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Will California's New Rules for eDiscovery Increase Costs?

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Wednesday, October 14, 2009

Will California's New Rules for eDiscovery Increase Costs?

By now, we all know that Califronia Governor Schwarzenegger signed California Assembly Bill 5 into law on June 29th, 2009 dramatically expanding upon the federal requirements for playing nicely in eDiscovery as stated in the Federal Rules of Civil Procedure (FRCP). However, no one knows for sure how this new law will effect the cost.

Therefore, this past couple of weeks, I have been investigating the fallout from these new rules and wanted to share some of what I have found.

First of all, let's review what Bill 5 actually says. In a september 9, 2009 blog posting on the DCIG Blog titled "California's New State Law Raises eDiscovery Stakes; Costs Poised to Skyrocket" , Howard Haile listed the following points of interest in the Electronic Discovery Act:
  1. The California law differs from the FRCP in how it approaches data in "a reasonably useable form". If your company is subject to an eDiscovery request, the burden will be upon you to provide the information in a reasonably useable form. This is a big departure from FRCP. This new wording could lead to a large expense for a company as definitions of a "reasonably, useable form" are worked out.
  2. Expands eDiscovery beyond inspection and copying to include testing or sampling of ESI. This act expands existing eDiscovery procedures and demands that can be made for inspection of ESI to include copying, testing or sampling of ESI.It also allows for a party to demand that another party of someone acting on that party's behalf, to inspect, copy, test, or sample ESI in the possession, custody, or control of the party when an eDiscovery demand is made.
  3. Parties that fail to produce ESI pursuant to a discovery request may face monetary sanctions. This sets a new precedent that organizations must now consider. Before they mostly just had to contend with costs at the federal level. Now the state of California has the power to levy monetary sanctions as well
  4. Sanctions are prohibited if failure to produce ESI is due to routine, good faith business operations. I consider this California's version of the safe harbor provision, but as with FRCP, safe harbor can be elusive as evidenced by the aforementioned statistics on sanctions.
Mr. Haile went on to further point out that There is much more to this act, including more notable departures from the language of the FRCP. Overall this is a detailed act with new risks and eDiscovery considerations that now impact organizations if they end up in the California state court. Like all risks, it all boils down to costs but the big question organizations have to answer is, "What is the cost of complying versus doing nothing and taking a reactive approach to an eDiscovery to deal with it only if and when it hits you?"

Current case law in California for cost shifting is found in Toshiba America Electronic Components vs. Superior Court (2004, 21 Cal Rptr. 3d at 532) where the Court concluded that California Code of Civil Procedure Section 2031(g) (1) shifts the cost of providing compilations of electronic data in a usable format to the demanding party. However, it is now clear if this precedent will continue to be the rule?

In discussions the past two weeks with General Counsel from California based corporations and with partners from some of the larger California law firms, I didn't get the impression that Bill 5 was on the top of anyone's list of concerns. However, I don't think that anyones "hair was on fire" due to eDiscovery collection or production issues either. But, it is just a matter of time before it will be. And, for those litigatore who have not really been paying attention to the changes in the FRCP, the new California Bill 5 and the bills from other states that are sure to follow, there are going to be additional costs involved in any cases that require eDiscovery. Which, with the accellerating increase the amout of ESI, is probably close to 100% of all matters in 2009 and beyond.

Iny any case, chagnes in eDiscovery practices, law and costs are here to stay in California and the rest of the United States. And, the litigators that "don't pay attention" may in fact get "terminated". And, it is going to cost more to litigate in 2009 and beyond than in did in previous years where Electronically Stored Information (ESI) was just not that prevalent. However, even if you wait until ther terminaor is cashing you and/or your hair is on fire, there are ways to contorl costs and get eDiscovery done properly. And, it might even make sense to proactively beging to think about how you are going to handle eDiscovery and maybe even take some steps to be prepared so that your hair never does catch on fire.

Over the next couple of weeks, I will be gathering more specific information about the increasing cost of eDiscovery in California due to Bill 5 and the costs everywhere due to the changes in the FRCP.

So, if anyone has any input, send it to me and I will include it in my next posting on this topic.

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