Is Review Software Not Reasonably Accessible Because of Cost?

W Holding Co. v. Chartis Ins. Co., is a case involving competing proposed discovery protocols. The parties include the FDIC as the receiver of a bank and the former bank directors & officers in a $176 million suit with claims of negligence in making loans. W Holding Co. v. Chartis Ins. Co., 2013 U.S. Dist. LEXIS 52313, 4-9 (D.P.R. Apr. 3, 2013).

The universe of ESI began as approximately 6.8 terabytes of ESI and 921,000 paper documents. W Holding Co., at *6. $2.1 million was spent scanning paper into a searchable digital format. Id.

Woman Using Virtual Interface

The FDIC planned to migrate data from one hosted review application to another to give access to party opponents of specific data. The projected cost for the hosting included:

Data migration of $450 per gigabyte

$0.185 per page for scanning paper documents and generating searchable text;

$0.025 per page for Bates and confidentiality stamping;

$325 per gigabyte for imaging native-format ESI into TIFF files; and

$35 to $300 per labor-hour for technicians, quality control, and management staff.

W Holding Co., at *6-7.

…and where there is lots of money being spent, there are disputes.

What is Not Reasonably Accessible?

The FDIC claimed the bank’s ESI in a review database was not reasonably accessible under Rule 26(b)(2)(B), thus requiring cost shifting. W Holding Co., at *13-14.

The party claiming ESI is not reasonably accessible must demonstrate the undue burden. The claim cannot simply be the ESI is expensive to produce because of volume, but that the cost must be “associated with some technological feature that inhibits accessibility.” W Holding Co., at *14, citing Chen-Oster v. Goldman, Sachs & Co., 285 F.R.D. 294, 301 (S.D.N.Y. 2012).

In the words of the Court, the FDIC had not “hinted” at any technical problem that hinder searching the ESI. Moreover, the ESI was already in a database for search. W Holding Co., at *14.

Even though the FDIC argued that high production costs could make ESI not reasonably access under FRCP 26(b)(2)(B), the Court made an important distinction between accessibility and proportionality. As the Court explained:

In short, I reject the contention that Rule 26(b)(2)(B)—and its shifting burden to justify production requests—kicks in any time that discovery implicates both (1) electronically stored information and (2) large volumes of data, even where the volume renders review costly.

Because FDIC -R has not shown that access to the Westernbank data is hindered by any unique technological hurdles, it has failed to trigger Rule 26(b)(2)(B). It is therefore not entitled to categorically label the DMS databases “not reasonably accessible.”

W Holding Co., at *16.

Proportionality

The Court attempted to analyze the proportionality factors under Federal Rule of Civil Procedure Rule 26(b)(2)(C). However, as the Court stated, “But frankly, the parties’ broad claims about their respective discovery proposals are too speculative to merit a ruling at this time.” W Holding Co., at *18.

The Court noted that the FDIC’s affidavits explained the “bulk costs” of the work, but did not “shed any light on the effort in this case” or provide what it would take to build responsive searches. W Holding Co., at *18-19. The Court stated:

In sum, this is less a situation where the scales are evenly balanced, and more one where the court has been given nothing to place on either side. Until the parties take affirmative steps to conduct discovery—perhaps after test runs, for instance—there is no ground for the court to dramatically alter the defaults under the Federal Rules of Civil Procedure.

W Holding Co., at *19-20.

After a lengthy opinion, the Court’s order can be summarized as follows:

FDIC will neither be categorically required to organize and label its productions, nor permitted to produce documents without adequate organization. 

No cost-shifting is justified at this time, though trial runs showing disproportionate costs, or abusive discovery tactics, could warrant reconsideration. 

The requesting party was to propose search terms first—however, since FDIC oversaw the loading of ESI into a database, it was expected to provide active assistance, and should anticipate consulting its technically-skilled staff or contractors as necessary.

Parties are to meet and confer over privilege issues, opposed to going to the Court initially.

W Holding Co., at *21-23.

Bow Tie Thoughts

Judges want to know the relevant details and reasons for any request for relief. Moreover, the Court is coming into the dispute cold. The Judge does not know the benefits of one review application over another, what is required to build search terms or likely the different search technologies that can be used.

There is a significant difference between accessibility under 26(b)(2)(B) vs proportionality under 26(b)(2)(C).  One way to look at the differences is accessibility is the cost of how you get the data; proportionality involves the benefit of the discovery vs cost. The commonality between the two is both require expert testimony to explain the technical issues to the Court, whether it is retrieving data from legacy systems or using a specific search software to review the data.

