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In Re State Farm Lloyds, __ S.W.3d __, 2017 WL 2323099 (Tex. Sup. Ct. May 26, 2017)

This case involves a group of homeowners alleging underpayment of hail damage claims by their insurer, State Farm Lloyds (SFL). At request of the homeowners, the trial court ordered production of electronically stored information (ESI) in “native” or “near-native” form, rather than the alternative “static” form offered by SFL. Native form files, such as XLS files in Microsoft Excel or DOC files in Microsoft Word, maintain the format of the application in which it was originally created, including metadata. Static form files, such as PDF, TIFF, or JPEG files, are images of the original. Though static form files can be searchable, they lack the metadata (structural information) of the original document.

The homeowners requested production of ESI in native form, arguing it would include useful metadata such as track changes in Word documents and presentation notes in PowerPoint, and argued that producing original files already in their possession would place no extraordinary burden on SFL. Conversely, SFL points to the convenience and accessibility of static form given routine business practices. SFL’s expert opined that production of files in native form would be “extraordinarily burdensome” and unnecessary. The trial court ordered production in native form subject to a showing of infeasibility. Upon the trial court’s ordered native form ESI production, SFL sought mandamus relief from the court of appeals, which was denied on the basis that there were no proportionality concerns. The Texas Supreme Court denied petitions for writs of mandamus without prejudice, but provided guidance to the trial court on these issues.

The rules of civil procedure define the scope of discovery. Texas Rule of Civil Procedure 196.4 lays out electronic discovery requirements in particular. Under the rule,  the requesting party must specifically request the desired form. The responding party can then object if they cannot reasonably comply with the requested form. If the court orders the responding party to produce using the requested form, the court must also order the requesting party to pay the expenses of any extraordinary steps taken in the production. Decisions by the court as to which form is required will involve an inquiry into the reasonableness of efforts and alternatives. This analysis implicates Texas Rule of Civil Procedure 192.4, which states that the scope of discovery must be reasonable. The fact that something (like metadata) is discoverable does not necessitate its production. If a responding party objects to the requested form, the trial court must decide whether to order the requested form, or instead allow a reasonable alternative.

To answer this question, the court will consider the “proportionality” of these alternatives by weighing the benefits of using the requested form against whatever enhanced burden, cost, or inconvenience there may be. This is done on a case-by-case basis. The court provides some guidance using a list of factors to be considered in this analysis:

1. The likely benefit of the requested discovery. If a requested form with hypothetical or only negligible benefits requires any enhanced effort or expense, it should not be ordered. In contrast, a “particularized need” for the requested form will usually justify some added expense.

2. The needs of the case. In situations where the “who, what, when, where and why” the documents were created is actually at issue in the case, the form may be relevant to discovery. The court should also consider whether the relevant information is available from another, less burdensome source.

3. The amount in controversy. ESI is expensive and complicated, particularly for small cases. Discovery can drive up litigation costs, force settlements, and deny parties the opportunity to litigate the merits of the case. The amount in controversy is helpful in determining whether production in a specified form is justified in light of its expense.

4. The parties’ resources. This includes both financial and technological resources. However, abundant resources will not justify unlimited or unreasonable discovery requests.

5. The importance of the issues at stake in the litigation. Some cases, though they seek small amounts of money, implicate public policy issues and/or values that have a larger importance beyond the monetary value of the claim and might justify otherwise unreasonable efforts.

6. The importance of the proposed discovery in resolving the litigation. There must be a reasonable expectation that the discovery will help resolve the case.

7. Any other articulable factor bearing on proportionality. The abovementioned factors are derived from discovery rules, but are not exclusive. The trial court may consider any articulable factor that informs the making of this decision.

Though there are some differences between the Texas and federal rules, the federal rules ultimately align with this balancing of proportionality.

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