Will Texas Stay Moderate When it Comes to e-Discovery?

Texas Law360
April 8, 2016

By Shannon O'Malley
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With the onslaught of nonstop news concerning the forthcoming presidential election, and the extreme positions the various camps frequently take, moderation and reasonableness, especially in Texas, seems to be on the wane. And yet, when it comes to electronic discovery, Texas courts appear to espouse the very sensible proposition that discovery and the costs associated with it should, in fact, be reasonable. Given the roller coaster of federal law concerning electronic discovery — and litigation attorneys apparent continued fear and trembling at the mention of ESI (electronically stored information) — it is almost surprising that Texas courts have taken a calm and measured approach to discovery of ESI.

A Brief History of the “Scary” World of e-Discovery

I was first indoctrinated into the world of electronic discovery in 2007. While this was a couple of years after the Zubulake decision was issued — the decision in which the court determined that companies were required to preserve back up tapes for discovery purposes — serious attention to e-Discovery was really just in its infancy at that time.

I was a mid-level associate who was aware of e-Discovery, but did not know the rocky shoals that would await me in a case that became my “baptism by fire.” I was tasked with responding to a plaintiff’s unreasonable discovery demands, which were primarily driven by the plaintiff’s outside discovery consultant, rather than the needs of the case. I dove into the Federal Rules, read every case concerning e-Discovery (there were not many at the time), attended numerous conferences and generally did what lawyers do — learned the law and argued for its reasonable and fair application. While that case had many interesting legal issues, and involved high-stakes damages, what really drove it was the unreasonable demand for discovery from a number of irrelevant custodians and computer systems. It was absolutely a case of form over substance.

Since then, I’ve attended a number of e-Discovery conferences, where topics range from updates on case law, new technologies to assist with review and judicial expectations. These conferences revealed two things: (1) there was an almost “ivory tower” expectation for approaches to e-Discovery, no matter how small the case; and (2) many of the e-Discovery speakers had become full-fledged e-Discovery advocates, seemingly forgetting the primary purpose of discovery — unearthing the relevant facts and legal issues. Again, form over substance.

Notably, while there were some high-profile cases that imposed harsh penalties for evidence spoliation and other guidance from the courts, in my experience, unless a special master was appointed, or in the absence of truly reckless or intentional misconduct, courts were loath to punish litigants for e-Discovery transgressions.

The Recent Federal Rule Changes

It appears the pendulum has swung with the recent revision of the Federal Rules of Civil Procedure, which were amended in December 2015. For example, Rule 26(b)(1), which defines the scope of discovery, now tempers what is discoverable. Rule 26(b)(1) now states:

Scope in General. Unless otherwise limited by court order, the scope of discovery is as follows: 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, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.

Accordingly, not only does the information sought need to be relevant, but it also must be proportional to the needs of the case.

Similarly, the Federal Rule changes affect objections to production of documents and information. Litigants no longer can simply object to a request; under Rule 34(b)(2)(B) they must now “state with specificity the grounds for objecting to the request, including the reasons.” And an objection “must state whether any responsive materials are being withheld on the basis of that objection.” Rule 34(b)(2)(C).

Finally, the revised Rules address sanctionable conduct under Rule 37. The revised Rule 37(e) states:

Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:

(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or

(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:

(A) presume that the lost information was unfavorable to the party;

(B) instruct the jury that it may or must presume the information was unfavorable to the party; or

This Rule change addresses the Federal courts’ disparate application of the former sanction rule and provides Federal courts with more guidance on when discovery conduct related to ESI preservation is sanctionable.

Texas Courts Follow a Moderate and Measured Approach to e-Discovery

With this background and the recent changes in the Federal Rules, practitioners may wonder how Texas courts treat e-Discovery. Notably, Texas was one of the first jurisdictions to recognize that many relevant documents exist electronically and are discoverable. This was codified in 1999 in Rule 196.4, which provides:

196.4 Electronic or Magnetic Data.

To obtain discovery of data or information that exists in electronic or magnetic form, the requesting party must specifically request production of electronic or magnetic data and specify the form in which the requesting party wants it produced. The responding party must produce the electronic or magnetic data that is responsive to the request and is reasonably available to the responding party in its ordinary course of business. If the responding party cannot — through reasonable efforts — retrieve the data or information requested or produce it in the form requested, the responding party must state an objection complying with these rules. If the court orders the responding party to comply with the request, the court must also order that the requesting party pay the reasonable expenses of any extraordinary steps required to retrieve and produce the information.

