In a recent Southern District of New York insurance policy case, Fleisher v. Phoenix Life Ins. Co., 2012 WL 6732905 (S.D.N.Y. Dec. 27, 2012), the parties engaged in a lengthy dispute over e-discovery obligations and compliance. Magistrate Judge James C. Francis IV’s opinion reflects important e-discovery considerations for civil litigants, particularly for those involved in class action litigation, and adds to the e-discovery lexicon on issues around search terms, e-discovery delays and compliance, and cost shifting, among others.  

Background

Judge Francis has made a significant impact in the field of e-discovery law, issuing numerous influential opinions on the subject, including a precedential opinion in the case of Orbit One Communications, Inc. v. Numerex Corp., 271 F.R.D. 429 (S.D.N.Y. 2010). Kramer Levin previously profiled Judge Francis in a “Spotlight on the Judiciary” article in the firm’s January 2010 Electronic Discovery Update newsletter, available at http://www.kramerlevin.com/Electronic-Discovery-Newsletter-January-2010-01-04-2010/. The Fleisher opinion represents another contribution by Judge Francis to the ever-evolving and influential body of electronic discovery law.

The litigation at issue in Judge Francis’s most recent e-discovery decision concerned a contract dispute over rate increases on premium-adjustable, universal life insurance policies that the defendant provided to policyholders, the putative class action plaintiffs. 2012 WL 6732905, at *1. In their putative class action, the plaintiffs alleged that the defendant increased the cost-of-insurance (“COI”) rates, notwithstanding the general increase in life expectancy, to generate additional fees as well as policyholder lapses. Id.

Discovery Process Leading Up to the Present Motion

In Fleisher, the plaintiffs served their first set of document requests on the defendant on December 21, 2011, seeking information on the COI increases among other things. 2012 WL 6732905, at *1. Four months later, in April 2012, the defendant proposed search terms for collecting electronically stored information (“ESI”). Id. The parties then exchanged additional proposed search terms and, on May 2, the defendant agreed to run a list of search terms across its ESI. Id. At the end of July 2012, the defendant advised that the agreed-to search terms had returned too many documents and it would need several more months to complete document production, this time based on a reduced list of search terms. Id. Through this back-and-forth process, problems with the defendant’s search capabilities became apparent. Id. For example, use of “Project X” as its code name for the COI increase proved problematic because the search software dropped single characters such as “X” and searching for “Project X” would have resulted in a search returning every document containing the word “project” alone. Id. After approximately eight months, little movement in the discovery process had resulted. Id.

In November 2012, the plaintiffs filed a motion pursuant to F.R.C.P. 37, seeking to compel the defendant to complete production of responsive documents within two weeks. Id. The defendant opposed the motion, arguing that the delay in production had resulted from the sheer volume of information requested and that any harm to the plaintiffs could be ameliorated by prioritizing the production. Id. at *2. The defendant further maintained that it was awaiting completion of an ongoing production in a separate litigation, the production in which was responsive to one category of documents the plaintiffs sought. Id. In addition, the defendant requested time to complete the production beyond the two weeks sought by the plaintiff.

Meet-and-Confer Requirements: Good Faith Is Required on a Motion to Compel

As a prerequisite, a motion to compel discovery under F.R.C.P. 37 requires a certification that the movant has in good faith conferred or attempted to confer with the party failing to produce the discovery in an effort to obtain the information or materials without court action. Id. , at *2. The defendant argued that the plaintiffs’ motion to compel discovery should be denied because they had failed to comply with the requirement to meet and confer in good faith. Id. at *2. Judge Francis rejected this argument, holding that the plaintiffs had satisfied the requirement by communicating with the defendant on numerous occasions throughout the delay period, attempting to work through the various discovery issues. Id. Judge Francis held that during that same period the defendant had been non-responsive and failed to make a single proposal to address the plaintiffs’ concerns. Id. Judge Francis noted that under certain circumstances, the Rule 37 meet-and-confer requirement may be excused, for example, when it would be futile to do so. Id. (citing Gibbons v. Smith, No. 01-Civ.-1224, 2010 WL 582354, at *2) (S.D.N.Y. Feb. 11, 2010)) (other citations omitted). However, Judge Francis also noted “futility should not be lightly presumed.” Fleisher, 2012 WL 6732905, at *2. Judge Francis found that because the plaintiffs had made numerous unsuccessful attempts to obtain the defendant’s compliance with its discovery demands over an extended period of many months, the plaintiffs’ meet-and-confer obligations were satisfied. Id.

