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Cost-Shifting and Cost-Sharing

Records Retention and Electronic Discovery Law Update

This update includes two cases relating to e-Discovery developments in Illinois. The first involves cost-shifting to defendants that failed to produce a "hot doc." The second concerns defendants ordered to share costs with plaintiff when defendants reneged on a common understanding to divide discovery costs between the parties.

IWOI, LLC v. Monaco Coach Corp., 2011 WL 2038714 (N.D. Ill. May 24, 2011)

Facts: IWOI is a suit arising from a defective motor home. Defendants originally failed to produce a "hot doc" that plaintiff only discovered after reopening fact discovery and conducting an additional search at its own cost. Plaintiff sought sanctions and asked the court to shift the entire cost of the search to the defendants.

Law: The court has authority to impose sanctions under either Rule 37 for violating a court order or under its inherent authority to manage its cases.

Holding: The court sanctioned the defendants and ordered them to share half the cost of the plaintiff's search because the defendants failed to produce a clearly relevant and accessible email, and thereby failing to comply with Rule 26 of the Federal Rules of Civil Procedure.

Takeaway Points: Attorneys should work with clients to perform an exhaustive search when responding to discovery to ensure a complete and responsive production. The failure to do so could result in sanctions that ultimately increase the cost of litigation. Attorneys should expend additional time and resources early in the course of the litigation to avoid such problems.

Clean Harbors Envtl. Services, Inc. v. ESIS, Inc., 2011 WL 1897213 (N.D. Ill. May 17, 2011)

Facts: Plaintiff brought suit for professional negligence, breach of contract, and breach of fiduciary duty against both its insurer and the counsel retained by the insurer. Defendants requested a number of documents that predated the litigation hold and were only accessible on backup tapes. Faced with this additional cost and burden, the plaintiff asked the defendants to share the cost of the search and had numerous discussions and negotiations on the topic with the defendants. After discovery completed, the first defendant refused to share any of the cost and the second defendant only offered a minimal sum.

Law: The party responding to discovery bears the cost and must identify if there are materials responsive to discovery requests stored on its system. Fed.R.Civ.P. 26(b)(2). If materials are not reasonably accessible or place an undue burden on the responding party, the party may seek the protection of the court. Id. The court will apply an eight-factor test to determine whether it should shift costs. Id.

Holding: Finding the factor test inconclusive (primarily because discovery had completed), the court held that the prior negotiations of the parties controlled. Since the emails from the parties clearly evidenced and addressed the topic of cost-sharing, the court found it only equitable to split the costs - 50 percent to the plaintiff and 50 percent shared equally by the two defendants.

Takeaway Points: Courts can impose litigation costs on the party requesting discovery merely because it has negotiated cost-sharing - even if it has not come to an actual agreement with the responding party. By contrast, the responding party should consider seeking the protection of the court prior to incurring the cost of discovery if asked to produce inaccessible and/or burdensome information. The court can provide protection by limiting the scope of discovery and splitting costs or may even deny discovery requests. Based on Clean Harbors, the court could subsequently exercise its equitable discretion to shift some of the cost, but it is better practice to address the issue early and avoid the risk of bearing all of the costs.

If you have any questions, please contact your Quarles & Brady attorney.

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