California e-discovery statute doesn't mandate cost-shifting, court says.

In a case exploring an important practical question raised by the increasing use of electronic discovery, a California appeals court has ruled that a state law requires the plaintiff to pay the reasonable cost of translating data from the defendant's backup tapes to obtain requested information. The court stopped short of finding that the state's e-discovery law requires the demanding party' to pay these costs in all cases. The trial court retains considerable authority to manage the discovery process, including assessment of costs, the appeals court ruled. (Toshiba Am. Elec. Components, Inc. v. Superior Court of Santa Clam County, 21 Cal. Rptr. 3d 532 (Ct. App. 2004).)

"The appeals court underscored that the trial court has discretion to work out a solution, including determining the reasonableness of the cost to be borne by the demanding party. It is not locked into one position," said Jim Rooks, senior policy research counsel in ATLA's State Affairs and Research department.

The ruling is the first to interpret California's law requiring that translation of electronic data for discovery be done "at the reasonable expense of the demanding party."

Lexar Media, Inc., filed suit against Toshiba America Electronic Components, Inc. (TAEC) and its parent company--Toshiba Inc.--for misappropriation of trade secrets, breach of fiduciary duty, and unfair competition. In discovery, Lexar requested 60 categories of documents, including e-mail and other electronic data.

TAEC produced what it called the "readily available" data--20,000 pages of documents--but objected to the costs of producing material from its backup tapes. An electronic-discovery expert estimated that translating and searching the data on over 800 ropes from 1994 to October 2002--many of which were created using obsolete software or had deteriorated from age--would cost between $1.5 million and $1.9 million. Searching only tapes around 15 key dates would cost $211,250.

TAEC asked Lexar to pay these costs, but the plaintiff refused. The trial court granted Lexar's motion to compel production of all the requested materials and did not order it to bear any of the costs. TAEC asked the appeals court to stay the order and require Lexar to pay, claiming the trial court had abused its discretion. The company argued that [sections] 2031 (g) (1) of the California Code of Civil Procedure was an "automatic cost-shifting provision."

The appeals court said the primary question was whether the cost-shifting was mandatory. It concluded that although the state legislature clearly meant for the requesting party to share the costs of producing information in circumstances like those demonstrated by TAEC, the trial court ultimately retains the authority to manage discovery disputes. The statute restricts cost-shifting to expenses that are "necessary and reasonable," issues the court of appeals called "purely factual," to be resolved by the trial court.

The California court pointed to an often-cited federal court decision in which a trial judge ordered the producing party to test a sample of the requested data (at its own expense) to estimate tire number of relevant e-mails that a full search would yield; the results would then help the court determine whether the cost of producing all the materials was reasonable. (Zubulake v. USB Warberg, 217 F.R.D. 309 (S.D.N.Y. 2003).) Trial courts in California could use similar techniques to manage discovery cost disputes, the appeals court said.

The appeals court panel instructed the trial court to vacate its production order and allow further proceedings to examine whether and how the discovery costs should be divided.