Under CPLR §§ 3111 and 3122(d), "[t]he reasonable production expenses of a non-party witness shall be defrayed by the party seeking discovery." The Commercial Division Rules at Appendix A ("Guidelines for the Discovery of ESI") define "reasonable production expenses" to include:
- Reasonable fees charged by outside counsel and e-discovery consultants;
- Reasonable costs incurred in connection with the identification, preservation, collection, processing, hosting, use of advanced analytical software applications and other technologies, review for relevance and privilege, preparation of a privilege log (to the extent one is requested), and production;
- Reasonable costs associated with disruption to the non-party's normal business operations, provided such costs are quantifiable and warranted by the facts and circumstances; and
- Other costs reasonably identified by the non-party.
The Appellate Division, First Department, recently addressed the reasonableness of non-party production costs in the context of ESI discovery in Barons Media, LLC v. Shapiro Legal Group, PLLC, 2024 NY Slip Op 05301 [1st Dept Oct. 24, 2024]. The court considered the non-party's motion for reimbursement of "reasonable production expenses" incurred while producing ESI pursuant to a subpoena issued by the petitioner, Barons Media, LLC ("Barons"). Under the Commercial Division's ESI Guidelines, "reasonable production costs" may include reasonable fees charged by outside counsel and e-discovery consultants for gathering and reviewing documents for relevance and privilege before production, in addition to those charged by vendors involved in the harvesting and storage of ESI.
The Lower Court Decision:
The lower court (Manhattan Com. Div. Justice Joel M. Cohen) found that the non-party was only allowed two-thirds of its requested reimbursement costs. The non-party argued that all of its requested expenses were due under the Commercial Division's Guidelines. Barons argued that the non-party's claimed expenses, including its attorney's fees, were inflated and were incurred by its own malfeasance in resisting discovery. The court found that, because Barons' discovery requests were not "narrowly tailored to discovering information it could obtain only from [the non-party]," the non-party was entitled to two-thirds of its requested reimbursement costs. However, the court did not award the non-party the full amount requested, presumably in agreement with Barons that inflated costs and the cost of resisting discovery should not be included in the reimbursement.
The Appellate Decision:
On appeal, the non-party argued that it was due the full amount requested because each expense fell under the scope of the Commercial Division's ESI Guidelines. The non-party submitted a detailed schedule based on invoices submitted by counsel and ESI vendors, reflecting that the costs were largely incurred by the review, organization, and compilation of responsive materials by outside counsel. Barons argued that the non-party cannot recover the costs associated with reviewing or withholding documents from production due to relevance.
Ultimately, the First Department determined that, after weighing "all relevant factors," the lower court appropriately concluded that the non-party was only entitled to recover two-thirds of the claimed expenses. The court agreed with Barons that some expenses related to activities associated with withholding materials and found that the outside counsel's billing rate "may have been unreasonable."
Takeaway:
While Barons Media does not create new law, the First Department's rationale for limiting the non-party's recovery to two-thirds of the requested expenses is significant. The court's statement that "insofar as some of the entries reflect activities associated with withholding materials" means that these costs, along with outside counsel's potentially unreasonable billing rate, were the basis for awarding the non-party only two-thirds of its requested expenses. Consequently, attorneys for non-party witnesses should be aware that they may not be reimbursed for costs incurred from withholding information from the party seeking discovery. This should also be a warning for those requesting broad discovery from a non-party, as opposed to "narrowly tailoring" their requests to non-parties to avoid reimbursement fees.
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