United States: Court Shifts Cost of Electronic Discovery to Requesting Party

In a case extending the trend to shift the cost of electronically stored information to the requesting party, a California Court of Appeal for the Fourth District has applied a California statute to shift the costs of restoring backup tapes of electronic data to the demanding party. Toshiba America Electronics Components, Inc. v. Superior Court, 2004 Cal. App. LEXIS 2055 (Cal. App. Fourth, Dec. 3, 2004).

The real party of interest, Lexar Media Inc., sued Toshiba America Electronic Components (TAEC) for misappropriation of trade secrets, breach of fiduciary duty and unfair competition. Lexar served TAEC with a request for production of documents that included electronic mail. A dispute arose about who should pay for recovery of e-mail stored on TAEC's computer backup tapes. TAEC had more than 800 backup tapes for the pertinent time period. Complete processing of all the tapes would cost between $1.5 and $1.9 million.

TAEC asserted that Lexar should pay some or all of the cost of recovery. Lexar refused and filed a motion to compel production of all responsive documents contained on the backup tapes. Relying on decisions from federal courts, Lexar argued that cost-shifting would be unfair when the producing party had chosen to keep records in a manner that makes them difficult to retrieve. TAEC responded that restoring its electronic backup tapes was an undue burden and that the federal analysis favored shifting the cost to Lexar. Neither party referred to the California statute, C.C.P. §2031 (g)(1).

The trial court granted Lexar's motion and TAEC petitioned for a writ of mandate, raising the issue of C.C.P. §2031 (g)(1) and arguing that it was an automatic cost-shifting provision that should apply. The relevant portion of C.C.P. §2031(g)(1) states that "[i]f necessary, the responding party at the reasonable expense of the demanding party shall, ... translate any data compilations ... into reasonably usable form." The court framed the issue as whether the phrase "at the reasonable expense of the demanding party" is a mandatory cost-shifting provision or merely permits cost-shifting. The court found Lexar’s reliance on federal cases unpersuasive after it held that the issue was one of state law and the interpretation of C.C.P. §2031(g)(1). The court then held that the statute "clearly states that if translation is necessary, the responding party must do it at the demanding party's reasonable expense" and shifted the costs to Lexar (the demanding party). The appellate court left open for the trial court to determine what was a "reasonable expense" and what was a "necessary" translation.

This decision follows closely on the heels of a similar decision in a New York state court, where that court held that the party requesting electronic data should bear the costs of production. Lipco Electrical Corp. v. ASG Consulting Corp. Last year, the Federal Court for the Southern District of New York established a test for which party should bear the costs of discovery of electronic data, distinguishing between "accessible" and "inaccessible" data. Zubulake v. UBS Warburg LLC.

While this decision relies almost exclusively on a California statute that would not be controlling in federal court, it is instructive of the trend by courts to shift the cost of expensive electronic discovery to the requesting party.

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