Federal Court Orders Class Action Plaintiffs to Share Defendant's Discovery Costs

A federal district court in Pennsylvania recently gave defendants in putative class actions new authority for requiring plaintiffs to share discovery costs. See Boeynaems v. LA Fitness International, LLC, No. 2-10-cv-2326-MMB, 2012 WL 3536306 (E.D. Pa. Aug. 16, 2012).  Specifically, Judge Michael Baylson ruled that when class action plaintiffs request “very extensive discovery, compliance with which will be very expensive,” plaintiffs typically should share defendant’s discovery costs – at least until plaintiffs’ certification motion has been filed and decided.

In discussing the case with my colleague Becky Schwartz, a class action guru, one of the things that jumped out at her was the notion: “If the plaintiffs have confidence in their contention that the Court should certify the class, then the plaintiffs should have no objection to making an investment.” Judge Baylson went on to say that the "Court is firmly of the view that discovery burdens should not force either party to succumb to a settlement that is based on the cost of litigation rather than the merits of the case.” 2012 WL 3536306, at *10. We have posted before about the dangers of blackmail settlements.

This case involved five named plaintiffs who alleged breach of contract and unfair trade practices related to alleged attempts to cancel their fitness club memberships. The parties were before the court on plaintiffs’ motion to compel production of additional documents and electronically stored information (“ESI”). One example of the parties’ disagreements involved defendant’s internal communications.  Defendant claimed that large numbers of internal memoranda had already been provided, while plaintiffs held fast to their demand that absolutely “all responsive internal documents” be identified and produced. The court compared the parties’ discovery dialog to “a Verdian opera scene, where a tenor and a bass boast of their qualities, to compete to win over the fair princess.” 2012 WL 3636306, at *2.

Recognizing that discovery in the case was “asymmetrical,” the court contrasted the “very few documents” in plaintiffs’ possession – e.g., their membership contract and related  correspondence – with the millions of potentially discoverable items in defendant LA Fitness’s possession. “The Court does not in any way suggest that counsel is acting otherwise than in the interests of their clients, but economic motivation and fairness are relevant factors in determining cost shifting of disputed discovery burdens,” Judge Baylson said. 2012 WL 336306, at *4.

“Plaintiffs have already amassed, mostly at Defendant’s expense, a very large set of documents that may be probative as to the class action issue,” the court opined. “If Plaintiffs conclude that additional discovery is not only relevant, but important to proving that a class should be certified, then Plaintiffs should pay for that additional discovery from this date forward, at least until the class certification is made.” 2012 WL 3536306, at *10.

My colleague Mark Cowing (many of our readers know Mark from his work on DRI’s Electronic Discovery Committee), pointed out that the court established a protocol by which the plaintiffs would list discovery that they still requested, being “specific as to what searching of ESI, or hard documents, is required.” Defendant’s response would include its internal costs for providing this information, including “the appropriately allocated salaries of individuals employed by Defendant who participate in supplying the information which Plaintiffs request, including managers, in-house counsel, paralegals, computer technicians and others involved in the retrieval and production of Defendant’s ESI.” 2012 WL 3536306, at *11. Plaintiffs would then be required to advise whether they were willing to make the necessary payment. Judge Baylson concluded the time-line by saying that “[t]he Court reserves the right to make an allocation of these costs depending upon the outcome of the class action motion and/or the merits of the case.” Id.

To help guide the process, the opinion itemized the categories of information that were considered to be relevant and irrelevant (i.e., “inside and outside the fence”) while certification remained pending. Citing the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2451 (2011), Judge Baylson noted that “the most relevant discovery at this stage of the case is that which will illuminate the extent to which Defendant’s membership cancellation policies and practices are set and followed nationally; Plaintiffs must show either that individual managers have no discretion or that there is a common mode of exercising discretion that pervades the entire company.” 2012 WL 3536306, at *11 (internal quotation marks omitted).

