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Ninth Circuit Shifts “Significant Expense” of Compliance with Third Party Subpoenas to Party Seeking Discovery

August 01, 2014
Business Litigation Reports

The escalating cost of discovery compliance is especially frustrating for non-parties who are subpoenaed for evidence allegedly relevant to litigation in which they have no stake. Responding to a broad subpoena may require retaining vendors to collect and process potentially responsive electronically-stored information (“ESI”), interviewing employees to determine relevant custodians, and hiring outside counsel to review documents for responsiveness and privilege. The costs in time, effort, and dollars can be considerable. See, e.g., Linder v. Calero-Portocarrero, 251 F.3d 178, 182 (D.C. Cir. 2001) (estimated costs of compliance with third party subpoenas to federal agencies in wrongful death action totaled $199,537.08).

Rule 45 of the Federal Rules of Civil Procedure provides for cost-shifting to protect non-parties from these costs. Yet, although subpoenas are a staple of federal litigation, there is a relative dearth of case law regarding cost-shifting for third party discovery. Recently, however, the United States Court of Appeals for the Ninth Circuit clarified that cost-shifting is mandatory if a non-party has incurred “significant expense” in responding to a subpoena. Legal Voice v. Stormans Inc., 738 F.3d 178, 182 (9th Cir. 2013) This holding should encourage more non-parties to pursue cost-shifting aggressively and, at the same time, encourage federal litigants to be more conservative in their discovery requests to non-parties and more amenable to negotiated limitations on non-parties’ discovery responses.

Rule 45(d)

Rule 45(d)(1) states that “[a] party or attorney responsible for issuing and serving a subpoena must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena.” Fed. R. Civ. P. 45(d)(1). Where a non-party objects to some or all of a subpoena’s requests, the requesting party must seek a court order compelling compliance with the subpoena. Fed. R. Civ. P. 45(d)(2)(B). Compliance “may be required only as directed in the order, and the order must protect a person who is neither a party nor a party’s officer from significant expense resulting from compliance.” Fed. R. Civ. P. 45(d)(2)(B)(ii).
A non-party seeking to shift the cost of subpoena compliance by applying Rule 45(d)’s protection from “significant expense” must object to the subpoena’s requests and refuse to comply in the first instance. Rule 45(d)(2)(B)(ii) is triggered only where the court orders compliance with a subpoena and courts will not shift costs to the requesting party where the non-party voluntarily complies with a subpoena. See, e.g., DNT, LLC v. Sprint Spectrum, LP, 750 F. Supp. 2d 616, 626 (E.D. Va. 2010) (where non-party produced documents before court ordered compliance, it could not seek reimbursement of costs under Rule 45); Angell v. Kelly, 234 F.R.D. 135, 139 (M.D.N.C. 2006) (same).

The Ninth Circuit’s Holding in Legal Voice

In Legal Voice v. Stormans Inc., 738 F.3d 1178 (9th Cir. 2013), a unanimous panel of the Ninth Circuit held that, where a court compels complete or partial compliance with a subpoena, cost-shifting under Rule 45(d) is mandatory whenever a non-party incurs “significant expense” in responding.

Legal Voice was an advocacy group that prompted the Washington State Board of Pharmacy to promulgate new regulations in response to reports that certain pharmacists were obstructing patients’ access to emergency contraceptives. Legal Voice, 738 F.3d at 1181. Legal Voice also participated in the rulemaking process. Id. Stormans, a pharmacy, and certain pharmacists filed suit to challenge the new rules and served a subpoena on Legal Voice seeking production of fourteen categories of documents. Id. Two motions to compel and a motion for reconsideration later, Legal Voice had spent $20,000 complying with the subpoena as narrowed by the district court. Id. at 1181-82. The district court denied Legal Voice’s repeated requests for cost-shifting or sanctions. Id. After the district court entered final judgment, Legal Voice appealed the district court’s denial of its requests. Id. at 1182.

After rejecting the plaintiffs’ argument that Legal Voice’s appeal was untimely, id. at 1182-83, the Court of Appeals held that Rule 45(d)(2)(B)(ii) “requires the district court to shift a non-party’s cost of compliance with a subpoena, if those costs are significant.” Id. at 1184. The Ninth Circuit found that “[t]he plain language of the rule” states that a “district court’s order compelling compliance with a subpoena ‘must protect a person who is neither a party nor a party’s officer from significant expense resulting from compliance,’ and provides no exceptions.” Id. (emphasis in original) (internal citations omitted) (quoting Fed. R. Civ. P. 45(d)(2)(B)(ii)). “This language,” the Court stated, “leaves no room for doubt that the rule is mandatory.” Id. The Court of Appeals provided clear direction to district courts: “[W]hen discovery is ordered against a non-party, the only question before the court in considering whether to shift costs is whether the subpoena imposes significant expense on the non-party. If so, the district court must order the party seeking discovery to bear at least enough of the cost of compliance to render the remainder ‘non-significant.’” Id.

