by
Pepper Hamilton LLP   View Firm Credentials
Philadelphia Office

March 1, 2005

he Sixth District of the California Court of Appeals recently issued a new opinion on shifting the cost of electronic discovery to the party demanding the discovery. In Toshiba America Electronic Components, Inc., v. Lexar Media, Inc., 21 Cal.Rptr.3d 532 (2004), the court vacated the opinion of the trial court granting Lexar Media, Inc.'s motion to compel production of all responsive documents contained in Toshiba America Electronic Components, Inc.'s (TAEC) electronic backup tapes. The court remanded the case to the trial court with instructions to determine what portion of the cost Lexar should bear in recovering the electronic discovery.

In 2002, Lexar sued TAEC and TAEC's parent company, Toshiba, Inc., for misappropriation of trade secrets, breach of fiduciary duty and unfair competition. Lexar served TAEC with a request for production and inspection of 60 categories of documents. Lexar defined "documents" to include "electronic mail" and "other forms of electronically or magnetically maintained information."

After TAEC produced more than 20,000 pages of documents responsive to many of the 60 categories, TAEC responded that it had produced all of the "readily available" responsive documents. Accordingly, a dispute arose about who should pay for recovery of additional responsive material, specifically e-mail correspondence, stored in TAEC's computer backup tapes.

TAEC had more than 800 backup tapes for the pertinent time period. TAEC hired an electronic discovery specialist to examine the tapes. According to the specialist, the data on the tapes had to be manipulated by various methods to find out what was on them. The processing of all the tapes would cost between $1.5 and $1.9 million. TAEC approached Lexar with this estimate and requested that Lexar bear some or all of the costs, depending on how many tapes Lexar wanted processed. Lexar refused. Lexar filed a motion to compel, demanding all responsive documents contained in the backup tapes. Anticipating TAEC's argument that Lexar should bear part of the cost, Lexar argued that cost shifting would be unfair because TAEC had admitted that the tapes were "not in the best condition for discovery."

The trial court granted Lexar's motion to compel without comment or explanation and ordered TAEC to produce all non-privileged e-mails from its backup tapes within 60 days. TAEC petitioned for a writ of mandate and requested a stay of the trial court's order. The Court of Appeals issued a temporary stay and asked the parties to address the application of §2031 of the California Civil Procedure Code, which provided the discovery procedures for demanding and producing documents. The only dispute to be resolved by the court was whether the phrase "at the reasonable expense of the demanding party" of section 2031(g)(1) is a mandatory cost-shifting provision or whether it merely permits the trial court to shift the cost to the demanding party when the responding party objects.

The court found that although §2031 was modeled on Federal Rule 34, the California legislature intended §2031 to conflict with the federal rule by imposing the expense of translation of data upon the demanding party. Section 2031(g)(1) specifies:

Any documents demanded shall either be produced as they are kept in the usual course of business, or be organized and labeled to correspond with the categories in the demand. If necessary, the responding party shall, through detection devices, translate any data compilations included in the demand into reasonably usable form. Id. (emphasis added).

In applying the California statute, the court recognized that the general rule in both state and federal court is that the responding party bears the expense typically involved in responding to discovery requests, such as the expense of producing documents. However, the court found that the California legislature intended that "in some circumstances, principles of fundamental fairness requires the demanding party to pay any significant 'special attendant' costs beyond those typically involved in responding to routine discovery." In the court's view, §2031(g)(1) reflected a similar legislative determination, which required Lexar to bear at least some of the costs for retrieving documents contained in TAEC's computer backup tapes.

In vacating the trial court's order, the court rejected Lexar's argument that the cost shifting specified by §2031(g)(1) may only be had upon a showing by the responding party that it will suffer an undue burden or expense. The court responded that the statue does not require the responding party to make a showing that it will suffer an undue burden. All the statute requires is that the demanding party bear only its reasonable expense and then only when translation is necessary to obtain usable data.

The court also rejected Lexar's argument that statutory cost shifting would encourage gamesmanship and would divest the trial court of its traditional discretion in discovery matters, resulting in the requesting party having to always pay all costs associated with any translation of data compilation, regardless of the circumstances. The court noted that §2031 permits any party to seek a protective order when a document demand presents an "undue burden and expense," and said the reasonable and necessary requirements of the statute incorporate a measure of fairness that adequately protects the requesting party.

Although Toshiba is binding only in California, the case is noteworthy because it illustrates an emerging trend by courts to afford responding parties protection from abusive electronic discovery requests. Responding parties in future discovery disputes may be able to limit their exposure to electronic discovery requests by tracking this trend in their own jurisdictions.

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