Insurance Company Asks if Texas Rules Require a Native File Production — Texas Supreme Court Rules: “It Depends”

Monday, June 12, 2017

I’ve been waiting for several months to see a decision from the Texas Supreme Court in an appeal based on a discovery dispute over the necessity to provide a document production in native file format.  The decision was finally provided this week at In Re State Farm Lloyds, Relator, Nos. 15-0903, 15-0905 (Tex. Sup. Ct. May 26, 2017) which set a standard, but left the underlying case unresolved.

Case Background

The original litigation involves a homeowner’s insurance claim for hailstorm damage. During discovery, the parties were unable to agree on a document production protocol. Plaintiffs made a specific request for native file production pursuant to Texas Rule 196.4 to which the Defendants objected.  After a hearing on the matter, the trial court held for the Plaintiffs.

A subsequent Writ of Mandamus to the court of appeals was denied and Defendants appealed to the Texas Supreme Court. That court denied the Writ, but without prejudice, specifically in its opinion (written by Justice Guzman), “affording the relator an opportunity to reurge its discovery objections” before the trial court.

The Opinion

The opinion centered on the reasonableness of a requested form of production and how to make that determination. Plaintiffs had requested native files, stating through an expert witness that only native files gave them access to metadata and information such as formulas in spreadsheets.

Defendants responded that in the ordinary course of business, they processed the thousands of claims they received every day into their proprietary Enterprise Claims System (ECS). This process routinely converted documents into a “static format” which made them easier to handle uniformly than native files. Their expert went on to say that this format was “reasonably usable” and that going back to native files would involve a costly new process “…that includes determining upstream sources of the data, validating the upstream sources, determining whether native files of the information still exist, and developing an extraction method for the native versions.”

Plaintiffs countered that the static format, although searchable, was not a “reasonably usable form,” but was, rather, “the electronic equivalent of a printout,” and as such amounted to dumbing down or downgrading the data produced.

The Court held that the “…requesting party must specify the desired form of production, but all discovery is subject to the proportionality overlay embedded in our discovery rules and inherent in the reasonableness standard to which our electronic-discovery rule is tethered.”

Seven Factors of Proportionality

The Court’s opinion noted that “whether production of metadata-accessible forms is required on demand engages the interplay between the discovery limits in Rule 192.4 and production of electronic discovery under Rule 196.4” and that if a reasonably usable form is available, then “…the trial court must assess whether any enhanced burden or expense associated with a requested form is justified when weighed against the proportional needs of the case.”

To do so, the Supreme Court said a trial court must consider the influence of FRCP 34, which does not allow one side or the other to “…unilaterally dictate the form of production…” and then set forth the following seven factors to decide proportionality:

  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 the issues at stake in the litigation
  6. The importance of the proposed discovery in resolving the litigation
  7. Any other articulable factor bearing on proportionality

Justice Guzman went on to say the Court would now “…elucidate the guiding principles informing the exercise of discretion over electronic-discovery disputes, emphasizing that proportionality is the polestar. In doing so, we further a guiding tenet of the Texas Rules of Civil Procedure: that litigants achieve a ‘just, fair, equitable and impartial adjudication…with as great expedition and dispatch and at the least expense…as may be practicable.’ Because the trial court and the parties lacked the benefit of our views on the matter, neither granting nor denying mandamus relief on the merits is appropriate. Accordingly, we deny the request for mandamus relief without prejudice to allow the relator to seek reconsideration by the trial court in light of this opinion.”

The Result – Remains to Be Seen

The result then will be further arguments before the trial court within the framework laid down by the Supreme Court.  What remains to be seen is if this framework becomes one which underlies all subsequent eDiscovery disputes in Texas. That is, will the unintended consequence of this opinion be that requesting parties feel it necessary to address each of the seven factors in every request and, alternatively, will objecting parties cite that failure to do so is a reason for denying such requests?  I guess “it depends.”



Tom O’Connor, Senior eDiscovery Consultant, Advanced Discovery

Tom O’Connor is nationally known as a consultant, speaker, and writer. In his consulting work, Tom specializes in working with law firms and their corporate clients to manage their electronic discovery needs. As senior eDiscovery consultant for Advanced Discovery, he assists clients in database design, implementation, and training. He also addresses specific eDiscovery issues such as retention policies, litigation holds and document exchange protocols. Tom speaks at major legal conferences and writes for both the Advanced Discovery blog and national legal publications.

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