Sharpen your discovery from nonparties: the December 2006 rules changes affect your electronic discovery from nonparties as well as parties - and how you deal with nonparties may be more important than you think.

Plaintiff lawyers conducting electronic discovery understandably focus on digital information stored by the defendant. But in many cases, important electronic evidence can be found in the possession of nonparties--and the new e-discovery rules affect how you deal with nonparties as well as your opponent.

For example, you may need electronic information from a nonparty in an intellectual property case in which you want to prove that the defendant was using your client's invention without obtaining a license. You might need to collect information from someone to whom your client sold a license (whom you do not want to sue) to prove that the defendant never received a license to use an invention from that third party.

Or, in a premises liability case, if the plaintiff slipped and fell in a grocery store and you need surveillance videos--which often are created and stored digitally--from that store's outside security company, you will need to subpoena them.

Some of the changes intended to streamline electronic discovery for parties generally are incorporated in whole in Rule 45--the rule that governs how nonparties must respond to subpoenas. (1) For example, Rule 34(b) (ii) and (iii), which address the form in which documents should be produced by parties, were copied almost verbatim into Rule 45(d) (1) (B) and (C).

These changes give the nonparty the option to produce electronically stored information in the form in which the nonparty ordinarily maintains it or "in a form or forms that are reasonably usable," provided you have not specified the form of production. The question is: What is reasonably usable? Moreover, what happens if you have specified the format and the nonparty believes producing the information in that format will be onerous?

You must understand the meaning of "undue burden" and the factors to be used in cost-shifting, so that you can address a stock objection that a request is "unduly burdensome and vague" and prevent discovery costs from being shifted to your client.

Meet and confer 

Attorneys may not realize that, since the rules changed, nonparties have been held to similar data-preservation standards as parties. You may need to inform the nonparty early that a lawsuit has been filed and that it needs to suspend document destruction.

The meet-and-confer requirement is perhaps the amendment that the courts stress most. Because courts treat nonparties with deference, this requirement is even more important when nonparties are concerned. Rather than surprising a nonparty and its attorney with an onerous subpoena, you must meet with them beforehand to discuss the form of production and ways of minimizing cost.

If you do not know what you want or how you want it, consult with an expert before asking. Otherwise, you might receive electronic information in a format that the nonparty believes is reasonably usable but you find exceptionally difficult to read. You might also find yourself without the information you need if you impose an undue burden on a nonparty--especially if that burden is not simply based on cost.

In a situation involving potentially massive amounts of electronic information, carefully tailored sampling can help both you and the nonparty target of your subpoena. In sampling, you and your expert meet with the nonparty's attorney and its information technology expert and choose a few key custodians and some proposed search terms. The nonparty performs the sampling; reviews the material for relevance, privilege, and confidential information; and then produces it.

This will help you determine what costs may be involved in producing the information you need, and you can craft the subpoena more carefully. (2) If problems arise regarding the format of the material, you can work them out before they become too big. While sampling may seem time-consuming, it will save time, aggravation, and expense in the long run.

The addition of Rule 45(d) (1) (C), corresponding to the Rule 34 "one-bite" rule, underscores the need to confer with the nonparty before issuing a subpoena. In essence, this rule states that if you have requested information in one format, you cannot later ask for it in another format. If you have asked for a document in a specified format--like pdf--and the producing party has produced it in that format, and then you ask for the native file, the producing party can rely on Rule 45(d) (1) (C) to argue that the cost of this additional production should be shifted to you.

Meet-and-confer sessions can also help you acquire information much more quickly. If you have not met and conferred, you take a chance that the nonparty will seek to quash the subpoena (and, in the process, cause additional costs and delay), shift the costs to you, or produce the information in a format that you cannot easily use.

If you have conferred with the nonparty and other parties concerning the nonparty's information, you may be able to come to a reasonable agreement as to format and cost-sharing so that one party is not saddled with all the costs--and so that all parties benefit from it. You can also avoid the problem of arguing about whether the production is reasonably usable.

