Federal Deposit Insurance Corporation v. Bowden et al
Filing
80
ORDER denying 67 Motion to implement defendants' protocol for discovery; granting 69 Motion to implement plaintiff's protocol for Discovery. Signed by Magistrate Judge G. R. Smith on 6/6/14. (bcw)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA
SAVANNAH DIVISION
FEDERAL DEPOSIT INSURANCE )
CORPORATION as Receiver for Darby )
Bank & Trust, Co.,
)
)
Plaintiff,
)
)
v.
)
Case No. CV413-245
)
WALTER B. BOWDEN, et al. ,
Defendants.
)
)
)
ORDER
When FDIC-insured banks fail the FDIC takes them over. It did
that when Darby Bank & Trust Co. failed in November 2010. The FDIC
then formed a separate legal entity, the FDIC-R, to act as Darby’s
receiver. The FDIC-R, in turn, brought this bank mismanagement case
against sixteen of Darby’s former directors and officers. 1 Doc.1. Pursuant
to their Fed. R. Civ. P. 26 and L.R. 26.1(a) initial and ongoing discovery
obligations, the parties endeavored yet failed to agree on a Joint Protocol
Invoking 12 U.S.C. § 1821, it “seeks to recover losses of at least $15.1 million that the
Bank suffered on commercial real estate loans and other business and residential
loans . . . approved or permitted by Defendants between November 17, 2007 and
October 26, 2009. . . .” Doc. 1 at 2; doc. 67 at 5.
1
for Electronically Stored Information (ESI), which is a method for sharing
digitized documents. Doc. 54; doc. 67-1 at 2 ¶ 4; doc. 67-2 at 6; doc. 57-7 at
2-9 (duty-to-confer emails); doc. 69-2; doc. 69-6. Having already spent
$614,000 to digitally scan about “2.01 terabytes of data or 153.6 million
pages” of Darby records, doc. 69 at 2, 9, the FDIC-R obviously faces a
substantial document management burden in fulfilling its discovery
obligations to the defendants. It says that, “[e]ven though the Bank’s
documents were created under Defendants’ custody and control,
Defendants [via their proposed ESI Protocol, doc. 67] are now insisting
that the FDIC-R shoulder the burden and expense of reviewing the
documents and determining their responsiveness [to its claims and
defendants’ discovery].” Doc. 69 at 3.
So, the FDIC-R moves to implement its own ESI protocol 2 that it
2
As the FDIC-R explains, Phase I of its protocol would place the burden upon the
FDIC-R to locate and produce substantially all ESI documents relevant to the
FDIC-R’s claims in this lawsuit. Subsequent to this “Phase I” production, the
parties would then agree to a set of search terms to apply to the Bank’s database
maintained by the FDIC-R. After the search terms are applied to the database,
the FDIC-R would then export any responsive documents into a review tool
known as “Relativity,” to which Defendants would have unlimited access. From
there, Defendants would be afforded the opportunity to review the documents
identified through searches and select for production only the documents
Defendants desire. Not only is this [Phase II] approach efficient, it provides
2
says “balances the burden and expense of discovery among the parties and
allows the [d]efendants essentially unfettered access to the Bank’s
documents.” Id . It so moves because in their ESI Protocol, the FDIC-R
argues, the defendants demand that it bear an undue discovery burden,
requiring that it repeatedly search, review, and re-review myriad
“second-run” (Phase II) documents, then turn over to them the
documents relevant to both claims and defenses that arise in this
litigation. Doc. 67-2 at 4-5 11 8 (defendants’ Protocol directing the FDIC-R
to “specifically include any document specifically identified in the
Complaint.”); id. at 11 11 10 (requiring the FDIC-R to “produce any and all
non-privileged ESI in intends to rely upon in support of any claim or
Defendants with exactly the same level of search, review, and notation
capabilities as enjoyed by the FDIC-R.
Doc. 69 at 3-4 (emphasis omitted); see also doc. 69-2 at 4-5 (FDIC-R’s ESI Protocol).
The FDIC-R emphasizes that it
has already produced to Defendants[,] at FDIC-R’s sole cost and expense[,] the
most relevant ESI identified by the FDIC-R in its Initial Disclosures, including
nearly all of the relevant loan files, Reports of Examination, minutes and
packets from the Board of Directors relevant committee meetings, and many
other “core” materials bearing directly upon the transactions at issue, the
tortious conduct of the Defendants, and the losses sustained as a result of
Defendants’ underwriting failures, loan policy violations, and disregard of
credit and loan administration standards and safe and sound banking practices.
Id. at 5-6.
91
defense during the course of the litigation.”) (emphasis added).
The FDIC-R assures the Court that it will “locate and produce” in
full “categories of documents most likely to contain relevant
information,” thus the “vast majority of documents relevant to the
defenses and claims of the parties in professional liability cases [like
this].” Doc. 73 at 2-3. But the defendants, it complains, want the FDIC-R
to search “ the rest of the millions of pages of records” they created while
running the bank, id. at 3 (emphasis in original), then have the FDIC-R
“run [what are properly the defendants’] searches and have the FDIC-R
review the results, cull out nonresponsive, irrelevant material, and hand
over the responsive documents,” id. at 4). 3 The FDIC-R insists that’s not
its burden. Citing its protocol’s adoption by other courts, along with its
proposed shared database access, enhanced security, and demonstrable
cost-savings, the FDIC-R thus moves the Court to implement its ESI
The defendants are noticeably vague here, in that they insist that computer
searching will not suffice, in which case endless searching, if not astronomically
expensive human , manual review must be deployed. The defendants don’t explicitly
demand human review, doc. 67 at 6 (urging “traditional discovery methods where
search terms cannot address the parties’ discovery needs”; id. at 8 complaining that
the FDIC-R’s Protocol will “force Defendants to rely exclusively on search terms as a
means of identifying documents for production”); id. at 8 n. 2, but that is the logical
import flowing from their rejection of the FDIC-R’s standing offer to assist them with
search-term formulation for computerized document searches of Phase II document
turnovers. Doc. 73 at 4; doc. 78 at 2-3.
