U.S. Bank Nat. Ass’n, et al. v. GreenPoint Mortgage Funding, Inc., 94 A.D.3d 58 (1st Dept. 2012)
On February 28, 2012, Justice Acosta of the First Department, Appellate Division, adopted the federal Zubulake standard to determine which party is responsible for the cost of searching for, retrieving, and producing electronically stored information (ESI).
In U.S. Bank Nat. Ass’n v. GreenPoint Mortgage Funding, Inc., plaintiffs brought an action against a loan originator for what it alleged was “gross violations” of the representations and warranties regarding “no-doc” loans, and the policies and practices under which those loans were originated, underwritten, and serviced.
In response to plaintiffs’ first request for documents, defendant did not produce documents, but rather, moved to stay discovery and requested a protective order conditioning the production of discovery on compliance with its proposed discovery protocol. The protocol provided, among other things, that each party would bear the costs of its own discovery requests. The plaintiffs opposed, and the trial court agreed with the plaintiffs. In doing so, however, the trial court stated that “the well-settled rule in New York State” was that the “party seeking discovery bears the costs incurred in its production” and stated that it would not deviate from this rule in the instant action.
On Appeal, the First Department disagreed with the lower court’s conclusion that the requesting party bears the cost of discovery that is responsive to its document requests. Rather, the court held that the federal standard set forth in the seminal case, Zubulake, presents the “most practical framework for allocating all costs in discovery, including document production and searching for, retrieving and producing ESI.” Under Zubulake, the “producing party [is] to bear the initial cost of searching for, retrieving and producing discovery, but permits the shifting of costs between the parties.” The court noted that the Zubulake standard aligns with at least two recent New York State decisions, MBIA Ins. Corp. v Countrywide Home Loans, Inc., 27 Misc. 3d 1061, 1075-1076 (N.Y. Sup. Ct. 2010) and Silverman v Shaoul, 30 Misc. 3d 491, 496 (N.Y. Sup. Ct. 2010), where the courts ruled that when the cost of discovery production is significant, the cost of discovery, including searching for, retrieving and producing ESI, at least initially, should be on the producing party.
Moreover, the court held that when determining whether costs should be shifted, New York courts, in exercising its broad discretion under Article 31 of the CPLR, may follow the seven factors set forth in Zubulake:
“(1) [t]he extent to which the request is specifically tailored to discover relevant information; (2) [t]he availability of such information from other sources; (3) [t]he total cost of production, compared to the amount in controversy; (4) [t]he total cost of production, compared to the resources available to each party; (5) [t]he relative ability of each party to control costs and its incentive to do so; (6) [t]he importance of the issues at stake in the litigation; and, (7) [t]he relative benefits to the parties of obtaining the information.”
Nevertheless, in adopting the seven-factor test, the court noted that lower courts should not follow the factors as a checklist, but rather “use them as a guide to the exercise of their discretion in determining whether or not the request constitutes an undue burden or expense on the responding party.”
If you or your company has any questions or concerns regarding the allocation of e-discovery costs, or any other e-discovery related issue, contact at Bruce Miller via email at firstname.lastname@example.org.
A special thanks to Sean R. Gajewski, an associate at Cullen and Dykman LLP, for help with this post.