Parties should confer with one another and with the nonparty concerning the format of production, when information will be produced, and the burden on the nonparty. For instance, if the nonparty is a business, production may preclude some officers of that business from using their workstations or notebook computers for a certain period. A meet-and-confer session also will help stress nonparties' duty to preserve relevant information.

Meet-and-confer sessions are central to the December 2006 rules changes, and you are going to hear more and more about them from courts. First, few things annoy a court more than getting dragged into a bickering match over discovery. Second, you cannot rely on the court's knowledge of electronic information to resolve disputes; you can rely only on yourself and your experts to create reasonable discovery plans. Because courts are mindful of the costs--both monetary and otherwise--imposed on nonparties through a subpoena, conferring with the nonparty, its experts, and its attorney before issuing a subpoena is essential.

Reasonableness

The other rules changes imported into Rule 45 come from Rules 26(b) (2) (B) and 26(b) (5) (B). These rules concern "not reasonably accessible data" (Rule 45 (d) (1) (D)) and inadvertent disclosure of material (Rule 45 (d) (2) (B)). Nonparties, like parties, need produce only material that is reasonably accessible. The committee notes set forth a procedure for designating material reasonably accessible or not reasonably accessible--and for litigating disputes over whether material is one or the other. (3)

After you meet and confer, and after the responding party receives your request, it determines whether the material you requested is reasonably accessible. If the responding party says it is not reasonably accessible and you still want the information irrespective of format, you file a motion.

The burden to show that the material is not reasonably accessible falls on the responding party. For instance, the information may reside only in a format that cannot be searched readily or on hardware or software that is no longer used. The burden then shifts back to the requesting party to show a compelling need. If you show this need, the court entertains argument from the responding party as to whether cost should be shifted.

As with Rule 26(b) (5) (B), Rule 45(d) (2) (B) contains a so-called claw-back provision. If a nonparty discloses material that it should not have disclosed because it is privileged or otherwise protected, the nonparty can retrieve the material from you as soon as it discovers the mistake.

As with parties under Rule 26(b) (5) (B), this does not excuse the nonparty's sloppy work. Courts are likely to import a reasonable-procedure requirement into the rule. That is, they probably will continue to require the producing party to show that it used reasonable procedures to ensure that privileged or otherwise protected material was not disclosed. If you can show that the nonparty did not use reasonable procedures, you may be able to keep and use the material.

Even though Rule 45(d) (2) (B) and Rule 26(b) (5) (B) do not include a "reasonableness" requirement to invoke the clawback provision, the Advisory Committee on Evidence Rules of the Judicial Conference approved the addition of a new Rule 502. This rule would govern the waiver of attorney-client privilege and attorney work product following inadvertent disclosure. Proposed Rule 502(b) specifically mandates that the disclosure was made in spite of "reasonable precautions to prevent disclosure." There is every reason to believe the courts will read such a reasonableness provision into the civil rules. This comports with the state of the common law of inadvertent disclosure. (4)

Burden and cost-shifting

Several cases from recent years illustrate how courts evaluate discovery burdens on nonparties and determine whether costs should be shifted to the party requesting the information.

Courts have given considerable weight to the nonparty status of the subpoena recipient when deciding whether producing the requested information would pose an undue burden. For example, in United States v. Amerigroup Illinois, Inc., the court held, "'[N]onparty status' is a significant factor to be considered in determining whether the burden imposed by a subpoena is undue." (5)

The defendants served a subpoena on the Illinois Department of Healthcare and Family Services to produce the e-mail of three of its employees. Even though the defendants offered to pay the costs of retrieving the e-mail, the court held that "expense is but a part of the burden." (6)

The court said that, in estimating cost, the defendants ignored "extensive use of equipment and internal manpower. It will take six weeks to restore and review the data of just one of the three [individuals'] e-mail accounts." (7) The court found that the defendants had not shown that their need for the information outweighed the burden on the nonparty government agency. (8)

Similarly, the court in Pears v. Wilhelmina Model Agency, Inc., balanced the value of discovery against the burden on a nonparty. (9) The court considered 20 requests included in a subpoena to a nonparty, and it ordered the nonparty to produce documents and bear its own costs of retrieval and production for only three of them. The court did not require the nonparty to respond to the other 17.