In 2009, the Texas Supreme Court analyzed this provision in the Weekley Homes LP litigation, 295 S.W.3d 309 (Tex. 2009). The Court provided lower courts and practitioners with a comprehensive analysis of the procedures that must be followed under Rule 196.4, including the form of requests and objections. Setting the stage for moderate e-Discovery litigation in Texas, the Court in Weekley Homes granted mandamus denying a party from obtaining forensic access to the opposing parties’ computers.

Since that case, Texas courts have avoided the extremes found in some of the Federal cases and generally have taken an approach grounded in reasonableness. For example, in the VERP Investment LLC litigation, 457 S.W.3d 255 (Tex. App.—Dallas 2015, no pet. h.), the court recognized that an order requiring direct access to an opposing party’s electronic device “is burdensome because it is intrusive.” Id. at 261. The court therefore required the requesting party to provide evidence that the other party was in default of the Weekley Homes obligations as a threshold requirement. Mere skepticism and bare allegations that the responding party failed to meet its discovery obligations are not enough to meet this threshold. Rather, there must be some admissible evidence to support the requesting parties’ need for access to the responding party’s ESI. This is true even if the responding party has been shown to have defaulted on some of its discovery obligations. Ultimately, the court determined that a requesting party must have some evidence to support its need for direct access to the ESI.

This case, and the Weekley Homes case upon which it relies, demonstrates that Texas courts are loathe to require parties to jump through hoops or otherwise go to seemingly extreme measures to meet their e-Discovery obligations. The opinions represent the essence of a moderate stance.

Is the Texas Pendulum Swinging?

While most Texas courts appear to reject attempts to expand e-Discovery obligations in Texas state courts, recently, a court of appeal in Corpus Christi denied a responding party’s writ of mandamus seeking protection from, what it argued, was an overly burdensome ESI protocol. The responding party is currently seeking a writ of mandamus from the Texas Supreme Court arising out of an e-Discovery dispute discussed in the State Farm Lloyds litigation, No. 13-14-00616-CV, (Tex. App.—Corpus Christi-Edinburg, Oct. 28, 2015, pet. filed). The responding party asserts that the discovery order is a departure from Texas’ traditional moderate application of e-Discovery standards.

The discovery dispute at issue involved a homeowner’s claim against his property insurer. The homeowner purportedly sought a broad amount of ESI from the insurer including email, messaging, word processing documents, digital presentations and spreadsheets and for those same to be produced in a native form. The insurer objected to the breadth of the request and the production of the information in a native form arguing the requests impose significant burdens on State Farm to develop (and implement) unique and burdensome processes just for this case and that it would set a “dangerous precedent” that ignores the balancing test under Rule 196.4 that requires courts to apply proportionality and reasonableness principles to reach practical production solutions. The insurer proposed to produce the information in a “reasonably usable form,” but not in native form. This was due to the nature of the insurer’s database system, which stored data in a static form. The insurer argued that it would require considerable time and expense to “track down” the original native document that had been inputted into the insurer’s database.

The district and appellate courts rejected the insurer’s arguments, finding that under the express terms of Rule 196.4, the requesting party must specify the form of production and the responding party has the obligation to either produce the responsive ESI that is reasonably available, or object if it cannot produce the ESI in the requested form through reasonable efforts. The court noted that rule “does not offer State Farm the unilateral option to produce ESI in a ‘reasonably usable’ format.”

The court further found that the requesting party presented evidence that the format proposed by the responding party lacked categories of information that would have been available in native (i.e., the requested) format. Specifically, it appeared that certain metadata would be missing from the form of production proffered by the responding party. The court concluded that the insurer did not produce nonconclusory evidence regarding the alleged burdensomeness of producing the requested ESI in native and near-native formats. In particular, the court determined the appropriate evidence to support its position in this dispute would have been evidence regarding the estimated cost or expense of producing ESI data in the requested forms, any evidence regarding the time that it would take to produce the ESI data in the requested forms or any other estimate of the “reasonable expenses of any extraordinary steps required to retrieve and produce the information.”

As noted, the responding party is seeking writ of mandamus from the Texas Supreme Court. Many amicus briefs on this issue have also been filed. It remains to be seen whether the court will grant writ and whether Texas will retain its reputation, in the e-Discovery world at least, as a moderate state.

—By Shannon O’Malley, Zelle LLP

Shannon O’Malley is a partner in Zelle's Dallas office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.