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Volume, Expense Insufficient to Show ESI is Inaccessible, “Rather, the cost or burden must be associated with some technological feature that inhibits accessibility.”

Posted in CASE SUMMARIES

W Holding Co., Inc. v. Chartis Ins. Co. of Puerto Rico, No. CIV. 11-2271 GAG, 2013 WL 1352426 (D.P.R. Apr. 3, 2013)

In this case the court addressed competing proposed protocols for the discovery of electronically stored information and declined to approve a provision that would require cost-shifting, among others.  Notably, the court rejected the argument that the at-issue ESI was inaccessible (thus justifying cost-shifting) because the responding party did not show “that access to [the data] is hindered by any unique technological hurdles.”

“This action involves numerous claims among the FDIC as receiver of Westernbank (“FDIC-R”), former directors and officers of Westernbank (collectively, “D&Os”), various insurers, and the FDIC in its corporate capacity (“FDIC-C”).”  Prior to the initial scheduling conference, FDIC-R and “certain D&Os” filed competing proposed protocols for the discovery of Westernbank’s ESI, which at the time the FDIC stepped in as receiver equaled approximately 6.8 terabytes plus 921,000 paper documents, a subset of which had been scanned and processed to be text searchable.  “Most” of the ESI had also been loaded into an internal database (DMS) operated through a contractor.  “By this point” the FDIC had spent $2.1 million although, because “the contracts and subcontracts for DMS are not litigation specific,” more detailed cost estimates were “impractical.”  As part of its protocol, FDIC-R proposed using a second contractor-maintained system to give opponents “searchable access to selected data” and asserted that it would have to pay $450 per gigabyte to transfer the data from the current database and estimated its costs for production would include “$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.”

FDIC-R’s proposed protocol sought to recover six cents per page “for all ESI production beyond its initial disclosures.”  Among other reasons allegedly justifying such cost-shifting, FDIC-R argued that the ESI was not reasonably accessible.  The court disagreed.  First, the court cited the recent case of Chen-Oster v. Goldman Sachs & Co., 285 F.R.D. 294 (S.D.N.Y. 2012), for the proposition that inaccessibility must be tied to “some technological feature that inhibits accessibility:”

Rule 26(b)(2)(B) takes a categorical approach: it invites the classification of [ESI] as either “accessible” or “not reasonably accessible.”  While cost and burden are critical elements in determining accessibility, a showing of undue burden is not sufficient by itself to trigger a finding of inaccessibility.  For example, the sheer volume of data may make its production expensive, but that alone does not bring it within the scope of Rule 26(b)(2)(B).  Rather, the cost or burden must be associated with some technological feature that inhibits accessibility.

The court went on to reason that no such technological issue had been identified and that, in fact, FDIC-R had indicated that the relevant ESI was already uploaded into a “retrieval system (DMS) that is both searchable and organized into meaningful databases.”

The court rejected FDIC-R’s argument that another decision from the District of Puerto Rico had “recognized that high production costs are sufficient to render ESI ‘not reasonably accessible’ under the rule.”  Instead, the court reasoned that although the court in Rodriguez-Torres v. Gov’t Dev. Bank of P.R., 265 F.R.D. 40 (D.P.R. 2010) recognized that “an estimated $35,000 cost of production, exclusive of privilege review costs, was excessive” in a case alleging age and sex discrimination and cited Rule 26(b)(2)(B), “its rationale did not address accessibility so much as proportionality, which is not relevant to Rule 26(b)(2)(B)’s purpose and function.”  The court concluded:

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.”

Turning to application of the seven cost-shifting factors established in Zubulake III (216 F.R.D. 280), which FDIC-R argued would also justify cost-shifting, the court (prompted by the D&Os) noted that “the [Zubulake] court tailored these factors to allocate the cost of retrieving data that is not readily accessible,” and “[i]n light of the accessibility analysis discussed above,” was “persuaded that the Zubulake analysis does not apply per se.”  Thus, the court indicated its intention to focus on the proportionality considerations under Rule 26(b)(2)(C), but, citing an absence of evidence to justify the request, ultimately declined to shift costs:  “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.”

The court also rejected FDIC-R’s argument that cost-shifting was appropriate “because (1) producing parties are not ordinarily burdened with the cost of making copies, and (2) ESI production costs are sometimes taxed under 28 U.S.C. § 1920 by analogy to its provision for copying costs.”

Also in this opinion, the court declined to require FDIC-R to organize and label its production according to each request and declined FDIC-R’s request for an order requiring “defendants’ written discovery requests to be consolidated in light of the number of people it ha[d] sued.”

A copy of the court’s opinion is available here.

A copy of the Order Governing Discovery of Electronically Stored Information from FDIC-R is available here.