Coordination of Discovery: Disclose What You Must, When You Can

One of the asserted bases on which the defendant opposed the plaintiffs’ motion to compel was that it could not comply with the plaintiffs’ discovery requests until it completed production in another case, because one of the categories of documents sought by the plaintiffs included all of the documents produced in that action. Id. at *2. Judge Francis found this argument “perplexing” and unpersuasive. Id. at *3. He held that the defendant could produce immediately what it had already produced in the other action, and supplement its document production as additional documents were disclosed in the other case and that F.R.C.P. 26(e)(1)(A) required as much. Id.

Deadlines and Cost Shifting: E-Discovery in the Class Action Context

Raising an issue of apparent first impression in New York courts, perhaps the most noteworthy and precedential aspect of Judge Francis’s opinion is the cost-shifting analysis. Approximately one year had passed between the time that the plaintiffs served their initial discovery requests on the defendant and the time that the plaintiffs filed their motion to compel discovery. Id. at *3. The parties asserted divergent proposals as to the timing of a future production — the plaintiffs sought to compel discovery within two weeks of the date they filed their motion to compel, and the defendant suggested a deadline approximately five months after the filing. Id. The Court found both parties’ proposals “unreasonable” and selected a mid-point deadline of approximately two months later, to allow for follow-up discovery after expert reports were due. Id.

In connection with this issue, the defendant argued that the cost of completing the document production within any deadline other than the more extensive one it had suggested should be shifted to the plaintiffs. Id. The defendant relied primarily on a decision issued by the District Court for the Eastern District of Pennsylvania, in which the court had held that – because class certification was pending and the plaintiffs requested extensive discovery, compliance with which would be very expensive – if the plaintiffs were confident the court would certify their class, they “should have no objection to making an investment” in the case. Id. (citing Boeynaems v. LA Fitness Int’l, LLC, 285 F.R.D. 331, 341 (E.D. Pa. 2012)). Judge Francis noted that this cost-shifting approach to putative class action cases had never been adopted by any court within the Second Circuit, and that such a presumption ran counter to important precedent from the United States Supreme Court. Id. at *4 (citing Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 358 (1978) (“Under [the discovery] rules, the presumption is that the responding party must bear the expense of complying with discovery requests.”)). However, Judge Francis noted the presumption set forth in Oppenheimer could be rebutted under certain circumstances and looked to the range of factors set forth in the influential Zubulake v. UBS Warburg, LLC line of cases. Id. (citing Zubulake, 217 F.R.D. 309, 317-18 (S.D.N.Y. 2003)). Those factors include:

(1) the degree to which the request for information is designed to discover germane information, (2) the availability of the same information from different sources, (3) the cost of production as compared to the amount in controversy, (4) the cost of production as compared to the resources of each party, (5) the parties’ relative abilities to control discovery costs and their incentives to control costs, (6) the degree of importance of the issues being decided in the litigation, and (7) the relative benefits to each of the parties in obtaining the information at issue.

Id. (citing Zubulake, 217 F.R.D. at 322). Judge Francis noted that, in the first instance, the defendant had addressed only two of the Zubulake factors and even that analysis was incomplete. Id. The defendant primarily had argued that the costs of compliance with the plaintiffs’ e-discovery requests, as compared to the relative resources of plaintiffs’ counsel, mandated the shifting of cost to plaintiffs. Id. Judge Francis rejected this rationale, writing “it is far from clear why the resources of counsel should be taken into consideration. . . . [I]f the assets of counsel were to be taken into consideration, the ability of clients to engage an attorney of their choice would likely be hampered.” The court declined to consider the relative resources of counsel or to shift the costs. Id.

An additional argument advanced by the defendant in favor of cost-shifting was the cost to review the production for privileged and confidential information and communications. Judge Francis stated that, generally, it is not appropriate to shift the costs of e-discovery onto the requesting party on that basis, because “the producing party has the exclusive ability to control the cost of reviewing the documents.” Id. (quoting Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 290 (S.D.N.Y. 2003)). Even so, Judge Francis entered an order pursuant to Federal Rule of Evidence 502(d) to address the defendant’s concern, which precluded the production of privileged documents from constituting a waiver of privilege or work product protection in that case or any other. Id. This afforded the defendant the choice between an “exacting” and expensive review, or a more “economical” one. Id. Additionally, Judge Francis stated that he would “entertain a protective order” to further protect commercially sensitive and confidential information which would allow the defendant to expedite its document review and production. Id.

For these and other aforementioned reasons, Judge Francis granted the plaintiffs’ motion to compel discovery from the defendant, and denied defendant’s application to shift document production costs to the plaintiffs.

Conclusion

Judge Francis’s opinion addresses a range of increasingly standard e-discovery issues, including search terms, production timing, cost-shifting, and the inadvertent production of privileged and/or confidential documents. Moreover, the decision affirms the consistent expectation in the New York federal courts that counsel and parties be knowledgeable, timely, and cooperative in handling their e-discovery compliance obligations.