3
4
Protocol, which it says will implement the correct allocation of discovery
burdens between the parties. Doc. 69.
Opposing primarily on the ground that Fed. R. Civ. P. 34 requires
the FDIC-R to search and turn over documents in the way they specify,
the defendants insist their ESI Protocol “is in keeping with the intent of
the Federal Rules of Civil Procedure. The FDIC[-R]’s ESI Protocol is not.”
Doc. 67 at 6; see also doc. 75. Citing examples where the FDIC-R’s “Phase
I” production failed to include documents referenced in the FDIC-R’s
complaint, doc. 75 at 3, they reject the FDIC-R’s ESI Protocol because it
calls for document discovery to be conducted without regard to a
requesting party’s right to obtain documents to defend himself, and
without regard to a producing party’s obligation to bear the burden
and costs associated with identifying, reviewing, and producing
relevant documents as they were kept in the usual course of
business. The unilateral approach in the FDIC’s ESI Protocol
would: (a) force Defendants to rely exclusively on search terms as a
means of identifying documents for production; and (b) shift to
Defendants the FDIC’s burden and expense of reviewing,
identifying, and producing relevant documents. Neither the Federal
Rules of Civil Procedure nor recent case law supports such a
proposal.
Doc. 67 at 8 (footnote omitted). The FDIC-R’s effort, defendants
conclude, is simply an attempt “to carve out for itself an unknown
exemption from the Federal Rules of Civil Procedure with the imposition
of an ESI protocol that drastically alters the procedures outlined in [Fed.
R. Civ. P.] 34.” Doc. 75 at 2.
In advancing their own ESI Protocol, the defendants propose that
the parties “work together to cull the documents via agreed-upon search
terms.” Doc. 67 at 8 n. 2. They remind that the availability of “search
terms” does not absolve the FDIC-R of its Rule 34 burden to locate and
produce responsive documents, especially since search terms alone won’t
suffice. Id. at 9.; doc. 75 at 7-9. Emphasizing that often the FDIC will not
maintain a failed bank’s records in the same way that the bank did prior
to its failure, and that this is what happened here, 4 the defendants
contend that Rule 34 requires the FDIC-R to conduct a “responsiveness
review” of the mass of seized documents in its possession. Doc. 68 at
10-11; doc. 75 at 8-9. And the FDIC-R’s ESI Protocol, which invites a
“Quick Peek” by the defendants, simply fails to uphold that obligation.
Doc. 69 at 11-12.
The defendants raise other complaints about the FDIC-R’s ESI
As will be shown below, those responding to a Fed. R. Civ. P. 34 document request
may elect to turn over documents in the manner in which they were kept in the course
of one’s business. If that is not possible, then the responding part must bear the cost
of reviewing and organizing the document turnover in reasonable response to the
request. In “mega-doc” cases, that can cost a lot.
4
protocol. First, they claim, it wrongfully requires them to pay for the
production of any documents in the FDIC-R’s possession, which is simply
not the law. Doc. 67 at 12. And the defendants, as the requesting party,
are entitled to specify the form in which the ESI must be produced. Id. at
13. Yet the FDIC-R, defendants assert, intends to produce the digital
documents in only “native” format (defined below), not in reasonably
useable form, which will entail some conversion expense.
Id. at 13-14.
The defendants want the FDIC-R to pay for the document conversion
costs to a specific format. Id.
To that end, the defendants cite cases that have implemented their
ESI Protocol. Doc. 67 at 14-15. They remind that the FDIC is required to
seize and digitize the bank’s documents upon takeover, so the Court
should not be swayed by the FDIC-R’s $614,000 document-digitization
claim. Id. at 17. And pre- and post-receivership records are discoverable,
they insist. Id . at 17-18 (they want to discover documents that go to
pre-collapse regulatory warnings and post-receivership damage
mitigation; both are relevant and thus discoverable, they contend).
The defendants also want the FDIC to “produce documents from
7
third-party entities over which it has control.” Doc. 67 at 19; doc. 75 at
15. The Court notes that although no formal discovery had been served as
of the date of the last brief filed on this matter, the parties have
anticipatorily argued about defendants’ forthcoming Rule 34 document
requests. While that matter is technically not ripe (in a sense both parties
have moved for protective orders aimed at limiting their expenses), the
rulings herein by definition will apply to such requests, which are
otherwise embedded within the defendants’ ESI protocol arguments here.
I. GOVERNING STANDARDS
A. Manner of Document Production
The parties agree that their dispute is governed by Rule 26’s “Required
Disclosures” command and Rule 34’s document production requirements,
both of which embody “proportionality” standards (discovery cost
allocations may slide in proportion to things like the scope of discovery,
financial ability of parties, etc.). 5 Rule 34(b)(2)(E)(i) provides:
This concept derives from the burden management and cost shifting factors found in
Rule 26(b)(2), where courts consider:
5
(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
8
(E) Producing the Documents or Electronically Stored Information .
Unless otherwise stipulated or ordered by the court, these
procedures apply to producing documents or [ESI]:
(i) A party must produce documents as they are kept in the usual
course of business or must organize and label them to correspond to
the categories in the request[.]
Id. (emphasis added). Hence, the ESI protocol here must be designed in
light of the fact that each party:
may serve on each other requests “to produce and permit the
requesting party . . . to inspect, copy, test, or sample . . . designated
documents or electronically stored information -- including writings,
drawings, graphs, sound recordings, images, and other data or data
compilations” -- that are in the other party's possession. Fed. R. Civ.
P. 34(a)(1)(A). Requests for the production of ESI “may specify the
form or forms in which the electronically stored information is to be
produced.” Fed. R. Civ. P. 34(b)(1)(C). But, unless the court orders
otherwise, a party need not produce the same ESI in more than one
form. Fed. R. Civ. P. 34(b)(2)(E)(iii).
Teledyne Instruments, Inc. v. Cairns , 2013 WL 5781274 at * 4 (M.D. Fla.
