The Sedona Conference Working Group on Electronic Document Retention & Production (WG1) has released its Commentary on Proportionality in Electronic Discovery. The public comment period on the Commentary closed on January 31, 2017. This Commentary was much anticipated given the revamping of Rules 26(b)(1) and 37(e) of the Federal Rules of Civil Procedure in December 2015, which directly affected the scope of eDiscovery in federal litigation. The 2015 amendments were aimed at curbing gamesmanship and abuses in eDiscovery by elevating the importance of “proportionality” as the guiding principle governing the entire discovery process and by setting forth the framework for addressing the loss of electronically stored information (ESI) that was required to be preserved.

Under the amended Rule 26(b)(1), “parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case….” (emphasis added). Rule 26(b)(1) also now includes the considerations that bear on proportionality, which were moved from the previous Rule 26(b)(2)(C)(iii), rearranged and expanded. The proportionality factors that courts will take into account are as follows: (1) the importance of the issues at stake; (2) the amount in controversy; (3) the parties’ relative access to relevant data; (4) the parties’ resources; (5) the importance of discovery for resolution; and (6) the burden or expense relative to benefit.

The amended Rule 37(e) provides guidance on the scope of the preservation effort that the court expects from litigants. Specifically, amendments to Rule 37(e) affected judicial analysis of sanctions for the loss of ESI (1) that “should have been preserved” in the anticipation or conduct of litigation (2) because a party failed to take “reasonable steps” to preserve it and (3) that cannot be restored or replaced through additional discovery. Upon making this finding, a court has to conduct additional analysis, the goal of which is to differentiate “bad faith” conduct from mere negligence, and order sanctions in accordance with the level of egregiousness. Under the amended Rule 37(e), courts will focus on a party’s intent to deprive its opponent of the benefits of the lost ESI and the resulting prejudice to the opponent. Where the court finds “bad faith” conduct, it may order the harsher sanctions, including adverse inference instruction, default judgment or dismissal. However, only measures limited to curing the prejudice are appropriate for cases where culpability is lacking.

Parties engaged in or preparing for litigation should consider how these amendments impact their overall litigation strategy, as well as their eDiscovery process. While the concepts of proportionality and good-faith discovery conduct are anything but new, the 2015 amendments provide the parties and courts with a more robust and defined framework for their application.

To help federal litigants and courts apply the new amendments in designing the eDiscovery process and resolving eDiscovery disputes, the Commentary on Proportionality offers Six Principles for consideration. The following are the key takeaways.

Principle 1: The burdens and costs of preserving relevant electronically stored information should be weighed against the potential value and uniqueness of the information when determining the appropriate scope of preservation.

  • While miscalculations during the production phase can be cured, mistakes during the preservation phase may lead to the permanent loss of information. As such, parties should ensure that they are not defining relevant ESI too narrowly. To define the scope of relevant ESI appropriately, the parties should begin cooperating early in the case by discussing in sufficient detail the substance of their claims and defenses and the types of information they think should be preserved, and by conducting early and thorough investigation of the existence and location of relevant information.
  • Courts analyzing a party’s preservation decisions should do so through the prism of the proportionality factors set forth in Rule 26 and the reasonableness considerations set forth in Rule 37(e). Depending on the party resources, if a less costly form of preservation is “substantially as effective” as a more expensive option, it may be deemed a reasonable preservation choice.
  • Where proportional, the following steps can be taken by each party to meet its preservation obligations:
    • Institute reasonable preservation policies in advance of potential litigation;
    • Identify relevant custodians and work with them (and other appropriate personnel) to identify sources of unique ESI and other information relevant to the matter, including “non-custodial” sources;
    • Preserve the identified relevant ESI and maintain it in a reasonably accessible format;
    • Suspend information retention policies that would otherwise result in the routine deletion of unique relevant ESI; and
    • Document preservation efforts undertaken.
  • Parties should engage in discussions regarding the parameters of their preservation efforts early in the case. While being cognizant of attorney-client privilege and attorney work product, parties should not use these protections to withhold information regarding the existence, location, and accessibility of relevant information. If the parties are unable to agree on the appropriate scope of preservation, they may ask for a court-imposed preservation order.

Principle 2: Discovery should focus on the needs of the case and generally be obtained from the most convenient, least burdensome, and lease expensive sources.

  • The scope of discovery is limited by the proportionality factors incorporated in Rules 26(b)(1), 26(b)(2)(C), and 26(g)(1)(B). The requested discovery must be proportional to the claims and defenses in the case.
  • To reduce the burden of production, the parties should cooperate in the meet and confer process in order to find relevant ESI from the most readily available sources.
  • At the outset of the litigation, it may be difficult to determine all the claims and defenses, or the factual or legal issues that will be ultimately critical in the litigation, or the burden of expense associated with responding to discovery. As such, it may be appropriate to conduct discovery in phases, starting with discovery of clearly relevant information available from the most accessible and least expensive sources. Initial discovery may be focused on the ESI of certain key custodians or certain key time periods or on case-dispositive legal issues. Subsequent discovery phases can then be calibrated based on the results of the initial effort. Phased discovery may not be right for every case, as it will require close cooperation of the parties.

