If the Proportionality Doesn’t Fit, Courts May Cost-Shift
September 30, 2020
Generally, the party producing discovery bears the costs of production. But, shifting to the non-producing party the costs of production is sometimes warranted. This issue was recently tackled by a Kansas District Court in the matter Lawson v. Spirit AeroSystems, 2020 WL 3288058 (D. Kan. June 18, 2020).
Following his retirement from Spirit AeroSystems, Inc.’s (“Spirit”), plaintiff Larry A. Lawson (“Lawson”), the former CEO of Spirit, began consulting for non-party Arconic, Inc. (“Arconic”). Spirit contended this consulting amounted to a breach of Lawson’s retirement agreement, which contained a non-compete provision. As a result, Spirit discontinued Lawson’s retirement benefits and demanded he reimburse Spirit the amounts already paid to him. Lawson brought suit, arguing that Spirit and Arconic are not in the same “business,” and thus the non-compete provision in his retirement agreement was never triggered.
Discovery in the lawsuit was focused largely on the issue of whether Spirit and Arconic are in the same “business.” In connection with discovery of electronically stored information (“ESI”), Lawson insisted on protocols that led to overbroad results, yielding low percentages of responsive documents, and even lower percentages of relevant documents.*
The parties then conducted a technology assisted review of the more than 300,000 collected documents, which yielded a 3.3% responsiveness rate. The responsive documents were produced. Dissatisfied, Lawson filed a motion to compel Spirit to produce the documents reviewed by TAR beyond those already produced. In response, Spirit sought to shift all costs and attorney’s fees associated with the production to Lawson under Federal Rule 26(c). Spirit argued that it spent months collecting, processing, hosting, and searching millions of documents from custodians selected by Lawson and using search terms selected by Lawson; a process which cost hundreds of thousands of dollars and which resulted only in a small percentage of responsive or relevant documents. In opposition, Lawson argued that cost-shifting is only available for ESI that is not reasonably accessible, pursuant to Rule 26(b)(2)(B). The court did not agree.
Good Cause & Proportionality
The Lawson court instructs that Rule 26(c), “is not limited to non-reasonably accessible discovery,” but rather was “amended in 2015 to make clear that the court may allocate discovery expenses for good cause in order to protect a party from undue burden or expense.” To establish “good cause” the “moving party must make a particularized and specific demonstration of fact, as distinguished from stereotyped and conclusory statements,” and the court has “broad discretion” in whether good cause has been established.
In Lawson, the court, in deciding to shift costs, reviewed Rule 26(b)(1)’s proportionality factors. Specifically, “the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Here, the court concluded:
- the action was a private lawsuit over an executive’s severance package, not a suit with significant public policy implications;
- although the TAR expenses were not unreasonable compared to the amount in controversy, Spirit had already bore considerable amounts in discovery expenses;
- both parties had adequate resources to bear their fair share of discovery expenses;
- apart from the ESI/TAR process, Spirit produced substantial discovery collected the “old-fashioned way” of targeted productions via custodian interviews and collections;
- Lawson had equal access to that discovery; and
- Lawson had not articulated how the documents sought via the TAR process were important to resolving the issues above and beyond the discovery Spirit already produced.
The Lawson court reviewed all the factors, and in the end determined that Lawson’s “continued pursuit of the ESI dataset via TAR was not proportional to the needs of the case.” While the court was careful to mention that the 2015 amendment to Rule 26 does not imply that cost-shifting should become common practice, Lawson offers considerable insight into facts which warrant cost-shifting, and the court’s discretion in awarding the same.
*Lawson was also expansive in the custodial data he sought and the search terms he insisted upon. For example, he demanded Spirit search sixty-nine (69) custodians’ ESI plus each custodian’s assistant’s ESI. Lawson also demanded using ninety (90) search terms, many of which containing “OR” connectors, resulting in the effective number of search terms in excess of 100. Of note, 85% of the documents yielded in result of these searches were irrelevant.
**Thank you to first year associate, Jaclyn Ruggirello in the Firm’s Uniondale office, for her research assistance related to today’s blog.
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