SHB’s Suggestions for Defense Counsel

I asked Mark, Becky, and my partner Denise Talbert, who chairs SHB’s eDiscovery, Data & Document Management Practice, for some e-discovery pointers for our readers, in light of this potentially important discovery decision. They suggest that defendants: 

1. From the outset, maintain a record of the volume, cost, and custodians of documents and ESI reviewed for responsiveness and produced to opposing counsel.

2. In responses to plaintiffs’ requests for production, take care to (a) describe what defendant is willing to produce without objection; (b) specify the parts of plaintiffs’ requests that are irrelevant to the claims and defenses in the case; and (c) explain how individual requests are overly broad and unduly burdensome.

3. Be alert for opportunities where defendant may be able to offer to produce only examples of certain types of documents “sufficient to show” notice or some other specific fact. This can reduce costs associated with the production of repetitive documents such as articles and monthly reports.

4. Proactively seek agreement on the custodians and sources from which collection and production will be made. Emphasize the value of first producing from a core group of custodians (hopefully no more than three to five) and defendant’s willingness to meet and confer about reasonable requests to search additional sources after plaintiffs have reviewed the initial production.

5. Don’t jump the gun on a cost-shifting motion. It may well be stronger once a threshold volume of information has been produced and plaintiffs’ further requests begin to appear even more onerous.

6. Consider these approaches not only in class actions but in all complex cases in which a client is asked to produce documents and ESI in large volumes. 
 

Duke Hosts Conference on Civil Rules

At the request of the Standing Committee on Rules of Practice and Procedure, the Advisory Committee on Civil Rules sponsored a conference last week at Duke University School of Law. The purpose of the conference was to explore the current costs and burdens of civil litigation, particularly discovery, and to discuss possible solutions. The Conference was designed in part to highlight some new empirical research done by the Federal Judicial Center, and others, to assess the degree of satisfaction with the performance of the present system and the suggestions of lawyers as to how the system might be improved.  The Conference included insights and perspectives from lawyers, judges and academics, on the discovery process (particularly e-discovery), pleadings, and dispositive motions. Other topics considered included judicial management and the tools available to judges to expedite the litigation process, the process of settlement, and the experience of the state courts on these issues.

Specifically, the empirical data from the FJC was discussed by Judge Rothstein, and Emery Lee and Tom Willging of the FJC; the ABA Litigation Section research data was to be reported by Lorna Schofield; the NELA Data was next.  Prof. Marc Galanter commented on vanishing jury trial data. Litigation cost data from the Searle Institute, and RAND data were circulated. The next section of the agenda focused on pleadings and dispositive motions, fact based pleading, Twombly, Iqbal. Participants included several judges and academics. The following panel asked about excessive discovery, and included practitioners, judges, and academics. The judicial management issue, and the level of early judicial involvement, was next.

Day Two focused on e-discovery and the degree to which the new rules are working or not.  The U.S. Chamber Institute for Legal Reform weighed in with a white paper.  The conference turned next to whether the process was structured sufficiently for trial and settlements as they really occur, i.e., should the endgame be viewed as settlement rather than trial. Corporate counsel, outside lawyers, public and governmental lawyers weighed in next. The following panel offered perspectives from the state courts. Finally, the Bar Association and lawyer group proposals were on the table. The Lawyers for Civil Justice, DRI, Federation of Defense & Corporate Counsel, and International Association of Defense Counsel submitted a white paper.

One speaker summed up the two-day discussion, suggesting that consensus had formed around the proposition that federal judges should provide strong, early, consistent case management, although plaintiff lawyers felt there was no need to give the judges any more formal authority.  But there was great disagreement on critical questions of the scope of discovery, the breadth of possible voluntary disclosures, and pleading requirements. Readers have read my posts about  Twombly and Iqbal, which clarified the requirements of what must be included in a complaint.

