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Contractor Persuades Court to Require Owner to Pay Costs of Retrieving E-Mail, But Contractor Still Must Pay for Privilege Review


January 6, 2003


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(A revised version of this article appears 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
Howrey 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 415-848-3362 or at rallsj@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.


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