Of particular interest is that the party seeking discovery--the plaintiff in the case--argued that it wanted "to confirm the completeness of the defendants' document production." (10) As in many cases, the plaintiff had received documents from people other than the defendants that the defendants should have produced.

Because electronic documents are so portable, you may receive them from many sources. Citing Fears may help you defend a subpoena to a nonparty, because the nonparty may have information that the defendants did not produce. The Fears court ordered the nonparty to bear its own costs for the three requests it allowed, but if it had not, the plaintiff could have argued that if the costs were to be shifted, they should be shifted to the defendants, which presumably had the documents and did not provide them.

A case from the Northern District of California set out specific factors that courts can use in assessing burden and cost-shifting regarding nonparties. In Tessera, Inc. v. Micron Technology, Inc., the plaintiff subpoenaed documents from a nonparty, Hynix Semiconductor America, Inc. (11) Hynix, after several conferences among counsel to try to resolve the dispute, refused to produce the documents and found itself defending a motion to compel.

The court began with the principle enunciated in Rule 45 that parties should "take reasonable steps to avoid imposing undue burden or expense on a person subject to ... subpoena." (12) After analyzing the burden on the nonparty and the document requests' value to the party, the court ordered Hynix to provide some of the information.

Moving on to the question of cost-shifting, the court noted that "despite nonparty Hynix Semiconductor America's extensive efforts to meet and confer and determine the scope of the subpoena duces tecum, the burden and attendant cost of such a large-scale document production has been significant." (13)

The court looked to Rule 45 (c) (2) (B), which allows it to protect nonparties from significant expense, and set out eight factors to determine whether to shift costs to the requesting party:

* the request's scope

* the request's invasiveness

* the need to separate privileged material

* the nonparty's financial interest in the litigation 

* whether the party seeking production ultimately prevails

* the relative resources of the party and the nonparty

* the reasonableness of the costs sought

* the public importance of the pending litigation. (14)

In dealing with the possibility of cost-shifting, you should keep these eight factors in mind and be able to argue why the costs should or should not be shifted. Electronic discovery can be expensive, and having the cost shifted to you can be disastrous, especially if it is the cost of a second production because you did not plan the first sufficiently. Clients may be reluctant to pay the bill for the "second bite," and if it is an attorney fee case, such as a federal civil rights case, the court maybe reluctant to authorize your reimbursement even if you win and receive your fees.

Furthermore, if the nonparty does not agree with you about the format of production, a court will have to decide what a "reasonably usable" format is (as is the case with Rule 34)--and may charge you the cost of having the material produced in any other format. For instance, a printout of a spreadsheet of my checking account probably is reasonably usable. But the printout of a spreadsheet of salespersons' performance that contains hidden formulas defining how the contents of each cell are created is not reasonably usable. The only way such a spreadsheet would be reasonably usable is if each formula is produced as well. However, if a court found that printouts were reasonably usable, you might have to pay the cost of the second type of production.

Finally, if you are litigating in state court, be aware that some states' rules on cost-shifting differ from the federal rules. For instance, in New York, "the reasonable production expenses of a nonparty witness shall be defrayed by the party seeking discovery." (15) In Texas, "a party requiring production of documents by a nonparty must reimburse the nonparty's reasonable cost of production." (16)

Duty to preserve

Parties have a duty to preserve electronic information when litigation commences or when they suspect that litigation is afoot, (17) and the same applies to nonparties. Once the nonparty recognizes that it has information that is important to a pending lawsuit, it has a duty to attempt to preserve that information.

You need to identify as early as possible which nonparties may have valuable information and notify them of the litigation or pending litigation. Send them a letter insisting that they preserve data, so you can tell the court that you made reasonable efforts to get them to do so.

