New York CPLR 3122(d) provides that the “reasonable production expenses” incurred by a non-party’s compliance with a subpoena shall be defrayed by the party issuing the subpoena. May a non-party’s counsel fees related to responding to a subpoena involving the production of electronically stored information be included as part of the “reasonable production expenses”?
This largely unsettled question was recently answered in the affirmative by Surrogate Peter J. Kelly in Matter of Khagan, 2019 NY Slip Op 29352 [Sur Ct. Queens Co. Sept. 18, 2019], who noted that “there is a dearth of Surrogate’s Court opinions on this issue”. Upon consideration of the limited relevant case law, the policy behind the statute, and the facts giving rise to the document discovery dispute, the Court awarded a non-party $40,000 in counsel fees and $5,571.28 for an e-discovery vendor’s services, pursuant to CPLR 3122(d). The Khagan decision presents an instructive analysis that may guide both attorneys issuing subpoenas duces tecum and those advising clients in receipt of such subpoenas.
Khagan involved a contested trustees’ accounting where the trust owned real property in Manhattan. The trustees retained the non-party as a consultant to assist in the development of that property. The property was never developed and the objections to the trustees’ accounting challenged payments from the trust to the non-party consultant.
In response to subpoenas served by the objectants, the non-party’s counsel inquired about payment of the reasonable costs of production and was informed that the objectants would share those costs equally. None of the communications between counsel about the subpoenas, over a period of months, concerned the non-party seeking counsel fees. There was some discussion between the attorneys about limiting the scope of the subpoenas, but no agreement was reached.
The non-party’s attorney advised the objectants’ counsel that approximately 20,000 electronically stored files had been collected which would need to be reviewed before production. Following the non-party’s attorneys’ review, 11,650 records were deemed responsive and not privileged and then shared with the trustees’ counsel for their own privilege review.
The responsive records were ultimately placed on a flash drive and the non-party’s attorneys conditioned delivery to the objectants on their payment of (i) e-discovery vendor invoices totaling $5,571.28 and (ii) the non-party’s legal fees of $92,076.04. The objectants refused and the non-party moved, pursuant to CPLR 3122(d), to compel the objectants to pay such expenses as “reasonable production expenses” incurred in responding to the objectants’ subpoenas.
NY CPLR 3122(d)
CPLR 3122(d) provides that “[t]he reasonable production expenses of a non-party witness shall be defrayed by the party seeking discovery.” The policy behind the rule is that a non-party should not be burdened with the costs of litigation to which that non-party is not related, especially when those costs may be significant. The statute does not define what constitutes “reasonable production expenses.”
The Non-Party’s E-Discovery Vendor Fees
In Khagan, Surrogate Kelly recognized that beyond the actual copying/reproduction, “there are labor related costs in the search, retrieval and production of the documents, and often the expense of an e-discovery professional. Logically these costs incurred by a non-party should unarguably be compensable as reasonable production expenses.”
In support of its motion, the non-party submitted invoices from an electronic discovery vendor for services in facilitating the collection, hosting and production of the records totaling $5,571.28. The Court ordered the objectants to pay this amount in full.
The Non-Party’s Legal Fees
In further support of its motion, the non-party submitted its attorneys’ time records totaling $92,076.04 for services related to the objectants’ subpoenas. The Court noted there is no specific reference to attorney’s fees at CPLR 3122 nor are there many decisions addressing whether attorney’s fees are included as “reasonable production expenses”.
While the Surrogate’s Court does not have rules governing e-discovery, the Surrogate found a review of such rules in the Commercial Parts of Nassau County and New York City instructive. The Court observed that the procedure followed here by the objectants and non-party “did not remotely comply with any of these guidelines, especially with respect to the discussion of costs.”
The Court held:
Upon the court’s reading of the statute, case law, commentaries and various court rules for the commercial parts, and considering the rational[e] underlying the rule, the court is of the opinion that legal fees incurred by a non-party conducting e-discovery in complying with a subpoena are potentially reimbursable in Surrogate’s Court proceedings [footnote omitted].
In reaching this decision, the Court considered the following factors:
- The breadth of the subpoenas’ demands;
- The lack of any showing by the objectants as to why the information sought from the non-party could not be gleaned from the trustees’ own records or how the trustees’ documents were inadequate;
- The failure to reach an agreement on reducing the scope of the subpoenas;
- The lack of prior notice given by the non-party that it would seek reimbursement for legal fees;
- The non-party’s relationship with the trustees in the management of the trust; and
- That expenses for the non-party’s counsel to draft objections to the subpoenas and confer with the trustees’ counsel should be excluded from what the objectants pay.
Thus, of the $92,076.04 sought by the non-party for counsel fees, as “reasonable production expenses” related to the subpoenas, the Surrogate awarded $40,000.
The Court cautioned that its decision should not be read as a license to a non-party to incur fees that it would not deem reasonable and necessary if the non-party were shouldering the burden. The Court added that, “in the absence of a prior agreement between the demanding party and the non-party, such fees are subject to the exercise of the court’s power to limit or deny them to prevent unreasonable expense or other prejudice to any person as the circumstances may present (see CPLR 3103[a]).”
Although the Uniform Rules for Surrogate’s Court do not contain provisions governing e-discovery, the rules of other Courts on this topic may prove instructive, as they were to the Surrogate in deciding Khagan. An early good faith meet and confer between counsel concerning the scope and cost (including cost shifting) of such discovery may allow discovery to proceed more efficiently and potentially avoid a party from incurring significant, and unexpected, litigation costs.
 See, e.g., Commercial Division, Nassau County Guidelines for Discovery of Electronically Stored Information (“ESI”), http://www.nycourts.gov/courts/comdiv/nassau.shtml