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(A
revised version of this article will appear in The Construction
Lawyer, Volume 23, No. 1, Winter 2003, published by
the American Bar Association's Forum on the Construction
Industry.)
By
John W. Ralls
Thelen Reid Brown Raysman & Steiner LLP
An
oil company hired a contractor to inspect and repair its
plant during an outage. After the work was completed, the
owner sued the contractor for breach of contract. The contractor
counterclaimed for breach of contract, fraud and negligent
misrepresentation.
The
owner sought the contractor's e-mails regarding the project.
The contractor objected on the grounds that the burden of
producing the e-mails outweighed any possible benefit. Alternatively,
the contractor contended that if it had to produce e-mail,
the owner should bear the entire cost of retrieval, production
and screening. The owner argued that contemporaneous internal
e-mail communications may be highly relevant to show what
the contractor knew about the project and when. The owner
also argued that the standard rule of "producing party
pays" for the costs of retrieving documents should
apply. These positions were presented to the court as part
of the owner's motion to compel.
The
court was sympathetic to the owner's relevance argument
because, among other things, the contractor sought rescission
for error and fraud, which put the contractor's knowledge
about the project directly at issue. The court concluded
that internal e-mail might be critical to the owner's defense
of those claims. Murphy Oil USA, Inc. v. Fluor Daniel,
Inc., 2002 WL 246439, 52 Fed. R. Serv. 3d 168, (E.D.
La. 2002)
The
court then turned to the question of which party should
bear the cost of retrieval, production and review of e-mail.
The court agreed with the owner that, as a general rule,
the responding party should bear the expense of complying
with discovery requests but noted that a District Court
may, in its discretion, grant orders protecting the responding
party from undue burden or expense.
The
owner contended that the contractor should simply produce
copies of its backup tapes. The contractor responded by
saying that it was not possible simply to copy the backup
tapes and that it would be highly prejudicial to permit
the owner to receive e-mail unrelated to the project or
containing privileged or confidential information. The contractor
presented evidence that it would cost $6.2 million and take
more than six months to place the e-mail in a form in which
it could be produced.
In
addressing the cost-shifting issue, the court relied heavily
on Rowe Entertainment, Inc. v. The William Morris Agency,
Inc., 2002 WL 63190 (S.D.N.Y. 2002). The Rowe
court found that the usual "producing party bears the
expense" rule does not necessarily apply to electronic
media "because the costs of storage are virtually nil.
Information is retained not because it is expected to be
used, but because there is no compelling reason to discard
it. And, even if data is retained for limited purposes,
it is not necessarily amenable to discovery." The Rowe
court set forth eight factors that should be considered
in deciding whether discovery costs should be shifted in
a particular case:
"(1)
the specificity of the discovery requests [the more specific,
the more likely the producing party should bear the costs];
(2) the likelihood of discovering critical information
[greater likelihood suggests the producing party should
bear the costs]; (3) the availability of such information
from other sources [when such information is not available
from other sources, the producing party should be more
likely to bear the costs]; (4) the purposes for which
the responding party maintains the requested data [when
the information is retained for use only in case of an
emergency or simply because the party has neglected to
discard it, the requesting party should be more likely
to bear the costs]; (5) the relative benefit to the parties
of obtaining the information [when the producing party
garners no significant benefit from the production, the
requesting party should be more likely to bear the cost];
(6) the total costs associated with production [the higher
the cost, the more likely the requesting party should
bear the cost]; (7) the relative ability of each party
to control costs and its incentive to do so [when the
requesting party has the incentive and ability to conduct
the electronic discovery process incrementally (e.g.,
by sampling portions of the data), it should be more likely
to bear the cost]; and (8) the resources available to
each party [when all parties have sufficient sources to
bear the cost of the litigation, this factor is neutral]."
Applying
the Rowe factors, the court found: "Of the eight
relevant factors described in Rowe, five [the second,
fourth, fifth, sixth and seventh] weigh in favor of shifting
the cost of production to [the owner], two [the first and
third] weigh in favor of [contractor] bearing the cost and
one [the eighth] is neutral." The court ordered that
the owner should bear the cost of retrieving the contractor's
e-mail.
The
contractor also contended that the e-mail backup tapes contained
non-responsive as well as privileged or confidential communications,
all of which required a detailed review. The court parted
company with Rowe with regard to the treatment of
the contractor's insistence upon a privilege review and
screening. "Rowe held that if a defendant elected
to conduct a review prior to production, then the full cost
of retrieval of backup tapes would be borne by that [party]."
The court disagreed with Rowe on this point and required
the owner to pay for the cost of retrieving e-mail no matter
what. However, the court required the contractor to pay
for screening the e-mail.
The
court gave the contractor two options. After the e-mail
had been retrieved, the contractor could bear the cost of
culling pertinent e-mail from non-responsive and identifying
privileged or confidential e-mail found within the pertinent
e-mail. Alternatively, the contractor could elect to have
all of its retrieved e-mail analyzed by the owner on an
"attorney's eyes only" basis, and the contractor
could review only the e-mail that the owners' attorneys
determined to be pertinent. The court concluded its opinion
by setting forth the terms of alternative discovery orders
for each option.
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For more information about the issues covered in this report, please contact John Ralls in our San Francisco office at 415-369-7210 or at jralls@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2002 Thelen Reid Brown Raysman & Steiner LLP
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