MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 2010 WL 447051 (N.Y. Sup. Ct. Jan. 14, 2010) (Unreported)

Upon defendant’s motion for a protective order to require plaintiff to bear the cost of defendant’s production of electronically stored information (“ESI”), the court declined to follow the purportedly “well settled rule” in New York that the party seeking discovery should bear the cost and denied defendant’s motion.  (See T.A. Ahern Contractors Corp. v. Dormitory Auth. of State of N.Y., 875 N.Y.S.2d 862 (N.Y. Sup. Ct. 2009) declining to overturn the “well settled” rule in New York that the party seeking discovery bears the cost.)

In the course of discovery, plaintiff requested that defendant produce relevant ESI.  The parties disagreed as to who should bear the cost of such production; each felt the other should be responsible.

To settle the dispute, the court undertook an analysis of several New York cases in which allocation of cost had been addressed and which had resulted in competing findings regarding who should properly bear discovery costs.  In one recent case, Clarendon Natl. Ins. Co. v. Atlantic Risk Mgt., Inc., 59 A.D.3d 284 (N.Y. App. Div. 2009), the court indicated that “it saw ‘no reason to deviate from the general rule that, during the course of the action, each party should bear the expenses it incurs in responding to discovery requests.’”  In another case, Waltzer v. Tradescape & Co., LLC, 31 A.D.3d 302 (N.Y. App. Div. 2006), despite affirming the rule that under the CPLR, the party seeking discovery should bear the cost, the court declined to place the cost of production with the requesting party “and instead, distinguished its facts on the basis that (1) it did not deal with deleted electronically stored material and (2) the information sought was readily available.”  In that case, the court also stated that the “cost of an examination by the [producing party] to see if [material] should not be produced due to privilege or relevancy grounds should be borne by [the producing party].”  Declining plaintiff’s request to view Clarendon as an “anomaly”, the court in the present case stated:

Far from being an anomaly, it is consistent with Waltzer in that application of the relevant rule in both resulted in cost allocation determinations only when the electronically-stored information to be produced was not readily available.  While producing readily-available electronically- stored information (Clarendon –all of an insurance company’s claims files; Waltzer–data stored on 2 compact discs) will not warrant cost-allocation, the retrieval of archived or deleted electronic information has been held to require such additional effort as to warrant cost allocation (Samide, 5 AD3d at 466; Delta Fin. Corp., 13 Misc.3d at 614; Etzion, 7 Misc.3d at 944- 45).  Furthermore, under CPLR 3103(a), the lodestar in granting a protective order granting allocation of discovery costs is the prevention of “unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts.”  Hewing to this principle and the applicable case law, it is eminently reasonable to refrain from allocating discovery costs at this juncture.

via Defendant “Fails to Show that it is Settled Law that the Party Requesting Discovery Must Bear the Cost of Production,” Court Denies Motion for A Protective Order : Electronic Discovery Law.