United States: TX Supreme Court Addresses Format Of Production, Applies Proportionality

Last Updated: July 27 2017
Article by K&L Gates

In re State Farm Lloyds, Nos. 15-0903, 15-0905, 2017 WL 2323099 (Tex. Mar. 26, 2017)

Today, we elucidate the guiding principles informing the exercise of discretion over electronic-discovery disputes, emphasizing that proportionality is the polestar. In doing so, we further a guiding tenet of the Texas Rules of Civil Procedure: that litigants achieve a "just, fair, equitable and impartial adjudication . . . with as great expedition and dispatch and at the least expense . . . as may be practicable."

In this dispute over the format of production, the Supreme Court of Texas took its opportunity to "(1) clarify that neither the requesting party nor the producing party has a unilateral right to specify the format of discovery under Rule 196.4 and (2) provide guidance regarding the application of Rule 192.4's proportionality factors in the electronic-discovery context." In so doing, the court denied the request for mandamus relief without prejudice "to allow the relator to seek reconsideration by the trial court in light of [the] opinion." The court summarized its conclusions as follows:

Under our discovery rules, neither party may dictate the form of electronic discovery. The requesting party must specify the desired form of production, but all discovery is subject to the proportionality overlay embedded in our discovery rules and inherent in the reasonableness standard to which our electronic-discovery rule is tethered. The taproot of this discovery dispute is whether production in native format is reasonable given the circumstances of this case. Reasonableness and its bedfellow, proportionality, require a case-by-case balancing of jurisprudential considerations, which is informed by factors the discovery rules identify as limiting the scope of discovery and geared toward the ultimate objective of "obtain[ing] a just, fair, equitable and impartial adjudication" for the litigants "with as great expedition and dispatch at the least expense ... as may be practicable." (Citations omitted.)

In the two cases underlying this opinion, homeowners sued State Farm alleging underpayment of their insurance claims. The parties proposed competing discovery protocols and diverged on the issue of format of production. State Farm proposed production in a searchable static form and "offered evidence that it processes more than 35,000 new claims each day and, in the ordinary course of business, information related to those claims is routinely converted into static format." That information was stored in a central repository. Through its expert, State Farm also represented that production of native files "would require State Farm to engineer a new process that includes determining upstream sources of the data, validating the upstream sources, determining whether native files of the information still exist, and developing an extraction method for the native versions" and that these additional steps would be "an extraordinary and burdensome undertaking." Thus, according to a State Farm business analyst, the central repository housing the at-issue information in static form was "the most reasonably available source of claim file information in the ordinary course of business" and was "the most convenient, least burdensome and least expensive means of producing the information plaintiff requested." Homeowners wanted the metadata and argued both that production in static format would deprive them of valuable information and functionality, thus rendering static format as not "reasonably usable," and that production in native format would not add any additional steps or duties and was "as simple as handing over native ESI on a 'thumb drive or on an external hard drive.'" In both cases, the trial court adopted the homeowners' position and ordered production in native or "near native" form. While the protocol did not "require State Farm to convert data stored in another form back to native form or to produce the same information in multiple forms," it did "require State Farm to produce ESI in native form regardless of whether a more convenient, less expensive, and 'reasonably usable' format is readily available." The order acknowledged that if native form was "infeasible," a near-native form could be substituted "if the parties agree[d] on the substituted form."

State Farm was denied mandamus relief from the court of appeals which "rejected State Farm's proportionality concerns" as conclusory and lacking data upon which to conclude that the burden of production outweighed its likely benefit. More specifically, the appellate court held that "the responding party is required to produce the information in the form requested unless the party serves timely objections or assertions of privilege." Thus, State Farm turned to the Supreme Court.

Summarizing broadly, the court began its analysis by reciting Rule 192.4, which identifies the factors relevant to whether discovery should be limited by the court, and declaring, "[t]o put it succinctly, 'the simple fact that requested information is discoverable . . . does not mean that discovery must be had.'" The court further opined, "while metadata may generally be discoverable if relevant and unprivileged, that does not mean production in a metadata-friendly format is necessarily required." Ultimately, the court rejected the homeowners' underlying presumption that a requesting party may unilaterally determine the form of production, instructing instead that "if the responding party objects that electronic data cannot be retrieved in the form requested through 'reasonable efforts' and asserts that the information is readily 'obtainable from some other source that is more convenient, less burdensome, or less expensive,' the trial court is obliged to consider whether production in the form requested should be denied in favor of a 'reasonably usable' alternative form." The court then turned to a factor-by-factor analysis of the application of the principle of proportionality. Much of the analysis is notable – and quotable – but cannot all be included in this summary. Reading the full opinion is warranted. That said, some highlights include:

  • Likely benefit of the requested discovery:
    • If the benefits of the requested form are negligible, nonexistent, or merely speculative, any enhanced efforts or expense attending the requested form of production is undue and sufficient to deny the requested discovery.
    • At the opposite end of the spectrum, a particularized need for the proposed discovery will weigh heavily in favor of allowing discovery as requested but, depending on the force of other prudential concerns, may warrant cost-shifting for any "extraordinary steps" required.
  • The needs of the case:
    • As a general proposition, metadata may be necessary to the litigation when the who, what, where, when, and why ESI was generated is an actual issue in the case, not merely a helpful or theoretical issue.
  • The parties' resources:
    • But beyond financial resources, one must also consider whether the requesting party has the technological resources to make proper use of ESI in the form requested. A high-powered luxury sports car is useless to someone who lacks a license to drive it.

The court turned next to discussion of "[p]arity with the Federal Rules of Civil Procedure," noting that it's "application of proportionality principles in this context aligns electronic-discovery practice under the Texas Rules of Civil Procedure with electronic-discovery practice under the Federal Rules of Civil Procedure."

Ultimately, the court recognized that "the trial court and the parties lacked the benefit of [its] views on the matter" when the issues were previously addressed and thus denied State Farm's "request for mandamus relief without prejudice to allow [it] to seek reconsideration by the trial court in light of this opinion."

A full copy of the court's opinion is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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