D.C. Circuit Delivers High-Cost EDD Lesson

A recent decision from the U.S. Court of Appeals for the District of Columbia Circuit affirms an order requiring a nonparty to spend $6 million (9 percent of its annual operating budget) to comply with an e-discovery subpoena.

Litigators overseeing discovery know they must assess a client's documents, and particularly a client's electronic documents, at the outset of discovery. Estimating the resources necessary to collect and produce electronically stored information is a vital role of counsel today. Without such advance knowledge, lawyers may be blindsided by unexpected burdens and time pressure in the production process.

The D.C. Circuit's ruling in In re Fannie Mae Securities Litigation, 552 F.3d 814 (2009), highlights the importance of counsel understanding issues related to e-discovery, and the potential scope of that discovery, before entering into any type of agreement governing the future conduct of discovery in the case.

The circuit was unwilling to entertain an argument that the burden on a nonparty was too high to be reasonable once the nonparty had entered a stipulated discovery order. In particular, the court had little sympathy for the argument that the keyword search suggested by the requesting party resulted in an overwhelming number of documents, many of which surely would be of little probative value.[FOOTNOTE 1]

In re Fannie Mae upheld a district court order holding a third party in contempt and imposing sanctions for that party's failure to comply with a stipulated discovery order. The Office of Federal Housing Enterprise Oversight was the government agency charged with regulating the Federal National Mortgage Association (Fannie Mae).[FOOTNOTE 2]

In 2003, OFHEO opened a special review of Fannie Mae's accounting and financial practices, and concluded that the enterprise "had departed from generally accepted accounting principles in order to manipulate its reported earnings and inflate executive compensation."[FOOTNOTE 3] This report led to several private civil actions against Fannie Mae, its senior executives and others. These actions were consolidated into multidistrict litigation in the U.S. District Court for the District of Columbia.

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Source: law.com
By: H. Christopher Boehning and Daniel J. Toal