Cost Allocation of Discovery Expenses in Class Action Suits

Cost Allocation of Discovery Expenses in Class Action Suits

E-Discovery has become an essential part of the litigation process, but it has the potential to be extremely costly. More often than not, the majority of the expenses fall on the defendant. In recent years courts have begun to relieve this burden in certain cases by implementing cost allocation structures. A memorandum filed on August 16, 2012 regarding the case of Elisabeth Boeynaems, et al v. LA Fitness International helps to outline some important issues regarding the disbursement of discovery expenses.

The plaintiffs in this case signed contracts to become members of the LA Fitness organization and allege that they encountered deceptions and breaches of contract when they attempted to terminate their memberships. This case is pending class certification and if the class action is certified by the court, the Defendant’s financial burden would be greatly increased. In this Memorandum, Judge Baylson emphasizes the importance of taking into account the dramatic economic pressure the defendant will face if the class action is approved. The judge further notes that over the past fifty years, the courts have become more rigorous in ensuring that class certification costs are fair to the defendant.

Judge Baylson notes that past case decisions have applied certain standards to sharing discovery costs between parties. He indicates the leading opinion was issued in the case of Zubulake v. UBS Warburg LLC in which the presiding judge outlined a seven factor test to help govern decisions regarding cost allocation of discovery expenses. The factors taken into account for this particular case were as follows:

1. The degree to which the request for information is designed to discover germane information.

2. The availability of the same information from different sources.

3. The cost of production as compared to the amount in controversy.

4. The cost of production as compared to the resources of each party.

5. The parties’ relative abilities to control discovery costs and their incentives to control costs.

6. The degree of importance of the issues being decided in the litigation.

7. The relative benefits to each of the parties in obtaining the information at issue.

On May 4, 2012, the Plaintiff in the LA Fitness matter filed a Motion to Compel in which they sought production of documents in the following two categories:

  1. “Member Notes” relating to customer complaints generated in five states over a sample period of 60 months. Member Notes are electronic records which LA Fitness uses to keep track of internal discussions and actions regarding their members.
  2. E-mails to and from five individuals who were attempting to cancel their memberships and emails from two individuals at LA Fitness who handled cancellations

The defendant estimated the cost to review 60 months of member notes would be $360,000 and the cost to perform the search of the requested email accounts would cost $219,000. At a hearing on May 22, 2012, the Court ruled that the Plaintiff would not be required to pay for the Defendant’s counsel to review Member Notes.

On August 8, 2012, the Plaintiffs wrote a brief in which they indicated that the Defendants failed to produce internal memoranda and correspondence on various requested topics. The Defendants argued that they had already provided a substantial amount of these requested documents. The Plaintiffs responded that they were entitled to “all responsive internal documents.” The Court concluded that as class certification is pending and the plaintiffs have requested significant amounts of additional discovery material, the plaintiffs should pay for any additional discovery documents sought. The judge believes that if the Plaintiffs decide that additional discovery is relevant and important to proving that a class action is certified, then it is in their best interest to undertake these costs based on the benefit they are likely to receive.

The Court Order for this case, dated August 16, 2012 stipulates the following requirements for future discovery requests:

1. Plaintiffs shall promptly communicate to Defendant what additional discovery they still reasonably need prior to the class certification hearing, limited to requests already made in this litigation.

2. Within fourteen (14) days, Defendant shall respond giving an accurate estimate of

Defendant’s internal costs, as described in the foregoing Memorandum of searching for and providing this information to Plaintiffs.

3. Within seven (7) days, Plaintiffs shall advise Defendant whether they are willing to advance the costs and if so, shall pay the amount specified by the Defendant to Defendant.

4. Assuming the appropriate amounts are paid, Defendant shall provide the requested information as promptly as possible, but within thirty (30) days.

5. Defendant shall promptly answer all outstanding interrogatories asking for identification of officers and managers, limited to those with supervisory responsibility concerning the issues in this case.

6. Defendant shall promptly produce a privilege log of documents that Defendant has reviewed and are responsive to Plaintiffs’ requests for discovery, but have been withheld from production on grounds of privilege, in whole or in part, as required by Rule 26(b)(5).

In this case, Judge Baylson ruled that the defense had produced a reasonable and sufficient amount of responsive documents. While the court granted the Plaintiffs’ request in part, they must now take on the financial responsibility of the discovery process. This will likely lead the Plaintiff to be more meticulous in making requests for responsive documents. The courts continued review of these costs will help foster an efficient and financially sound discovery process.

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