Pursuit of Overbroad Discovery Leads to Cost-Shifting of Almost $850,000

A Magistrate Judge shifted almost $850,000 in discovery expenses in a decision that “may become the new ‘gold standard’” for discovery cost-shifting analysis.

Last summer, in Lawson v. Spirit AeroSystems, Case No. 18-1100-EFM-ADM (D. Kan. June 18, 2020), a Magistrate Judge issued an order on shifting discovery costs that “may become the new ‘gold standard’” model for analysis of such motions under FRCP 26(c)(1)(B). That order was later upheld by the Judge in the case, resulting in the shifting to the requesting party of over $750,000 in costs associated with conducting a technology-assisted review process and almost $100,000 in expenses associated with the application.

Initial Discovery Disputes in Lawson v. Spirit AeroSystems

Lawson is a legal dispute over the interpretation of a non-compete clause and whether or not the former employee plaintiff breached it. The matter involved extensive discovery and extensive discovery disputes, with the plaintiff constantly pushing for more and broader ESI discovery to take place. Early in the process, the plaintiff:

. . . had demanded that Spirit search 69 custodians’ ESI plus each custodian’s assistant’s ESI. Lawson had also demanded that Spirit run these searches using about 90 search terms. Many of these terms contained one or more “OR” connectors, and therefore the effective number of search terms far exceeded 100. None of the search terms were tailored to specific custodians. [internal citations omitted]

Spirit identified four of the proposed custodians “that Spirit believed would be most likely to have relevant and responsive information” and ran the proposed searches to check for relevant ESI.  These searches “returned more than 320,000 documents, of which Spirit reviewed approximately 400 and determined that 85% were irrelevant.” Since that approach did not appear effective, Spirit instead used custodian interviews to identify relevant materials, which is then collected and produced.

Narrowing ESI Protocol

Eventually, the court became involved and worked with the parties to develop a narrower ESI protocol involving fewer custodians, which Spirit would search and sample “to determine responsiveness rates, and suggest modified search terms if the sampling revealed an unreasonably large number of non-responsive or irrelevant results.” The court also established a goal responsiveness rate of 85%:

The court directed the parties to work together on search terms to try to achieve an 85% responsiveness rate. The court explained that “we’re not going to run these really broad search terms that end up in ridiculous numbers of unresponsive documents. You might lose some responsive documents somewhere along the way, but there’s got to be a tradeoff, at some point . . . 85 percent to me seems like a pretty fair cutoff.”  [internal citations omitted]

Unfortunately, this did not resolve the discovery issues, as the plaintiff selected custodians not recommended by Spirit (a decision the court said “would be at his own peril”) and expanded his search term list even further.  As a result, the searches run on the ESI collected from the selected custodians “returned 304,272 documents, or 468,595 documents including families, for a total of approximately 200 GB of data” and sampling the results showed “that only 7.8% were responsive.”

The court stepped in again, this time to limit the number of search terms being used, but the revised searches were even less effective. They still resulted in voluminous results (322,000 documents), and the “responsive rates for each custodian ranged from 0.5% to 13.5%, with an average across all custodians of 5.1%.”  Spirit argued that reviewing these materials would not be “proportional to the needs of the case,” that it would result in only “a small number of relevant documents,” and that “these technically responsive documents are largely irrelevant to the dispute.”

Turning to Technology-Assisted Review

At this point in the discovery process, “the parties abandoned efforts to refine search terms to meet the 85% responsiveness-rate goal, and they began discussing the option of conducting a TAR of the 322,000-document set.”

By this time, Spirit had already spent around $139,000 on the three search sampling exercises it had conducted, as well as significant additional expenditures on the parallel path it had been pursuing “the ‘old-fashioned way’ of targeted productions via custodian interviews and collections,” which had already resulted in the production of “approximately 4,700 documents, totaling approximately 40,000 pages,” and which it wished to continue pursuing. The plaintiff, however, wanted to continue to pursue the search results:

Given this, the court raised the possibility of adjusting the case schedule in order to allow the parties to proceed with TAR, with Lawson bearing the TAR costs.  The parties did not agree as to the allocation of costs at that time, but they agreed to move forward with the TAR process subject to Spirit filing a motion to shift those costs to Lawson.  [internal citations omitted]

Spirit estimated at that time that pursuing a TAR review of the search results would cost “$250,000-$400,000 in eDiscovery and document review costs, and $40,000-$60,000 in outside counsel time, as well as additional costs not yet identified.” The plaintiff indicated that he wished for Spirit to proceed with the TAR review and production process.

The TAR Process Results

After two months of work, “Spirit reported that it had reached a 68.5% recall rate, but that Lawson did not believe that was sufficient.” Spirit agreed to continue its review work until it achieved an 80% recall rate, “but with the understanding that continued review would be subject to this motion to shift costs.” Spirit eventually achieved an 85% recall rate, and in the end, only 3.3% of the 322,000 documents were responsive. The plaintiff tried to compel Spirit to continue review and production beyond the 85% recall rate, but:

The court denied this motion because Lawson refused to bear Spirit’s costs to review and produce the residual TAR documents, no authority supported what Lawson was effectively seeking (a 100% recall rate), and further review was not proportional to the needs of the case.

