Your company just received a document subpoena in a case in which it is not a party. Who covers the expense in responding to it? If the subpoena is issued in federal litigation, your company is likely responsible for the cost of compliance–especially if it has a connection to or interest in the litigation.
As explained in United States v. Cardinal Growth, L.P., No. 11 cv 4071 (N.D. Ill. Feb. 23, 2015), in federal court, the presumption is that the responding party must bear the expense of complying with discovery requests unless the expense is “significant.” If the subpoenas is issued in a state court court matter, a state statute or court rule may shift the costs of subpoena compliance to the requesting party.
In Cardinal Growth, the Small Business Administration sued Cardinal after it failed to repay loans. The court appointed the SBA as receiver and permitted it to marshal Cardinal’s assets and business records. As a result, the SBA requested documents from attorneys who represented Cardinal in prior business transactions.
The law firm produced the documents, but sought reimbursement for over $44,000 spent complying with the subpoena. Much of the costs were charges by an e-discovery vendor to collect and search electronically stored information (ESI), including e-mail relating to Cardinal.
The court denied the reimbursement request. Although the law firm petitioned for costs under Fed. R. Civ. P. 45, the rule governing third party subpoenas, the rule did not apply. The SBA’s document request was not based on Rule 45, but on the court’s order permitting the SBA to collect Cardinal’s business records. The court further concluded that if Rule 45 applied, it would not authorize the payment of the law firm’s costs.
When a non-party produces documents pursuant to a Rule 45 subpoena, presumptively, the responding party bears the expense of compliance. However, the court also pointed out that requesting parties must avoid imposing undue burden or expense on responding parties.
Referencing DeGeer v. Gillis, 755 F. Supp. 2d 909 (N.D. Ill. 2010), the Cardinal court considered three factors in declining shift the subpoena costs to the SBA: (1) whether the non-party has an interest in the outcome of the case; (2) whether the non-party can more readily bear its costs than the requesting party; and (3) whether the litigation is of public importance.
The court concluded that the law firm was not a “disinterested non-party.” The firm served as Cardinal’s counsel for over 10 years, participated in the design of many of Cardinal’s business transactions and earned over $2 million in fees from Cardinal. The court also concluded that the expenses incurred by the law firm to comply with the subpoena did not rise to the level of “significant expense” when compared to legal fees earned from Cardinal. Finally, the court believed that the litigation was of public importance because the SBA had a duty to liquidate Cardinal’s assets and preserve any claims Cardinal might have.
Other courts apply similar tests. For instance in Tessera, Inc. v. Micron Technology, Inc., No. C-06-80024-MISC-JW (N.D. Cal. March 22, 2006), United States District Court for the Northern District of California offered eight factors to consider when shifting costs away from non parties: (1) the scope of the request; (2) the invasiveness of the request; (3) the need to review privileged material; (4) the non-party’s financial interest in the case; (5) whether the requesting party ultimately prevails; (6) the resources of the requesting party and the non-party; (7) the reasonableness of the costs; and, (8) the public importance of the litigation
In Jeune v. Westport Axle Corp., Civil Action No. 7:14-CV-617 (W.D. Va. Apr. 8, 2016), the court followed the three part test used in DeGeer when Volvo sought to have a subpoenaing party pay for requested records. The court refused to shift the costs noting that although Volvo had no interest in the case, it was more financially able to bear the cost of the subpoena than the requesting parties who were individual plaintiffs suing a Volvo vendor for employment discrimination.
Despite the general rule that parties responding to subpoenas must cover the costs, in cases of financial hardship, courts may shift the costs to the requesting party. For instance, in Alabama Aircraft Indus., Inc. v. Boeing Co., Case No. 2:11-CV-03577-RDP (N.D. Ala. Feb. 25, 2016), the court ordered Boeing to help foot the bill for subpoena costs because the subpoenaed party did not have the financial wherewithal to cover them.
There, Boeing served a subpoena on non-party Kaiser Aircraft Industries. In turn, Kaiser argued (among other things) that responding to the subpoena imposed an undue financial burden and asserted that under Rule 45 of the Federal Rules of Civil Procedure, courts have a duty to protect non-parties from the costs of compliance. To determine whether Kaiser was right, the court applied a three-factor test in determining whether Kaiser was truly a non-party with no interest in the litigation:
(1) whether the non-party actually has an interest in the outcome of the case, (2) whether the non-party can more readily bear the costs than the requesting party, and (3) whether the litigation is of public importance.
The court disagreed with Kaiser that the company had no interest in the litigation, noting that that Kaiser funded the litigation, would receive a significant cut of any recovery, and was otherwise well involved in the case. However, to determine whether Kaiser should have to foot the bill for responding to Boeing’s subpoena, the court also considered a fourth and final factor — the financial ability of a party to bear the cost of subpoena compliance. Referencing financial statements demonstrating “with impressive specificity” Kaiser’s financial inability to comply with the subpoena, the court concluded that both Boeing and Kaiser should share in the costs complying with the subpoena through a “production framework.”
Although generally having to bear the costs of complying with a subpoena, responding parties are not obligated to produce ESI that is not reasonably accessible. Rule 45(d) states that:
[t]he person responding need not provide discovery of electronically stored information from sources that the person identifies as not reasonably accessible because of undue burden or cost . . . the court may nonetheless order discovery from such sources if the requesting party shows good cause . . . .
Many state rules, such as Illinois Supreme Court Rule 201 also have similar limitations.
Although federal rules presume responding parties must bear costs to respond to subpoenas, some state rules shift the cost to the requesting party. For instance, New York Civil Practice Law and Rules sections 3111 and 3122(d) state that “[t]he reasonable production expenses of a non-party witness shall be defrayed by the party seeking discovery.” However, it is not always clear what constitutes a reimbursable cost.
To be safe, unless the subpoena is issued in a state with a cost shifting statute or rule, it is best to assume the recipient of a subpoena must bear some or all cost of compliance. However, regardless of who ultimately foots the bill, the goal should be to keep e-discovery costs down. This can be done through the use of proper technology to assist with collection of the ESI and proper electronic document review techniques. If you or your company has been served with a subpoena and would like to discuss how to keep response costs down, please contact us.