Principle 3: Undue burden, expense, or delay resulting from a party’s action or inaction should be weighed against that party.

  • As permitted by Rule 26(d)(2), parties should consider propounding document requests prior to the Rule 26(f) conference to enable counsel to use the conference to identify and attempt to resolve potential discovery disputes and to shape the discovery process early in the case.
  • Because a party can be sanctioned for failing to participate in good faith in developing and submitting a proposed discovery plan as required by Rule 26(f), a party’s conduct may appropriately affect the court’s ruling. To discourage gamesmanship, courts resolving discovery disputes should consider the extent to which the claimed burden and expense resulted from the responding party’s own action or inaction, including whether the issue was raised timely.
  • Information retention policies that serve “reasonable organization or commercial purposes” may affect the eDiscovery process and support the party’s burden, expense, or delay argument. However, these claimed difficulties should be discounted if they result from information retention policies that do not serve such purposes.
  • Producing party should notify the requesting party if any relevant ESI is being withheld on the basis of proportionality. Failure to provide such notice should be weighed against the responding party.

Principle 4: The application of proportionality should be based on information rather than speculation.

  • Rule 26(b)(1) allows courts to prohibit discovery sought that, while relevant, is not sufficiently “important” in resolving the issues because it is duplicative, cumulative, or not reasonably accessible. Alternatively, the court may allow such discovery but shift discovery costs to the requesting party.
  • Courts must limit discovery where the burden or expense of producing the requested information outweighs its likely benefits for resolving factual issues in dispute, considering the Rule 26(b)(1) proportionality factors. The party attempting to make the showing of burden or expense may need to provide the court with some extrinsic information, which, based on the developed case law, may include:
    • The parties’ reasoned statements regarding the likely importance of the requested information;
    • Estimates of the expenses to be incurred based upon experiences in prior litigation, industry experiences, or another basis supported by research or analysis;
    • Whether the requested information was created by key players;
    • Whether prior discovery indicates that the requested discovery is likely to be important;
    • Whether the creation of the information requested was contemporaneous with key facts in the case; or
    • Whether the information requested is unique.
  • In some circumstances, some form of sampling of the requested information may be appropriate. If sampling is used, the parties should ensure that the process is designed to obtain accurate and persuasive information. Sampling can be used to demonstrate the rate of responsive information to support an argument that a data source is or is not likely to contain responsive information, or to extrapolate the volume, and therefore costs, associated with reviewing the potentially responsive ESI. Where sampling is used to demonstrate the absence of unique responsive information, the responding party should be prepared to disclose the entire sample to the requesting party.
  • A party should support its “burden or expense” argument with concrete applicable qualitative metrics, such as the number of hits and projected volume of potentially responsive documents, or the costs associated with processing, performing data analytics, and review.

Principle 5: Nonmonetary factors should be considered in the proportionality analysis.

  • Based on Rule 26(b)(1), courts can consider a number of nonmonetary factors in conducting the proportionality analysis, such as:
    • “The importance of the issues at stake in the action” (some cases may involve minimal amounts in controversy, but concern constitutional or statutory rights or public interest or public policy considerations);
    • “The parties’ relative access to relevant information” (in cases of “information asymmetry,” the party in possession of large volumes of potentially relevant information may wish to explore ways to avoid unnecessary discovery, such as stipulating to certain facts);
    • “The parties’ resources” (including a number of nonmonetary resources, such as personnel, technology, intellectual property, or health); and
    • “The importance of the discovery in resolving issues,” and “whether the burden … of the proposed discovery outweighs its likely benefit” (as addressed by Principles 2 and 4).

Principle 6: Technologies to reduce cost and burden should be considered in the proportionality analysis.

  • Recent advances in technology have created avenues to reduce the burdens and costs associated with identification, review, and production of relevant documents. Nevertheless, a party is not required to maximize eDiscovery process efficiencies at the expense of other legitimate organizational needs. While the selected technology need not be the ideal fit for a particular case, it still should be adequate to support the claim of disproportionality or undue burden.
  • Going forward, courts will increasingly consider available technology in the proportionality analysis. However, the choice of technology should be left to the responding party, so long as it is reasonable and appropriate to meet the needs of the case.
  • Use of technology as part of the early case assessment can help facilitate agreement on targeting collections or searches using certain date ranges, platforms, data sources, file types, or custodians. Such cooperation can potentially result in cost savings by limiting unnecessary discovery.
  • To take full advantage of technology, parties should consider involving attorneys and vendors with relevant expertise and knowledge, particularly during the meet and confer process and in court conferences.

As courts and parties are beginning to translate the 2015 amendments into the reality of their cases, the input of The Sedona Conference on these issues is timely and valuable. The Commentary on Proportionality should be considered in conjunction with another commentary recently released by WG1, Commentary on Defense of Process: Principles and Guidelines for Developing and Implementing a Sound E-Discovery Process. You can find our four-part review of the key takeaways from the Commentary on Defense of Process on our blog (Part I, Part II, Part III, and Part IV).