This is the fifth installment in a series of articles exploring the use of contract terms to limit the costs and scope of e-discovery in disputes between business entities. In this round, we will examine the inclusion of terms that shift costs and limit sanctions based on an agreed-upon e-discovery framework.
In previous installments, we have reviewed the benefits of using contract terms to make e-discovery more predictable. Those benefits have included increased clarity regarding discovery obligations, reduced preservation and production costs, and an easing of burdens on courts and commercial litigants.
Much of the uncertainty in e-discovery arises because of the inconsistent application of sanctions by different courts. It is very difficult to help your clients craft a reasonable, proportionate response to a discovery request when the potential penalty for a mistake is uncertain. How can an in-house lawyer intelligently advise her client regarding the scope of a document search if she can’t predictably determine what ex post facto analysis a court will apply to determine culpability?
Including clauses in the contract that limit liability for actions taken in reliance on the contract terms can protect both parties in the event that potentially relevant data is destroyed. Sanction-limiting clauses eliminate many discovery-related uncertainties, where failures or mistakes regarding retention, even innocent ones, can expose a party to a wide range of consequences. By limiting sanctions for purported discovery failures, parties are free to conduct business as usual knowing the potential consequences of inadvertent failures are limited.
Likewise, providing for cost shifting through an indemnification clause further incentivizes adherence to the agreed-upon e-discovery protocol. Actions that could trigger the indemnification clause include challenging the enforceability of the e-discovery provisions or seeking to compel greater preservation, collection or production beyond what was specified in the contract terms. By providing indemnification for costs incurred as a result of the breach of one of the discovery terms, you have effectively shifted the cost for excessive discovery to the requesting party. No party is incentivized to engage in discovery gamesmanship; a result which should save money for everyone.
Here is an example of contract language limiting liability and providing for indemnification:
- No Party shall be liable for the deletion or destruction of any Discovery Materials unless such Party had actual knowledge of the relevance of such Discovery Materials at the time of deletion or destruction [after receiving receipt of a written Notice of Dispute]. (The bracketed language is optional.)
- Absent a claim of fraud, misrepresentation, or bad faith supported by clear and convincing evidence, no Producing Party shall be liable for, and no Requesting Party shall seek any remedy for spoliation, adverse inference instruction, or other sanction from any Producing Party provided such Producing Party has complied with its obligations under this Section.
If any Requesting Party seeks to compel a Producing Party to require greater preservation, collection, or production requirements than are set forth herein (or seeks relief based upon the other party’s failure to preserve, collect or produce documents beyond the obligations contained herein), or otherwise breaches any of the provisions of this Section, or challenges the enforceability of any provisions of this Section, the Requesting Party shall indemnify the other Party for any costs associated with defending against such efforts and any costs incurred as a result of any increased requirements that may result from such efforts, including all reasonable legal fees, outside vendor costs, and internal expenses associated with the collection, review, redaction, and production of such documents.
(See reference below for definitions of terms in model language.)
Look both ways when drafting e-discovery clauses
Contract language limiting liabilities and outlining each party’s discovery obligations should be tailored based on the nature of the agreement and the risk-tolerance of the parties. When drafting these clauses, remember, it’s a two-way street. A clause of great benefit to you in one circumstance could prove costly and inconvenient in another. However, as mentioned in an earlier installment of this series, you should resist the temptation to draft one-sided provisions which heavily favor your interests. Provisions which heavily favor one side may be disfavored by the courts and the likelihood of their being enforced is decreased.
When providing for cost shifting or sharing, parties should consider that such provisions could work against them in the event they need to go beyond the agreed-upon protocol to obtain information to support a claim or defense. In such instances, contract terms indemnifying the producing party could make litigation more expensive than it would have been absent the contract terms. Likewise, companies should consider the complexity of attempting to introduce a series of presumptions to govern which parties will be responsible for e-discovery costs.
Provisions limiting liability provide both parties with more certainty in the event of a dispute. However, introduction of sanction-limiting clauses could allow bad actors to take advantage of the contract terms by destroying information relevant to a future claim or defense. Parties can mitigate this risk by providing for sanctions in the event a party acts with actual and knowing malfeasance.
Finally, companies must keep in mind that limitations regarding sanctions and costs could be modified by courts and will not apply in litigation with a non-party to the contract.
Using contract terms to limit liabilities and control for costs in the event of a dispute can introduce a high degree of predictability and help e-discovery run more smoothly. Just remember to imagine yourself on both sides of any potential dispute.
Next in this series: A comprehensive review and conclusions.
A more academic treatment of this subject, including the full text of model contract language with definitions, is provided in “Using Contract Terms to Get Ahead of Prospective e-discovery Costs and Burdens in Commercial Litigation” by Jay Brudz and Jonathan M. Redgrave.