A survey of the Oregon system, a fact-based pleading approach, was presented by the Institute for the Advancement of the American Legal System. It has not led to more dismissals, and most observers agreed that fact-based pleading was revealing the key issues and narrowing the contentions earlier. 

The notion that the cost of the process is so large that it may be making litigation beyond the reach of many potential litigants is something a number of participant expressed concern about. One judge noted that he now requires lawyers to estimate the costs of discovery, and report that to their client. One participant raised the issue of cutting off discovery for defendants who move to
dismiss, although it is unclear how that would be an effective remedy for any current unsatisfactory case management methods.

 

DRI Webinar on FRE 502 Worth a Listen

Readers recognize how the discovery landscape has changed, and not necessarily for the better, with the amendments to the Federal Rules of Civil Procedure regarding electronic discovery. We are also coming up on the two-year anniversary of Federal Rule of Evidence 502, intended to address concerns about the disclosure of information protected by the attorney-client privilege or work product doctrine, including inadvertent disclosures.

An interesting upcoming DRI webcast in June will discuss how Rule 502 has impacted discovery strategy, document review, and document disclosures, with a focus on the production of documents in the electronic age. The speakers will also discuss how courts have addressed the new rule, how those cases impact your mass tort and complex litigation practice, and how to advise your clients on these issues.

Check out the brochure.

California Enacts E-Discovery Reform

California Gov. Arnold Schwarzenegger has signed into law a new enactment governing e-discovery in that state.  Readers of MassTortDefense know what a significant issue electronic discovery has been in products litigation, particularly since the amendments to the Federal Rules of Civil Procedure more specifically focused on e-discovery issues. Rather than a device to uncover relevant facts for the litigation, e-discovery often is about plaintiffs’ attempt to find some alleged misstep by the defendant that will bring sanctions.

The Governator signed the Electronic Discovery Act, establishing new rules and procedures for litigants who seek electronically stored information.  The law is designed to make discoverable only  those reasonably accessible sources of electronic data, and it provides that litigants shouldn't be sanctioned for losing data through the ordinary operation of an electronic system. The law establishes that a party may move for a protective order from an electronic discovery request on the grounds that the information sought is inaccessible, though it gives courts discretion to require limited discovery in those cases if the demanding party shows good cause, subject to specified restrictions in specified circumstances.

California courts may also limit electronic discovery from accessible sources if they determine that the information sought could be obtained by other means, is duplicative, or if the expense of
the discovery outweighs its likely benefit. While the Electronic Discovery Act allows courts to
impose sanctions on parties which fail to comply adequately with discovery requests, the courts shall not impose sanctions on a party (or any attorney of a party) for failure to provide electronically stored information that has been lost, damaged, altered or overwritten as the result of the routine, good faith operation of an electronic information system.

The new law also requires discovered materials to be produced in the form in which they are kept in the ordinary course of business.

MassTortDefense noted that a survey by the U.S. Chamber of Commerce Institute for Legal Reform of chief legal officers at Fortune 100 companies revealed that:

-On average, 45‐50% of respondents’ civil litigation costs in 2007 related to discovery activities.

-Discovery of ESI accounted for, on average, a significant share (between 33‐39%) of total discovery costs.

-Costs associated with e‐discovery vendors were reported in 63% of large cases. When used, e‐discovery vendors accounted for, on average, 10‐12% of total costs.

-About 61% of case respondents felt that certain discovery requests received from the opposing party were designed to impose undue settlement pressure by increasing the costs to continue the litigation.

-In both state and federal court, the company respondents reported that more than half of their civil litigation matters involved the receipt of discovery requests that sought information beyond the claims or defenses at issue.

- About 31% of company respondents reported that at least 40% of the time ESI requested from them by the opposing party is not reasonably accessible.

This bill is to take effect immediately as an urgency statute.
 