We are in a new world where attorneys must explain with expert affidavits why certain technology should be used, what costs are being incurred, why a search is (or is not) reasonable and the age old question of “why” a party is asking the Court for relief. A Judge does not want abstract hypotheticals on cost or searches; a Judge wants to know how the ESI in a lawsuit is being searched, what kind of data is being search and how the technology will make the searches more effective. This requires educating the Judge, which means detailed expert affidavits.

eDiscovery Does Not Mean Esoteric Discovery

News Am. Mktg. In-Store Servs., is a breach of contract case involving multiple eDiscovery disputes.  According to the Plaintiff, the Defendant did the following:

Destroyed relevant email evidence, including an email server;

Failed to produce responsive documents in discovery due to the above failure; and

Failed to run appropriate ESI searches on Defendants’ computers.

News Am. Mktg. In-Store Servs. v. Floorgraphics, Inc., 2012 U.S. Dist. LEXIS 76543, at *3 (D.N.J. May 30, 2012).

The Plaintiffs further argued the Defendants needed to produce additional discovery and sanctions were warranted. Additionally, the Plaintiffs sought a neutral computer forensic expert to conduct an evaluation of Defendants’ computer systems. Id.

e-Discovery Mea Culpa

The Defendants countered that no discovery had been destroyed, but admitted that their discovery production was deficient.  News Am. Mktg. In-Store Servs., at *3-4.

The Defendants explained [conceded] that they searched the wrong computers and applied the wrong search terms. News Am. Mktg. In-Store Servs., at *4.

However, the Defendants stated they attempted to correct every deficiency and would continue to do so. Id.

Regarding the “destroyed” email server, the Defendants stated it was a “pass-through” server that had been reformatted.  Id. The Defendants explained the server would push incoming emails through the server to individual computers. Id. According to the Defendants, there was no ESI on this pass-through server. Id.

As part of their mea culpa, the Defendants proclaimed they would make witnesses available to be re-deposed and pay the reasonable attorneys fees for the depositions. Id. Moreover, any motions to compel were premature, because they were producing hundreds of thousands of documents. News Am. Mktg. In-Store Servs., at *5.

The Court’s Findings

The case should be about the merits not some esoteric electronic discovery issue.

Magistrate Judge Mark Falk

The Court’s conclusions on the dispute were direct and to the point:

One, the request to compel discovery is premature. Defendants admit that they used incorrect ESI search terms and did not search all of the appropriate avenues of electronic information. They have represented to the Court that 230,000 documents are in the process of being produced and that the production is being checked and re-checked by Defendants’ computer experts to ensure its accuracy. Thus, there is no basis for an order compelling the production of documents until, at least, Defendants’ production is complete.

Two, it appears that Defendants failed to meet their Federal Rule of Civil Procedure 26(f) ESI obligations at the outset of the case. See Fed. R. Civ. P. 26(f)(3)(C). The briefing discloses that Defendants’ counsel was not aware of the structure of Defendants’ computer systems until recently. It is inappropriate for Defendants to only now—three years after the case was filed and after discovery has closed—investigate their electronic systems.

Three, the Court is unable to determine whether information was contained on Defendants’ “reformatted,” “pass through” server. The parties’ positions on this are diametrically different and consist of unsupported conclusions laced with hyperbole.

Four, it is unclear whether ESI allegedly destroyed (or “passed through” Defendants’ server) may be recovered and, if so, the cost of doing so. This important issue is not adequately addressed in the papers.

Five, it is unclear whether the burden and expense of conducting the electronic discovery outweighs the benefit of doing so. See Fed. R. Civ. P. 26(b)(2)(C)(iii). The Court cannot discern from the papers whether a deep forensic search is justified.

Six, the appointment of a neutral computer expert is not called for at this time. In effect, it would transfer the ESI obligations of the parties to the Court. Stated another way, the issues are not sufficiently articulated for the Court to appoint an expert to embark on an unlimited search.

Seven, there is no basis for the Court to consider spoilation sanctions (or any sanctions) until, at least, Defendants complete their discovery production and the questions raised above are answered.

News Am. Mktg. In-Store Servs., at *5-7, (emphasis added).

The Court allowed the Plaintiff to take the 30(b)(6) deposition of the Defendants’ eDiscovery PMK that would be binding on the Defendant. The parties were directed to meet and confer on the deponent. Additionally, the PMK needed to be able to address whether any ESI could be recovered and the specific cost to do so. News Am. Mktg. In-Store Servs., at *7.