Oct. 25, 2013) (emphasis added); see also Anderson Living Trust v. WPX
Energy Production, LLC , ___ F.R.D. ___, 2014 WL 930869 at * 7-10
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. Fed. Rules Civ. Proc. Rule 26(b)(2).
71 AM . JUR . T RIALS 111 (May 2014); see also Lindsay v. Clear Wireless LLC , 2014 WL
813875 at * 2 (D. Minn. Mar. 3, 2014).
Go
(D.N.M. Mar. 6, 2014) (detailing Rule 34(b)’s evolution to address
document digitization, and reminding that “[i]t is only if the requesting
party declines to specify a form that the producing party is offered a choice
between producing in the form in which it is ordinary maintained -- native
format -- or in a reasonably useful form or forms. Fed. R. Civ. P.
34(b)(2)(E)(i)-(ii).”) (quotes omitted); 8B Charles A. Wright, et al., Federal
Practice & Procedure § 2219 (3d ed. 2014).
“Clearly, Rule 34 contemplates that upon a part[y’s] request to
produce ESI, the responding party must produce it organized and labeled
to correspond to the categories in the request unless the responding party
can produce it as it is maintained in the ordinary course of its business.”
F.D.I.C. v. Baldini , 2014 WL 1302479 at * 8 (S.D. W.Va. Mar. 28, 2014)
(emphasis added); FDIC v. Giannoulias, 2013 WL 5762397 at * 3 (N.D. Ill.
Oct. 23, 2013). An ESI-responding party thus may uphold its discovery
obligation by “either organiz[ing] the documents as they are kept in the
usual course of business or . . . organiz[ing] and label[ling] them to
correspond to the categories in the request. This rule is meant to prevent
a party from obscuring the significance of documents by giving some
10
structure to the production.”
Amer. Gen. Life Ins. Co. v. Vistana
Condominium Owners Ass'n , 2014 WL 2041950 at * 2 (D. Nev. May 16,
2014); City of Colton v. American Promotional Events, Inc. , 277 F.R.D.
578, 584-85 (C.D. Cal. 2011) (same principle, noting its bottom line: That
the parties are entitled to rationally organized ESI productions so that
they may readily identify documents); Amer. Gen. , 2014 WL 2041950 at *
2 (“Producing parties should not raise unnecessary obstacles for the
requesting party in the production of documents.”) (quotes and cite
omitted).
There is no dispute that a bank’s ordinary course of business is
suddenly and dramatically interrupted by the FDIC’s takeover. The
FDIC, in the course of its own (bank-takeover) business, understandably
alters a bank’s business records. One court has held “course of business”
to mean the bank’s business, not the FDIC’s. W Holding Co., Inc. v.
Chartis Ins. Co. , 2013 WL 1352562 at * 5 (D.P.R. Apr. 3, 2013) (“ W
Holding II ”) (“To the extent that the production reasonably preserves the
organization by which Westernbank’s documents were ‘kept in the usual
course of business,’ [the] FDIC–R may furnish production without further
11
review or labeling. Otherwise, FDIC–R must organize and label its
production to correspond to the categories in the request.”).
It bears noting that “[i]n the usual course of business” may vary in
its details according to the type of document or file produced, but it is clear
that parties are entitled under the Federal Rules to rationally organized
productions so that they may readily identify documents.
Amer. Gen ,
2014 WL 2041950 at *3 (quotes and cites omitted). Even at that, the
“usual course of business” alternative method of production of documents
is only available when the documents’ natural organization makes finding
critical documents reasonably possible.
W Holding Co., Inc. v. Chartis
Ins. Co. of Puerto Rico , 293 F.R.D. 68, 71 (D.P.R. 2013) (“ W Holding I ”).
Finally, “[e]ven if a party fulfills all of the technical demands of Rule
34(b)(2)(E)(i), the district court has discretion to direct a party to disclose
the manner of production and provide additional information about the
documents produced. Thus, although a party ordinarily is not required to
provide an index of the documents produced, the court can require the
party to do so.” S.S. G ENSLER , 1 F ED . R. OF C IV . P ROC ., RULE 34 (Mar.
2014) (footnote omitted); Giannoulias, 2013 WL 5762397 at * 3 (denying
12
defendants’ motion to compel the FDIC to categorize its Phase I
production according to the defendants' requests,” since FDIC’s Phase I
production was in ESI form, it was accompanied by an index describing
produced document plus FDIC’s promise to “supplement its responses to
written discovery to identify responsive documents by Bates number,”
and failed bank executive defendants had knowledge of the records).
B. Formatting Disputes
Many disputes in this area turn on the format in which documents
are turned over. Common terms that surface here include “Native File,”
which “means ESI in the electronic format of the application in which
such ESI is normally created, viewed, and/or modified. Native Files are a
subset of ESI.”
W Holding II, 2013 WL 1352562 at * 1; doc. 73 at 8
(“Production in native format means that an electronic document is
produced as it is -- a Word document, an Excel spreadsheet, an e-mail, etc.,
will be produced in its original format.”). “Load File means the file
necessary to load data into a reviewable database. A load file can, for
example, specify what individual pages belong together as a document,
what attachments are included with a document, where a document
13
begins and ends, and what metadata is associated with a document.” W
Holding II, 2013 WL 1352562 at * 1 . 6 “Metadata means (i) information
embedded in a Native File that is not ordinarily viewable or printable
from the application that generated, edited, or modified such Native File;
and (ii) information generated automatically by the operation of a
computer or other information technology system when a Native File is
created, modified, transmitted, deleted, or otherwise manipulated by a
user of such system. Metadata is a subset of ESI.” Id.
As one treatise points out,
[t]here are two principal issues regarding form of production
of ESI. First, most ESI is kept in text searchable form.
Lawyers that want to preserve that capability should request
that the ESI be produced in native format or in some other
text-searchable format. Second, lawyers may want to seek the
production of ESI in a form -- usually native format -- that
contains metadata or other information that would not appear
on a hard copy, a pdf [(Portable Document Format)] file, or
other imaged production. Lawyers who want the metadata
produced should make that clear in the request. But . . . the
producing party may object to the form of production specified.
