DISCOVERING A BALANCE: TEXAS SUPREME COURT PROVIDES PROPORTIONALITY-BASED GUIDANCE FOR DECIDING DISPUTES OVER ELECTRONICALLY STORED INFORMATION

In a decision that will impact the discovery process in all Texas lawsuits, the Texas Supreme Court recently issued new guidance for e-discovery practice in the context of a dispute between insureds and insurers over the discovery of electronically stored information in native format.  In In re State Farm Lloyds 2017 WL 23223099 (Tex. 2017), State Farm sought mandamus relief from a trial court order directing State Farm to produce claim file documents in native or near-native format.  At the trial and intermediate appellate level, the insureds prevailed by arguing that the requesting party has the right to dictate the production format of electronically stored information in the responding party’s possession. 

The discovery dispute erupted in the context of claims asserted by homeowners that State Farm underpaid hail damage claims.  The insureds and their counsel demanded production of claims information in native format, but State Farm objected to producing the documents in that format because its central database for storing claims information kept the documents in a searchable static format.  The insureds argued that native format was essential because it would show metadata about the produced files, enabling the insureds to see who worked on documents, tracked changes, speaker notes in PowerPoint, photo captions, and other information not available via searchable static format.  In response, State Farm argued that production of the documents in native format would be too expensive because a brand new internal system for storing claims information would have to be created.  After the trial court ordered production in native format and the court of appeals upheld, State Farm sought relief from the Texas Supreme Court.

In ruling on the dispute, the Texas Supreme Court focused on the proportionality analysis trial courts must undertake once a responding party objects to the requested format of production.  Importantly, the Supreme Court specifically noted that the requesting party cannot dictate the form of discovery, undercutting a requesting party’s ability to fish for irrelevant information or force settlement by driving discovery expenses ever higher.  Rather than leaving the form of production solely at the discretion of the requesting party, the supreme court placed the decision on format in the trial court’s discretion as mandated by the plain language of the rules of civil procedure.  In exercising this discretion, the trial court is to evaluate 7 factors: (1) the likely benefit of the requested discovery, (2) the needs of the case, (3) the amount in controversy, (4) the parties’ resources, (5) the importance of issues at the in the litigation, (6) the importance of the proposed discovery in resolving the litigation, and (7) any other factor bearing on rules of civil procedure. 

While the factors articulated are broad and will vary on a case by case basis, the supreme court embedded some statements that may help limit the discoverability of information in native format in future cases.  For example, the court noted that native format metadata sometimes has no relevance at all, meaning that “hypothetical needs, surmise, and suspicion should be afforded no weight” by a trial court in considering whether to order production in that format.  Instead, native format and metadata must be shown to be relevant to the claims and defenses at issue and cannot be discovered simply because helpful information might be discovered if native format documents are overturned.  Finally, in a move hinting how the Court thinks the trial court should rule given the new guidance in its opinion, the Court approvingly cited Dizdar v. State Farm Lloyds, a case in which a federal district court denied an insured plaintiff’s request for native format documents from State Farm because State Farm’s production was in a reasonably usable format already.  In conclusion, the Court denied State Farms petitions for writ of mandamus and sent the case back to the trial court for determination considering the guiding principles in its opinion.