Written by Attorneys Robert T. Horst, G. Franklin McKnight, IV, and Mark Rosenberg

Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

The United States District Court for the Southern District of New York has developed and applied a seven-factor test for determining whether the costs of compliance with an electronic discovery request should be shifted to the party requesting discovery. In Zubulake v. UBS Warburg, LLC, No. 02 CIV. 1243, 2003 WL 21087884 (S.D.N.Y. May 13, 2003) (“Zubulake I”), and 2003 WL 21714957 (S.D.N.Y. Jul. 24, 2003) (“Zubulake II”), the court adopted a seven-factor test which now arguably supersedes the previously issued – and influential – eight-factor “Rowe test”. While Zubulake does apply more stringent standards for cost-shifting than the Rowe test, the Zubulake court’s measured approach to addressing the perceived faults of the Rowe test may encourage the widespread adoption of the Zubulake test, thereby permitting litigants in many jurisdictions to utilize a tool that, while not ideal, may provide significant relief from the costs of electronic discovery in many circumstances. Our discussion of this important (though lengthy) opinion follows.

The revised seven-factor test includes the following:

1. The extent to which the request is specifically tailored to discover relevant information;

2. The availability of such information from other sources;

3. The total cost of production, compared to the amount in controversy;

4. The total cost of production, compared to the resources available to each party;

5. The relative ability of each party to control costs and its incentive to do so;

6. The importance of the issues at stake in the litigation; and

7. The relative benefits to the parties of obtaining the information.

Zubulake I, 2003 WL 21087884 at *11. The Zubulake I court advised that the factors should be applied “in descending order of importance,” and that particular emphasis should be given to the first two factors, which analyze the “marginal utility” of the discovery request. Id. The Court also directed that the analysis of these factors should be based upon facts, rather than assumptions, and suggested that the most useful manner of analyzing the factors is to order a “test run” of discovery based upon a search of a “small sample” of the data.

With the assistance of an outside vendor, UBS restored E-mails from five backup tapes as chosen by Zubulake and performed searches on the E-mails to determine those that were relevant to her Request for Production. The total cost of restoring the five backup tapes, reviewing the E-mails for relevance, performing an attorney-level review, and preparing the E-mails for production to the plaintiff was $19,003.43. Based on the costs to produce the E-mails from the five backup tapes, UBS estimated that producing the balance of relevant E-mails would cost $273,649.39. The Court utilized its seven-factor test to determine whether the production of additional e-mails from backup tapes was “unduly burdensome” to UBS. Zubulake v. UBS Warburg LLC, No. 02 CIV. 1243, 2003 WL 21714957 (S.D.N.Y. Jul. 24, 2003) (“Zubulake II”).

The Zubulake II Court determined that UBS should be responsible for the “lion’s share” of the costs. Analyzing the first two factors of the test, “[t]he extent to which the request is specifically tailored to discover relevant information” and “[t]he availability of such information from other sources,” the Court noted that Ms. Zubulake’s request generated 600 relevant E-mails that provided support for her claims, which were not available from any other source. Applying the third factor, “[t]he total cost of production, compared to the amount in controversy,” the Court observed that UBS’s expenditure in complying with the discovery request would not be disproportionate to the value of the case, as Ms. Zubulake’s high salary ($650,000 per year) generated the potential for a multi-million dollar recovery. In its analysis of the fourth factor, “[t]he total cost of production, compared to the resources available to each party,” the Court emphasized the fact that UBS had exponentially more resources available to it than Ms. Zubulake. The Court ultimately found that the allocation of costs would be based on concerns of judgment and fairness rather than any mathematical formula, and that 25% of the costs would be shifted to Zubulake.

Many commentators perceived Zubulake I as a setback for corporate defendants faced with burdensome and expensive electronic discovery requests that have little utility other than the harassment and intimidation. We disagree with this perception. While not an optimal result, the adoption of the Zubulake approach is certainly preferable to the pre-Rowe presumption that “[t]he normal and reasonable translation of electronic data into a form usable by the discovering party should be the ordinary and foreseeable burden of a respondent in the absence of a showing of extraordinary hardship.” See, e.g., Daewoo Electronics Co., Ltd. v. U.S., 650 F. Supp. 1003, 1006 (C.I.T. 1986). Even if the cost of translating electronic data is limited to that which is stored on back-up tapes, the cost of restoring such tapes is often, by far, the most expensive aspect of dealing with an electronic discovery request, and any approach that offers potential relief from such an expense should be welcomed. The approach set forth in Zubulake, based on fundamental considerations of equity and the utility of discovery requests, may encourage many courts to shift the costs of restoring discoverable information from inaccessible electronic sources to the requesting party, thereby providing the responding party with a significant and meaningful reduction in discovery costs. Moreover, even if courts decline to adopt its specific seven-factor test, we believe that many courts will likely follow Zubulake by focusing on the “marginal utility” of the discovery requests, in which the requesting party will be more likely to bear the costs of discovery requests that are unlikely to produce relevant information. As the outcome in Zubulake demonstrates, the application of the “marginal utility” test will likely require the requesting party to bear at least a portion of the costs for a “fishing expedition” through back-up tapes that appears to have little purpose besides seeking to force the corporate defendant into settlement.

Zubulake exemplifies the efforts of many courts to discard the outmoded assumption that the discovering party should always bear the costs of discovery in favor of a modern approach that reflects the challenges of the new world of electronic discovery. By establishing a test that places issues of equity and utility at the forefront in a cost-shifting analysis, Zubulake offers a compelling solution that will likely be adopted by many courts as a useful tool for responding to these challenges. By adopting these or similar approaches, courts may make significant progress in addressing the temptation to abuse the advent of modern technology as a pretext for forcing the responding party to spend their way into settlement.