United States: Managing The Risks And Costs Of Responding To Third-Party Civil Subpoenas (Electronic Discovery & Records Management - Tip Of The Month)

Keywords: third-party civil subpoenas, securities law, violations, ESI, Rule 45

Scenario

A large customer of a manufacturing company is sued by a putative class of shareholders claiming various securities law violations related to an alleged failure to disclose the declining sales of one of their products, for which the manufacturing company provides parts. The manufacturing company receives a broad third-party subpoena for documents, which requests emails and other communications regarding manufacturing and supply challenges during a specified period of time. To collect and produce all of the electronically stored information (ESI) potentially responsive to this subpoena would take substantial time and effort on the part of the manufacturing company's legal department, IT staff and business management. The manufacturing company's general counsel believes that some or all of the information can be more easily obtained from the defendant-customer.

Rule 45 Limits the Burdens on Third Parties

The Federal Rules of Civil Procedure contains protections designed to minimize burdens on third parties; recipients of third-party subpoenas are wise to take advantage of these  protections to try to narrow the scope of the required production. But the Rules are also intended to ensure that important information is produced, even if the production imposes a significant burden on a third party. When documents are produced under a third-party subpoena, counsel should take steps to ensure that the production is made carefully and deliberately. Even when responding to a third-party subpoena, there remains a risk of waiver of privilege, the release of confidential, business-sensitive information, and the disclosure of personal (and potentially protected) information.  While organizations often attempt to limit the costs associated with responding to third-party subpoenas, counsel should consider the potential risks of producing documents that have not been fully reviewed by lawyers before production.

Under Federal Rule of Civil Procedure 45, a party seeking discovery from a third party has an affirmative duty to take reasonable steps to avoid imposing an undue burden or expense on the person or entity subpoenaed. Courts have consistently held that third-party status is a significant factor to be considered when determining whether a subpoena is unduly burdensome. Accordingly, a third party's obligation to preserve and produce relevant ESI is far more limited than that of the parties involved in litigation. Third parties, however, still should be mindful of their obligations to preserve ESI and documents where they reasonably anticipate being named parties to the litigation.

Best Practices for Third Parties Subject to a Subpoena

Rule 45 provides that if an objection is made to a subpoena, an order to compel production "must protect a person who is neither a party nor a party's officer from significant expense resulting from compliance." Rule 45(c)(3)(A) instructs that "[o]n timely motion, the issuing court must quash or modify a subpoena that ... subjects a person to undue burden." Accordingly, federal courts must quash or modify a subpoena that would impose an undue burden or expense on a third party. Courts can also shift some or all of the costs of production to the party issuing the subpoena.

Raise Objections Quickly

Rule 45(d) specifically recognizes that if not limited, production of ESI can be extraordinarily expensive and burdensome. The Rule protects parties from producing ESI that is "not reasonably accessible because of undue burden or cost." Boilerplate language included in many subpoenas often contain ESI requests that are not narrowly tailored to avoid burden on third parties. Recipients of such subpoenas should quickly raise objections in order to avoid the burdens of preservation and production of all ESI. Early objections can encourage the proponent to focus on specifically what categories of ESI are needed.

Objections to a third-party subpoena should include those relating to the forms in which ESI is requested to be produced, as well as objections limiting the production of ESI from inaccessible sources except for "good cause." Third parties may also refuse to preserve or produce particularly burdensome categories of ESI, such as metadata, dynamic or transitory data, voicemail and instant messages, and should so state in their objection to the subpoena. Further, in objecting to a subpoena, third parties should clearly state what categories of ESI are being searched, what categories of ESI are not being searched and what steps (if any) are being taken to preserve relevant ESI.

Organizations that regularly receive third-party subpoenas often prepare standard objections relating to the preservation and production of ESI. Any agreements reached with the proponent of the subpoena should be carefully documented in written correspondence. Such agreements could include the list of custodians to be searched, search terms to be used, or dates when production is expected.

Carefully Review and Produce

Even if a third party objects to certain provisions or requests in a subpoena, the Rules do not exempt that party from promptly and properly complying with those terms of the subpoena to which it is not objecting. Where ESI will be produced in response to the subpoena, counsel should ensure during the meet and confer process that the parameters of the third party's obligations are clearly drawn. Counsel should identify the custodians most likely to possess the data sought, and limit production to that group. This will prevent the third party from incurring the processing and review costs of searching the data sources of custodians with peripheral or redundant information.

When it comes time to actually collect and produce documents under a third-party subpoena, the best practice is for an attorney, paralegal or some other business person familiar with the content of the documents to review the documents before they leave the third party's possession. Electronic discovery tools can help search for and identify documents most likely to be response to a certain request, but relying exclusively on such tools involves some risk. Relying on electronic discovery tools to recognize and cull privileged or commercially sensitive information that may be protected from disclosure is often not sufficient to protect an organization's information. Third parties often have legal duties to protect information in their possession, especially if the information is customer health or financial information. At least some review of documents prior to production is typically necessary to meet these obligations. Thus, the use of electronic discovery tools is best seen as a supplement to, not a substitute for, lawyer or business persons' involvement in making decisions on the appropriateness of producing such documents.

Set An End To Preservation Obligations

Finally, organizations should consider procedures to ensure that legal holds related to subpoenas are lifted within a reasonable time after compliance. One option is to notify requesting counsel, in writing, that the third party intends to return to its normal retention policies after production of responsive ESI is complete and absent any objection from the requesting party.  Another option is to agree to an automatic end to the preservation obligation upon the occurrence of an event, such as the dismissal of the litigation.

In conclusion, raising objections early, reviewing and producing carefully, and setting an end to the preservation obligation, can make compliance with a third party subpoena easier and more efficient.

Originally published February, 2013.

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