Refining requests for specific formats of production: Texas high court reminds litigants “proportionality is the polestar”

Discovery has shifted focus on the search, collection, review, and production of electronically stored information (“ESI”). ESI exists, and can be produced, in various forms, which often becomes a particularly contentious issue in litigation. State rules well as those implemented federally were designed to resolve these disputes, but parties still bring these issues to court for resolution all too often.

One such case, which recently received attention from the highest court in Texas, is In re State Farm Lloyds, No. 15-0903 and 15-0905 (May 26, 2017) (Guzman, J.). Under Texas state rules, the requesting party sought ESI in native form while the responding party offered to produce in searchable static form, arguing that such form was more convenient and reasonably available under the rules. The Texas Supreme Court provided very specific direction as to how the proportionality principles can be applied to resolve discovery disputes such as the one raised by the parties:

Under our discovery rules, neither party may dictate the form of electronic discovery. The requesting party must specify the desired form of production, but 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. The taproot of this discovery dispute is whether production in native format is reasonable given the circumstance of this case. 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.’

Id. at 2-3 (citations omitted).After providing this new guidance on the proportionality factors, which was not available to the trial court at the time it heard the parties’ arguments, the Texas Supreme Court denied the responding party’s request for mandamus relief and remanded the case for further consideration.

I. Background

Residential homeowners brought suit against their insurer, State Farm, and other entities in Texas state court for alleged underpayment related to hail damage claims, asserting statutory, contractual, and extra-contractual claims. At the homeowners’ request, the trial court ordered that all ESI be produced in native¹ or near-native form (such as .xls for Excel spreadsheets) rather than in the alternative, searchable but static form (such as PDF) that State Farm  proposed.

The homeowners had argued that native production would allow them access to useable metadata that would not otherwise be available in static form, such as formulas in Excel spreadsheets. Their expert further opined that production of ESI in static form would be more expensive for the homeowners due to the fact that storage costs rise with the size of the file. Comparatively, the burden on State Farm to produce in native would be minimal, if any. State Farm, on the other hand, stated that it processes more than 350,000 new claims a day and that the claims are routinely converted into static format and maintained in an enterprise claims database. Without quantifying time or expense, State Farm argued that to produce that information in native form would require State Farm to create a new process that would depart significantly from State Farm’s standard business procedures.

State Farm appealed the trial court’s decision, but the appellate court denied relief, finding that State Farm’s proportionality concerns were lacking because the evidence did not include estimate of the time, expense, and extraordinary steps required to retrieve and produce data in the requested form. In re State Farm Lloyds, 2015 Tex. App. LEXIS 11038 (Tex. App.—Corpus Christi, Oct. 28, 2015, writ denied).

State Farm then sought relief from the Texas Supreme Court, which granted oral argument and issued an opinion on May 26, 2017 to (1) clarify that neither the requesting party nor the producing party has a unilateral right to specify format of production and (2) provide guidance regarding the application of the proportionality factors in the electronic discovery context.

II. The Texas Supreme Court’s Decision

The Texas Supreme Court recognized that Rule 196.4² of the Texas Rules of Civil Procedure governs the production of electronic discovery and that under this rule, no party is given the unilateral right to determine the form of production. The court further encouraged parties to meet and confer related to discovery disputes before seeking court intervention, recognizing that the issue is a fact- and case-specific question that each party is best-positioned to address and negotiate. To the extent the parties are not able to resolve the dispute, the high court outlined guidance for lower courts to use that focus on the proportionality factors as a “polestar.”

The high court encouraged parties, and decisionmakers, to apply a proportionality inquiry to determine what form of production is appropriate, weighing any burden or expense of producing data in the requested form against the relative benefits of doing so, the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the litigation and the importance of the requested format in resolving the issues. Specifically as to the homeowners’ request, the court offered that the homeowners’ seek native production for search capability and to access metadata; however, “metadata serves no genuinely useful purpose in many cases…” Id. at 17. Further, the court noted that “if the benefits of the requested form are negligible, nonexistent or merely speculative, any enhanced efforts or expense attending the requested form of production is undue and sufficient to deny the requested discovery.”  Id. at 16. Although the court offered this analysis as to the mandamus request, it declined to render an opinion on whether the homeowners’ request for native or near-native production was appropriate.

Nevertheless, the court stated that “[i]f these factors preponderate against production in the requested form, the trial court may order production as requested only if the requesting party shows a particularized need for data in that form and ‘the requesting party pays the reasonable expenses of any extraordinary steps required to retrieve and produce the information…Unless ordered otherwise, however, ‘the responding party need only produce the data reasonably available in the ordinary course of business in reasonably usable form.’” Id. at 4 (citation omitted) (emphasis added).

Through this application of the proportionality principles, the court stated that the electronic discovery practice under the Texas rules now aligns with the electronic discovery practice under the federal rules, whose plain language does not permit either party to dictate the form of production for ESI. Id. at 24, 26 (“To be sure, there are differences in language between the Texas rule and the federal rule. But…“‘our rules as written are not inconsistent with the federal rules or the case law interpreting them,’” even though they may not “‘mirror the federal language.’”) (citing Weekley Homes, 295 S.W.3d at 316-17).

The Texas Supreme Court remanded the case and advised that the trial judge should reweigh the format of production dispute in light of its new guidance. The proportionality principles in the court’s ruling further a guiding tenet of the Texas Rules of Civil Procedure, the court said—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.”  Id. at 29 (citing Tex. R. Civ. P. 1).

III. Ramifications of the Decision

The Texas Supreme Court’s decision confirms that all discovery, whether electronic or otherwise, must be appropriate and proportional in each case. The court also encourages the parties to negotiate and limit discovery disputes, particularly with regard to electronic discovery. On the more narrow issue related to format of ESI production, the court offers that the inquiry is one that should be handled on a case-by-case basis, recognizing nevertheless, that “unless ordered otherwise….‘the responding party need only produce the data reasonably available in the ordinary course of business in reasonably usable form.”  Id. at 4 (citation omitted). With the court’s recognition that its opinion is applicable in federal cases too, this opinion provides substantial direction as to how the proportionality principles may be applied to resolve discovery disputes, more particularly for disputes related to the format of production of electronic discovery.

¹ “Native” is the “form or forms in which [ESI] is ordinarily maintained.” Practically speaking, most parties use the phrase “native format” to mean an unaltered, default format of how information is kept in the normal course of business. See The Sedona Conference Glossary: E-Discovery & Digital Information Management(4th ed. Apr. 2014)(“Native Format: Electronic documents have an associated file structure defined by the original creating application. This file structure is referred to as the native format of the document.”).

² To obtain discovery of data or information that exists in electronic or magnetic form, the requesting party must specifically request production of electronic or magnetic data and specify the form in which the requesting party wants it produced. The responding party must produce the electronic or magnetic data that is responsive to the request and is reasonably available to the responding party in its ordinary course of business. If the responding party cannot - through reasonable efforts - retrieve the data or information requested or produce it in the form requested, the responding party must state an objection complying with these rules. If the court orders the responding party to comply with the request, the court must also order that the requesting party pay the reasonable expenses of any extraordinary steps required to retrieve and produce the information. (emphasis added)