Although courts have been more lenient with nonparties than with parties, allowing them to wait for a subpoena before determining what they need to preserve, waiting may be risky for both the nonparty and you. Do not count on courts imposing a duty if you have not informed the nonparty. For example, the court in Metlife Auto & Home v. Joe Basil Chevrolet, Inc., noted that the party "made no effort to [have the nonparty] preserve the evidence by court order or written agreement," and, therefore, the court would not find spoliation had occurred. (18)

In Broccoli v. Echostar Communications Corp., the court imputed knowledge of the need to maintain information to a corporation, due to the corporation's size and presumed sophistication. (19) While that situation did not involve nonparties, such knowledge and responsibility may be imputed to nonparty corporate entities soon. Until all courts impute such knowledge, however, be diligent about informing nonparties of their preservation obligations.

If the nonparty fails to preserve, you may ask for sanctions for its failure to obey a subpoena. If the nonparty is a large corporation, you may be able to convince the court to impose sanctions by using such cases as Broccoli. The court might subject the nonparty to contempt proceedings, and some state courts recognize a claim for the independent tort of spoliation that may be brought against a third party in litigation. (20)

No rule requires a party or nonparty to enter a litigation hold--to preserve any materials that may be relevant to potential or pending litigation. This has developed from the law of spoliation and sanctions as a common law duty.

So what should you do? First, be sure to contact the nonparty early. You can explain that by maintaining documents, the nonparty avoids trouble with the court--and that the nonparty could be held liable for spoliation. Second, work with the nonparty and other parties to find away to obtain the information that minimizes the burden on the nonparty. Finally, attempt to draw your requests as narrowly as possible in negotiation with the nonparty.

Remember that courts dislike discovery disputes and that if you cannot resolve a dispute reasonably through meetings and conferences, the court will resolve it for you. In that case, you are taking a chance that the court knows enough about electronic information and enough about your needs that it will make a reasonable decision. That risk may not be worth taking. As one judge I practiced before used to say, "If you don't resolve this discovery dispute yourselves, I'll do it, and I doubt either of you will like the result."

RELATED ARTICLE: Putting the brakes on cost-shifting.

KEITH L. ALTMAN

Producing parties have always tried to shift discovery costs to requesting parties. But defense attempts to transfer the financial burden of production to plaintiffs have moved into high gear as the focus of discovery in the typical case has turned away from paper documents and toward electronically stored information.

Producing parties have done an excellent job of persuading the courts that electronic discovery principles differ from paper discovery principles. But that argument is wrong: Even though the medium of exchange is different, the principles are essentially the same.

In paper discovery, the producing party first determines which custodians might have responsive documents. These custodians then review the materials--possibly conducting a page-by-page review of the contents of numerous filing cabinets--to determine which documents are responsive to the request and whether they contain privileged information. Courts typically deny requests to shift the cost of this type of search.

Similarly, in a typical scenario involving electronic documents, the producing party would first identify the appropriate custodians of requested information. That party then would copy all the electronic information held by those custodians to a centralized repository, which would require minimal effort. The party would use software to catalog and index the data, and then decide on a list of key words or phrases to search the materials for hits. Counsel for the producing party would then review the hits for responsiveness and privilege.

In an electronic repository, the producing party in effect knows what "file cabinet" and "drawer" to go to, and which "folder" in the drawer contains the relevant information. This process is far more efficient--and easier on the producing party--than searching through pages and pages of paper documents.

Once electronic information is collected, producing parties often use elaborate discovery management software to review and redact the information. A requesting party should not have to bear any costs associated with this process; it is simply the cost of collecting and reviewing the materials that will be produced.

Producing parties have always been obligated to make discovery available to requesting parties somewhere. Sometimes the quantity of discovery materials is extensive, but regardless of the size of the "somewhere," it is referred to as a depository. It may be a dedicated facility for document review, but usually, it is the office of the producing party's lawyer.

