Texas Supreme Court applies proportionality standard to determine whether Electronically Stored Information (ESI) must be produced in native or static form (Part 1)

Chris Hanslik, Robert Arthur

August 8, 2017

Texas courts correctly recognize discovery is not limited to material that is admissible at trial. Rather, discovery is a broader tool to help litigants gain a better understanding of the parties, key players, and the events that led to the dispute.

However, discovery costs account for approximately 50 to 90 percent of the total litigation costs in a lawsuit. John H. Beisner, Discovering a Better Way: The Need for Effective Civil Litigation Reform, 60 Duke L.J. 547, 549 (2010). The discovery process is also incredibly inefficient. For example, a cost survey performed in 2010 of litigation involving large companies indicated the ratio of pages of documents produced in discovery to pages admitted as exhibits was as high as 1000:1. The survey noted the discovery system is one that requires “the production of a field full of ‘haystacks’ of information merely on the hope that the proverbial ‘needle’ might exist.”

The Texas Rules of Civil Procedure are intended to “obtain a just, fair, equitable, and impartial adjudications of the rights of litigants . . . with as great expedition and dispatch at the least expense both to the litigants and to the state as may be practicable.” However, too often, litigants are forced to make strategic decisions, including premature settlement, based on the rising cost of discovery. Beisner, Discovering a Better Way, 60 Duke L.J. at 550 (noting “the effort and expense associated with electronic discovery are so excessive that, regardless of a case’s merits, settlement is often the most fiscally prudent course”).

Recently, the Texas Supreme Court may have taken the first step in stabilizing the discovery process in Texas when it applied the proportionality factors in Federal Rule of Civil Procedure 26(b)(1) to a Texas case involving electronic discovery.

In In re State Farm Lloyds, the Texas Supreme Court considered whether an insurer could be required to produce electronically-stored information in the format specified by the requesting party, regardless of whether there is a more cost-effective, convenient format. No. 15-0903, No. 15-0905, 2017 Tex. LEXIS 482, at *13 (Tex. March 9, 2017).

The Texas Supreme Court held neither party had the right to dictate the form of electronic discovery. If the receiving party objects to the form requested, courts must evaluate the discovery request using the proportionality factors listed in the federal discovery rules, taking into account whether the utility and usability of the requested form overrides any enhanced burden, cost, or convenience. The Court broadly noted the proportionality factors should be applied with the goal of limiting delay and expense strain on courts and the parties based on the needs and circumstances of the case.

State Farm had appealed two trial court orders adopting a proposed protocol for the exchange of electronic discovery in lawsuits involving residential homeowners. The homeowners requested that all electronically-stored information or “ESI” be produced in native form. The trial court signed a discovery protocol requiring State Farm to produce all information in native form if it was available, even if another more convenient, cost-effective, reasonably usable format was readily available.

State Farm sought mandamus relief, arguing it should be allowed to produce ESI in searchable static formats such as PDF, TIFF, and JPEG. State Farm’s document retention system was set up to submit documents in native form, but immediately convert them to static form and combine the documents in claims-files. State Farm argued the static form documents were more reasonably available and, thus, producing the documents in static form was more convenient and cost-effective. The Thirteenth Court of Appeals in Corpus Christi denied the request, holding the responding party is required to produce documents in the format requested unless a timely objection is asserted, and State Farm did not meet its burden of proof to show producing documents in native form would impose an undue burden.

Although it did not reverse the court of appeals’ decision, the Texas Supreme Court clarified that neither the requesting nor the producing party has a unilateral right to specify the format of discovery. Instead, “all discovery is subject to the proportionality overlay embedded in our discovery rules and inherent in the reasonableness standard to which our electronic discovery rule is tethered.”

Importantly, the Texas Supreme Court’s analysis indicates a second prong to the scope-of-discovery analysis—proportionality—is necessary to “guard against redundancy or disproportionate discovery by giving the court authority to reduce the amount of discovery that may be directed to matters that are otherwise proper subjects of inquiry.”

Under the Texas Supreme Court’s decision, relevance is not enough to determine the appropriate scope of discovery. Courts must also take into account the proportionality factors in the federal discovery rules:

1. The likely benefit of the requested discovery;

2. The needs of the case;

3. The amount in controversy;

4. The parties’ resources;

5. The importance of the issues at stake in the litigation;

6. The importance of the proposed discovery in resolving the litigation; and

7. Any other articulable factor bearing on proportionality.

Notably, the Texas Supreme Court expressly added the seventh factor to allow courts to be more agile in adapting to changes in technology and e-discovery.

The Texas Supreme Court’s emphasis on proportionality is a welcome sight in the costly and inefficient world of discovery. Discovery is an integral part of our judicial system, but the high burden and cost of conducting discovery often undermines the cause of justice. Litigants and Texas courts have a “collective responsibility” to consider the proportionality factors in determining whether there is a just and practicable way to balance the cost and benefit of discovery.