Who Pays for e-Discovery? Podcast on Developments in ‘Cost Shifting’
By Mary Jacoby | November 8, 2012 11:14 am

Jacoby: Hi, welcome to our podcast on cost-shifting in e-discovery. I’m Mary Jacoby, editor-in-chief of Main Justice.

Adam Cohen is a leader of the information management and e-discovery readiness practice within Ernst and Young LLP’s Forensic Technology and Discovery Services group. Adam is also a former litigation partner at a major international law firm and the author of the major legal treatise on e-discovery, “Electronic Discovery Law and Practice.”

Hi Adam, thanks for being with us today. Why don’t you start by telling us what is cost-shifting?

Cohen: Well, with e-discovery, the costs involved in producing documents as part of a litigation has become a prohibitive, sometimes dispositive issue. In other words, it’s so expensive to produce documents as part of e-discovery that a party may decide to settle a case rather than undertake that expense. So with cost-shifting, there is a mechanism to shift the cost of all of that discovery to the party requesting the discovery. Whereas the general presumption is that the producing party has to pay for the cost of providing the discovery, cost-shifting allows the cost to be shifted to the adversary requesting the discovery. It is the presumption that the producing party pays, which allows smaller parties to use e-discovery as a weapon against large corporate defendants.

Jacoby:  But what is this mechanism? Or is that actually a settled mechanism – I understand there is some court activity in different decisions coming out.

Adam Cohen

Cohen: Well there are a couple of different procedural mechanisms that, as a technical matter, generally this would be achieved through a Motion for a Protective Order where a party would say that the requested discovery is unduly burdensome and therefore the information shouldn’t have to be produced, and if it is going to be produced, that the other side should pay for it. And the other mechanism which really has recently come to the fore with regards to electronic discovery is the ‘taxation of costs’ mechanism, whereupon the completion of the case, the prevailing party is entitled to ask for certain costs associated with the litigation. And there is some new case law that will discuss whether e-discovery costs qualify as one of those taxation of costs items.

Jacoby:  And you mean whether they qualify under these court decisions. There are different definitions of what qualifies, so can you tell us what kinds of expenses are indisputably cost-shiftable right now?

Cohen: Well there really not very much that’s indisputable. However, clearly, the device has been used most frequently with the kinds of storage media that don’t just simply lend themselves easily to doing a search, and where there’s other technical work that has to be done on the media. The best example and the most frequent example in the cases is back-up tapes. Back-up tapes which are done for disaster recovery purposes are not formatted in a way that facilitates searching for specific information that’s responsive to a legal request. It can be very expensive to restore those tapes and search through them. There typically are lots of tapes that could potentially have responsive information, and so many producing parties have sought to shift the costs associated with producing from back-up tapes.

Jacoby:  There are also things, like just basic things – like photocopying, scanning perhaps – is that what cost-shifting was originally meant to cover?

Cohen: Well you have to break out the two mechanisms here. So the general cost-shifting under an objection that the requested discovery is too expensive could apply to all kinds of things and really, the cases have diverged on that point. So for example, review of documents in electronic discovery, with huge volumes of documents, many courts have said, ‘Well document review is not the kind of costs that you can ever get shifted under this procedural mechanism.’ Others have said, ‘Yes, you can shift that.’ Some courts have said that cost-shifting cannot even be considered if the data is in what’s referred to as an accessible format. So something that’s live on your computer that can be easily searched — that would be an accessible format. There are judges who say you can’t shift those costs. Other courts say you can of course. Now when you get to the taxation of costs, that’s where the real interpretive stuff comes in. The kind of archaic language of the statute [specifies] the costs of copying and exemplification, which seems to refer to providing copies that are authenticated, or genuine copies of actual documents. What’s happened is that courts have analogized the costs involved in e-discovery – like scanning, like OCR, like converting electronic information from one format to another – to copying. They’ve said this is copying in the modern age, but that is also something that the courts disagree upon.

Jacoby: If it were to become settled case law that you could transfer these kinds of costs – imaging and scanning – that’s quite a lot of money, isn’t it? And document review certainly costs a lot of money. What would be the implications for this in our legal system if that became standard?

Cohen: The implications are potentially earth shattering because we do have a case, which involved $4.6 million of such costs. Now this means that certain plaintiffs are not going to bring lawsuits because if they lose the lawsuits, then they may be put into bankruptcy. So it’s certainly going to dissuade parties who do not have the means to pay for this kind of discovery from filing cases. This would make our legal system a lot more like the European legal system where the loser pays the costs of the case. Historically, our legal system has worked the opposite way. Each party pays their own costs. The theory or the policy behind that is so we don’t discourage people who have meritorious claims from filing them. What’s developing here in terms of the taxation of costs line of cases is that some of the courts are clearly willing to go to great lengths to reimburse millions and millions of dollars in e-discovery costs. There are other courts that have said that that’s inappropriate. So we may be heading down the road to an appeals court, the highest appeals court in the land, the U.S. Supreme Court, resolving what is becoming a split in the circuits.

Jacoby: Adam Cohen, thank you, that was fascinating.

For more information on court decisions affecting cost-shifting, please contact Adam Cohen at +1.212.773.2778 or via email at Adam.Cohen1@ey.com

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