Although e-discovery has been part of complex commercial litigation for over a decade, there have been only a few federal appellate court rulings about e-discovery topics. On April 7, 2016, in In re Am. Nurses Ass’n, the Fourth Circuit became the latest appellate court to issue such a ruling. The Court upheld a district court’s ruling that shifted a third-party’s subpoena-related e-discovery costs to the subpoenaing party. The Court also upheld the lower court’s determination that attorney’s fees incurred by the third-party in responding to the subpoena should also be shifted to the subpoenaing party. The opinion is instructive to litigants and counsel on both sides of a subpoena.

In the underlying case, a putative class of hourly healthcare workers sued a healthcare provider for alleged violations of hour and wage laws. Plaintiffs subpoenaed data and documents from the American Nurses Association, a third-party to the underlying action. The ANA moved to quash the subpoena, arguing that the data requested was proprietary and would be “overly burdensome to produce” because “sophisticated e-discovery outsourcing” would be needed to protect non-subpoenaed data. In re Am. Nurses Ass’n. The Magistrate Judge denied ANA’s motion but ordered reasonable allowed discovery costs to be shifted to Plaintiffs.

After completion of discovery, the ANA moved for costs pursuant to Rule 45. Rule 45 requires that any court order mandating production in response to a subpoena must protect non-parties from “significant expense resulting from compliance.”

The Magistrate Judge granted the motion as to $50,118.27 of the $74,371.37 that ANA requested. These funds were primarily comprised of “e-discovery vendor’s expenses” but also included attorney’s fees and PACER and FedEx expenses. In re subpoena of Am. Nurses Ass’n, at *6-8. Plaintiffs challenged the magistrate’s ruling to the district court judge, but their objections were overruled.

The Plaintiffs then appealed the decision to the Fourth Circuit, arguing that attorney’s fees are not subject to shifting under Rule 45 and that e-discovery fees should not have been shifted because ANA did not disclose the expenses prior to incurring them. The Fourth Circuit rejected both of these arguments, and held that the expenses for e-discovery services could be shifted pursuant to Rule 45.

The Court held that there was no clear error in the lower court’s ruling on e-discovery because: (1) the ANA had notified the appellants that the requested production would “entail significant expense;” (2) the appellants had delayed discussions with ANA about the requested discovery; and (3) the appellants had frequently changed the scope of discovery. The Court clarified that such fee-shifting is “only appropriate where the attorney’s fees are actually necessary to a non-party complying with a discovery order.” In re Am. Nurses Ass’n, 2016 WL 1381352, at *3. Actions such as preparing discovery status reports, reviewing potentially privileged discovery materials, and other mandatory compliance actions are eligible to be shifted. However, the Court vacated the lower court’s award to the extent it compensated the ANA for “attorney’s fees incurred in the pursuit of attorney’s fees,” distinguishing efforts to respond to the subpoena from efforts to collect the fees. Id. The Court remanded the case for the district court to recalculate the shifted expenses.

The Fourth Circuit’s opinion was not published and is not binding precedent for the Fourth Circuit. Nevertheless, the Court’s analysis hints at how other courts may address the shifting of e-discovery costs incurred in responding to a subpoena in circumstances where the third-party provides advance notice of the estimated e-discovery costs and where the subpoenaing party acted like plaintiffs in this case did. Parties and counsel on both sides of subpoenas in federal courts will want to continue to pay close attention to how this issue develops in future cases.

Corey Rogoff is co-author of this article.