California Court, Interpreting California Code of Civil Procedure by zah92902


									DECEMBER 2004

       California Court, Interpreting California Code of Civil
       Procedure § 2031(G)(1), Shifts Reasonable Cost of
       Recovery of Electronic Discovery on Demanding Party
       Following in the footsteps of the New York State and Federal Courts, in Lipco Electrical Corp.
       v. ASG Consulting Corp., 2004 N.Y. Misc. LEXIS 1337 (August 17, 2004) and Zubulake v. UBS
       Warburg LLC (Zubulake I), 217 F.R.D. 309 (S.D.N.Y. 2003), a California Appellate Court, in
       Toshiba America Electronic Components, Inc. v. Superior Court, 2004 Cal.App. LEXIS 2055 at *13
       (December 3, 2004), in interpreting California Code of Civil Procedure § 2031(g)(1), has
       concluded that a demanding party is expected to pay the reasonable expense to have data
       compilations translated into a reasonably usable form.

       In Lipco Electrical Corp., the New York Supreme Court (Nassau County), concluded that a
       party demanding raw data from computer hard drives and backup disks would bear the cost
       of accessing and producing such data. Lipco Electrical, supra, at *23. In Zubulake I, the federal
       court for the Southern District of New York, in considering a request for discovery of
       information contained in backup tapes, established a test for deciding who should bear the
       cost of discovery of electronic data. It concluded that relevant electronic data stored in an
       “accessible” format must be produced at the responding party’s expense and that a cost-
       shifting analysis is appropriate when the data is stored in an “inaccessible” format. Zubulake
       I, supra, at 324.

       The Zubulake I court issued a proportionality test for electronic discovery which examines
       the following seven factors in descending order of importance:
                1. the extent to which the request is specifically tailored to discover relevant
                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.

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Id. at 322-323. The Zubulake I court concluded that it is inappropriate to shift the cost of
electronic discovery where the data is kept in an accessible format, but the court should
consider cost-shifting where the data is in an inaccessible format using the seven-factor cost-
shifting analysis outlined above. Id. at 324.
Now, in Toshiba Electronic Components, Inc., a California court was faced with a dispute as to
which party should pay the expenses of recovery of responsive material stored on computer
backup tapes. The plaintiff, Lexar Media, Inc. (Lexar) sued Toshiba America Electronics
Components, Inc. (Toshiba) for misappropriation of trade secrets, breach of fiduciary duty,
and unfair competition. Id. at *2. Lexar served Toshiba with a request for production of
documents which sought various documents, including “electronic mail” and “other forms
of electronically or magnetically maintained information.” Id. Toshiba responded with
“readily available” documents but not documents stored on Toshiba’s 800 or so computer
backup tapes. Id. According to Toshiba’s electronic discovery specialist, the data contained
on the backup tapes had to be manipulated in order to see what information the tapes
contained and such manipulation would cost $1.5 to $1.9 million. Id. at *2-3.

When Toshiba refused to bear the cost of processing the backup tapes, Lexar filed a motion
to compel production of responsive information contained on the tapes. Lexar relied on
several federal district court cases that held that a demanding party should not be penalized
when a producing party has elected to maintain records in a manner that makes it hard to
retrieve the data contained therein. Id. at *3-4. Toshiba argued that the cost-shifting analysis
in Zubulake I, as outlined above, warranted cost-shifting in this case to Lexar. Id. at *4.
The trial court granted Lexar’s motion without comment ordering Toshiba to produce all
non-privileged documents from its backup tapes and Toshiba’s writ of mandate to the
appellate court ensued.

The California Appellate Court, acknowledging that it rarely reviews discovery orders by way
of an extraordinary writ, found that it was appropriate where, as here, it was necessary to
answer a question of first impression that is of general importance to the trial courts and the
legal profession. Id. at *6. The Appellate Court first noted that, in the trial court, neither
party had referred to California Code of Civil Procedure (C.C.P.) § 2031(g)(1), the pertinent
California statute governing this issue. Only on appeal did Toshiba cite to C.C.P. §
2031(g)(1) and argue that it was an automatic cost-shifting provision. C.C.P. § 2031(g)(1)
expressly states in relevant part: “[i]f necessary, the responding party at the reasonable
expense of the demanding party shall, . . . translate any data compilations . . . into reasonably
usable form.”

The California Appellate Court was faced with answering the dispute as to whether the
phrase “at the reasonable expense of the demanding party” is a “mandatory cost-shifting
provision or whether it merely permits the trial court to shift the cost to the demanding
party when the responding party objects.” Id. at *6. The Appellate Court found that Lexar’s
reliance on federal decisions was misplaced since “California law governs California cases.”
Id. at *13. Further, the Appellate Court ignored the seven factors outlined in Zubulake I
altogether and chose to focus on C.C.P. § 2031(g)(1) and the well-settled rules of statutory
construction instead. Looking at the words of C.C.P. § 2031(g)(1) themselves, the Court
concluded that the clause was “unequivocal” because its “plain language clearly states that if
translation is necessary, the responding party must do it at the demanding party’s reasonable
expense.” Id. at *12.

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Having concluded that C.C.P. § 2031(g)(1) shifts the expense of translating data
compilations to the demanding party, the Court noted that its conclusion “does not mean
that the demanding party must always pay all the costs associated with retrieving usable data
from backup tapes” but rather, must only pay “its reasonable expense for a necessary
translation,” leaving the question of “reasonableness” and “necessity” to the discretion of
the trial court. Id. at *20 (emphasis added).

The California Appellate Court’s decision in Toshiba Electronic Components is instructive of
judicial trends shifting the cost of burdensome electronic discovery on the requesting party
regardless of the basis on which the Court reaches that conclusion. The key appears to be
that information and data that is stored in an “inaccessible” format will shift the burden for
recovery to the demanding party. It is likely that the aviation industry will see such discovery
issues in litigation matters in the near future as the industry continues to be more and more
reliant on electronic record-keeping and data-storage devices.

For more information on electronic discovery issues, visit the Nixon Peabody News &
Events at where you will find the following articles on this subject:

Electronic Discovery: What You Need to Know and What It May Cost If You Don’t, October 27, 2004

New York State Court Imposes Costs of Electronic Discovery on Requesting Party, September 2, 2004

Two Courts Impose Severe Sanctions for Failing to Preserve E-Mails in Litigation, July 26, 2004


For more information on this issue or other aviation matters, please contact:

Brian C. Dalrymple at (415) 984-8275                    Domenico Perrella at (415) 984-8413
Stephen C. Johnson at (415) 984-8222                    William L. Robinson at (949) 475-6911
Hugh R. Koss at (415) 984-8414                          Eric Strain at (415) 984-8373
Kyle Levine at (415) 984-8272                           Christopher D. Thomas at (585) 263-1087
Donald B. MacDougall at (516) 832-7611                  Lori Winfree at (949) 475-6916

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