held in check.