Major Texas Supreme Court Opinion Sets Standards for Forms of Production and Proportionality

blog_courthouseThe Texas Supreme Court issued a major e-discovery opinion this week, using a discovery dispute between homeowners and their insurer State Farm Lloyds to provide broad guidance for Texas litigants and judges on how to resolve disagreements over the form of production of electronically stored information.

The court did not decide the appropriate form of production in this case, choosing instead to send the case back to the trial court for the parties to reargue the issue with the “benefit of the guidance we seek to provide today.” However, it used the occasion to emphasize that proportionality is the key determinant and it laid out factors for courts to consider in balancing litigants’ competing interests on a case-by-case basis.

Today, we elucidate the guiding principles informing the exercise of discretion over electronic-discovery disputes, emphasizing that proportionality is the polestar. In doing so, we further a guiding tenet of the Texas Rules of Civil Procedure: that litigants achieve a “just, fair, equitable and impartial adjudication . . . with as great expedition and dispatch and at the least expense . . . as may be practicable.”

At issue in the case, In Re State Farm Lloyds, Relator, issued May 26, was the homeowners’ attempt to require State Farm to provide discovery documents in their native formats. State Farm opposed this, seeking to produce discovery in searchable static form, which it argued was more convenient and accessible because of its routine business practices.

The trial court sided with the homeowners, ordering State Farm to provide production in native form, subject to a showing of infeasibility. After State Farm lost its bid for mandamus relief from the Court of Appeals, it took the matter to the Supreme Court.

“The taproot of this discovery dispute is whether production in native format is reasonable given the circumstances of this case,” Justice Eva M. Guzman wrote for the court. “Reasonableness and its bedfellow, proportionality, require a case-by-case balancing of jurisprudential considerations, which is informed by factors the discovery rules identify as limiting the scope of discovery and geared toward the ultimate objective of ‘obtain[ing] a just, fair, equitable and impartial adjudication’ for the litigants ‘with as great expedition and dispatch at the least expense . . . as may be practicable.’”

Factual Background

In the underlying litigation – actually two cases consolidated on appeal – homeowners sued State Farm and others alleging underpayment of claims for hail damage. The trial court approved a discovery order proposed by the homeowners that required all ESI to be produced in its native or near-native forms. The order did not require State Farm to convert data stored in another form back to native form, but it did require the insurer to produce ESI in native form regardless of whether a more convenient, less expensive and “reasonably usable” format was readily available.

State Farm had sought an order allowing it to produce in searchable but static form, such as in PDF, TIFF and JPEG formats. It provided evidence that it processes more than 35,000 new claims each day and, in the ordinary course of business, it routinely converts information related to those claims into static format.

State Farm’s expert testified that production in native form “would require State Farm to engineer a new process that includes determining upstream sources of the data, validating the upstream sources, determining whether native files of the information still exist, and developing an extraction method for the native versions.” The expert testified that “[t]hese additional steps would be an extraordinary and burdensome undertaking for State Farm” and are unnecessary because State Farm’s proffered production form is “reasonably usable.”

The homeowners presented expert testimony that static images have less utility than native format. Their expert described static-form production as “the electronic equivalent of a print out” and said that useful metadata would not be viewable in static form.

When State Farm sought mandamus relief from the court of appeals, the court of appeals denied the request. It held that the responding party in discovery is required to produce the information in the form requested unless the party serves timely objections or assertions of privilege. It also rejected State Farm’s proportionality concerns, deeming State Farm’s evidence of undue burden conclusory and lacking estimates of the time, expense, and “extraordinary steps” required to retrieve and produce ESI in the requested form.

Form of Discovery

On appeal, the Supreme Court noted that the Texas rules of civil procedure grant a broad right of discovery. But the rules also provide a counterbalance, allowing discovery to be limited if it is unreasonably cumulative or duplicative, or if the burden or expense of the proposed discovery outweighs its likely benefit.

With regard to metadata, the court said, this means that “while metadata may generally be discoverable if relevant and unprivileged, that does not mean production in a metadata-friendly format is necessarily required.”