In the event there were still eDiscovery disputes after the deposition, the Court stated:

[T]he parties may simultaneously submit letters (double spaced, not to exceed ten pages) explaining the relevance and importance of the discovery and the benefits and burdens associated with the discovery—e.g., whether the costs and effort of securing the discovery is proportional to the expected result. Any letter from counsel must be accompanied by an affidavit from the party’s ESI expert which addresses the technical aspects of the dispute. The ESI expert’s affidavit must discuss the projected costs of proceeding with as much specificity as possible. General, conclusory statements—e.g., “it will be prohibitively expensive”—are unacceptable.

News Am. Mktg. In-Store Servs., at *7-8.

The Court’s opinion sent a very strong message on the discovery disputes between the parties: The case should be about the merits not some esoteric electronic discovery issue. News Am. Mktg. In-Store Servs., at *8 (emphasis added).

The Court was blunt in advising the parties it was “wary of the use of broad and ambiguous electronic discovery requests as a litigation tactic or as a ‘fishing expedition.’” Id. Moreover, the Court stated it was “troubling” for this level of discovery dispute to surface after 18 months of discovery.  Id. Additionally, the Court effectively sent an ethical message to the parties to “proceed in good faith, take reasonable positions, and attempt to resolve their dispute in accordance with the Guidelines For Litigation Conduct.”  News Am. Mktg. In-Store Servs., at *7-8.

The opinion concludes with the warning the Court “not hesitate to award substantial fees to the non-prevailing party or any party found to be proceeding in bad faith.”  News Am. Mktg. In-Store Servs., at *8-9.

Bow Tie Thoughts

I was impressed with Judge Mark Falk’s outlining of case issues and his order. Additionally, the Defendants attempts to correct their mistakes were very respectable.

This opinion highlights multiple eDiscovery issues that are taking place all over the United States: 1) The Duty of Competency in eDiscovery; 2) Providing the Court adequate information to make rulings; and 3) Do not forget the merits of the lawsuit with electronic discovery issues.

The Duty of Competency and eDiscovery has been slowly developing issue since December 2006. There are many attorneys who outright admit they do not understand preservation, review methodologies or discovery productions. One friend recently told me his firm just asks for paper productions because of the lack of knowledge in what to request.

In the current case, the Court stated, “It is inappropriate for Defendants to only now—three years after the case was filed and after discovery has closed—investigate their electronic systems.”  News Am. Mktg. In-Store Servs., at *5-6. Moreover, the Court it was “troubling” to have this sort of discovery dispute after 18 months of discovery. News Am. Mktg. In-Store Servs., at *8.

How can attorneys best meet their duty of competency in eDiscovery? While every client is different, it is important to have a discovery plan from the inception of the case. This may include in-depth client interviews with the parties, custodians, and IT staff (to name a few), to learn how the client uses technology. How does their email system work? Do they text or iMessage?  What sorts of computers do they use? Any tablets? Voicemail? Any personal devices used for business?

I believe the Duty of Competency requires attorneys to either understand their client’s technology themselves or at a minimum, hire a consultant to help the attorneys navigate the issues. Without such investigation, it is difficult to meet one’s ethical duty of candor to the court on the facts of the lawsuit and provide competent representation of their clients.

As to the second issue, lawyers cannot simply walk into court and tell a judge, “Your Honor, it’s expensive.”  The first questions from the Court will be “why and how much.” The answer cannot simply be “Because it is.”

Attorneys need to argue ESI is not reasonably accessible because of undue burden or cost (Fed. R. Civ. P. 26(b)(2)(B)) or that the burden and expense of conducting the electronic discovery outweighs the benefit of doing so (Fed. R. Civ. P. 26(b)(2)(C)(iii)), with specific information, most likely from an eDiscovery expert or IT professional.

The unofficial standard for demonstrating undue burden or expense might be from Judge Facciola’s United States ex rel. McBride v. Halliburton Co., 2011 U.S. Dist. LEXIS 6412, 1-2 (D.D.C. Jan. 24, 2011) opinion: “In excruciating, but highly educational and useful, detail.”

Judges want to have enough information that they can make the right decision. While there will be attorneys simply proclaiming searching a hard drive is expensive, the better litigation practice is to have a well documented affidavit outlining the process and cost to search for specific ESI.

Finally, Judge Falk’s statement The case should be about the merits not some esoteric electronic discovery issue,” should go on t-shirts at e-Discovery conferences. It is easy to become enamored with search technology, collection methodologies and every other eDiscovery issue. However, every eDiscovery issue should be framed around the facts of the lawsuit, the causes of action and be relevant to competently move the case forward. The technology exists to enable lawyers to practice law, not to overshadow the merits of the case.