The best approach to resolving form of production problems is
for the parties to discuss the issue early on and cooperate to
reach a sensible agreement.
A load file indicates where individual pages or files belong together as documents, to
include attachments, and where each document begins and ends. Without load files,
there is no way “to ensure transfer of accurate and usable images and data.” E.E.O.C.
v. SVT, LLC , 2014 WL 1411775 at * 3 (N.D. Ind. Apr. 10, 2014).
6
14
8B Wright, Federal Practice & Procedure, § 2219 (footnotes omitted;
emphasis added).
“Rule 34(b)(2)(E)(ii) trumps specific instructions in discovery
requests such that even if native files are requested, it is sufficient to
produce memoranda, emails, and electronic records in PDF or TIFF
[(Tagged Image File Format)] format accompanied by a load file
containing searchable text and selected metadata . . . because the
production is in usable form, e.g., electronically searchable and paired
with essential metadata.”
National Jewish Health v. WebMD Health
Servs. Group, Inc ., 2014 WL 2118585 at *6 (D. Colo. May 21, 2014) (quotes
and cite omitted; footnotes and emphasis added). The producing party,
however, must do “nothing to compromise or significantly degrade the
ability of [the requesting party] to fully search or sort the [producing
party’s] ESI Production.” Id. at * 7 (quotes omitted).
C. Digital Document Conversion Costs
Much debate arises in the case law and commentary about cost-shifting
on digital format conversion expenses:
[T]he courts are required to strike a balance between allowing the
15
requesting party to take full advantage of the technologies available
to it and protecting the producing party from having to pay to leave
no stone unturned. Resting all of the costs of electronic discovery on
the producing party may create a perverse incentive on the part of
the requesting party to dispense with reason and restraint and
unleash every new technology under the sun to try and find
information that supports the requesting party's claims.
Covad Communications Co. v. Revonet, Inc ., 258 F.R.D. 5, 16 (D.D.C.
2009); see also FDIC v. Brudnicki , 291 F.R.D. 669, 677 (N.D. Fla. June 14,
2013) (cost-sharing is appropriate in a large ESI case); Thompson v. U.S.
Dept. of Housing and Urban Development , 219 F.R.D. 93, 99 (D. Md. 2003)
(court can shift part of e-discovery costs to deal with burden and ensure
proportionality; “[t]he court can, for example, shift the cost, in whole or
part, of burdensome and expensive Rule 34 discovery to the requesting
party; it can limit the number of hours required by the producing party to
search for electronic records; or it can restrict the sources that must be
checked. It can delay production of electronic records in response to a
Rule 34 request until after the deposition of information and technology
personnel of the producing party, who can testify in detail as to the
systems in place, as well as to the storage and retention of electronic
16
records, enabling more focused and less costly discovery.”). 7
Formatting costs are often examined when a party claims its ESI is
“inaccessible, ” which can mean prohibitively expensive to produce. As
will be further explained infra , Rule 26(b)(2)(B) excuses a party from
initially providing discovery from sources of ESI that are not reasonably
accessible because of undue burden or cost. Such costs also figures into
cost-shifting rulings. See Zubulake v. UBS Warburg, LLC , 216 F.R.D.
280, 284 (S.D.N.Y. 2003) (cost-shifting is only potentially appropriate
when inaccessible data is sought).
A number of courts -- albeit mostly in the cost-awarding context of
Fed. R. Civ. P. 54d)(1) and 28 U.S.C. § 1920 -- have decided what are
reasonable copying rates in the digital format conversion cost realm. See
Race Tires America, Inc. v. Hoosier Racing Tire Corp ., 674 F.3d 158, 162,
167 (3rd Cir. 2012) (noting that the party incurred an approximate
per-page cost of $.05 to scan 430,733 pages of documents and convert
them to .TIFF format); Nobel Biocare USA, LLC v. Technique D'Usinage
Sinlab, Inc ., 2013 WL 819911 at * 5 (E.D. Va. Mar. 4, 2013) (paying
The format conversion costs can quickly escalate out of control. See GETTING
YOUR E-DISCOVERY MONEY BACK: TAXATION OF C OSTS AND O FFER OF JUDGMENT,
54 NO. 6 DRI For the Defense 12 (2012).
7
17
approximately $.07 per page for “TIFF productions” and “Native
productions”), cited in SVT, LLC , 2014 WL 1411775 at * 6 (noting that
under Rule 34(b)(1)(C) the requesting party was entitled to have the
responding party “produce the data in the format specified, which is
native format for spreadsheets and databases and near-native (.Tiff or
.pdf) format for documents.”); id. at * 6 (finding, after reviewing digital
document production estimates, the requested digital data “would require
117 hours of time at a cost of $23,900.00,” but that the data “is not
inaccessible due to undue burden or cost,” then ordering the defendant
responding party to “produce responsive ESI information in the format
initially designated by [the requesting party] so that the information is
reasonably usable, i.e., fully searchable and manipulable, with the
connections between data fields intact. However, despite the extensive
briefing and submissions of exhibits, a precise resolution to this conflict is
not readily apparent, and the parties are ordered . . . to attempt to resolve
this conflict through an in-person meet and confer.”).
II. ANALYSIS
A. Rule 34 Production
18
Applying the above standards, the Court again notes that no written
document requests have been served, though the parties understandably
are trying to craft an ESI Protocol to enable cost minimization in
contemplation of expected discovery requests that, in one form or another,
instruct an opponent to “hand over all relevant documents.” On balance,
and given the common ground between the dueling protocols here, the
FDIC-R’s ESI protocol will be implemented, as modified by the FDIC-R’s
“briefing concessions” illuminated below, as well as by the additional
guidance set forth in this Order.
