The Cost of ESI

By Perry L. Segal

Remember the old adage "An ounce of prevention is worth a pound of cure"? In the e-discovery universe, you'll need several pounds. The California Electronic Discovery Act has been in place for about three months, and I've been fielding a lot of inquiries. The number one question is: "How much is all this going to cost?"

Answer: How much do you have?

What's the worst-case scenario? How about being forced to hire 50 contract attorneys and spend $6 million?more than 9 percent of your total annual budget?to comply with an e-discovery subpoena? That's exactly what the D.C. Circuit upheld against the Office of Federal Housing Enterprise Oversight (OFHEO). And if that doesn't make you quake in your boots, this might: The OFHEO wasn't even a party to the litigation (In Re Fannie Mae Sec. Litig., 552 F.3d 814 (D.C. Cir. 2009)).

So how did this happen? Apparently, an attorney made an agreement to produce electronically stored information (ESI) without understanding the burden that production would entail. Once the full ramifications became clear, the court wouldn't let the OFHEO out of its agreement to produce.

Courts have shown little patience with?or sympathy for?attorneys who make mistakes. The bottom line: Nothing can substitute for experience.

Last month I touched briefly on the Zubulake cases. In 2003 and 2004 a series of decisions known as Zubulake IV (see Zubulake v. UBS Warburg, 229 F.R.D. 422, 425 & n. 5) established a seven-factor test?known as the Zubulake Duty?under the Federal Rules of Civil Procedure for deciding who should bear the cost of producing ESI. The test considers whether the ESI request is (1) specifically tailored, (2) available from single or multiple sources, (3) proportional to the amount in controversy, (4) proportional to the parties' resources, (5) within the parties' ability to control costs, (6) sufficiently relevant to the litigation, and (7) of relative benefit to the parties.

In the meantime, the California court of appeal weighed in on cost-shifting when it decided Toshiba Am. Elec. Components, Inc. v. Superior Court (124 Cal. App. 4th 762 (2004)). In that case the court allocated the burden to the demanding party rather than the responding party, provided the expenses are "reasonable." Unfortunately, the ruling gave very little guidance as to what is or isn't reasonable, meaning courts will exercise wide discretion in future cases.

Given the uncertainty over how to reconcile these competing views in California, the big question is this: Will parties be swamped with overly burdensome demands for ESI production that prove to be cost-prohibitive, creating the need to file protective orders in virtually every case?

My advice is to err on the side of caution and be judicious with your ESI requests, at least for the near term. E-discovery is going to be like the Wild West until we get a few decisions under our belts and see where the judiciary takes us. The good news is we're not completely in the dark.

The Toshiba case in particular will act as a brake because it encourages parties to think twice about the data they request. Ever since the California rules were first proposed, there was?and still is?an ongoing debate over whether they are inferior to the federal rules and thus will result in some very unbalanced cost results. The Fannie Mae case reminds us that it's not necessarily a question of superior legal argument. On any given day laws exist at the mercy of the judges who interpret them. And though laws may be created in a political vacuum, they're not applied in one.

More than two centuries ago Chief Justice John Marshall wrote these words: "It is emphatically the province and duty of the judicial department to say what the law is. Those who apply the rule to particular cases must of necessity expound and interpret that rule. If two laws conflict with each other, the courts must decide on the operation of each." (Marbury v. Madison, 5 U.S. 137, 177 (1803).) Very little has changed since then.

Of course, the parties involved will argue for the relevance of their ESI requests. So my advice is to concentrate on the judge. Most judges I've spoken with are not embarrassed to admit their lack of technical knowledge, but they still want to get it right! So attorneys who can best articulate why their ESI request imposes reasonable burdens?or why their adversaries' request does not?will likely prevail.

There has never been a better opportunity or need for good lawyering. If you do proper research, stake out your position, and then do what a lawyer does best?persuade?you have a unique opportunity to influence what e-discovery law will ultimately look like in the state of California.

Perry L. Segal is an IT executive turned e-discovery attorney and consultant.

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