It’s been over two years since the Federal Rules of Civil Procedure (FRCP) were amended to refine e-discovery practices in litigation. Of the changes, none has spurred more transformation than Rule 26(b)(1) and its emphasis on proportionality and relevance – relevance being the old safeguard standard in determining scope of discovery, now joined by its shiny new companion, proportionality.
For those of you unfamiliar with the 2015 language, Rule 26(b)(1) provides a list of factors to determine whether a discovery request is overly broad or unduly burdensome. The factors framing if a request is proportional (in addition to merely being relevant), include:
- the importance of the issues at stake in the action,
- the amount in controversy,
- the parties’ relative access to relevant information,
- the parties’ resources,
- the importance of the discovery in resolving the issues, and
- whether the burden or expense of the proposed discovery outweighs its likely benefit.
Proportionality is about balance, ensuring that parties receive the information they need to plead their claims and argue their defenses, while curtailing activities that are inconsequential, expensive, and a waste of time. Though the concept of proportionality seems simple enough, applying it can be difficult.
Judges and counsel alike have wrestled to apply the new rule, leaving case law rife with complex, fact-based interpretations, as revealed in a handful of recent opinions. On March 1, 2018, courts on completely opposite sides of the country examined document requests for tax return and financial information in unrelated cases. Savvy legal teams will learn from these cases before requesting financial data, or any discoverable information, in their next e-discovery matters.
- Don’t ask for the moon when seeking tax returns and financial documents. The defendant moved to compel the plaintiffs to produce various financial documents, including tax returns, claiming the requested documents will corroborate, contradict, or discredit the plaintiffs’ allegations regarding property ownership. Plaintiffs claimed that the discovery requests were overly broad, not relevant, and demanded the production of highly sensitive, confidential financial information. The court found that the documents requested were relevant, but overly broad in scope. The plaintiffs put their financial conditions at issue, pleading allegations about property ownership and monetary dealings between the parties, making the records relevant. However, the defendant did not tailor his discovery requests to the information related to the property or the transactions surrounding the property for the relevant time period, making the request not proportional to the needs of the case. Kathryn T. Craig v. Kropp, Case No: 2:17-cv-180-FtM-99CM (M.D. Fla. Mar. 1, 2018).
- Ineffective record-keeping systems are not an excuse for avoiding discovery (and requests for tax returns must be narrowly tailored). Despite having met and conferred, the parties could not reach an agreement about the plaintiffs’ discovery requests. The court, begrudgingly brought into the discovery dispute, stated, “The Court strongly disfavors discovery motions and prefers that the parties resolve discovery issues on their own.” Then, the court weighed the merits of each party’s discovery claims, referencing the proportionality standard in FRCP 26(b)(1). The court granted the plaintiffs’ request for payroll information, despite the defendants’ claim that it would require a tremendous amount of time to respond because of limitations in the recordkeeping system. Further, the court granted the plaintiffs’ request for tax return information, narrowing it to only two years of the most recent tax data. Fish v. Harbor Marine Maint. & Supply, CASE NO. C17-0245-JCC (W.D. Wash. Mar. 1, 2018).
These two matters are not the only times in the first few months of 2018 where the courts have discussed proportionality. The volume of opinions discussing the Rule 26(b)(1) factors grows month over month, across every jurisdiction. Litigating parties should find no shortage of case law in their circuit to help them argue proportionality. Consider these two recent opinions, one of which again references financial document requests.
- Limit requests for financial documents by year, or be prepared to have the court limit them for you. The plaintiff requested tax and financial information dating back to 2014, but the alleged fraudulent sale and transfer of assets did not occur until 2016. The court noted this, stating, “Although the Court finds that tax returns and other financial information are relevant to Plaintiff’s request for punitive damages, it finds that the time period within which Plaintiff makes its request is overbroad.” Ultimately, the court granted the request for financial records dating back to 2016. Bartech Sys. Int’l v. Mobile Simple Solutions, Case No. 2:15-cv-02422-MMD-NJK (D. Nev. Feb. 12, 2018).
- In addition to limiting document requests by time, parties must think about geographical limits. The plaintiff sought discovery pertaining to the Defendant’s insurance sales practices. The requests were limited to the four years preceding the lawsuit but sought documents from locations all over the country. The court found that nationwide discovery was disproportional to the needs of the case and limited the request to geographic regions in the appellate circuit. Additionally, due to discovery misconduct, including unilaterally cancelling a deposition and failing to confer in good faith, the court invited the plaintiff to file a motion for sanctions under FRCP 37. Nicholes v. Combined Ins. Co. of Am., 5:16-CV-10203 (S.D.W. Va. Feb. 28, 2018).
No matter the type of documents sought, legal teams need to be prepared to explain why their requests are not only relevant but also proportional. Above all, avoid any bad faith conduct or failure to preserve that could lead to sanctions under FRCP 37. This area of the law also changed significantly two years ago, and like scope of discovery, courts have had plenty of opportunities to weigh in on sanctions for failure to preserve, intent to deprive, and e-discovery gamesmanship.
Look for a future blog post discussing recent case law developments on the topic of discovery sanctions.