Oy Vey! Court attempts to define degrees of unacceptable ediscovery conduct and fashions a problematic adverse jury instruction in the process

Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010)

Pension Committee is an ediscovery opinion that is sure to garner a lot of attention. The opinion was written by Judge Shira Sheindlin, who authored the Zubulake decisions. Judge Scheindlin includes a subheading in Pension Committee that her decision is: “Zubulake Revisted: Six Years Later.” While noting that “[c]ourts cannot and do not expect that any party can meet a standard of perfection,” she nonetheless concludes “courts have a right to expect that litigants will take the necessary steps to ensure that relevant records are preserved when litigation is reasonably anticipated.”

In Pension Committee, ninety-six investors brought suit claiming the violation of federal securities law seeking to recover $550 million dollars in losses stemming from the liquidation of two British Virgin Island based hedge funds. Shortly after being retained, counsel telephoned and emailed the plaintiffs to begin document collection and preservation. Besides calling and emailing the clients, counsel also distributed memoranda instructing the plaintiffs to be over-inclusive, rather than under-inclusive in their efforts and noting that emails and electronic documents should be included in the production. After suit was filed, a stay of discovery was issued pursuant to the Private Securities Litigation Reform Act. However, a formal written litigation hold was not issued until after the discovery stay was lifted several years later. After discovery commenced, gaps were found in plaintiffs’ document productions, which prompted a motion for sanctions asserting plaintiffs failed to properly preserve and produce documents and electronically stored information.
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Court broadly allows a prevailing party to recover its ediscovery costs under 28 U.S.C. §1920

CBT Flint Partners, LLC v. Return Path, Inc., 2009 WL 5159761 (N.D.Ga. Dec. 30, 2009)

After prevailing on a patent infringement claim, the defendant sought the recovery of its attorney’s fees and expenses. One of the items of expense claimed was $243,453.02 paid to an ediscovery vendor that collected, searched, identified and helped to produce electronic documents from the defendant’s network files and hard drives in response to the plaintiff’s discovery requests. The district court in CBT Flint Partners allowed the taxation of those costs in full against the plaintiff.

In several prior blog posts, we noted the wide divergence in the opinions addressing the taxation of ediscovery costs under 28 U.S.C. §1920. In some instances, the outcome turned on the particular subdivision of §1920 that the recovery was sought under, in others the prevailing party failed to demonstrate to the court’s satisfaction that the costs were “necessarily incurred” for use in the case, and in others, the prevailing party failed to adequately support or explain why the ediscovery costs were recoverable under any subdivision of §1920. We also highlighted a split in the circuits over the meaning of “exemplification” as the term is used in §1920(4). However, several of the decisions are difficult to reconcile and perhaps are best explained by how receptive a particular court is to the recovery of these types of costs in post-judgment proceedings. The Supreme Court, in Crawford Fitting Co. v. J. T. Gibbons, Inc., 42 U.S. 437, 441-42 (1987), explained that a district court may not award costs falling outside of §1920’s statutory categories and may decline to award costs even when they fall within those categories. Under that standard, a district court has ample discretion to deny the taxation of ediscovery costs on the losing party.

In CBT Flint Partners, the court noted that the parties agreed that their respective document productions would be made in an electronic format. Thus, it appears those costs were “necessarily incurred” for use in the case. However, the court did not address whether the challenged ediscovery vendor costs fit within any of §1920’s recoverable categories. Rather, the decision appears to be heavily influenced by policy considerations. The district court in CBT Flint Partners concluded “taxation of these costs will encourage litigants to exercise restraint in burdening the opposing party with the huge cost of unlimited demands for electronic discovery.”

The district court did note the division of opinion as to whether these types of costs are recoverable under §1920. It observed that the defendant “asserted – without contradiction – that production in paper form of the 1.4 million documents plus six versions of source code would have cost far more than the fees sought for the e-discovery consultant.” After carefully reviewing the invoices that were submitted to it, the district court ultimately ruled that the services provided were “highly technical in nature,” and “not the type of services that attorneys or paralegals are trained for or are capable of providing.” Thus, the court allowed the taxation of the ediscovery vendor’s costs in full.

Perhaps the lesson to be learned from CBT Flint Partners, is to be careful what you ask for in discovery. The cost of ediscovery in many instances can be staggering and the possible recovery of those costs by a prevailing party is a factor that cannot be ignored when developing and implementing your discovery and litigation strategies. While district court decisions are not precedential, the policy view expressed by the district court in CBT Flint Partners may resonate with other district court judges and will likely raise the price of poker in federal litigation.

Identifying inaccessible sources of ESI just got a little easier

Fed.R.Civ.P. 26(b)(2)(B) explains that a party need not produce electronically stored information (“ESI”) from sources that are not reasonably accessible because of undue burden or cost. Parties are expected to produce relevant, non-privileged information from sources that are “reasonably accessible” subject to Rule 26(b)(2)(C)’s limitations that apply to all discovery under the federal rules. This “two-tier” approach to ediscovery is easy to recite but can be very difficult to apply in practice. At what point does a source of ESI cross the threshold from reasonable accessibility to inaccessibility under the Rule? Are there sources of information that parties can readily agree are not reasonably accessible? Alas, neither Rule 26(b)(2)(B) nor its accompanying committee note provide any helpful insight. Indeed, the 2006 Advisory Committee Note states “[i]t is not possible to define in a rule the different types of technological features that may affect the burdens and costs of accessing electronically stored information.”

The Report of the Judicial Conference Committee on Rules of Practice and Procedure (“Standing Committee Report”) which predated the enactment of the 2006 ediscovery amendments to the federal rules provided some insight. The Standing Committee Report did note that the features of an information system that make it burdensome or costly to access ESI can vary from system to system and will change over time. However, it provided several examples of “current technology” that do not generally fit under the rubric of reasonable accessibility. Those examples included “deleted information, information kept on some backup-tape systems for disaster recovery purposes, and legacy data remaining from systems no longer in use.” See THE NEW E-DISCOVERY RULES, Dahlstrom Legal Publishing, Inc. (2006) at p. 15. Unfortunately, that guidance was not carried over into the 2006 Advisory Committee Note to Rule 26(b)(2)(B).

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