First, the FDIC-R has already agreed to “locate and produce
substantially all ESI documents relevant to the FDIC-R’s claims in this
lawsuit.” Doc. 69 at 3. Second it has taken over documents generated by
a failed bank, not a private individual or group. So even though no rule
grants the requesting party the right to conduct a direct search of their
opponent’s stored computer memory for responsive documents, 8B
Wright, Federal Practice & Procedure § 2219, nothing prevents the
FDIC-R from agreeing to assist defense counsel (or their designated
agent) in electronically accessing the records that, though concededly
19
altered in their arrangement by the FDIC’s takeover, the defendants
themselves generated and thus could access while operating Darby Bank. 8
Indeed, the FDIC-R has agreed to do just that. Doc. 78 at 2 (“The
FDIC-R maintains the Bank’s former files in the usual course of business
and can make those files available to the [D]efendants in electronic form.
Moreover, [the] FDIC-R proposes to confer with Defendants and run
whatever searches Defendants wish to run on the electronic records and
make those ‘hits’ available for review and refinement.”). The FDIC-R
obviously cannot, as defendants point out, doc. 67 at 11 n 4, assure
defendants full access to the bank’s records as they existed on the date of
Darby’s seizure (hence, in the regular course of Darby’s business), but
there is no Rule 34 document request at issue yet, so the FDIC-R cannot
be compelled to produce its records on that basis. Nor could it reasonably
be expected to do so, given the exigent circumstances of a bank takeover.
But the FDIC-R does use an online document management platform,
“Relativity,” 9 doc. 69 at 3, that can be used for document turnover of
8
The parties are currently negotiating a confidentiality order. Doc. 75 at 10.
As its vendor describes it, “Relativity is a web-based e-discovery platform that is
horizontally and geographically distributable and centrally managed.”
9
20
records as the FDIC-R maintains in its course of bank-takeover business.
Doc. 78 at 2.
The FDIC-R obviously cannot satisfy the “course of business” option
in Rule 34. Again, the FDIC cannot be faulted for altering the bank’s
records in that such is the nature of a take-over. And it does not rest on
Rule 34’s “course of business” option. But it obviously would be hugely
burdensome to require the FDIC-R to place the Darby records back in
their original order, and unduly burdensome to compel it to manually
search records in support of the defendant’s defenses . And if, as
defendants claim, doc. 75 at 3, the FDIC-R has failed to turn over
documents categorically referenced by its own complaint, the defendants
may point that out in Rule 34 document requests and any necessary
compulsion motions. Even at that, the case law recognizes that manual
search costs can be devastating, so reasonable technological search and
production efforts should first be attempted -- discovery law for ESI has
evolved to require that much.
To that end, the FDIC-R (in its final brief) is now offering to open
“all of the Bank’s former documents ... [so defendants can retrieve them]
http://kcura.com/relativity/features/features-overview (site last visited June 5, 2014).
21
to the same extent that the FDIC-R can,” doc. 78 at 4, which aligns with
what other courts have ordered.
Genworth Financial Wealth
Management, Inc. v. McMullan , 267 F.R.D. 443, 447 (D. Conn. 2010)
(finding cause to allow neutral to make a mirror image of party's computer
information subject to defendant screening for privilege); D'Onofrio v.
SFX Sports Group, Inc ., 254 F.R.D. 129, 133 (D.D.C. 2008) (allowing
access by plaintiff's expert but entrusting the expert to maintain the
records securely until defendant has had a chance to screen for privilege);
S.S. G ENSLER , 1 F ED . R. OF C IV . P ROC ., RULE 34 (Mar. 2014) (“if there is a
good reason for it, the court can order a party to produce a hard drive or to
otherwise grant access to its computer files directly.”). The FDIC-R ESI
Protocol even contemplates (given the nature of voluminous document
exchanges like this) inadvertent privilege waivers, and thus a procedure
for undoing them. Doc. 69-2 at 6-7 ¶ 11.
Similarly, the FDIC-R is offering, in “Phase II” of the disclosure
process, to “meet and confer with Defendants to reach agreement upon a
set of reasonable search terms to run across the database of sources of the
ESI to identify documents for production.” Doc. 69 at 6. That comports
22
with courts ordering parties to provide each other with basic search
assistance. McNulty v. Reddy Ice Holdings, Inc ., 271 F.R.D. 569, 571
(E.D. Mich. 2011) (plaintiff was required to provide reasonable search
terms and objective search criteria for use in identifying responsive ESI),
cited in 8B WRIGHT & MILLER § 2219. The FDIC-R will even provide, at its
own expense, search term “hit reports.” Doc. 69 at 5; see also doc. 78 at
2-3. The Court views this as satisfactorily addressing the defendants’
concern about an arbitrary limit, imposed by the FDIC-R, on “hit reports”
that they may request. See doc. 75 at 12 n. 10.
This does not mean, however, that the FDIC-R must assist the
defendants in organizing any requested ESI. Anderson Living Trust ,
2014 WL 930869 at *13; see also Akanthos Capital Management, LLC v.
CompuCredit Holdings Corp ., ___ F. Supp. 2d ___, 2014 WL 896743 *10
(N.D. Ga. Mar. 7, 2014) (the defendants’ expense of digitizing paper
documents and converting ESI from a native format may be taxable as an
Fed. R. Civ. P. 54(d)(1) cost, but not “the cost of creating a dynamic,
indexed and searchable database,” which “is nothing more than an
efficient, convenient, modern-day version of paper document review.”).
23
While the FDIC-R must respond to defendants’ discovery and inspect
its own records to do so, it need
produce only those documents that are responsive to the opposing
party's requests. See, e.g., Rothman v. Emory Univ ., 123 F.3d 446,
455 (7th Cir. 1997) (upholding sanctions against a plaintiff who
refused to fulfill “his obligation to sort through the documents and
produce only those responsive to [defendant's] request”). At the
same time, “there is no obligation on the part of a responding party
to examine every scrap of paper in its potentially voluminous files in
order to comply with its discovery obligations. Rather, it must
conduct a diligent search, which involves developing a reasonably
comprehensive search strategy.” Treppel v. Biovail Corp ., 233
F.R.D. 363, 374 (S.D.N.Y. 2006). Employing search terms to search
ESI is one such strategy. See id .
Giannoulias, 2013 WL 5762397 at * 2 (emphasis added); see also id.
