North Carolina Court Orders Production of Email from Backup Tapes; Parties to Share Restoration Costs Equally

Analog Devices, Inc. v. Michalski, 2006 WL 3287382 (N.C. Super. Nov. 1, 2006) (Unpublished)

In this misappropriation of trade secrets case, defendants moved to compel the production of emails of the originators of the trade secrets at issue relating to the development of those trade secrets and products initially implementing them. At the hearing on the motion, the court ordered Analog to determine the search capability of the databases containing the emails requested and to conduct a word search, if possible, using agreed-upon terms, of emails sent by specific inventors over a two-year period surrounding the release dates of products implementing the alleged trade secrets. Counsel for Analog subsequently reported that it would produce emails still existing on the hard drives of the personal computers used by the trade secret originators. As to emails no longer existing on personal computers but stored on its backup server, Analog argued that production would be expensive and time consuming and therefore unduly burdensome.

It explained that backup tapes still existed for all years in the relevant time period except for some that were unrestorable and had been recycled. Analog estimated the cost of restoration to be about $135 for each of the approximately 800 backup tapes—a total cost of at least $108,000. Further, Analog noted that it was “likely that at least some, and probably many, of the backup tapes will require advanced data recovery to render them partially, if at all, recoverable and/or searchable” resulting in a “very substantial additional expense.” Once the backup tapes were restored, producing responsive emails would require that a program be drafted to search the restored data. That would take, according to Analog, at least five full work days for an information technology specialist to accomplish. Conducting the search itself would also amount to a significant burden of time and expense.

Defendants responded by detailing the significant costs associated with their own production of discovery thus far in the case, including $63,630.00 in staff expense, over 69 bankers boxes of material at a copying cost of $20,650.64, and 6,200 emails of various employees and/or engineers.

The parties reached a compromise that reduced the number of backup tapes to be restored from 800 to 400, and after a hearing, the court entered a preliminary order requiring Analog to search all readily accessible emails present on the originators’ personal computers using the list of search terms supplied by defendants and to produce responsive emails within fifteen days. The court further ordered that the parties hire an independent service to restore emails contained on backup tapes over a four-year period, with the parties bearing the costs of the restoration equally. Once each tape was restored, Analog was charged with conducting the search for the emails sought, at its expense, using search terms supplied by defendants, within ten days of the tape’s restoration. The court reserved the right to shift the cost of restoration at a later date, and stated it would enter a more detailed order at a later date. The November 1, 2006 opinion is the court’s “more detailed order.”

The November 1, 2006 opinion surveys the various approaches used by courts to evaluate requests for production of inaccessible data, including: the Federal Rules of Civil Procedure, the marginal utility test set out in McPeek, the multi-factor tests set out in Zubulake and Rowe Entertainment, the ABA Civil Discovery Standards, the Sedona Principles, the Conference of Chief Justices’ Guidelines for State Courts Regarding Discovery of Electronically-Stored Information. It concludes that “North Carolina courts will look to the North Carolina Rules of Civil Procedure for guidance in deciding e-discovery issues and amend those rules as necessary,” and that in applying the rules, “the courts will most likely use the Guidelines created by the Conference of Chief Justices. It continues:

The language of Rule 26 thus provides a broad framework in which to apply the concepts described by the above authorities. The overriding concern for judges applying those concepts should be whether or not they are making an outcome-determinative decision. An outcome-determinative situation can arise in at least two different contexts. If the party seeking production would be denied access to information which could have a material effect on a substantive issue in the case and where the cost of obtaining the information would be an insurmountable barrier to the requesting party, the denial of discovery or the allocation of costs to the requesting party could affect the final outcome. Discovery containment should not force such a result. If, on the other hand, the costs to the responding party of producing the information would be unreasonably related to the matter at issue or the amount in controversy, the responding party might be forced to settle without regard to the merits of its claims or defenses.

The court then considered how the following factors impacted the decision in this case to allow discovery of and allocate costs for the production of inaccessible electronic information: (1) the burden and expense of production; (2) the needs of the case; (3) the amount in controversy; (4) any limitations on the parties’ resources; and (5) the importance of the issues at stake. It concluded:

Aside from the memories of the alleged originators, the e-mails may be the best or only source of information contemporaneously generated when the alleged trade secrets were developed. Lack of access to that information thus has the potential to be outcome-determinative. What is sought has a direct bearing on the key issues in this case. It is not otherwise available. It may even prove helpful to Plaintiff.

The uncertainty of the cost combined with the potential probative value of the discovery is too great to deny Defendants’ motion. On the other hand, the potential cost of production combined with the great uncertainty as to the contents of the requested documents is too great to require Plaintiff to bear the full burden of production on its own. Neither party’s ability to pursue its litigation goals will be impacted by cost-sharing. The Court can retain the ability to assess the costs fully to one side or the other at the end of the case.

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For this reason, the Court granted Defendants’ motion to compel, as to originators’ e-mails contained on backup tapes, in its Preliminary Order of February 28, 2006, and determined that the costs of restoration and recovery should be borne by both parties equally. The order also stated that Plaintiff was responsible for searching the resulting data at its own expense using search terms supplied by Defendants.

Such an outcome serves to advance the long established goal of promoting liberal discovery practices, while ensuring that the burden of discovery does not in any way prove to be outcome determinative. The Court reserves the right to consider the costs of production in assessing final costs once the relative costs and benefits of discovery are more clearly known. Since both sides are able to bear their share of the costs at this stage, an assessment of the final costs based on the outcome will be more just.

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