A federal district court in Pennsylvania held that the plaintiffs’ counsel should pay for additional paper and electronic discovery in a potential class action. The decision is the first time that a court is shifting the entire discovery expense to the plaintiffs prior to certification and is based in part on the law firm’s ability to afford the production costs. (Boeynaems v. LA Fitness Intl., LLC, 2012 WL 3536306 (E.D. Pa. Aug. 16, 2012).)
Where “class certification is pending” and “the plaintiffs have asked for very extensive discovery, compliance with which will be very expensive, that absent compelling equitable circumstances to the contrary, the plaintiffs should pay for the discovery they seek,” wrote District Court Judge Michael Baylson.
The plaintiffs alleged breach of contract and deceptive and unfair trade practices against LA Fitness after attempting to terminate their gym memberships. The parties have been embroiled in a discovery dispute for the past several months.
The plaintiffs filed a motion to compel in May 2012, and a few weeks later, the parties claimed to have reached an agreement concerning outstanding discovery. In July 2012, plaintiffs’ counsel notified the court that issues raised in the motion were still unresolved, so the court ruled on the motion.
The decision noted that the five plaintiffs possess limited documents, while the defendant has millions of documents and electronically stored information (ESI). The defendant has argued that it will cost approximately $680,000—$400,000 if the defendant produces 30 months of records, rather than 60 months—to review, conduct email searches, and produce the relevant documents. The defendant said it would cost another $300 per month to pay storage costs for cancellation notices that the plaintiffs have requested.
The court based part of its decision on the ability of the plaintiffs’ counsel to afford the additional costs. “If the Berger & Montague firm believes this case is meritorious, it has the financial ability to make the investment in discovery, to the extent the court finds that cost sharing is otherwise appropriate,” Baylson wrote.
“This is outrageous. It is the resources of the parties that are relevant. How come the resources of the defense firm were not considered?” said Keith Altman, of Temecula, Calif., who practices mass tort litigation and specializes in e-discovery issues. “It is likely that according to the retainer agreement, the plaintiffs are potentially responsible for covering the costs. Therefore, to use the plaintiffs’ firm resources as an indicator is just wrong.”
Baylson cited the Supreme Court’s decision in Oppenheimer Fund, Inc. v. Sanders, which broadly authorizes cost shifting, and Rule 26(b)(2), which allows but does not require cost shifting for ESI. Baylson also cited several federal court decisions that shifted discovery costs to the requesting party, including Zubulake v. UBS Warburg LLC (S.D.N.Y.) and Clean Harbors Envtl. Servs. Inc. v. ESIS, Inc. (N.D. Ill.), but those courts divided the costs between the parties. This appears to be the first time a court has addressed cost allocation as part of a discovery dispute prior to class certification.
“If plaintiffs conclude that additional discovery is not only relevant, but important to proving that a class should be certified, then plaintiffs should pay for that additional discovery from this date forward, at least until the class action determination is made,” Baylson wrote.
The decision does require the defendant to respond to the plaintiffs’ requests and to provide a summary of internal discovery production costs, such as the “allocated salaries of individuals employed by defendant who participate in supplying the information.” If the plaintiffs are willing to make the payments, they must do so before the defendant initiates production. The court reserved its right to allocate the costs at a later time, “depending upon the outcome of the class action motion and/or merits of the case.”
“I think the benefit to the decision is that it is a wake-up call to requesting parties to be careful,” said Altman. “What is clearly happening is that requesting parties must be more focused on what they ask for and must be cautious that they do not go too far.”