(rejecting defendants’ contention that the FDIC “must inspect the
documents resulting from the initial search to determine whether they
are in fact responsive. In this particular case, we conclude that the
burden such a review would impose on the FDIC far outweighs any
benefit to the defendants.”).
Here the FDIC-R may meaningfully deploy suitable search terms to
satisfy its initial disclosure requirements and respond to forthcoming
Rule 34 document requests, but that may be obviated through a
cooperative search query formulation on an equal access document
24
database. The Court will presume that, in the spirit of
discovery-expense-minimizing cooperation, the parties will work toward
that end. See SVT, LLC , 2014 WL 1411775 at * 7 (noting defendant’s
offer to plaintiff to allow plaintiff run direct searches on its data terminal,
and directing the parties to meet and confer over that potential
ESI-discovery dispute). Otherwise, the Court adopts and applies the limit
imposed in Giannoulias, 2013 WL 5762397 at * 2, for Phase II production.
In that regard, the FDIC-R says it is using something called the
“Relativity” program, which the Court assumes to be the same that was
examined in Baldini . The Court finds persuasive, and thus adopts here,
that court’s reasoning: If the FDIC-R does not produce the bank
documents as they were kept in the normal course of the bank’s business,
then it is “not entitled to produce them without organizing and labeling
them to conform with defendants' discovery requests,” Baldini , 2014 WL
1302479 at * 8 (noting that years had passed since defendants had run the
bank), in which case it must do the same here as it as it was ordered to do
in that case: “search for all documents in its possession responsive to
defendants requests, create a file in Relativity for each of defendants'
25
requests and put documents responsive to each of defendants' requests in
its corresponding file . . . . [and] index all Non–ESI responsive documents
which had been produced or would be produced in the future to conform
with defendants' requests.”
Id. This apparently is what the FDIC-R
already has contemplated here. Doc. 69-2 at 5-8.
In approving the FDIC-R’s ESI protocol, the Court underscores the
bottom line contained within ¶ 10 of that Protocol, obligating each side to
“produce any and all ESI it intends to rely upon in support of any claim or
defense with respect to this case,” notwithstanding the
document-exchange protocols set forth in its ESI Protocol. Doc. 69-2 at 6
¶ 10. The defendants contend that the FDIC-R’s Protocol “does not
contemplate a production of Phase II documents that is organized based
on the allegations in the Complaint.” Doc. 75 at 7 n. 4. The Court directs
the FDIC-R to make reasonable computer-search efforts to do just that.
As for the defendants’ interest in corralling documents in support of
their defenses, the FDIC-R must, as it promises in its latest brief, “confer
with [d]efendants and run whatever reasonable searches [they] wish to
run on the electronic records and make those ‘hits’ available for review
26
and refinement.” Doc. 78 at 2-3. It also must assist them, free of charge,
in loading into searchable file folders the Phase II documents referenced
above, n. 2. This matches what the defendants claim their Protocol does -enable “test productions, in order to increase the effectiveness of the
search term process.” Doc. 75 at 10.
Finally, if the pre-Darby-closure, “regulatory” documents are in the
FDIC’s (not the FDIC-R’s) possession, then the Court agrees with the
FDIC-R that it technically is not obligated to provide them, which means
the defendants may subpoena the FDIC for same. 10 In that sense the
Court specifically approves the time period limitation in the FDIC-R’s
Protocol, doc. 69-2 at 6 § 8 (January 1, 2005 - November 12, 2010), subject
to its post-receivership documents ruling infra . Still, the Court will be
amenable to a “ Dosland ” argument. FDIC v. Dosland , 2014 WL 1347118
at * 4-5 (N.D. Iowa Apr. 4, 2014) (applying 12 U.S.C. § 1821(o) and Rule 34
to remind the FDIC-R that it should exercise its statutory rights to obtain
inter-agency documents responsive to the defendants’ Rule 34 request).
But see Brudnicki , 291 F.R.D. at 678 (“With regard to the FDIC–R's investigation of
the Bank the regulatory investigations of the Bank are confidential under 12 C.F.R. §
308.147 and thus documents relating to the investigation do not have to be
produced.”).
10
27
The parties, after all, are obligated to try and minimize discovery
expenses.
Meanwhile, the defendants are free to, upon a showing of relevancy,
serve the FDIC-R with specific written discovery for post-receivership
documents. Brudnicki , 291 F.R.D. at 678 (defendants were entitled to
discovery of post-receivership documents related to the FDIC's disposition
of certain loans, since the documents could have some bearing on whether
its review and approval of the transactions were prudent, sound, and
consistent with generally accepted banking practices). But consistent
with each side’s cost-minimization obligation, the Court directs the
FDIC-R to consider direct-search access by defendants in order to enable
the lowest cost response to all of defendants’ Rule 34 requests.
B. Digital Document Production Costs
Unless good cause to do otherwise is shown, the parties will operate
under the general rule -- subject to any ESI Protocol carve-outs approved
by this Court -- that the responding party bears the costs of complying
with (hence, organizing and physically turning over documents for) each
document request. That includes the cost of reviewing and gathering the
28
documents, then making them available for inspection at the time and
place requested. Oppenheimer Fund, Inc. v. Sanders , 437 U.S. 340, 358
(1978); Race Tires , 674 F.3d at 170-71 (ESI case applying the
Oppenheimer rule, but noting that the responding party may invoke the
district court's discretion to grant orders protecting it from undue burden
or expense in complying with discovery requests, including orders
conditioning discovery on the requesting party’s payment of the costs of
discovery); 35A C.J.S. F EDERAL C IVIL P ROCEDURE § 721 (Apr. 2014).
“Conversely, the burden generally is on the requesting party to pay
the cost of copying the documents. However, the court may apportion the
costs of production depending on the circumstances.” S.S. Gensler, 1
F EDERAL RULES OF C IVIL P ROCEDURE , RULES AND C OMMENTARY RULE 34,
(Mar. 2014) (footnotes omitted; emphasis added); FDIC v. Johnson 2013
WL 1195698 at *3 (D. Nev. Mar. 22, 2013) (“the court agrees with those
courts which have held that a party responding to discovery requests is
responsible for the initial costs of reviewing and preparing paper
documents and ESI for inspection and copying, but is not responsible for
paying copying costs for voluminous materials.”); 1 E D ISCOVERY & D IGITAL
29
EVIDENCE § 2:8 (Nov. 2013).
