State judge blocks cost-shifting to party seeking e-discovery

Determining who pays the cost of e-discovery can depend on the jurisdiction where the suit is filed, whether obtaining the data is unduly burdensome, and whether the parties have reached agreement on their payment responsibilities.

Last week, New York Supreme Court Justice Eileen Bransten ruled in Silverman v. Shaoul that shifting the cost of e-discovery to the requesting party was barred because the producing party failed to show that the production caused an undue burden. The production cost was approximately $60,000 for 5,000 pages of e-discovery.

The suit involves condominium owners Blake and Tracy Silverman, who in 2008 purchased a unit in Lower Manhattan for $2.1 million. The buyers found water damage in the unit during walk-through inspections with the seller—before and after closing the sale—and were told the damage would be repaired.

But after severe storms in the area led to more interior water damage, the owners sued the group of condo developers, including Lemadre Development, M & B  Mezz, and individual defendants Benjamin Shaoul and Marc Raver. Then, the owners added more defendants, including the contractors, engineers, and architects, for breach of contract and negligence in constructing the unit’s water curtain. The owners seek the condo's purchase price, $2.1 million, and other costs, as damages.

After filing suit, the condo owners, through their lawyer, Arthur Rosenberg of Kane Kessler in New York, made e-discovery requests to the condo developers and other defendants.

There was a preliminary conference to set a discovery schedule and discuss cost estimates. “In the conference, it was discussed with the judge that the parties have to liberally provide discovery. The judge said you have to provide the documents requested, including electronic discovery,” said a lawyer for the condo developers, Alan Winchester, of the New York firm Harris Beach.

Another of the developer’s attorneys, Stanley Goos, had sent the plaintiffs’ lawyer a letter in July stating that the owners were obligated to pay for the e-discovery they were demanding.

The plaintiffs did not respond to his letter, and the developers proceeded to produce the requested discovery, which according to court records amounted to 5,000 pages collected at a cost of $60,000.

Judge Bransten ruled that the owners’ silence should not be interpreted as acquiescence to the letter’s terms. Citing case law precedent, Bransten wrote that the “requesting party bears the cost of electronic discovery when the data sought is not ‘readily available.’ Data is not readily available upon a showing of undue burden …”

That the condo developers had to process data that was “interspersed with defendants’ various documents for their several business entities” was not an undue burden, but rather the “normal burden of litigation,” the judge concluded.

“In the federal system, each party bears its own cost of production, absent a compelling reason to shift it [to the requesting party]. In New York, up until this decision, it’s pretty much been that the requesting party pays for it,” said developers attorney Winchester.

That practice, he said, “puts an organic check on the scope” of discovery because the requesting party has to cover the cost of production.

“The lesson learned in this case is to communicate,” said Winchester. “The judge doesn’t have the last word on it. She added a good piece to the dialogue and put a lot of thought in the decision… She is aligning the state more with the federal system.”