North Carolina Business Litigation Report

Analog Devices, Inc. v. Michalski, 2006 NCBC 14 (N.C. Super. Ct. Nov. 1, 2006)(Tennille)

The issue here concerned the now familiar problem of the duty of a party to retrieve electronic data from back-up media, and how the cost of that effort should be allocated. The Court engaged in a thorough review of the various approaches to the issue, ranging from the now-famous Zubulake opinion to the Sedona Principles, and settled on what it called a "rules-based approach," relying heavily on the North Carolina Rules of Civil Procedure.

The Court declined to articulate a "rigid test" to be considered in these types of determinations, recognizing that each situation should be resolved on its own facts, but the Court referenced with approval the Guidelines of the Conference of Chief Justices Regarding Discovery of Electronically Stored Information as well as other factors relied upon by the other approaches to the issue. (In a companion case, SR International, the Court characterized its approach as "a straightforward application of Rule 26 of the North Carolina Rules of Civil Procedure, supplemented by Guidelines adopted by the Conference of Chief Justices.")

The Court held that the "overriding concern" in ruling on ESI issues should be whether or not they are "outcome determinative." It stated that "[i]f the party seeking production would be denied access to information which could have a material effect on a substantive issue in the case and where the cost of obtaining the information would be an insurmountable barrier to the requesting party, the denial of discovery or the allocation of costs to the requesting party could affect the final outcome. Discovery containment should not force such a result. If, on the other hand, the costs to the responding party of producing the information would be unreasonably related to the matter at issue or the amount in controversy, the responding party might be forced to settle without regard to the merits of its claims or defenses."

In the matter before it, where defendants sought the restoration of 400 backup tapes to obtain emails from persons involved in the development of the trade secret information at issue, the Court said it would consider "(1) the burden and expense of production; (2) the needs of the case; (3) the amount in controversy; (4) any limitations on the parties’ resources; and (5) the importance of the issues at stake." On the facts before it, the Court ordered the parties to share the restoration costs equally, and that the plaintiff should search the retrieved information, at its own expense, based on search terms provided by the defendant.

The Court stated that it preferred such issues to be resolved by a Motion for a Protective Order filed by the party claiming excessive cost or burden, as opposed to a Motion to Compel filed by the party seeking the information.

Full Opinion

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Mack Sperling
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