Cost shifting is back. Complaints about production costs have been ever present. And such concerns are most often heard when an opposing party requests electronically stored information (ESI) that will be unusually expensive or difficult to produce, such as information contained on backup media that exists purely for disaster recovery purposes. Cost shifting, though rarely used, is one way courts can manage the large burden such production requests can create for the producing party.

In a recent case, United States ex rel. Carter v. Bridgepoint Education, Magistrate Judge William Gallo of the U.S. District Court for the Southern District of California employed cost shifting when the requesting party demanded production of ESI stored on backup tapes and a reformatted production of previously produced active email files.¹Carter is a qui tam action concerning allegedly fraudulent use of federal funds under Title IV of the Higher Education Act of 1965. Under Title IV, the federal government provides funds to institutions of higher education for the purpose of giving financial assistance to students. Several constraints are placed on participation in this program. The relevant constraint, known as the Incentive Compensation Ban, prohibits participating institutions from “provid[ing] any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities.”² Under the False Claims Act, two former recruiters for Bridgepoint Education (collectively the plaintiffs) sued Bridgepoint on behalf of the federal government. The plaintiffs alleged that, in violation of the Incentive Compensation Ban, Bridgepoint based recruiter compensation directly on enrollment activities. Bridgepoint argued that enrollment activity was just one of many factors considered when determining pay.³

Discovery Disputes

Discovery between the parties was contentious. Numerous disputes arose, several of which the parties ultimately resolved at the urging of the court. Of the three remaining disputes, two were subject to a cost shifting analysis by Gallo. The first dispute concerned the production of certain backup tapes maintained by Bridgepoint. The backup tapes were alleged to contain email exchanges among Bridgepoint recruiters and between these recruiters and third parties. The plaintiffs wanted Bridgepoint to produce the contents of these tapes in their original (i.e., pre-backup) native format. The second dispute related to whether the plaintiffs were entitled to have active email, which Bridgepoint had already produced in Bates-stamped TIFF image format, produced again in native email format, notwithstanding that plaintiffs did not specify a format preference in their initial production request and, if so, whether any related costs should be shifted to the plaintiffs. The third dispute was whether Bridgepoint was required to produce full metadata for the ESI when, again, the plaintiffs had failed to ask for it in their production request.

The plaintiffs presented several arguments why the productions should be ordered according to their terms, centering around the alleged benefits of producing documents in native rather than TIFF format, as well as unsupported claims that Bridgepoint intentionally moved data to backup tapes in an effort to make the data inaccessible and, thereby, less likely to be deemed discoverable.⁴

Discoverability and Constraints

Gallo explained that even when ESI is considered discoverable, an analysis of accessibility under Rule 26(b)(2)(B) and of the proportionality factors outlined in Rule 26(b)(2)(C) is necessary to determine potential limits on discovery and potential cost shifting for some or all of the production costs.⁵

Backup Tapes

The first dispute concerned the plaintiffs' request for native format production of email files contained on specific sets of Bridgepoint's backup tapes. Bridgepoint opposed this request, arguing that such ESI was not reasonably accessible because of undue burden and cost. In support of this argument, Bridgepoint cited precedent holding that backup tapes created for disaster recovery should be considered inaccessible and not subject to review or production, argued that restoration of the ESI would take months and cost over $2 million to complete, claimed that the backup tapes were created as part of a longstanding data retention practice, asserted that there was no intentional spoliation since the move of the ESI to backup tapes occurred prior to the case's unsealing and as part of standard data retention, and noted that there was no valid reason to require native production since TIFF format was satisfactory.⁶