The costs of collecting, reviewing and producing documents in response to document requests or subpoenas can be significant. In some circumstances, a court may require the party requesting the documents to pay some of these costs. The availability of cost-shifting is an important consideration in drafting and responding to a document demand.
Cost-Shifting in party discovery: federal courts
Under the Federal Rules, “the presumption is that the responding party must bear the expense of complying with discovery requests,” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 358 (1978). Therefore, federal court litigants typically must pay the entire cost of responding to document requests.
The landmark Zubulake case created a specialized exception to the Oppenheimer Fund rule. In Zubulake, plaintiff Laura Zubulake moved to compel defendant UBS to produce emails stored on backup tapes, Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 311-12 (SDNY 2003). To make the emails readable, UBS would have to perform extensive restoration efforts, Id. at 314. UBS argued that if it had to produce the emails, Zubulake should pay for the restoration, Id. at 317. The court created a multi-step analysis to decide UBS’s cost-shifting request.
First, the court found that cost-shifting can only be considered when the requested documents are “inaccessible,” or not “stored in a readily usable format,” Id. at 320. Emails available on active servers or discs were “accessible,” and had to be produced at UBS’s expense. But the emails on UBS’s backup tapes were “inaccessible,” making them eligible for cost-shifting, Id.
The court then decided whether to order cost-shifting as to the backup tapes based on “a new seven-factor test.” The court listed these factors in roughly descending level of importance:
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, Id. at 322-23.
Further, the court found that this test should be based on review of a “small sample” of emails from the backup tapes, provided at UBS’s expense, Id. at 324.
After concluding that cost-shifting was appropriate based on the seven-factor test, the Zubulake court decided how much of UBS’s costs to shift. Noting that there was “plainly relevant evidence that [was] only available on UBS’s backup tapes,” but that Zubulake had not shown that this evidence was “indispensable,” the court assigned 25 percent of UBS’s costs to Zubulake, Id. at 289.
Finally, the Zubulake court decided which costs to shift. In doing so, the court announced an important “general rule:” While the costs of restoring and searching inaccessible documents may be shifted to the requesting party, “the responding party should always bear the cost of reviewing and producing electronic data once it has been converted to an accessible form,” Id. at 290. Therefore, even a party that makes a successful cost-shifting motion under Zubulake must still bear the attorneys’ and e-discovery vendor’s fees associated with reviewing and producing its documents.
The 2006 amendments to the Federal Rules gave parties greater protection from requests for “inaccessible” documents. Federal Rule 26(b)(2)(B) states that “A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost,” and invites courts to “specify conditions for the discovery” of such information. But the Federal Rules do not specify when cost-shifting is available. As a result, Zubulake’s seven-factor test remains influential.
Cost-shifting in party discovery: state courts
In 2012, the Appellate Division endorsed Zubulake’s seven-factor test as “the most practical framework for allocating all costs in discovery, including document production and searching for, retrieving and producing” electronic documents, U.S. Bank N.A. v. GreenPoint Mortgage Funding, Inc., 94 A.D.3d 58, 64 (1st Dept. 2012). GreenPoint found that while the responding party typically must bear its own costs, trial courts, “in the exercise of their broad discretion … may follow the seven factors set forth in Zubulake” in deciding whether to shift costs, Id. at 63-64.
There are important differences between Zubulake and GreenPoint. Unlike Zubulake, GreenPoint did not hold that cost-shifting only applies to inaccessible documents, and did not address whether cost-shifting should be based on a sample of the responding party’s documents. Further, GreenPoint did not specify the types of costs that may be shifted to the requesting party. Finally, GreenPoint did not apply the seven-factor test itself. Instead, GreenPoint held that the defendant’s motion to shift costs was premature because the defendant had not attempted to narrow or strike overbroad document requests, Id. at 65.
GreenPoint established a default rule that parties must pay their own document discovery costs. However, the Appellate Division’s statement that trial courts “may consider” the Zubulake test essentially allows those courts to decide cost-shifting applications as they see fit.
Cost-shifting in non-party discovery: federal courts
The Federal Rules protect subpoenaed non-parties from “undue burden or expense,” including “significant expense resulting from compliance,” Fed. R. Civ. P. 45(c)(1), 45(c)(2)(B)(ii). As a result, “[c]ost-shifting is particularly appropriate in the context of subpoenas,” U.S. Bank N.A. v. PHL Variable Ins. Co., 2012 U.S. Dist. LEXIS 158448, at *11 (SDNY Nov. 5, 2012).