Here the Court finds appropriate the FDIC-R’s initial free (Phase I)
“native format” production, doc. 78 at 5, and relatively modest request
that the defendants absorb any specialized data-subset copying (as
opposed to organize-and-turnover) costs for Phase II production. Doc. 69
at 8; doc, 6-2 at 5-6 ¶ 7 ($.06/page native-to-static file conversion cost plus
third party’s $10 per gigabyte monthly hosting fee); see also Baldini , 2014
WL 1302479 at * 9 (accepting FDIC-R’s proposal that defendants there
pay it $.06/page copying costs, but noting it should be minimized since the
FDIC-R “will produce ESI on disks or hard drives the cost of which is
substantially less than the cost of producing the ESI in paper form.”);
Johnson , 2013 WL 1195698 at * 2-3. 11
This production-vs-copying cost distinction can get blurred. See W Holding I, 293
F.R.D. at 72 (FDIC, as receiver for failed bank, was not entitled to up-front
contribution for ESI production costs in action against bank's directors and officers,
absent explanation of how such costs were outside the realm of gathering and
preparation expenses customarily borne by responding parties).
11
And, indeed, the defendants in a sense blur it here. They complain that the
FDIC-R’s ESI Protocol would require them to pay document-conversion (from
“native” to TIFF format) costs prior to use in things like a deposition, then insist that
such “cannot be reasonable.” Doc. 67 at 14. But that burden falls equally on the
FDIC-R, doc. 69-2 at 10-11, and goes to a post -production use. Even at that, the
FDIC-R’s protocol invites constant cooperation, including search-term formulation,
then a cost-free output in what is essentially a raw format from which recipients may
choose to convert same to the end-format they desire. Doc. 69-2 at 4-5. Computers can
A word about “inaccessibility.” “Under Rule 26(b)(2)(B), parties
need not initially provide discovery from sources of ESI that are not
reasonably accessible because of undue burden or cost. Rather, the
responding party can identify the sources that qualify and state that it is
not searching them. Thereafter the responding party need not search
these sources unless the court orders so for good cause.” S.S. Gensler, 1
F EDERAL RULES OF C IVIL P ROCEDURE , RULES AND C OMMENTARY RULE 26
(Mar. 2014) (footnotes omitted); Zeller v. South Cent. Emergency Medical
Services, Inc ., 2014 WL 2094340 * 9 (M.D. Pa. May 20, 2014). Should
“inaccessible material” search costs arise, the affected party may seek
judicial assistance if informal resolution attempts fail. 12
still be used to search the raw data; copying costs can be controlled by the parties (they
decide, after all, what documents to use at a deposition or before a factfinder).
Hence, the Court sees no problem with charging the defendants a reasonable
copying expense for Phase II documents demanded and produced beyond any initial
Rule 34 obligation. See Brudnicki , 291 F.R.D. 669, 675-76 (FDIC-R’s ESI protocol for
marginally relevant, “phase II” documents, in its action against bank’s former
directors, was appropriate, reasonable, and consistent with principles of
proportionality, even though it required defendants to pay some costs of producing
ESI from database that purportedly did not fall within definition of inaccessible ESI;
proposed protocol was not a cost-shifting device, as FDIC already had spent some
$624,000 to identify, collect, and store all information on database, which was set up to
make discovery less expensive and more expeditious, costs to defendants were
minimal, namely, $0.06 per page charge for converting documents plus nominal
charge for uploading data to database, estimated to be no more than $200 per month,
defendants' discovery requests were broad, and FDIC had agreed to produce the 61,000
31
Otherwise, “it is typically inappropriate to consider cost-shifting”
when the source is otherwise accessible. Zubulake, 216 F.R.D. at 284;
accord, Zeller, 2014 WL 2094340 at * 10. And exaggerated inaccessibility
claims are rejected.
SVT, LLC , 2014 WL 1411775 at * 5-6 (analyzing
dispute over ESI production in different formats before concluding that
producing party’s “data is not inaccessible due to undue burden or cost.”);
W. Holding Co. I , 293 F.R.D. at 73 (“Because FDIC–R has not shown that
access to the Westernbank data is hindered by any unique technological
hurdles, it has failed to trigger Rule 26(b)(2)(B). It is therefore not entitled
to categorically label [its specially created] databases ‘not reasonably
accessible.’”).
Finally, the parties also will abide by the bottom line contained in
Advisory Committee Note to 2006 amendment to Rule 34(b): “If the
responding party ordinarily maintains the information it is producing in a
most relevant documents at no cost).
The case law has spawned various tests and approaches, including a
“marginal-utility approach,” which “holds that the more likely it is shown that a
search of electronic material will discover critical information, the fairer it is to require
the responding party to bear the search costs.” L ITIGATION MANAGEMENT HANDBOOK
§ 7:31 (Nov. 2013). The Court is inclined to use that approach here. But “[u]ntil the
parties take affirmative steps to conduct discovery -- perhaps after test runs, for
instance -- there is no ground for the court to dramatically alter the defaults under the
Federal Rules of Civil Procedure.” W Holding II , 293 F.R.D. at 74.
12
32
way that makes it searchable by electronic means, the information should
not be produced in a form that removes or significantly degrades this
feature.” Id. , quoted in National Jewish Health, 2014 WL 2118585 at *5;
see also id. (“[I]f the request does not specify a form of production, the
responding party must produce ESI in the form in which it is ordinarily
maintained or in a reasonably usable form or forms.”).
C. Duty to Confer
Since their opening briefs (docs. 67 & 69), the parties have filed 41
more pages of briefs on this one discovery matter. Docs. 73, 75 & 78.