Failing to Show Undue Burden in Cost Shifting for Native File Production

In Sundown Energy, L.P. v. Haller, the Defendant (Requesting Party) brought a motion to compel the Producing Party to produce electronically stored information in native file format.  The Defendant had specified “native format” as the form of production in their request for production.  Sundown Energy, L.P. v. Haller, 2011 U.S. Dist. LEXIS 124145, at *9-10 (E.D. La. Oct. 26, 2011).

The Court granted the motion to compel.  The Producing Party requested the Defendants bear the production costs.  Sundown Energy, L.P. at *9.

The Court cited the following from Zubulake:

[W]hether production of documents is unduly burdensome or expensive turns primarily on whether it is kept in an accessible or inaccessible format (a distinction that corresponds closely to the expense of production)…Whether electronic data is accessible or inaccessible turns largely on the media on which it is stored.

Sundown Energy, L.P. at *9-10, citing Zubulake v. UBS Warburg, L.L.C., 217 F.R.D. 309, 318 (S.D.N.Y. 2003).

The Court quickly held the Producing Party failed to show the ESI was inaccessible, because their sole undue burden argument was the production would be “costly.”  Sundown Energy, L.P. at *10.  The Court stated there was no evidence of how the ESI was stored or how it was not reasonably accessible.  As such, the request for cost shifting was denied.  Id.

Bow Tie Thoughts

I have met attorneys who categorically state that e-Discovery is “expensive” and thus unduly burdensome.  This belief is often not substantiated with details of how a client’s data is maintained, types of files at issue, strategies for collection, how the data would be processed into a reasonably useable form, expected time for reviewing electronically stored information and costs for each step in production.  These are just a few of the possible elements to show undue burden and by no means a complete list.

Demonstrating ESI is not reasonably accessible requires at a minimum affidavits explaining the undue burden and the cost to translate not reasonably accessible ESI into a reasonably useable form.  A Court needs specific facts to make an undue burden determination, beyond a lawyer simply saying e-Discovery is “expensive.”

When a Party Requests Native Files….

A Defendant/Producing Party resisted production of email in native file after making general objections to the production format.  Linnebur v. United Tel. Ass’n, 2011 U.S. Dist. LEXIS 124473, 20-21 (D. Kan. Oct. 27, 2011).

The Producing Party claimed that producing the email messages printed as paper was “sufficient” for the requesting party to determine the date, time, author and recipient of the native files converted to paper.  Linnebur, at *20.  Moreover, the Defendant argued the production of email as native files was not “facially relevant and that plaintiff has not met its burden to establish relevance.” Id.

The Court recounted its ruling in a prior decision, highlighting that a requesting party can specify the form of production pursuant to Federal Rule of Civil Procedure Rule 34(b)(1)(C).  Linnebur, at *20, fn 39.

A party resisting a production in native format in an opposition to a motion to compel has the burden to show the “information is not reasonably accessible because of undue burden or cost.” Linnebur, at *21, fn 40, citing Federal Rule of Civil Procedure Rule 26(b)(2)(B).

The Court stated the Defendant had failed to show, or argue, that the email messages were not reasonably accessible because of undue burden or cost.  Linnebur, at *21. As such, the Defendant’s objections were overruled and the motion to compel the ESI in native file format was granted.  Id.

Bow Tie Thoughts

The form of production and undue burden are two topics many lawyers continue to struggle with in responding to discovery requests.

At a recent seminar I attended, one lawyer explained that if a producing party claimed ESI was not reasonably accessible, the burden then shifted to the requesting party to show good cause for the production of ESI.

The giant problem with that viewpoint is a producing party must demonstrate under Federal Rule of Civil Procedure Rule 26(b)(2)(B) why the ESI is not reasonably accessible because of undue burden or cost.  A lawyer simply proclaiming the collection or production of native files is “unduly burdensome” does not comply with Federal Rule of Civil Procedure Rule 26(b)(2)(B).

What does “undue burden” look like?  In the collection context, a party could show by affidavit or testimony from an IT or collection expert the different sources of ESI (desktop computers, SmartPhones, etc); the location of ESI; the methodology to collect the ESI; the processing of the data; and the costs associated with all of the above work to demonstrate undue burden.

Judge’s Facciola’s opinion United States ex rel. McBride v. Halliburton Co., 2011 U.S. Dist. LEXIS 6412, 1-2 (D.D.C. Jan. 24, 2011) illustrates the above very effectively, especially his description of the testimony outlining the collecting methodology: “In excruciating, but highly educational and useful, detail.”  That statement should set the framework for showing undue burden.

