In a recent commercial breach of contract case, the plaintiffs sued for $10 million in alleged damages. They submitted a 25-page e-discovery request, asking for all electronically stored information (ESI) covering more than 100 topics and 300 search terms.
The defendants argued that the request would cost $2 million and produce more than 300 million pages of irrelevant documents. The court agreed that the burden was out of proportion to the value and needs of the case, and it approved a phased discovery plan that reduced the number of search words to seven. As a result, the defendant's e-discovery costs were cut approximately 95 percent, to less than $100,000.
"I believe that this proportional discovery plan was also adequate and fair to the plaintiff," says Jay Yelton, a Miller Canfield partner who represented the defendants. "The plan forced the plaintiff to really think about what ESI it needed, not just desired, for this case."
This type of cost-benefit analysis applied to e-discovery is known as the "proportionality" doctrine. Rule 26(b)(2) of the Federal Rules of Civil Procedure permits the court to limit "the frequency or extent of discovery" where "the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the parties' resources, the importance of the issues at stake in the action and the importance of the discovery in resolving the issues."
Ralph Losey, e-discovery team leader at Jackson Lewis, says the proportionality doctrine is a great tool for reducing the potential for e-discovery abuse.
"When e-discovery lawyers do their job in arguing proportionality, and a judge agrees, then discovery does not bust the bank," he says. "Parties can then afford to try more cases instead of being extorted into settling because of a potentially huge e-discovery expense."
Drawing the Line
No bright-line rule establishes when an e-discovery request is in proportion to the case and when it is out of proportion.
"It is difficult, if not impossible, to draw a bright-line rule regarding discovery in litigation," says Alex Buck, e-discovery and technology counsel at Bartlit Beck Herman Palenchar & Scott. "The amount in controversy or potential damages, for example, can be greatly skewed in plaintiff cases against large corporations. Plaintiffs might have an incentive to seek larger, and sometimes unrealistic, damages in order to increase discovery costs for the other side."
But she adds that several factors can help determine what is proportionate in any case, including the relative size and resources of the parties, the estimated cost of the discovery effort in comparison to the amount in controversy, and the likelihood that the requested discovery is relevant to the claim or the defense.
Many experts stress the value of taking a phased approach to e-discovery. The Sedona Conference Commentary on Proportionality in Electronic Discovery says the court or the parties "may find it appropriate to conduct discovery in phases, starting with discovery of clearly relevant information located in the most accessible and least expensive sources." This initial phase can help the parties determine whether more extensive discovery is necessary and may spare the parties from unnecessary discovery expense should they settle before going to trial.
Buck says a scope limitation based on phased discovery is key to limiting e-discovery costs. "For example," she suggests, "limit phase-one discovery to a handful of key custodians [people who have control over relevant ESI], allow both sides to review that data and then determine whether additional discovery is required."
A good example of phased discovery can be found in the November 2010 Tamburo v. Dworkin decision from the Federal District Court for the Northern District of Illinois.
Tamburo stemmed from a dispute over a software program, which the plaintiffs claimed to have developed from information in the public domain on the defendants' websites. When the defendants engaged in an Internet campaign to discredit the plaintiffs' products, the plaintiffs filed suit.
While the court denied the defendants' motion for stay of all discovery until it had ruled on their motion to dismiss, it directed the parties to develop a phased discovery schedule. The court limited discovery in the first phase to the named parties. It also directed the parties to concentrate their discovery efforts on those claims most likely to survive the pending motion to dismiss and to "prioritize discovery that is less expensive and burdensome."
Some experts suggest that the proportionality principle may mitigate the burden of preserving all ESI to avoid possible court sanctions. But in the recent decision in Southern District of New York, Orbit One Communications, Inc. v. Numerex Corp., Magistrate Judge James Francis sounded a warning.
Noting that some cases have suggested that preservation of electronic data should be guided by principles of "reasonableness and proportionality," including Victor Stanley, Inc. v. Creative Pipe, Inc. and Rimkus Consulting Group, Inc. v. Cammarata, Francis warned in dicta that this standard may prove too amorphous to provide a safe harbor to a party deciding what files to delete or backup tapes to recycle.
"Until a more precise definition is created by rule, a party is well-advised to retain all relevant documents ... in existence at the time the duty to preserve attaches," he wrote.
The 7th Circuit's standing order on e-discovery notes that "determining which [ESI preservation] steps are reasonable and proportionate in particular litigation is a fact-specific inquiry that will vary from case to case. The parties and counsel should address preservation issues at the outset of a case, and should continue to address them as the case progresses and their understanding of the issues and the facts improves."
The Sedona Conference Commentary takes a different tack: "Parties for whom an obligation to preserve potentially relevant information has arisen should weigh the burdens and costs of preservation against the potential value and uniqueness of the information when determining the appropriate scope and manner of such preservation," it states.
Losey agrees. "There is too much data to save it all," he says. "You have to focus on what is important."