From the last brief (the FDIC-R’s) it is clear that, by “conferring” through
their briefs , the parties have managed to resolve many of their
disagreements, even though (as of the last brief’s filing) the defendants
have yet to serve FDIC-R with any discovery. Doc. 78 at 4. For example,
the FDIC-R is now promising to comply fully with Rule 34 when any
document requests are served on it. Id. at 2. And it will confer with the
defendants “and run whatever reasonable searches [they] wish to run on
the electronic records and make those ‘hits’ available for review and
33
refinement.” 13 Id. at 3. It reminds that it will produce all ESI in its native
format at no cost to the defendants. Id. at 5.
Such cooperation, coming at the tail end of a comprehensive briefing
cycle, reminds that “[d]iscovery in federal court is a self-managed
process.” Teledyne , 2013 WL 5781274 at * 4. It also shows the benefits of
meaningfully conferring with each other about this matter before further
consuming this Court’s resources. Hernandez v. Hendrix Produce, Inc .,
297 F.R.D. 538, 540 n. 3 (S.D. Ga. 2014) (collecting “duty to confer” cases);
State Farm Mut. Auto. Ins. Co. v. Howard , 296 F.R.D. 692, 697 n. 11 (S.D.
Ga. 2013) (the conference must also be meaningful; more than a “we met
and talked” certification is needed). In this context it makes sense to order
a face-to-face meeting, with opposing IT staffs, given the sheer complexity
of the ESI dispute before it. SVT, LLC , 2014 WL 1411775 at * 5-6.
Should there be any further ESI-protocol disagreement (or objection
to this ruling), the parties shall first confer and attempt to craft a Joint
ESI Protocol or Consent Order in light of the above principles. Id. (court
resolved initial ESI issues but ordered parties to “meet and confer” before
As was recently seen in Progressive Cas. Ins. Co. v. Delaney , 2014 WL 2112927 at *
4-5 (D. Nev. May 20, 2014), this “search-term cooperation” is especially critical in
cutting the cost of searching databases believed to contain privileged information.
13
34
invoking more judicial assistance); Delaney , 2014 WL 2112927 at * 5 (“the
court ordered the parties to have their ESI experts and representatives
from each of the related cases to meet and confer to have a meaningful
discussion about how to resolve the outstanding ESI issues. . . .”); W
Holding I ., 293 F.R.D. at 75 (ordering former directors and officers of
failed bank, who were “more likely to have an idea of what documents
they are looking for in a particular request,” to “propose search terms
first; though since FDIC–R oversaw the loading of ESI into [its document
database], it is expected to provide active assistance, and should anticipate
consulting its technically skilled staff or contractors as necessary.”); Ford
Motor Co. v. Edgewood Properties , Inc ., 257 F.R.D. 418, 425 (D.N.J. 2009)
(if the requesting party objects to the responding party's proposed form
for the production of ESI and states an alternative form, the parties must
meet and confer in an effort to solve the dispute before filing a motion to
compel).
To that end, the parties shall consider the use of predictive coding:
Magistrate Judge Andrew Peck of the Southern District of New
York has published a white paper identifying ten best practices in
predictive coding. M.J. Peck, Top Ten Best Practices of Predictive
Coding . Judge Peck is also the author of an ESI decision in Da Silva
35
Moore v. Publicus Groupe , 2012 U.S. Dist. LEXIS 23350 (S.D.N .Y.
Feb. 24, 2012) which addressed the use of predictive coding.
Predictive coding, or technology assisted review, uses software that
can be trained by a human being to distinguish between relevant
and non-relevant documents. J. Peck, Ten Top Best Practices in
Predictive Coding . However, the quality of its product depends on
the quality of the information used to “train” the software. Id . A
human being, usually an experienced attorney involved in the
litigation, referred to as the “expert” trains the software to identify
relevant documents from the universe of ESI collected for review for
production in discovery. Id .
Delaney , 2014 WL 2112927 at * 8; see also id. (“Predictive coding has
emerged as a far more accurate means of producing responsive ESI in
discovery. Studies show it is far more accurate than human review or
keyword searches which have their own limitations.”); E D ISCOVERY FOR
C ORPORATE C OUNSEL § 7:6 (Dec. 2013) (collecting cases). The parties shall
also consider the blend of ESI predictive coding and “pretrial statements
signed by counsel” discussed in In re Domestic Drywall Antitrust
Litigation , ___ F.R.D. ___, 2014 WL 1909260 at * 4 (E.D. Pa. May 12,
2014) (reasoning that in complex cases where, during discovery, attorneys
likely will learn more facts than their corporate clients, “[p]retrial
statements signed by counsel are preferable to interrogatory answers.”). 14
14
As that court further explained:
36
III. CONCLUSION
The Court GRANTS plaintiff FDIC-R’s motion to implement its
protocol (doc. 69), subject to the above guidelines and instructions. The
defendants’ protocol motion (doc. 67) is DENIED .
SO ORDERED this 6th day of June, 2014.
-
UNITE]) STATES MAGISTRATE JUDGE
SOUTHERN DISTRICT OF GEORGIA
The Manual for Complex Litigation supports using statements of contentions.
In a somewhat different procedural context, § 11.473 suggests the process begin
with “the court order[ing] counsel for one side, typically the plaintiff's, to draft a
series of numbered, narrative statements of objective facts that they believe can
be established, avoiding argumentative language, labels, and legal conclusions.”
MANUAL FOR C OMPLEX L ITIG . (F OURTH ) § 11.473 (2004). This process can
streamline litigation by narrowing the facts that remain in dispute. Id . The
Manual counsels judges to consider “the time and expense expended” in
identifying facts that remain in dispute. Id . In addition, there is ample
precedent for requiring pretrial statements. See, e.g., U.S. v. Am. Tel. & Tel.
Co. , 461 F.Supp. 1314, 1346–47 (D.D.C.1978) (“The procedures specified herein
are designed to move the case along while seeking to escape the adverse
consequences inherent in the several contending methods of handling the
pretrial process.”); In re Ampicillin Antitrust Litig ., 88 F.R.D. 174, 180
(D.D.C.1980) (requiring three successive pretrial statements to narrow the
issues and bring the case to trial in a reasonable period of time).
Id. , 2014 WL 1909260 at * 5.
37
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