As for the form of production, a party may need to redact confidential information, such as Social Security Numbers or HIPPA information.  A producing party should explain these issues in an objection pursuant to Federal Rule of Civil Procedure Rule 34(b)(2)(D), which necessitates the reason to convert native files to a static image for redaction purposes.

Digital Detectives Podcast on the Legal Talk Network

I had the privilege of doing a podcast with the “Digital Detectives”  Sharon D. Nelson, Esq., President of Sensei Enterprises, Inc. and John W. Simek, Vice President of Sensei Enterprises.

Our discussion included the form of production,  litigation holds after the Pension Committee case, how small firms are surviving their entry into e-discovery, preservation of ESI and how to prove that an e-discovery request will cause an “undue burden.”

To listen to the podcast, please click here.

Bringing Reasonableness to Undue Burden

Hock Food, Inc. v. William Blair & Co., is a dispute over the calculation of the “success” fees paid to the Defendant in assisting the Plaintiff with the sale of their business interests.  Hock Foods, Inc. v. William Blair & Co., L.L.C., 2011 U.S. Dist. LEXIS 24874 (D. Kan. Mar. 11, 2011).

The bulk of the discovery disputes centered on an interrogatory to identity client disputes over a 10-year period and a corresponding discovery request to produce engagement letters identified in the interrogatory.  Hock Foods, Inc. at *6.

The Plaintiff also sought an order to compel the Defendant to modify its search parameters related to how fees were calculated.  Hock Foods, Inc. at *6.

Calculating Undue Burden

The Defendant opposed the discovery requests on undue burden grounds.  Hock Foods, Inc. at *23-25.

The Defendant claimed they had between 1,000 to 1,500 clients they would need to investigate to determine whether there had been any disputes with any of them.   Hock Foods, Inc. at *23.  Interviews were estimated in the hundreds of hours with the key players.  Id.

The Defendant’s ESI was also 12 terabytes of data.  As the Court explained:

This District has conceptualized one gigabyte as the equivalent of a “truck load” of documents. [citations omitted]

It is impossible to even begin to calculate the time and expense associated with searching 12,000 truck loads of electronic documents alone. The search Plaintiff demands would be the discovery equivalent of searching for a needle in a haystack—an irrelevant needle.

Hock Foods, Inc. at *23.

Reasonableness and Undue Burden

The Court found the discovery requests to be unduly burdensome, but that was not the end of the analysis. Hock Foods, Inc. at *25-29.

The Court explained that the Defendant still needed to do a “reasonable search for responsive information” to the extent the discovery request was not objectionable.  Hock Foods, Inc. at *28-29.

The Court admitted it could not explain how a less burdensome search could be conducted, due to not knowing the Defendant’s records information system, but noted that the Defendant could ask its general counsel if it had a list of clients with disputes.  Hock Foods, Inc. at *29.  This was an area the Court encouraged the parties to meet and confer over.  Hock Foods, Inc. at *30.

The Court further examined the proposed cost to review the 12 Terabytes of data.  The Defendant claimed it would cost between $100 to $300 a gigabyte to run search terms over the data.  Hock Foods, Inc. at *32.  Searching all 12 Terabytes would cost $1.2 million to $3.6 million, not including document review.  Id. As such, the Court found searching all 12 Terabytes to be unduly burdensome.  Id.

However, that did not let the Defendant off the hook to conduct a reasonable search for responsive ESI.  Hock Foods, Inc. at *32.

The Court conceded that it did not have enough information to give the parties specific guidance, but suggested the following:

Part of any such reasonable search might include a more limited search of Defendant’s ESI. For example, it might be appropriate to search Mr. Simon’s emails or other key executives who were likely to have been involved in any disputes or disagreements. Additionally, if Defendant’s search of its hard copy documents reveals only a handful of clients with whom it had a disagreement, it might be reasonable to search the emails of the individuals who were involved in those disputes.

Hock Foods, Inc. at *32-33.

Bow Tie Thoughts

There is a fine line between undue burden and not conducting any inquiry to respond to a discovery request.  Case law has its share of examples of parties claiming e-Discovery is expensive, thus “unduly burdensome” and therefore the responding party need go no further in searching and reviewing ESI.

Hock Foods, Inc. follows a different path: the Defendant demonstrated searching 12 Terabytes would be unduly burdensome and the Court agreed, but that did not allow them to not conduct any reasonable search for responsive electronically stored information.