Thus, the Court of Appeals reversed the district court’s denial of Legal Voice’s requests for cost-shifting, finding that “the district court erred . . . by framing the issue in terms of undue burden, rather than significant expense. . . Rather than considering whether compliance was unduly burdensome, the district court should have considered only whether that cost was significant.” Id. at 1184-85. The Court of Appeals “ha[d] no trouble concluding that $20,000 is ‘significant.’” Id. at 1185. However, the Court affirmed the district court’s decision not to award discretionary sanctions under Rule 45(d)(1). Id.

Cost-Shifting Outside the Ninth Circuit

Other courts have considered Rule 45(d)(2)(B)(ii)’s cost-shifting provision and reached similar conclusions. See, e.g., Linder, 251 F.3d at 182 (“Under the revised Rule 45, the questions before the district court are whether the subpoena imposes expenses on the non-party, and whether those expenses are ‘significant.’ If they are, the court must protect the non-party by requiring the party seeking discovery to bear at least enough of the expense to render the remainder ‘non-significant.’ The rule is susceptible of no other interpretation.”); R.J. Reynolds Tobacco v. Philip Morris, Inc., 29 F. App’x 880, 883 (3d Cir. 2002) (“[D]istrict courts must determine whether the subpoena imposes expenses on a non-party and whether those expenses are significant. Significant expenses must be borne by the party seeking discovery.”) (internal citations omitted); Crandall v. City & Cnty. of Denver, Colorado, No. 05-C-00242-MSK-MEH, 2007 WL 162743, at *1 (D. Colo. Jan. 17, 2007) (“It is the Court’s obligation to protect any person who is not a party to the underlying lawsuit from significant expense resulting from the inspection and copying which was commanded pursuant to Rule 45. The rule is mandatory. The court must protect the nonparty by requiring the party seeking discovery to bear at least enough of the expense to render the remainder nonsignificant. . . . The cost shifting is not limited to costs of inspection and production, but those significant expenses resulting from the inspection and copying.”) (internal citations and quotations omitted).

In some jurisdictions, additional considerations are factored into the analysis to determine how much of the “significant expense” should be shifted to the requesting party. See, e g., United States v. Blue Cross Blue Shield of Michigan, 10-CV-14155, 2012 WL 4838987, at *2 (E.D. Mich. Oct. 11, 2012) (“To determine how much cost to shift from the nonparty, the court must balance the equities of the particular case, including ‘(1) whether the putative nonparty actually has an interest in the outcome of the case, (2) whether it can more readily bear its cost than the requesting party; and (3) whether the litigation is of public importance.’”) (quoting In re Exxon Valdez, 142 F.R.D. 380, 383 (D.D.C. 1992)); accord Crandall, 2007 WL 162743, at *1.

Lessons for Subpoena Targets and Requesting Parties

Legal Voice and other cases are instructive for both the targets of subpoenas and the parties that issue them.

Be careful what you ask for. The Ninth Circuit’s instruction that cost-shifting of “significant” expense is mandatory should encourage many litigants to tailor subpoenas as narrowly as possible to avoid unanticipated litigation costs. Although courts often narrow the scope of the requesting party’s initial requests in ordering compliance, there are no guarantees a court will do so in any given case. Under Legal Voice, it is possible that the requesting party will bear the risk that the costs of compliance with a broad non-party subpoena turn out to be significant.

Always object. A non-party must object to the subpoena’s requests and refuse to comply in the first instance in order to ensure it can avail itself of the cost shifting protections under Rule 45(d)(2)(B)(ii). See, e.g., McCabe v. Ernst & Young, LLP, 221 F.R.D. 423, 426 (D.N.J. 2004) (“Rule 45 is intended to ‘clarify and enlarge the protections afforded persons who are required to assist the court by giving information and evidence[.]’”) (emphasis in original). Otherwise, requesting parties could find themselves required to reimburse significant compliance expenses without any warning. See id. at 427. (“[E]xpedient compliance does not outweigh the prejudice that would ensue to Plaintiffs if required to pay exorbitant counsel fees absent an opportunity to address their subpoenas and mitigate counsel fees.”). Where significant expense will be involved in responding to a subpoena, non-parties will likely have colorable objections based on burden, scope, and relevance they should be sure to assert in an initial round of objections.

