Your company received a document subpoena in a legal dispute in which it is not involved. Or it received a data request from a consumer under the GDPR or California Consumer Privacy Act. Who covers the expense in responding to it?
If the subpoena issued is in federal litigation, your company is likely responsible for the cost of compliance, especially if it has a connection to the litigation. Companies must also foot the bill for consumer data requests authorized under privacy regulations unless the request is “excessive.”
A case from the Northern District of Illinois provides a good analysis of when costs responding to subpoenas may be shifted to the party seeking the documents.
In United States v. Cardinal Growth, L.P., No. 11 cv 4071 (N.D. Ill. Feb. 23, 2015) the court observed that responding parties presumptively bear the expense of complying with discovery requests unless the expense is “significant.” If the subpoena is issued in a state court matter, a state statute or court rule may shift the costs of subpoena compliance to the requesting party (see below).
In Cardinal Growth, the Small Business Administration sued Cardinal after it failed to repay loans. The court-appointed the SBA as a 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 from an e-discovery vendor to collect and search electronically stored information (ESI), including e-mails 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, it did not apply because the SBA’s document request was based on a court order permitting the SBA to collect Cardinal’s business records. Regardless, the court concluded that even if Rule 45 applied, it would not authorize the payment of the law firm’s costs because when a non-party produces documents pursuant to a federal subpoena, the responding party bears the expense of compliance.
Even though the Cardinal court did not shift the costs for the document production, it pointed out that requesting parties must avoid imposing undue burden or expense on responding parties. Another case, SPS Techs., LLC v. Boeing Co., Case No. 19 C 3365 (N.D. Ill. Jun. 7, 2019), noted Cardinal and agreed that third-party subpoenas must not burden responding parties. The judge, in that case, applied discovery proportionality factors to figure out whether a subpoena served on Boeing went too far (he concluded it did not). The court looked at “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.”
Even though the general rule is that parties responding to subpoenas must bear the costs, there are exceptions. In certain circumstances, costs may be shifted to the party seeking documents via subpoena.
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.
If the costs relating to subpoena compliance are shifted to the requesting party, they must be reasonable and costs incurred objecting to or resisting a subpoena may not be shifted.
For instance in, In re Aggrenox Antitrust Litig., No. 3:14-md-02516 (SRU) (D. Conn. Oct. 18, 2017) the court refused to shift costs “for time spent arguing . . . about costs and production deadlines”. Similarly, in Valcor Engineering Corporation v. Parker Hannifin Corporation, No 8:16-cv-00909 (July 12, 2018), the court refused to shift expenses “incurred due to . . . tactical decision to aggressively challenge every aspect of a subpoena.”
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.
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. 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
(3) whether the litigation is of public importance.
The court disagreed with Kaiser that the company had no interest in the litigation, noting 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 federal rules presume responding parties must pay costs incurred responding 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.” Yet, it is not always clear what constitutes a reimbursable cost.
Nowadays, third party requests for information are not always related to lawsuits and legal disputes. Privacy regulations like the EU’s General Data Protection Regulation and the California Consumer Privacy Act permit consumers to request information companies collect about them. But again, generally privacy regulations do not permit companies to charge for responding to data requests.
Under the GDPR, companies may only charge a “reasonable fee” for the administrative costs of complying with the request if the request is “manifestly unfounded or excessive” or an individual requests multiple copies of their data. Similarly, under CCPA section 1798.145, companies may only charge to process consumer data requests if they are “manifestly unfounded or excessive [or of a] repetitive character.”
It is best to assume the recipient of a subpoena or data privacy data request must bear some or all cost of compliance. However, regardless of who foots the bill, the goal should be to costs down. This can be done through the use of proper technology to assist with the collection of the data and proper electronic document review techniques.
If your company receives a lot of subpoenas or data requests, let us know, we can help keep costs down.