The court emphasized that parties should meet and confer and make reasonable efforts to resolve discovery disputes. But it does not mean that the requesting party can unilaterally determine the form of production.

Thus, if the responding party objects that electronic data cannot be retrieved in the form requested through “reasonable efforts” and asserts that the information is readily “obtainable from some other source that is more convenient, less burdensome, or less expensive,” the trial court is obliged to consider whether production in the form requested should be denied in favor of a “reasonably usable” alternative form. … [T]he court must consider whether differences in utility and usability of the form requested are significant enough—in the context of the particular case—to override any enhanced burden, cost, or convenience.

The court went on to say that, when a reasonably usable form is readily available in the ordinary course of business, the trial court must assess whether any enhanced burden or expense associated with a requested form is justified when weighed against the proportional needs of the case. In performing this balancing, the Supreme Court said, the trial court should consider seven factors:

  1. Likely benefit of the requested discovery. If the benefits of the requested form are negligible, nonexistent, or merely speculative, the court said, then any enhanced efforts or expense attending the requested form of production is undue and sufficient to deny the requested discovery. At the same time, it said, a particularized need for the proposed discovery will weigh heavily in favor of allowing the request, but it may warrant cost-shifting for any “extraordinary steps” required.
  2. The needs of the case. In many cases, production of metadata serves no useful purpose, while in other cases, it may be important or even dispositive, the court said. Thus, the relevance and significance of metadata must be determined on a case-by-case basis. In any event, metadata’s relevance must be obvious or at least linked, more or less concretely, to a claim or defense. Hypothetical needs, surmise, and suspicion should be afforded no weight.
  3. The amount in controversy. Observing that the accessibility or inaccessibility of electronic data contributes to increased costs and burdens associated with electronic discovery, the court said that the amount in controversy plays a pivotal role in determining whether production in a specified form is justified given the burden or expense required to meet the demand.
  4. The parties’ resources. Whether the producing party has the means to produce in the requested format is a significant proportionality consideration, the court said. Beyond financial resources, a court must also consider whether the requesting party has the technological resources to make proper use of ESI in the form requested. “A high-powered luxury sports car is useless to someone who lacks a license to drive it.”
  5. Importance of the issues at stake in the litigation. While legal disputes are always important to those who are litigating them, the court observed, the precedential value of a case may be more significant for one side than the other, justifying an outlay of time and expenses that would otherwise be unwarranted. Likewise, the court said, cases in public policy spheres or other areas may involve small amounts of money but may seek to vindicate important personal or public values.
  6. The importance of the proposed discovery in resolving the litigation. Discovery must bear at least a reasonable expectation of obtaining information that will aid the dispute’s resolution. Reasonable discovery does not countenance a “fishing expedition.”
  7. Any other articulable factor bearing on proportionality. While the above factors were derived from the discovery rules, the court said that there may be others courts should consider, depending on the case.

The Bottom Line

In emphasizing the importance of proportionality in resolving e-discovery disputes, this opinion brings Texas in line with federal e-discovery practice. In fact, the Texas Supreme Court devoted a section of its opinion to making that very point, noting that its application of proportionality principles aligned practice under the Texas Rules of Civil Procedure with practice under the Federal Rules of Civil Procedure.

Further, the court indicated that federal case law should be looked to in Texas for “helpful examples of proportionality analyses in e-discovery cases.”

For lawyers in Texas, this is an important opinion that will shape the outcome of e-discovery disputes from here on in, and it is another reminder that litigants are always better off when they can resolve e-discover issues on their own, without turning to the courts.


About Bob Ambrogi

Bob is known internationally for his expertise in the Internet and legal technology. He held the top editorial positions at the two leading national U.S. legal newspapers, the National Law Journal and Lawyers USA. A long-time advisor to Catalyst, Bob now divides his time between law practice and media consulting. He writes two blogs, LawSites and MediaLaw, co-authors's Legal Blog Watch, and co-hosts the weekly legal-affairs podcast Lawyer2Lawyer. A 1980 graduate of Boston College Law School, Bob is a life member of the Massachusetts Bar Foundation and an active member of the Massachusetts Bar Association, which honored him in 1994 with its President's Award.