In 2013 I wrote a Litigation News column titled “A Trend Toward Cost-Shifting in Discovery?” The story began by citing Pippins v. KPMG, a federal case in which KPMG objected to the e-discovery sought by Pippins on the ground that it would cost almost $21 million to organize the electronic records sought. Nevertheless, the court made the conventional ruling that each party must bear its own litigation costs, and KPMG was ordered to make the production at its own expense.
I noted that Rule 26 as then written implicitly allowed for cost-shifting, and in a number of cases, courts did exactly that. I discussed three such cases—Schweinfurth v. Motorola, Inc., Boeynaems v. LA Fitness Int’l, LLC, and FMC v. Asset Management Holdings, LLC—but there were many others, some cited in those three decisions. I then asked whether this signified a trend toward cost-shifting. My conclusion: Absent further rule amendments to address the escalating complexity and costs of discovery, “there seems little doubt that judges will increasingly lower the bar for application of the cost-shifting mechanisms already in the rules.”
On December 1, 2015, Rule 26 (among others) was amended, and the question now is, what has happened since then to cost-shifting in discovery? Amended Rule 26(c)(1)(B) recites in pertinent part:
A party . . . from whom discovery is sought may move for a protective order. . . . The court may, for good cause, issue an order to protect a party or person from . . . undue burden and expense, including . . . [s]pecifying terms, including time and place or the allocation of expenses, for the disclosure or discovery.
Although there may be more cases treating the amended rule by the time you read this column, at the time of writing, I found only four: In re Buccaneer Resources, LLC, Gaudet v. GE Industrial Services, U.S. ex rel. Bibby and Donnelly v. Wells Fargo Bank, N.A., and Lopez v. United States. In Buccaneer, directors of a company in bankruptcy sought $800,000 in costs for depositions noticed by the trustee. The court approved the award, but its decision is of limited utility in a non-bankruptcy setting, as the funds were paid from the bankruptcy estate—that is, the company’s own money, rather than from the requesting party in the conventional sense.
In Gaudet, the plaintiff, who was injured by a defective switchgear in his employer’s refinery, sued the manufacturer, who, in turn, sought to inspect the machinery. The employer objected on the ground that there were only two ways to do the inspection—either with the switchgear out of operation or while it was running. The former was cost-prohibitive, as the plant would lie idle if the machinery was not operating, and the latter was dangerous.
Invoking amended Rule 26(c)(1)(B), the court said that it would consider shifting the costs of the inspection (to be conducted while the switchgear was off-line) from the refinery to the manufacturer after the inspection was completed. That put both parties at risk and motivated them to develop the most efficient protocol possible. In Lopez, the court considered cost-shifting but decided, in weighing the proportionality factors in amended Rule 26(b)(1), that the discovery was not warranted even if costs were shifted. Finally, in Wells Fargo, the requestor sought loan records from the bank for a 10-year period. Wells Fargo claimed that the cost of retrieval was prohibitive. The court decided to tax the requestor with fees for discovery for a time period in which, the court felt, the likelihood of discovering damaging records was slight.
While these cases demonstrate the utility of cost-shifting under Rule 26(c)(1)(B), the question remains: Why are there so few reported decisions? The answer may lie in the intersection of other amendments in 2015: the duty to cooperate in Rule 1; proportionality, narrowing the scope of discovery to information “relevant to a claim or defense,” and elimination of the language “reasonably calculated to lead to the discovery of admissible evidence,” in Rule 26(b)(1); and the in terrorem effect of Rule 37(e) sanctions for willful e-discovery violations. When those amendments are working in concert—and the court is actively engaged in case management as contemplated by the amendments—the likelihood of discovery requests that push the envelope and necessitate consideration of cost-shifting should be diminished. The linchpin, in my view, is the degree of judicial engagement—and that remains to be seen.
Charles S. Fax is an associate editor for Litigation News.
- Charles S. Fax, “A Trend Toward Cost-Shifting in Discovery?,” Litigation News, Vol. 38, No. 3 (Spring 2013), available at http://bit.ly/LN383-Fax.
- Pippins v. KPMG LLP, 279 F.R.D. 245 (S.D.N.Y. 2012).
- Schweinfurth v. Motorola, Inc., 2008 U.S. Dist. LEXIS 82772 (N.D. Ohio Sept. 30, 2008).
- Boeynaems v. LA Fitness Int’l LLC, 285 F.R.D. 331 (E.D. Pa. 2012).
- Foreclosure Mgmt. Co. v. Asset Mgmt. Holdings, LLC, 2008 U.S. Dist. LEXIS 72513 (D. Kan. Aug. 13, 2008).
- Fed. R. Civ. P. 26(c)(1)(B), available at http://bit.ly/rule-26.
- In re Buccaneer Res., LLC, 2015 Bankr. LEXIS 4203 (Bankr. S.D. Tex. Dec. 10, 2015).
- Gaudet v. GE Indus. Servs., 2016 U.S. Dist. LEXIS 59902 (E.D. La. May 5, 2016).
- U.S. ex rel. Bibby and Donnelly v. Wells Fargo Bank, N.A., 2016 U.S. Dist. LEXIS 178458 (N.D. Ga. May 26, 2016).
- Lopez v. United States 2017 U.S. Dist. LEXIS 40739 (S.D. Cal. Mar. 21, 2017).