MDL Court Permits ESI Discovery

Readers of MassTortDefense are aware of the significant risks that plaintiff e-discovery tactics pose in product liability and toxic tort contexts. Rather than a device to uncover relevant facts for the litigation, e-discovery often is about plaintiffs’ attempt to find some alleged misstep by the defendant that will bring sanctions.

In multi-district litigation arising out of the manufacture of allegedly defective plumbing fittings, the U.S. District Court for the District of Minnesota recently ordered the defendant to name a witness to be deposed on whether it preserved evidence dating back to its notice of likely litigation, before a putative class suit was filed. In re: Zurn Pex Plumbing Products Liability Litigation, D. Minn., MDL No. 08-1958.

Plaintiffs allege that the defendant erred in its document preservation efforts three years before any litigation was actually filed, claiming that the number of warranty claims to the company somehow triggered a duty to preserve. However, in late October 2007, the parties were ordered to engage in focused discovery on the issue of class certification, and discovery of electronically stored information was limited, absent a showing of easy accessibility at an affordable cost.

Plaintiffs moved to compel a Rule 30(b)(6) deposition and identification of a 30(b)(1) deponent as they sought to depose a corporate representative regarding document retention practices and possible spoliation of evidence. Defendant resisted, arguing that plaintiffs have no reason to believe evidence has been destroyed; the requests are unreasonably burdensome; and the requests violate the prior discovery orders.

The court, however, permitted the deposition limited to determining whether discoverable evidence had been inadvertently destroyed. The court noted that case law requires plaintiffs to designate, with painstaking specificity, the particular subject areas that are intended to be questioned, and that are relevant to the issues in dispute,” but found somehow that plaintiffs had done so by "circumscribing" their request to information concerning the identified risk of litigation for Zurn Pex, Inc. with respect to its brass fittings.

Yet another cautionary tale from the world of ESI.  It is crucial for defendants to retain counsel who can assess and advise on the e-discovery issues.


 

E-Discovery Relief?: Congress Passes Bill To Reduce Risk Of Inadvertant Disclosure Of Privileged Material

Congress has passed and sent to the President a bill that amends the Federal Rules of Evidence with respect to the disclosure of a communication or information covered by the attorney-client privilege or work product protection. The bills S. 2450/H.R. 6610 limit the effect of inadvertent disclosure of privileged materials. The Senate passed S.2450 in February, 2008, and the House passed the identical H.R. 6610 last week.

One unfortunate aspect of the new e-discovery rules has been a tremendous cost due to the need to review ESI, particularly emails, to make sure that privileged information is not given to the other side. Mass tort defendants, in particular, must often sift through a mountain of documents to ensure that privileged material is not inadvertently released. While most documents produced during discovery have little value, attorneys must still conduct exhaustive reviews to prevent disclosures of the needle in a haystack that reveals confidential information. The cost to litigants is staggering and the time consumed by courts to supervise these activities can get excessive.

The bill impacts this problem not by changing the law on the attorney-client privilege or the work product doctrine, but by modifying the consequences of an inadvertent disclosure once a privilege exists, through creation of new Federal Rule of Evidence 502. The federal rules committees studied this problem in connection with various proposals to change the discovery rules. The rules committee concluded that the need for exhaustive preproduction privilege reviews could be significantly reduced if the risks of waiver were clarified and limited, and thus recommended the bill’s changes.

The bill provides that, in new Rule 502(a), when a disclosure is made in a federal proceeding (or to a federal office or agency), and that disclosure waives the attorney-client privilege or work-product protection, the waiver extends to an undisclosed communication or information only if: (1) the waiver is intentional; (2) the disclosed and undisclosed communications or information concern the same subject matter; and (3) they ought in fairness to be considered together. When the disclosure is made in a federal proceeding (or to a federal office or agency), under new Rule 502(b), it does not operate as a waiver in a federal or state proceeding if: (1) the disclosure is inadvertent; (2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and (3) the holder promptly took reasonable steps to rectify the error. 

Maybe a small step in the right direction.