In deciding whether to shift a non-party’s costs to a requesting party, federal courts consider three factors: “(1) whether the nonparty has an interest in the outcome of the case; (2) whether the nonparty can more readily bear the costs; and (3) whether the litigation is of public importance,” In re World Trade Ctr. Disaster Site Litig., 2010 U.S. Dist. LEXIS 96819, at *53 (SDNY Sept. 14, 2010).
Courts often emphasize the first factor, noting that the Federal Rules are intended to protect the “quintessential, innocent, disinterested bystander” who has no stake in the litigation, Dow Chem Co. v. Reinhard, 2008 U.S. Dist. LEXIS 35398, at *4 (SDNY Apr. 29, 2008) (citations omitted).
A non-party who “should have reasonably anticipated being drawn into subsequent litigation,” or who has some active involvement in the subject matter of the action, may have to bear some or all of its costs, Id. at *5; accord Wells Fargo Bank, N.A. v. Konover, 259 F.R.D. 206, 207 (D. Conn. 2009); In re Honeywell Int’l, Inc. Sec. Litig., 230 F.R.D. 293, 303 (SDNY 2003). Further, even a “disinterested” non-party may have to bear the cost of reviewing its documents, as in Zubulake, See PHL, 2012 U.S. Dist. LEXIS 158448, at *12-13 (citing Zubulake, 216 F.R.D. at 290).
Cost-shifting in non-party discovery: state courts
CPLR 3111 and 3122(d) state that “The reasonable production expenses of a non-party witness shall be defrayed by the party seeking discovery.” These rules have received little interpretation, leaving the meaning of “reasonable production expenses” unclear.
A recent Appellate Division decision displays this ambiguity. In Tener v. Cremer, the Appellate Division directed the trial court to determine whether non-party NYU could restore overwritten data to comply with the plaintiff’s subpoena, 89 A.D.3d 75, 82 (1st Dept. 2011).
The Appellate Division found it “worth mentioning” that under CPLR 3111 and 3122(d), the trial court should “allocate the costs of [any] production to plaintiff and should consider whether to include in that allocation the cost of disruption to NYU’s normal business operations,” taking into account that the plaintiff’s delay in subpoenaing NYU might have made it more difficult to collect the data, Id.
The Appellate Division did not discuss how the trial court should calculate the cost of disruption to NYU’s business, what factors should support the shifting of this cost other than the plaintiff’s delay, or whether “the costs of production” include the reviewing costs specifically excluded in Zubulake. Nor did the Appellate Division cite any other decisions interpreting CPLR 3111 or 3122(d). Therefore, the Appellate Division gave the trial court little direction on how to assess NYU’s costs. (The trial court ultimately dismissed the plaintiff’s complaint, apparently without addressing NYU’s costs, Tener v. Cremer, 2012 N.Y. Misc. LEXIS 3721 [Sup. Ct. N.Y. County Aug. 1, 2012].)
Only one New York decision addresses whether attorneys’ fees are recoverable under CPLR 3111 and 3122(d), but its holding is unclear. In Finkelman v. Klaus, the trial court found that “While some costs are recoverable by a non-party responding to Subpoenas Duces Tecum, the responding party does bear the costs associated with withholding documents from production due to relevancy or privilege,” 2008 N.Y. Misc. LEXIS 7850, at *14 (Sup. Ct. Nassau County Feb. 29, 2008). Yet in the same paragraph of its opinion, the Finkelman court stated that CPLR 3122(d) permits awards of attorneys’ fees, “particularly where any substantial right of the non-party witness is involved and representation by an attorney is needed,” Id. at *16 (quoting McKinney’s Practice Commentaries, CPLR 3122).
The court concluded that the requesting plaintiff had to pay “the costs incurred in producing the [non-party’s] email records in order to procure their production,” but did not specify whether those “costs” included attorneys’ fees or any other particular types of costs, Id.
The cost of reviewing documents to respond to a demand often exceeds the cost of retrieving and copying those documents. Parties serving state court subpoenas should consider whether non-parties will expect payment of attorneys’ fees as a condition of production. If a dispute arises, parties may find themselves making new law in this area.
Jeremy M. Sher is an associate with the law firm of Leclair Korona Giordano Cole LLP. He concentrates his practice in the areas of commercial, securities and employment litigation. He can be reached at firstname.lastname@example.org or through the firm’s website at www.leclairkorona.com.