Updates to Commercial Division Rules Concerning Discovery of ESI
April 14, 2022
As we approach the 30th Anniversary of New York’s Commercial Division, it’s fair to say that over those 30 years, the Commercial Division has held true to its aim of improving the efficiency and judicial treatment of complex commercial matters. One of the primary ways it does so is through its commitment to continually review and revise its Commercial Division Rules to better meet the needs of the parties and cases appearing before it. Implementing and enforcing rules developed with efficiency in mind and after careful consultation with Judges and practitioners alike is no small contributor to the success of the Commercial Division.
The latest advancement of the Commercial Division Rules concerns the phase of litigation that has recently exploded in its importance and cost: the collection, review, and production of electronically stored information (“ESI”).
On March 7, 2022, Chief Administrative Judge Lawrence K. Marks signed an administrative order amending Rules 1, 8, 9, 11-c, 11-e 11-g and Appendices of section 202.7(g) of the uniform rules of practices for the Commercial Division of the Supreme Court and county courts. These changes took effect on April 11, 2022.
The majority of these amendments to the Commercial Division Rules are aimed at modernizing and streamlining the rules concerning ESI. Here are some notable highlights:
Rule 11-c and Appendix A Now Apply to Party Discovery
Appendix A to the Commercial Division Rules, formerly titled “Guidelines for Discovery of Electronically Stored Information from Nonparties,” has long been a great resource for commercial litigators navigating the ESI landscape. It contains guidance on everything from preservation and collection, to native-format production guidelines, to technology assisted review. But, until now, Appendix A was expressly limited to discovery of ESI from non-parties.
The revisions broaden Rule 11-c and Appendix A so that they now apply equally to ESI discovery between parties:
Parties and nonparties should consult the Commercial Division’s Guidelines for Discovery of Electronically Stored Information (“ESI”) (the “ESI Guidelines”), which can be found in Appendix A to these Rules of the Commercial Division. The ESI Guidelines are advisory and should be applied to the extent appropriate under the circumstances.
While the revised Rule 11-c only requires parties to “consult” the ESI Guidelines and clarifies that they remain “advisory,” their express applicability to party-discovery is a welcome development. Counsel would be wise to study the revised Appendix A.
Proportionality Reigns Supreme
Given the costs and complexities associated with discovery of ESI, it is no longer difficult to imagine the case where ESI costs start to approach or exceed the amount in controversy. Revised Rule 11-c reinforces that ESI collection, review, and production must be proportional to the case:
The costs and burdens of discovery of ESI shall be proportionate to its benefits, considering the nature of the dispute, the amount in controversy, and the importance of the materials requested to resolving the dispute. A court may deny or modify disproportionate requests or order disclosure on condition that the requesting party advance the reasonable cost of production to the other side, subject to the allocation of costs in the final judgment.
The express adoption of a proportionality requirement gives parties a foothold to argue against the overlitigation of ESI discovery, and I expect that the Justices of the Commercial Division will gladly accept the Rules’ new invitation to limit discovery of ESI where costs threaten to skyrocket.
Adoption of the Zubulake Cost-Shifting Framework
In 2003, the United States District Court for the Southern District of New York established seven considerations that courts should weigh in determining whether to shift the costs of an ESI collection, review, and production (Zubulake v UBS Warburg LLC, 217 FRD 309 [SD NY 2003]). The Appellate Division, First Department, adopted the considerations articulated in Zubulake in 2012 (U.S. Bank Nat. Ass’n v GreenPoint Mtge. Funding, Inc., 94 AD3d 58, 64 [1st Dept 2012]). The seven factors are:
(1) The extent to which the request is specifically tailored to discover relevant information;
(2) The availability of such information from other sources;
(3) The total cost of production, compared to the amount in controversy;
(4) The total cost of production, compared to the resources available to each party;
(5) The relative ability of each party to control costs and its incentive to do so;
(6) The importance of the issues at stake in the litigation; and,
(7) The relative benefits to the parties of obtaining the information.
Revised Appendix A to the Commercial Division Rules adds a section that addresses potential shifting of ESI costs between parties. The provision states that “as a general matter, the producing party should bear the cost of searing for, retrieving, and producing ESI,” but it also reinforces the courts’ broad authority to shift costs between parties, and expressly adopts the seven Zubulake factors.
Default Claw-back Rules for Inadvertent Production of Privileged ESI
Prior versions of the Commercial Division Rules included in Appendix E a proposed claw-back provision to be utilized “in the even the parties wish to incorporate a privilege claw-back provision.” The revised rules include a default claw-back provision for the inadvertent production of ESI, which automatically applies unless the parties agree otherwise. Revised Rule 11-c[g] states:
Inadvertent or unintentional production of ESI or documents containing information that is subject to the attorney-client privilege, work product protection, or other generally recognized privilege shall not be deemed a waiver in whole or in part of such privilege if the producing party (i) took reasonable precautions to prevent disclosure, and (ii) after learning of the inadvertent disclosure, promptly gave notice either in writing, or later confirmed in writing, to the receiving party or parties that such information was inadvertently produced and requests that the receiving party or parties return or destroy the produced ESI. Upon such notice, or as otherwise required, the receiving party or parties shall promptly return or destroy all such material, including copies, except as may be necessary to bring a challenge before the Court. The parties may extend or modify the protections and duties of this provision by written agreement, as provided in Rule 11-g(c), which shall be submitted to the Court to be ordered. Nothing in this rule shall abridge a lawyer’s obligations under Rule 4.4(b) of the New York Rules of Professional Conduct concerning a lawyer’s receipt of documents that appear to have been inadvertently sent.
Given the increased risk of an inadvertent production of privileged communications in a massive ESI production, a default claw-back provision should be a welcome addition to parties and their counsel.
According to the Office of Court Administration’s memo, the goal of these changes is to “address e-discovery in a more consolidated way, modify the rules for clarity and consistency, expand the rules to address important ESI topics consistent with the CPLR and caselaw, and to provide further detail in Appendix A – Proposed ESI Guidelines than is practical in the Commercial Division Rules.” Time will tell whether these changes will have their desired effect.