Different Approaches to Cost Shifting in New York State and Federal Courts for Production of Inaccessible ESI

In Spring 2009, the Joint E-Discovery Subcommittee of The Association of The Bar of the City of New York issued a Manual for State Trial Courts Regarding Electronic Discovery Cost-Allocation, highlighting the different approaches taken by state and federal courts in New York. One key difference is how they approach cost shifting when it comes to the production of inaccessible ESI.

Although the producing party in federal court often pays for the production of their material, for certain “inaccessible” ESI (such as backup tapes), New York federal courts do allow for cost-shifting. The test for allowing cost-shifting is set forth in the seminal Zubulake case and requires the courts to examine the following seven factors: (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, compared to the resources available to each party;” (5) the “relative ability of each party to control costs and its incentive 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.” See also Quinby v. WestLB AG, 245 F.R.D. 94, 101 (S.D.N.Y. 2006) (cost-shifting is appropriate “only when electronic discovery imposes an undue burden or expense on the responding party”).

Several New York state courts, however, reject the Zubulake seven factor cost-shifting approach and generally continue to apply New York’s standard “requester pays” rule. One New York state trial court has held that “cost shifting of electronic discovery is not an issue in New York, since courts have held that, under the CPLR, the party seeking discovery should incur the costs incurred in production of discovery material. . . . The court need only determine whether the material is discoverable and whether the party seeking the discovery is willing to bear the cost of production of the electronic material.” Lipco Elec. Corp. v. ASG Consult. Corp., No. 8775/01, 2004 WL 1949062, at *6, *9 (Sup. Ct. Nassau Co. Aug. 18, 2004). Another New York state trial court held that the requesting party was responsible for the cost of electronic discovery and expressly rejected the cost-shifting analysis performed by New York federal courts. T.A. Ahern Contractors Corp. v. Dormitory Auth. of the State of N.Y., 2009 WL 806779, at *5 (Sup. Ct. New York Co. Mar. 19, 2009) (finding that the requester-pays model provided the proper incentives for parties to avoid “formulat[ing] overly broad discovery requests which have the effect . . . of placing unnecessary and oppressive (even prohibitive) costs upon an opponent”).

Given this rule, New York state court litigators should well consider whether their clients are prepared to pay for the collection and production of inaccessible ESI before making any request for ESI that is likely to be stored only in backup tapes or other hard to search and retrieve locations.