Courts should order more cost-shifting in discovery. In particular, in the rare cases where courts allow discovery on discovery (i.e., how the opponent preserved, collected, and produced responsive documents), it should be presumed that the requester pays for the responding party's costs to produce this information.
As U.S. Magistrate Judge John Facciola noted more than 10 years ago in McPeek v. Ashcroft, 202 F.R.D. 31, 33-34 (D.C 2001):
American lawyers engaged in discovery have never been accused of asking for too little. To the contrary, like the Rolling Stones, they hope if they ask for what they want, they will get what they need. They hardly need any more encouragement to demand as much as they can from their opponent.
The reason that lawyers do not self-regulate their discovery requests is self-evident: They can consume this free good without restraint. Under the American Rule, requesting parties have little financial incentive to narrow their requests or only seek information they expect to actually help them, because the cost of finding and producing the information falls on their opponent. And, while there are other incentives to curb wanton discovery abuse — such as professionalism, courtesy, reputation, discovery sanctions, FRCP 26(g), and proportionality — these measures only restrain the grossest of actions (and, often, only with Court intervention) and do not focus a requesting party or its counsel's mind on the marginal costs and benefits of a request quite like paying for it would.
The basis for the American Rule is well-known and perhaps most succinctly discussed by Judge Shira Scheindlin in Zubulake I:
Courts must remember that cost-shifting may effectively end discovery, especially when private parties are engaged in litigation with large corporations. As large companies increasingly move to entirely paper-free environments, the frequent use of cost-shifting will have the effect of crippling discovery in discrimination and retaliation cases. This will both undermine the 'strong public policy favoring resolving disputes on their merits,' and may ultimately deter the filing of potentially meritorious claims (Zubulake v. UBS Warburg, 217 FRD 309, 317-318, quoting Pecarsky v. Galaxiworld.com Limited, 249 F.3d 167, 172 (2d Cir. 2001)).
In essence, the American Rule exists to prevent the doors of the courthouse being slammed shut on poor parties who cannot afford to prosecute their claims. This is why the best, least costly, most refined tool to manage the costs of discovery — making the requester pay — has been used only in cases where the data is not reasonably accessible.
However, the power behind the logic of the American Rule fades when the requested discovery has little to do with the merits of the claims and defenses. In the case of discovery on discovery, the requesting party does not seek information directly relevant to its claims or defenses, but rather seeks to verify that the responding party has complied with its obligations in responding to prior discovery requests. As an initial matter, courts should only permit this type of discovery in rare situations where good cause exists to suspect that such discovery will indeed yield relevant results. See, e.g., Federal Rule of Civil Procedure 26(b)(1). Too often, discovery on discovery is used as a strategic tool to increase costs incurred by the responding party and is sought not based on evidence that discovery abuse has occurred, but rather, "on a wing and a prayer," in the optimistic hope that a second go-round will yield relevant information.
A reversal of the American Rule here will properly incentivize requesting parties to seek discovery on discovery only when they have a genuine belief that such discovery is necessary to a just resolution of the dispute, as opposed to utilizing such discovery as a means of exacting strategic pressure on an opponent, without great risk of chilling meritorious claims being resolved on the merits. Parties seeking discovery on discovery will only do so where they expect the benefit of the discovery to outweigh its costs and will naturally tailor the discovery to those areas where it thinks there have been failures, rather than the blunderbuss approach that is too often used now. Switching the presumption as to who pays for such discovery does not close the courthouse doors on parties who cannot afford discovery because the underlying facts of the dispute (was the contract breached; was toxic sludge dumped in the river; was there a price-fixing conspiracy) are not the ones being sought. A party can — and should — be able to bring, investigate, and advocate claims or defenses without ever investigating how the other party produced documents or disclosed information. Making a party pay for the privilege of undertaking this satellite discovery, after meeting the necessary thresholds, does not hinder a party from prosecuting its case-in-chief. Simply put, discovery on discovery is not about resolving claims on the merits. Moreover, if a requesting party does uncover discovery abuse or establish a material failure to properly respond, shifting the costs back to the responding party may be appropriate.
Similarly, the requesting party may, at times, seek to understand the structure of its opponent's IT architecture, usually in an effort to identify additional custodians or locations of files as a potential source of relevant information. While the discovery of a company's data management systems and resources does not lead to the same egregious problems as discovery on discovery, formal depositions, document requests, and interrogatories regarding such information, which do nothing to resolve the actual dispute, can be terribly expensive and time-consuming. Reversal of the American Rule here will encourage informal resolution of these issues, which should be possible absent extraordinary circumstances. Courts will then not be required to delve into the minutiae related to the various issues associated with IT architecture.
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