Commercial Litigation and Arbitration

In New York State Court, Requesting Party Presumptively Must Bear the Cost of Electronic Discovery, Like All Other

From T.A. Ahern Contr. Corp. v. Dormitory Auth. of State of N.Y., 24 Misc. 3d 416, 875 N.Y.S.2d 862 (Sup. Ct. N.Y. County Mar. 19, 2009):

Turning now to the issue of electronic discovery, New York courts have held that raw computer data or electronic documents are discoverable (see Lipco Elec. Corp. v. ASG Consulting Corp., 4 Misc. 3d 1019[A], 798 N.Y.S.2d 345, 2004 NY Slip Op 50967[U], *7 [Sup. Ct. Nassau Cty. 2004] (citations omitted)). At issue in Ahern's motion to compel is not whether the sought-after electronic data is discoverable (DASNY concedes that Ahern is entitled to project-related e-mails and other electronic data), but rather which party should bear the cost of retrieving and producing it.

The court agrees with DASNY's contention that the hiring of an electronic vendor to cull e-mails and other documents responsive to Ahern's demands should be considered a component of the production process.... DASNY should not be compelled to turn over potentially confidential and/or privileged material, even if pursuant to a confidentiality stipulation (see id. at *8) ("The party from who electronic discovery is sought should be required to produce material stored on a computer so long as the party being asked to produce the material is protected from undue burden and expense and privileged material is protected.") (citation omitted). In finding the hiring of a vendor to be a necessary component of the production process, it is significant, in this court's view, that Ahern does not allege that DASNY has maintained its electronic data in a negligent or otherwise improper fashion which has added in any way to the expense of retrieving the responsive data.

Ahern argues that the costs of hiring an electronic discovery vendor to cull the electronic data which is responsive to its discovery demands should be subject to the cost shifting model utilized by the United States District Court for the Southern District of New York in Zubulake v. UBS Warburg LLC (217 F.R.D. 309 [S.D.N.Y. 2003]). While it is true that New York courts have received guidance from the federal courts on the issue of electronic discovery (see Delta Fin. Corp. v. Morrison, 13 Misc. 3d 604, 819 N.Y.S.2d 908, 2006 NY Slip Op 26332, *3 [Sup. Ct. Nassau Cty. 2006]) (citing cases), the courts have noted that a clear distinction exists between the CPLR and the Federal Rules of Civil Procedure with respect to the cost of producing disclosure (see Lipco at *8) (holding that, while the cost shifting model exists in federal court since the Federal Rules "start[] with the presumption that... the party responding to the discovery demand bears the cost of complying with discovery demands... cost shifting of electronic discovery is not an issue in New York since the courts have held that, under the CPLR, the party seeking discovery should incur the costs incurred in the production of discovery material.") (citing cases); (see also Etzion v. Etzion, 7 Misc. 3d 940, 796 N.Y.S.2d 844, 2005 NY Slip Op 25115, *3 [Sup. Ct. Nassau Cty. 2005], In re Maura, 17 Misc. 3d 237, 842 N.Y.S.2d 851, 2007 NY Slip Op 27316, *8 [Surr. Ct. Nassau Cty. 2007]).

As noted by Justice Austin in Lipco, the court-ordered sharing or shifting of the costs of producing electronic discovery in the federal system is based upon the fact that, in federal court, "the presumption is that the responding party must bear the expense of complying with discovery requests..." (Zubulake at 317) (quoting Oppenheimer Inc., v. Sanders, 437 U.S. 340, 358, 98 S. Ct. 2380, 57 L. Ed. 2d 253 [1978]). This presumption notwithstanding, Rule 26(c) of the FRCP provides federal courts with discretion to grant orders protecting responding parties from "undue burden or expense... including orders conditioning discovery on the requesting party's payment of the costs of discovery" (Zubulake at 316) (quoting Oppenheimer Fund at 358). Applying these principles to the evolving issue of electronic discovery, the Zubulake court held that cost shifting "should be considered only when electronic discovery imposes an undue burden or expense' on the responding party," and that the burden or expense is undue when it "outweighs its likely benefit, taking into account the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the litigation, and the importance of the proposed discovery in resolving the issues" (id. at 318) (quoting Fed. R. Civ. P. 26).

Justice Austin rightly found that, given the New York rule that cost of producing discovery falls upon the party seeking discovery rather than the responding party, the concerns prompting allocation of production costs in federal court are not implicated in state court. Unlike a party seeking electronic discovery in federal court, a state court litigant has a strong incentive to formulate its discovery requests in a manner as minimally burdensome as possible, since the litigant will bear the costs of production. In other words, without cost shifting or sharing in federal court, the potential would exist for litigants to formulate overly broad discovery requests which have the effect - whether intended or otherwise - of placing unnecessary and oppressive (even prohibitive) costs upon an opponent (see Zubulake at 317-18).

Although one Supreme Court decision entertained the possibility of cost shifting at a later juncture (see Delta at *5), and the court is mindful of the fact that electronic discovery is a new and presently-evolving body of law unanticipated at the time the CPLR was drafted (see Lipco at *6), it is the opinion of this court that it is not empowered - by statute or by case law - to overturn the well-settled rule in New York State that the party seeking discovery bear the cost incurred in its production (see Waltzer v. Tradescape & Co., L.L.C., 31 AD3d 302, 304, 819 N.Y.S.2d 38 [1st Dept 2006]). Accordingly, the court will not order the production of project-related e-mails and/or electronic documents in the Outlook mailboxes of the 27 DASNY employees until such time as Ahern communicates that it is willing to bear the costs incurred for their production (see Lipco at *9), subject to any possible reallocation of costs at trial (see Etzion at *3).

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