The Cost-Shifting Motion

At the conclusion of the TAR process, Spirit proceeded with its promised motion to “shift all costs and attorneys’ fees associated with the TAR to Lawson under Rule 26(c),” as had been discussed by the court and the parties the preceding summer.  Spirit argued that it had already engaged in extensive and expensive discovery efforts prior to undertaking the TAR process and that shifting the costs of the TAR process to Lawson was necessary “in order to enforce proportionality standards.”  The plaintiff argued that cost-shifting was not appropriate because “the court may only shift costs for ESI that is not reasonably accessible.”

The court began its analysis by rejecting the plaintiff’s framing (“misapprehends the applicable legal standards”) and reviewing the history of discovery cost-shifting under the federal rules.  Starting with the old Zubulake approach that allowed “cost-shifting only when electronic data is relatively inaccessible,” followed by the subsequent cases that changed this (“that approach is no longer accepted”), and concluding with the 2015 amendments to the FRCP 26(c)(1):

That rule now expressly authorizes a court to issue an order for a good cause to protect a party from undue burden and expense including specifying the terms of discovery such as “the allocation of expenses for the disclosure or discovery.” FED. R. CIV. P. 26(c)(1)(B). Thus, the rule confirms the court’s authority to allocate expenses, even where ESI is reasonably accessible.

The court also noted that “the parties’ own agreement about the possibility of allocating costs was not limited to non-reasonably accessible ESI.”

The court then proceeded to analyze the motion for cost-shifting under FRCP 26(c)(1) by using the six proportionality factors from FRCP 26(b)(1) “to determine whether discovery imposes undue burden or expense such that allocating expenses under Rule 26(c)(1)(B) is warranted.”  Those six factors are:

1. Importance of the Issues at Stake in the Action
   • No public policy implications or broader social impact, so: “This factor weighs against the need for far-reaching discovery measures.”

2. The Amount in Controversy
   • The costs are “not necessarily unreasonable” given the amount at stake, but may still have been unreasonable given how much had already been spent by Spirit: “The fact that a plaintiff seeks millions in relief does not give him or her license to conduct fishing expeditions that run up the cost of discovery.”

3. The Parties’ Relative Access to Relevant Information
   • Spirit actively engaged in finding and producing the relevant information in its possession, and the parties have equal access to relevant information held by third parties, so: “This factor is therefore neutral.”

4. The Parties’ Resources
   • Although this case involves an individual and a large corporation, the individual is high net worth and also backed by significant outside funding: “Ultimately, this factor is neutral. It does not weigh in favor of or against shifting expenses. Both parties have sufficient resources to bear their fair share of litigation expenses.”

5. The Importance of the Discovery in Resolving the Issues
   • “. . . Lawson has not articulated how documents produced through the TAR process were not just relevant (and hence duplicative for evidentiary purposes), but uniquely relevant in such a way that they were important to resolving the issue of “Business” overlap. This factor weighs heavily in favor of allocating the TAR expenses to Lawson.”

6. Whether the Burden or Expense of the Discovery Outweighs Its Likely Benefit
   • “In sum, the substantial burden and expense of the TAR process far outweigh the likely benefits. This factor weighs heavily in favor of allocating TAR expenses to Lawson.”

Based on its analysis of these factors, the Magistrate Judge concluded that: “By mid-September 2019, Lawson’s continued pursuit of the ESI dataset via TAR was not proportional to the needs of the case.” Given this conclusion and the fact that the court had warned the plaintiff “that it would allocate ESI costs if he continued to pursue needlessly overbroad discovery,” the Magistrate Judge shifted TAR process costs to the plaintiff:

The court is mindful of the default rule that the producing party should ordinarily bear the costs of production, and therefore finds good cause to require both parties to bear some portion of the expenses for the overall ESI/TAR process on the issue of competitive overlap between Spirit and Arconic. Spirit has already borne approximately $150,000 through the ESI sampling exercises. Because Lawson is the party that wanted to proceed with the TAR process at a point in time when it was disproportional to the needs of the case, the court will allocate the TAR expenses to Lawson to protect Spirit from undue burden and expense. This results in the parties splitting the overall ESI/TAR expenses roughly 20%/80%.

The plaintiff later challenged the Magistrate Judge’s decisions with the Judge in the case, hoping to reverse or reduce the shifted costs, but the Judge was not persuaded:

Even though a costly and overly thorough electronic discovery process produces some fruit does not prove that the discovery was proportionate to the case. The Magistrate Judge did not order costs shifted based on the forecast of an entirely fruitless TAR search. Rather, the Judge simply decided—within her sound discretion—that what little fruit would come from the search did not justify Spirit solely bearing its financial burden.

The Ultimate Cost

In a subsequent order, the court determined that “Spirit reasonably incurred $449,999.21 in expenses . . . and $304,030.25 in attorneys’ fees, totaling $754,029.46.”  Additionally, the court granted Spirit “its expenses reasonably incurred in preparing the current application” with the exact amount to be determined later. That amount was eventually determined to be $94,407.25, bringing the total amount of shifted costs and fees to $848,436.68.