To date, courts within New York have not been in agreement as to who bears the costs of producing electronically stored information (“ESI”). New York, however, may soon adopt the test federal courts have used for over a decade to determine whether a party requesting ESI should bear the costs of producing it.
Federal Cost Shifting Test
In Zubulake v. UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2003) (“Zubulake I”), the first of many seminal federal court decisions on electronic discovery, Southern District of New York Judge Shira A. Scheindlin set forth a test to determine whether cost shifting between parties is appropriate, particularly as it relates to ESI. Id. at 322 (applying the test and holding that the producing party had to pay its own production expenses).
The general rule is that the producing party pays the costs of producing responsive data. Id. at 324. In Zubulake I, however, the court held that the requesting party may bear these costs when ESI discovery imposes an “undue burden or expense” on the producing party. Id. at 318. Yet, undue burden or expense will not be assumed just because a party requests ESI; rather, the inquiry turns upon whether the requested ESI is accessible or inaccessible. Id. at 318-19. Accessible ESI includes active/online data and offline storage/archives, such as removable optical disks or magnetic tape media. Inaccessible ESI includes backup tapes and erased, fragmented or damaged data. Id. The court also held that courts should consider cost shifting “only when electronic data is relatively inaccessible, such as in backup tapes.” Id. at 324.
Next, courts should determine what data may be found, and take a “sensible approach” to production, such as “restor[ing] and produc[ing] responsive documents from a small sample of the requested backup tapes.” Id. (emphasis in original).
Finally, seven factors must be considered, “weighted more-or-less in the following order:”
The extent to which the request is specifically tailored to discover relevant information;
The availability of information from other sources;
The cost of production, compared to the amount in controversy;
The cost of production, compared to the resources available to each party;
The relative ability of each party to control costs and its incentive to do so;
The importance of the issues at stake in the litigation; and
The relative benefits to the parties of obtaining the information. Id. at 322-24 (noting that the first two factors are the “most important”).
New York State Courts Are Divided
New York State Courts have not agreed as to who bears the cost of producing documents (much less ESI), or when, if at all, such costs may be shifted to the party requesting the information. There may be, however, a change in the tide. Although the New York Court of Appeals has not addressed the issue, for the first time since the 2003 Zubulake I decision, a New York Appellate Division has adopted the federal cost shifting test. U.S. Bank N.A. v. GreenPoint Mortg. Funding, Inc., 94 A.D.3d 58, 64-65 (1st Dep’t 2012) (adopting the Zubulake I standard but dismissing defendant’s motion for cost shifting as premature). In U.S. Bank, the First Department held that “the adoption of the Zubulake standard is consistent with the longstanding rule in New York that the expenses incurred in connection with disclosure are to be paid by the respective producing parties and said expenses may be taxed as disbursements by the prevailing litigant.” U.S. Bank N. A., 94 A.D.3d at 65.
Two courts within the First Department have cited U.S. Bank in addressing cost shifting, although neither specifically applied the test. Aldrich v. N. Leasing Sys., Inc., No.302803-07, 2012 N.Y. Slip Op. 32193(U) (Sup. Ct. N.Y. Cnty. Aug. 20, 2012) (granting protective order in defendants’ favor with respect to producing emails because “a comparison of the cost of production with the amount in controversy does not warrant imposing this expense upon defendants at this time”); Estate of Tilimbo v. Posimato, 36 Misc. 3d 1232(A), 2012 N.Y. Slip Op. 51579(U) (Sur. Ct. Bronx Cnty. Aug. 22, 2012) (noting that New York law is still developing on the issue of cost shifting between parties, but recognizing that, as to nonparties, the requesting party is to defray the non-party’s reasonable production expenses).
Although the Second Department has not adopted the Zubulake I test, courts within the department have—contrary to the general rule—held that the requesting (not producing) party should pay for e-discovery related costs. Etzion v. Etzion, 7 Misc. 3d 940 (Sup. Ct. Nassau Cnty. 2005) (in response to plaintiff ’s request that defendant pay for plaintiff ’s computer expert, the court held that “the party seeking discovery should incur the costs in the production of discovery material”); Lipco Elec. Corp. v. ASG Consulting Corp., 4 Misc. 3d 1019(A), 2004 N.Y. Slip Op. 50967(U) (Sup. Ct. Nassau Cnty. Aug. 18, 2004) (same) (note, U.S. Bank disagreed with this decision).
The Third and Fourth Departments have not addressed the Zubulake I test as it concerns ESI, but courts within those departments have followed the general rule that the producing party bears the cost of production. E.g., Gehen v. Consol. Rail Corp., 289 A.D.2d 1026 (4th Dep’t 2001) (not addressing ESI, but holding that “[a]ny expenses incurred by a party in connection with discovery should be paid by the party incurring the expenses and may be taxed as disbursements by the party who ultimately prevails”).
Until New York law is settled, venue provisions may be important in cases involving the costly production of ESI. Parties with a significant amount of relevant ESI to produce, may prefer federal court, with better chances of cost shifting to the requesting party.