Under the traditional model, the producing party bears the cost of placing the materials--whether originals or copies--in the depository. The requesting party may then review the materials and select items for copying. The requesting party pays for making these copies. When paper documents are to be produced as scanned images, producing parties have been arguing that the requesting party should bear costs associated with scanning the paper, since the requesting party is responsible for costs associated with copying the materials. This argument is fallacious, because the producing party must make the production available for plaintiffs to review, and scanning is substantially the same cost as photocopying.

Some cost-shifting might be appropriate if the cost of producing the electronic version of a document exceeded the cost of producing a paper copy for review. For example, assume that photocopying documents would cost 12 cents per page and scanning would cost 13 cents per page, and the parties have agreed that paper documents will be produced electronically. In this case, it may be appropriate to consider requiring the requesting party to bear the difference in cost of 1 cent per page. However, if neither a conventional depository nor multiple photocopies for internal use would need to be made, the agreed-on electronic production method would save the producing party money.

For any materials that the producing party could place into a depository without having to make copies, the requesting party should select whatever it would like to receive and bear any cost associated with scanning those materials. The requesting party should also provide a copy of the scanned materials to the producing party at no charge other than the cost of the media.

For materials that the producing party would need to copy to place in the depository, the producing party should scan the documents at its own expense and make these materials available to the requesting party at no charge other than the cost of the media. This model accurately reflects what costs the parties would bear if paper documents had been produced to a depository for inspection, as the rules require.

Documents that already existed in electronic format can be produced in the same format they were kept in the routine course of business. In this case, there is effectively no cost associated with producing the electronic materials other than the nominal cost of the media. As such, cost-shifting is inappropriate for information that is already in electronic format, assuming that the material is not inaccessible (as discussed in the committee notes for the changes to the federal rules effective December 1, 2006).

KEITH L. ALTMAN is the director of Adverse Event Analysis for Finkelstein & Partners in Newburgh, New York.

Notes

(1.) For a complete description of the amendments' meaning, see the committee notes to Amendments to the Federal Rules of Civil Procedure, www.uscourts.gov/rules/EDiscovery_w_Notes. pdf. For another approach, see Alan F. Blakley, Unanswered Questions in the December 2006 Federal Rules Changes, 53 Fed. Law. 39 (2007).

(2.) I also recommend that parties in complex cases consider sampling.

(3.) Amendments to the Federal Rules of Civil Procedure, supra n. 1.

(4.) See e.g. Amersham Biosciences Corp. v. Perkin-Elmer, Inc., 2007 WL 329290 at *3-4 (D.N.J. Jan. 31, 2007).

(5.) 2005 WL 3111972 at *4 (N.D. 111. Oct. 21, 2005).

(6.) Id.

(7.) Id.

(8.) Id. at *7. However, the court noted that a request for electronic information was not automatically unduly burdensome.

(9.) 2004 WL 719185 (S.D.N.Y. Apr. 1, 2004).

(10.) Id. at *1.

(11.) 2006 WL 733498 (N.D. Cal. Mar. 22, 2006).

(12.) Fed. R. Civ. P. 45(c) (1).

(13.) 2006 WL 733498 at *10.

(14.) Id. The court took the factors from William W. Schwarzer et al., Federal Civil Procedure before Trial [paragraphs] 11:2308-2309 (the Rutter Group 2004), which notes that "ordinarily, attorney fees and overhead costs will not be allowed." However, if the subpoena is quashed, the court may impose sanctions that could include attorney fees. Schwarzer et al., at [paragraph] 11:2311.

(15.) N.Y.C.P.L.R. 3122d (McKinney).

(16.) Tex. R. Civ. P. 205.3f.

(17.) See e.g. Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 217-18 (S.D.N.Y. 2003).

(18.) 807 N.E.2d 865, 868 (N.Y. 2004).

(19.) 229 F.R.D. 506, 512 (D. Md. 2005).

(20.) The Indiana Supreme Court, in Gribben v. Wal-Mart Stores, Inc., 824 N.E.2d 349, 353 (Ind. 2005), lists the states that recognize an independent tort of third-party spoliation.

ALAN BLAKLEY is a former law professor and is currently senior director of e-discovery consulting at RLS Legal Solutions in Houston.