New York State Supreme Court Rules on the Issue of Electronic Discovery
December, 2004
The Nassau County Supreme Court recently ruled on an issue that has been notably absent from reported New York case law: electronic discovery. Despite federal precedent which has acknowledged that electronic data is indeed discoverable, see Zubulake v. UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2003); and Playboy Enterprises, Inc. v. Welles, 60 F.Supp.2d 1050 (S.D.Cal. 1999), New York State courts have been slow to rule on the issue. In the case of Lipco Electronical Corp. v. ASG Consulting Corp., 4 Misc.3d 1019(A), 2004 WL 1949062 (N.Y.Sup.), 2004 N.Y. Slip Op. 50967(U), the trial court held that raw electronic data is indeed discoverable. In making this determination, the court partially relied on federal precedent. However, in a departure from the federal standards, the Lipco Court ruled that the party seeking electronic discovery should bear the costs of the discovery’s production. See Roe Entertainment, Inc. v. The William Morris Agency, Inc., 205 F.R.D. 421 (S.D.N.Y. 2002).
In the first action, Lipco (a joint venture) sued ASG Consulting ("ASG"), which was employed by Plaintiff prior to joining the Joint Venture. ASG was hired by Lipco to prepare estimates and bid on public works projects. In the first suit, Lipco alleged that ASG overcharged for services of certain projects and that the over-billing practices continued after ASG joined the joint venture. Lipco sought to recover damages that were sustained as a result of the over-billing.
The second action involved a suit by ASG against the Lipco joint venture, and one of the companies in the Lipco joint venture. This suit sought damages for violations of consulting agreements executed by both Defendants, separately. ASG sought damages and also sought an accounting, claiming that it was not permitted to properly review the books and records of the Lipco joint venture.
During the course of the litigation, the Lipco joint venture requested electronic data maintained by ASG, including information produced on disk, hard-drive, and backup tapes. Further, Lipco demanded that ASG bear the cost incurred in extracting and providing the material. ASG objected to the production of the electronic data, and instead produced printouts of the requested information. Lipco argued that the printouts of the electronic information were insufficient, and demanded access to the actual raw electronic data. Thus, the Nassau County Supreme Court was presented with the question of whether electronic data was indeed discoverable in New York, and if so, which party bore the responsibility of paying the costs of retrieving that data.
In considering this issue, the court recognized that the first issue was whether the discovery sought was material necessary in the prosecution and defense of the action. Lipco, at 3. The court stated that before considering whether electronic discovery was discoverable, it was of paramount importance to determine if the discovery was properly demanded, and then only if it was found to be necessary, could the court decide whether the electronic discovery itself was discoverable. Id.
Neither party disputed that the requested discovery was indeed material to the action. However, ASG argued that production of the electronic data was unnecessary because ASG had already produced the same data in its paper form. The Lipco joint venture countered by arguing that the raw electronic data was necessary to determine if the paper form of the discovery was indeed accurate.
The two parties also disagreed as to the cost of the production of the electronic data. Not surprisingly, the Lipco joint venture argued that the production would not be cost-prohibitive, and that the actual process of extraction would not be overly burdensome. ASG countered that production of the electronic data would be burdensome, expensive, and extremely time consuming.
The court ruled that the discovery sought was material and necessary. Id. at 8. Further, following federal precedent, the court ruled that the electronic data was indeed discoverable. Id. In addressing the issue of costs, the court followed New York precedent in ruling that the party seeking discovery should bear the costs of the production of that discovery. Id. at 9. The policy argument for that ruling is that a party should finance its own litigation. Id. The court then refused to order the production of the discovery, until the Lipco joint venture agreed to pay the costs associated with the production of the electronic data. Id.
The court noted that all future requests for electronic data were to be accompanied by an estimate as to the costs associated with extracting the data. Id. at 10. This leaves open the possibility that the costs associated with future requests for electronic data may be apportioned between the parties. It seems that the court intended for that determination to be made on a case by case basis. It seems quite likely that there will be litigation on this very issue in the near future, especially in light of the potentially burdensome costs associated with the production of electronic data.
Learning Point:
Precedent has now been set for New York courts to follow the federal standard and allow the discovery of raw electronic data. Raw electronic data includes electronic data such as e-mails, files saved on disk and hard drives, and other information stored on an individual’s or business’ computers. The prevailing case law in New York seems to obligate the party seeking the discovery to cover the costs of its production, although the door has been left open for litigation on the issue of which party is to bear the cost. •
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