Alert the court and litigants to the expense of compliance. In opposing a motion to compel, or moving to quash or for a protective order, subpoena targets should provide as much detail as possible regarding the burden and expense that compliance would entail. Specific details about time and expense are likely to be more persuasive to the court than abstract objections based on burden or scope, and a failure to include specific evidence regarding the costs of compliance can defeat a subpoena target’s request for cost-shifting. See, e.g., Callwave Commc’ns, LLC v. Wavemarket, Inc., C 14-80112 JSW (LB), 2014 WL 2918218, at *6 (N.D. Cal. June 26, 2014) (“[T]o determine whether the costs even can be shifted (let alone to determine how much they should be shifted), the court must first determine whether the costs are ‘significant.’ The problem here is that [the subpoena target] did not even tell the court how much it estimates it will spend to comply with the subpoena, let alone provide any evidence to support that amount. Without a specific dollar amount, the court cannot say whether [the target’s] costs are significant.”). Putting the court and the requesting party on notice of the expense can also serve to undermine any objections by the requesting party at the cost-shifting stage.

Be proactive. Similarly, requesting parties should consider taking steps to monitor the costs of compliance with a subpoena. See, e.g., In re Subpoena of Am. Nurses Ass’n, 290 F.R.D. 60, 75 (D. Md. 2013) (rejecting argument that requesting party should not be required to pay certain costs of compliance, noting that “[i]f Plaintiffs were so concerned about controlling costs, if Plaintiffs were so concerned about selecting the e-discovery vendor to conduct searches they endorsed, the Court is perplexed by the abdication by Plaintiffs’ counsel for the first three weeks after the Court’s [ruling compelling production]”), objections overruled, 11-CV-02836-AW, 2013 WL 5741242 (D. Md. Aug. 8, 2013). At least one court has opined that requiring the requesting party to pre-pay production costs is the best course of action, because it allows the requesting party more control over the expense it will ultimately absorb and helps to avoid surprise. See, e.g., Goldstein v. State Farm Fire & Cas. Co., No. 06-4565-HGB-SS, 2008 WL 4373032, at *3 (E.D. La. Sept. 23, 2008) (“[W]hile a nonparty ordered to comply with a subpoena must be protected from significant expenses, this must be accomplished in such a manner that the party seeking discovery is protected from excessive costs. The resolution of these conflicting goals is best accomplished by fixing the costs of compliance in advance of production. When this is not possible, the risk of uncertain costs must be fully disclosed to the party seeking discovery.”).

Don’t expect to avoid the bill entirely. The law does not require courts to shift all of the costs of compliance with a subpoena to the requesting party. For example, in Legal Voice, the Ninth Circuit observed that the district court need only shift enough of the cost of compliance to make the expense shouldered by the non-party “non-significant.” Where to draw the line in any particular case will depend on a variety of circumstances, including whether the responding party is a regular part of third party discovery. Indeed, courts have declined to shift expenses that they find routine to the non-party’s business. See, e.g., In re Subpoena of Am. Nurses Ass’n, 290 F.R.D. at 77 (attorneys’ fees would not be shifted completely to requesting party because non-party “has undoubtedly received third-party subpoenas in the past” and “[s]uch subpoenas are a cost of doing business in today’s society”); see also E.E.O.C. v. Kronos Inc., 694 F.3d 351, 371-72 (3d Cir. 2012), as amended (Nov. 15, 2012) (allocating costs of compliance with administrative subpoena with reference to Rule 45) (“[T]he primary consideration in fairly allocating the cost of compliance with an administrative subpoena is whether the cost of compliance with the subpoena ‘exceed[ed] that which the respondent may reasonably be expected to bear as a cost of doing business.’”) (citations omitted).

Another court, in applying Legal Voice, recited two lists of factors a court should consider when deciding how much of the expense to shift: first, “(1) whether the nonparty has an interest in the outcome of the case; (2) whether the nonparty can more readily bear its costs than the requesting party; and (3) whether the litigation is of public importance,” and second, “(1) the scope of the discovery; (2) the invasiveness of the request; (3) the extent to which the producing party must separate responsive information from privileged or irrelevant material; and (4) the reasonableness of the costs of production.” See Callwave Commc’ns, 2014 WL 2918218, at *3 (internal citations and quotations omitted). Consideration of such diverse factors may still give district courts considerable discretion when apportioning “significant expense” between the requesting party and the responding non-party, notwithstanding Legal Voice’s clear instruction that courts must shift enough of the expense of compliance with third party subpoenas to the requesting parties to render it not “significant.”

Finally, although Legal Voice made clear that an “undue burden” analysis is improper under Rule 45(d)(2)(B)(ii), at least one district court bound by, and purporting to apply, that decision noted that “[w]hether a cost is ‘significant’ necessarily relates to the nature of the case and the parties’ respective financial situations.” Siltronic Corp. v. Employers Ins. Co. of Wausau, 3:11-CV-1493-ST, 2014 WL 991822, at *1 (D. Or. Mar. 13, 2014). Thus, district courts may still be inclined to consider the financial wherewithal of the subpoena target in determining whether expenses
are significant. The $20,000 of expenses that was “significant” to the advocacy group in Legal Voice might not be deemed “significant” if incurred by a multi-billion dollar company.