The More At Stake, the More You Must Pay To Produce Electronic Discovery For Plaintiff

In Juster Acquisition Co., LLC v. North Hudson Sewerage Authority, 2013 U.S. Dist. Lexis 18372 (Feb. 11, 2013), U.S. Magistrate Judge Hammer found that in applying the Zubulake factors for fee shifting in electronic discovery disputes, the importance of the issues at stake in the litigation and the relative benefits to the parties obtaining the information are not dispositive, but that the costs of discovery as compared to the amount in controversy and the cumulative and duplicative nature of the discovery may tip the scales in the fee shifting analysis.  This leads to the rather curious conclusion that the greater a defendant’s alleged exposure, the less likely a plaintiff will be responsible for the costs of discovery.

Juster, a limited liability company of New York, invests in complicated financing transactions. North Hudson Sewerage Authority (NHSA) is a political subdivision formed under the Sewerage Authorities Law of NJ.  The parties began a business relationship when NHSA wanted to refinance and recapitalize the bulk of its primary debt obligations.  Juster argues that NHSA took the Juster work product and proceeded to the contemplated transaction without Juster and in violation of the exclusivity provision. NHSA states that Juster had the opportunity to attend the transaction but declined.  Juster filed a complaint against NHSA seeking damages in excess of $41 million.

Plaintiff’s initial request for documents contained 49 document requests and a list of 67 proposed search terms for electronic information.  Defendant sought either a protective order or in the alternative, reimbursement for the costs associated for production of the documents.

In denying defendant’s motion for a protective order, the court found that the search terms were not unreasonable and explained that the defendant failed to show that the requested search would be duplicative.  The court likewise denied the defendant’s request for fee-shifting, noting that there was a presumption against cost-shifting and that cost-shifting is only appropriate when “inaccessible data is sought.”  Because NHSA presented no evidence that the data was inaccessible, fee shifting was not appropriate.  While the court recognized that the defendant failed to meet the initial burden of demonstrating that the data sought was inaccessible, the court also noted that the defendant’s request for fee shifting likewise failed under the seven factor test set forth by Zubulake v. UBS Warburg LLC, 217 FRD 309, 318 (S.D.N.Y. 2003) and adopted by the Third Circuit in Wachtel v. Guardian Life Ins., 2007 U.S. Dist. LEXIS 43842 (D.N.J. June 18, 2007).

For those not familiar with Zubulake, the decision provides a seven factor test to determine whether discovery costs should be shifted.  The factors are to be evaluated in the following order: 1) the extent to which the request is specifically tailored to discover relevant information; 2) the availability of such information from other sources; 3) the total cost of production, compared to the amount in controversy; 4) the total cost of production; 5) the relative ability of each party to control costs and its incentives to do so; 6) the importance of the issues at stake in the litigation; and 7) the relative benefits to the parties of obtaining the information.

Applying the factors set forth in Zubulake, the court determined that no fee shifting was warranted.  The court determined that the requests were reasonable, time restricted and NHSA had agreed to bear its own production costs.  Next, the court noted that the defendant failed to show that the requests were unreasonably cumulative or duplicative.  The court also explained that the fact that 8000 pages were produced in hard copy did not preclude a party from getting information in electronic form.  In addition, the court recognized that the amount in controversy ($41 million dollars) far outweighed the estimated costs of discovery (an estimated $6,000 to $16,000).  Finding that the last two factors under Zubulake were not dispositive in this case, the importance of the issues at stake in the litigation and the relative benefits to the parties obtaining the information, the court ruled that fee-shifting was not appropriate.

Thanks to Juster, we now have a clearer picture of what factors will be pivotal in determining whether or not one will be financially responsible for the production of their electronic discovery.  Unless the electronic information is “inaccessible”, the costs for producing the information greatly outweighs the amount in controversy or the information is cumulative and duplicative, one will be expected to pay their own way.



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