As discovery requests become increasingly extensive and time consuming, litigants are more concerned than ever with determining when the costs of preservation and production can be shifted to their adversary. As noted in the companion article in this issue of the Electronic Discovery Update (at p.1) highlighting the Association of the Bar of the City of New York’s Joint Committee (the “Committee”) Report on Electronic Discovery, the Committee did not propose any modifications to the New York Civil Practice Law and Rules (“CPLR”) relating to cost shifting; notwithstanding its acknowledgment that “courts are confronted with more and more costs disputes because the cost of discovery has increased dramatically as a result of ESI.” Ass’n of the Bar of the City of New York Joint Comm. on Elec. Discovery Report, Explosion of Electronic Discovery in All Areas of Litigation Necessitates Changes in CPLR, at 5 (August 2009), available at http://www.nycbar.org/pdf/report/uploads/20071732-ExplosionofElectronicDiscovery.pdf. Instead, the Committee referred readers to its previously issued Manual for State Trial Courts Regarding Electronic Discovery Cost-Allocation (the “Manual”). The Manual reviews the best practices for e-discovery as set out by the Electronic Discovery Reference Model, and then discusses how New York courts, other federal and state courts, and professional organizations have handled cost-shifting issues. Joint Committee, Manual for State Trial Courts Regarding Electronic Discovery Cost Allocation (Spring 2009), available at http://www.nycbar.org/Publications/pdf/Manual_State_Trial_Courts_Condensed.pdf.
In New York, there is a general presumption that the requesting party pays for the cost of discovery. Though the CPLR does not explicitly apply this presumption to ESI costs and the Commercial Division rules allow for cost-sharing agreements, New York courts have followed this presumption when deciding how to allocate e-discovery costs. In Lipco Elec. Corp v. ASG Consult. Corp the court found that “. . . cost shifting of electronic discovery is not an issue in New York, since the courts have held that, under the CPLR, the party seeking discovery should incur the costs.” Lipco Elect. Corp v. ASG Consult. Corp, 4 Misc.3d 1019(A), 2004 WL 1949062 (Sup. Ct. Nassau Co. Aug. 18, 2004). However, the Manual notes that CPLR 3103(a) allows the court to grant a protective order to protect a party “from incurring unreasonable expenses in complying with discovery demands.” The Manual at 20.
In contrast to the New York presumption, the standard under federal jurisprudence is that the producing party bears the cost of discovery requests. Judge Shira Scheindlin of the Southern District has articulated a multi-factored balancing test, which has been influential in guiding determinations of when the cost of producing “inaccessible” data should be shifted to the requesting party. Zubulake v. UBS Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003). A recent Supreme Court of New York opinion declined to apply this federal approach, stating that it was “not empowered—by statute or case law—to overturn the well settled rule in New York State that the party seeking discovery bear the cost incurred in its production.” T.A. Ahern Contractors Corp. v. Dormitory Auth. of the State of N.Y., 2009 WL 806779 (Sup. Ct. N.Y. Co. Mar. 19, 2009). That court observed that the requester-pays standard gives a party “a strong incentive to formulate its discovery requests in a manner as minimally burdensome as possible.” Id. New York courts are divided on whether the requester-pays standard extends to attorneys fees and costs. See The Manual at 21.
Potential litigants are not alone in their worries over the rising costs of e-discovery; non-parties may also be required to preserve and produce documents for litigation. Thus, both the state and federal systems have provisions in place to protect non-parties from bearing the costs of e-discovery. The CPLR and the Federal Rules of Civil Procedure state that the “reasonable production expense of a nonparty witness shall be defrayed by the party seeking discovery.” The Manual at 25. Under New York law, the requesting party absorbs the costs that otherwise would have fallen on the non-party. Id. Under the federal system, courts pageapply a three-factor test to determine whether a non-party should bear some of the costs of discovery, considering (i) the interest of the non-party in the case, (ii) the party’s ability to bear the costs of discovery, and (iii) the public importance of the case. Id. at 27. Thus, under the federal paradigm, a totally disinterested non-party will be protected from the burden of discovery, but an interested party who “reasonably anticipated being drawn into subsequent litigation” might be called upon to share in the costs. Id.
In sum, whether a case is brought in New York State or in federal court will have great impact on which party bears the cost of discovery. The divergences reflect the varying perspectives the courts bring to these issues and the differing standards they employ to manage and constrain the impact of e-discovery. As noted in the Manual, “New York’s approach of requiring the requesting party to bear all ESI production costs, whether the ESI is accessible or inaccessible, contrasts with . . . other approaches, and represents a policy determination that making requesting parties responsible for discovery costs is the most efficient means of containing the scope of discovery and the costs associated with it.” The Manual at 35.