Using contract terms to limit e-discovery costs and burdens in commercial litigation

Even the most well-drafted contract terms will be for naught if they aren’t enforceable

This is the final installment in a series of articles exploring how businesses can utilize contract provisions to ease the headache associated with electronic discovery. As these articles have detailed, much of the uncertainty, excess costs, and burdens related to e-discovery can be obviated through the mutual adoption of contract terms conscribing the scope of e-discovery in the event of a dispute. Such contract terms would effectively provide a pre-defined set of rules for parties to follow in the event that a dispute arises and e-discovery obligations come into play. This final installment summarizes the articles before it, identifying the various terms you may want to incorporate into your contracts and how to maximize the likelihood those terms are enforceable.

In the last decade, businesses have experienced sweeping changes when it comes to the discovery of electronic information. Because the state of e-discovery jurisprudence is rapidly evolving and no business wants to see itself the subject of court-imposed sanctions, companies are oftentimes adopting a least-common-denominator approach to their discovery obligations, internally applying the most restrictive rules and, as a result, incurring significant costs. But, just as companies reacted to the increasing complexity of 20th century civil litigation by using contract terms — such as choice of venue, choice of law, and arbitration provisions — so too can companies use contract terms to ease the 21st century burdens of e-discovery. Use of contract terms outlining e-discovery expectations are to everyone’s advantage: Businesses will benefit from reduced costs by establishing a predicable discovery framework; parties and counsel will reduce their risk of incurring sanctions because obligations are well-defined; and courts will be relieved to look to contract terms rather than the ever-complex state of e-discovery law.

Of course, the most well-drafted contract terms will be for naught if they aren’t enforceable. Courts have long upheld now-standard contractual clauses such as those identified above, but on occasion they do refuse to enforce terms despite both parties signing on the dotted line. Most commonly this arises in situations where contract terms violate public policy, are unconscionable, shield parties from tort liability, waive the rights of third parties, or usurp judicial authority. To make sure your contract terms are enforceable, we suggest that:

            1. All parties to the contract be of sufficient sophistication;

            2. All parties to the contract be of relatively equal bargaining power;

            3. The terms are fair and in accord with reasonable business practices;

            4. There be no fraud or duress in the negotiation; and

            5. The terms do not contravene any state or federal public policies.

With these practical tips in mind, what then are the contract terms your business may want to consider in order to minimize e-discovery costs and burdens and provide greater certainty to the process?

First, you may want to consider using contract terms to specify when the parties’ duty to initiate preservation of documents is triggered. The Federal Rules and the law of spoliation provide that parties have a duty to preserve potentially relevant evidence whenever it can be reasonably anticipated that a lawsuit will be filed. While courts have addressed this standard, the determination as to when litigation is “reasonably anticipated” varies by jurisdiction and by case. As a result, inside counsel is frequently playing a guessing game, where the penalty for guessing wrong can be an adverse inference instruction and loss of the case.

To avoid the guesswork surrounding the triggering of preservation duties, you should agree to a provision that provides that no party to the contract has any affirmative obligation to preserve evidence absent a specific request from another party. Such a provision could go further, requiring that the request identify the timeframe for collection and subject matter scope, among other things. This provision gets rid of uncertainty and in its place provides a bright line rule. And it rids parties of the staggering burden and expense of over-preservation.

Second, you may think about using contract terms to limit the amount of preservation and discovery required. If parties designate the available sources of data for collection prior to the onset of litigation, many of the costs and burdens associated with collection and production can be avoided. One possibility is to limit the number of custodians from whom information will be collected based on the amount in controversy. For example, a case with $200,000 at issue might only require collection from five custodians, whereas a case with $5 million at stake might allow collection from 20 custodians. Likewise parties can identify specific servers, legacy systems, and other data sources ahead of time, and include language providing that should litigation arise, each party may select a certain number of sources from which to collect.

Third, you also may want to consider including terms that shift costs and limit sanctions. Specifically, a contract could limit liability for inadvertent discovery failures, such as the accident destruction of potentially relevant information. Using such a term eliminates the unease and lack of certainty associated with not knowing what penalties a court would impose. Parties may also incorporate terms that provide guidance as to who pays for the preservation and discovery costs in the event of a dispute. The clause could simply prohibit any type of fee shifting or sharing, or it could require the requesting party to pay for all discovery sought, or it could provide for cost-shifting when an indemnification clause is triggered.

With each of these contract provisions, a party should consider its personal risk tolerance and risk calculation with respect to a given contract. What is right for one agreement may not be right for another. And a clause of great benefit in one case might wind up costly and inconvenient in another. While the proposed contract terms are designed to increase certainty, streamline litigation, and reduce costs and burdens, just make sure you — and the parties with whom you contract — are willing to play by a set of rules that might limit rights you would otherwise have. If you can get past this, then you can get to what’s really important: running your business, not discovery.

Contributing Author

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Jay Brudz

Jay Brudz is a partner in Drinker Biddle's Commercial Litigation Practice Group and co-chair of the Information Governance and eDiscovery practice. 

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Contributing Author

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Alexander M. Brodsky

Alexander M. Brodsky is an associate in Drinker Biddle’s Commercial Litigation Group with experience in complex business disputes, patent infringement actions, and telecommunications litigation and...

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