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Nitsch v. Dreamworks Animation SKG Inc.

United States District Court, N.D. California, San Jose Division

March 9, 2017

ROBERT A. NITSCH, et al., Plaintiffs,


          HOWARD R. LLOYD United States Magistrate Judge

         Non-party Croner Company (Croner) moves for reimbursement of costs it says it incurred in responding to the second of two subpoenas served by plaintiffs.[1] Croner is a consulting company that conducts annual compensation benchmarking studies in a variety of creative industries. Briefly stated, the subpoena contained two document requests asking for survey data Croner obtained from companies in the animation and visual effects industry. (Dkt. 285-2, Brownstein Decl. ¶ 3, Ex. 2). Croner says that the responsive documents pertained to 17 non-defendant companies and spanned a 7-year period, from 2008 and forward.

         Before Croner formally responded to the subpoena, its counsel met-and-conferred with plaintiffs' counsel. Croner advised that it would seek reimbursement of its costs, and it later said the same in its formal written objections. (Id. ¶ 5, Ex. 3; Dkt. 304-1 Schiltz Decl. ¶ 2). Although Croner initially estimated that its expenses would probably not amount to much more than “a couple thousand dollars, ” (Dkt. 304-1, Schiltz Decl. ¶ 2), as will be discussed, its endeavors ended up being more costly.

         Because its surveys are subject to confidentiality provisions, Croner says it felt obliged to notify affected clients about the subpoena and to devise a form of production that would provide plaintiffs with discovery, while preserving the anonymity of the survey participants. Croner now seeks reimbursement of $67, 787.55 in costs, including its outside counsel's fees, for those efforts. Pointing out that Croner's production comprised 16 documents, plaintiffs contend that the requested sum is grossly overinflated and unreasonable. They further contend that Croner actually incurred document processing and production costs of only $143.55, which plaintiffs argue is not a significant expense that warrants cost-shifting.

         Upon consideration of the moving and responding papers, as well as the oral arguments presented, this court[2] rules as follows:

         Fed. R. Civ. P. 45(d)(2)(B)(ii) provides that when a court orders compliance with a subpoena over an objection, “the order must protect a person who is neither a party nor a party's officer from significant expense resulting from compliance.”[3] That rule “requires the district court to shift a non-party's costs of compliance with a subpoena, if those costs are significant.” Legal Voice v. Stormans, Inc., 738 F.3d 1178, 1184 (9th Cir. 2013). The rule is mandatory; and “when discovery is ordered against a non-party, the only question before the court in considering whether to shift costs is whether the subpoena imposes significant expense on the non-party.” Id. “If so, the district court must order the party seeking discovery to bear at least enough of the cost of compliance to render the remainder ‘non-significant.'” Id. (citation omitted).

         “The shifting of significant expenses is mandatory, but the analysis is not mechanical; neither the Federal Rules nor the Ninth Circuit has defined ‘significant expenses, ' which is a term that readily lends itself to myriad interpretations depending on the circumstances of a particular case.” United States v. McGraw-Hill Companies, Inc., 302 F.R.D. 532, 536 (C.D. Cal. 2014) (citing Legal Voice, 738 F.3d at 1184). “In making this determination, a court may ‘take into account the financial ability of the non-party to bear some costs' for purposes of establishing whether expenses are ‘significant.'” Cornell v. Columbus McKinnon Corp., No. 13-cv-02188-SI, 2015 WL 4747260 at *2 (N.D. Cal., Aug. 11, 2015) (quoting Linder v. Calero-Portocarrero, 251 F.3d 178, 182 (D.C. Cir. 2001)).

         Croner's requested expenses are as follows: (1) $14, 700 in legal fees paid to its outside counsel; (2) approximately $53, 000 for time spent by Croner employees; and (3) $143.55 for document and data processing costs. (Dkt. 285-1 Croner Decl., ¶¶ 21-22; Dkt. 285-2 Brownstein Decl. ¶¶ 10-11). The key issue in dispute is whether costs tied to Croner's confidentiality concerns are compensable expenses “resulting from compliance” with a subpoena.

         “Although party witnesses must generally bear the burden of discovery costs, the rationale for the general rule is inapplicable where the discovery demands are made on nonparties.” United States v. Columbia Broadcasting Sys., Inc., 666 F.2d 364, 371 (9th Cir. 1982). “Nonparty witnesses are powerless to control the scope of litigation and discovery, and should not be forced to subsidize an unreasonable share of the costs of a litigation to which they are not a party.” Id. Reimbursable expenses under Rule 45 may include some attorney's fees. However, “[t]he rule does not establish a blanket requirement that all of a nonparty's legal fees are reimbursable so long as they are somehow related to its efforts in responding to a subpoena.” In re American Housing Found., No. 09-20232-RLJ-11, 2013 WL 2422706, at *2 (N.D. Tex., June 4, 2013). Rather, “[r]eimbursable fees are those that are necessary to the third party's compliance and thus benefit the requesting party or are of assistance to the court.” Id.

         For example, courts have found that reimbursable fees include those “incurred in connection with legal hurdles or impediments to the production, ” such as ensuring that production does not violate federal law or foreign legal impediments. Id. (citing cases). Conversely, fees incurred for services “for the non-party's sole benefit and peace of mind” have been denied. Id. at *3; see also McGraw-Hill Companies, Inc., 302 F.R.D. at 536 (same). Other courts have concluded that fees incurred in “production-related tasks like document review, creating a privilege log, and drafting protective orders” are compensable expenses resulting from subpoena compliance, whereas “fees incurred litigating a subpoena” are not. Storman's Inc. v. Selecky, No. C07-5374 RBL, 2015 WL 224914, at *5 (W.D. Wa., Jan. 15, 2015).

         Plaintiffs argue that Croner's efforts to protect client confidentiality were purely business interests that inured solely to Croner's benefit and peace of mind and therefore are not compensable. They point out that there is a protective order in place (Dkt. 48) that is sufficient to address confidentiality issues, making Croner's effort re those issues entirely unnecessary. Croner, on the other hand, says it did precisely what one should do when asked to produce information subject to a confidentiality agreement. At oral argument, Croner's counsel stated that at least several of the affected clients indicated that they would, in fact, move to quash plaintiffs' subpoena, unless the subject documents were produced in redacted form. So, Croner says it did what it did, not to prolong the litigation or increase costs, but rather, to attempt to craft an agreeable format for production while timely giving plaintiffs requested discovery---without resorting to time-consuming, and possibly even more expensive, motions practice over the subpoena.

         This court finds G&E Real Estate, Inc. v. Avison Young-Washington D.C., LLC, 317 F.R.D. 313 (D.D.C. 2016) instructive. There, the subpoenaed entity and its counsel “decided to litigate issues related to the subpoena zealously. And they appear to have done so with no eye towards minimizing their expenses or towards working cooperatively with Plaintiff's counsel to resolve the disputed issues.” Id. at 318. Motions practice over discovery ensued. However, during a subsequent meeting, the parties agreed on a document review process in which plaintiff's counsel was permitted to review the disputed documents. Id. at 319. That agreed-upon review led to the resolution of their discovery disputes. Id. On a subsequent motion for reimbursement of costs, the court declined to order reimbursement of fees generated by what it found to be an “overall strategic approach to the subpoena issue---fierce litigation and expensive document review---rather than a creative and collaborative approach to resolving the issues at hand.” Id. Nevertheless, it concluded that certain activities were compensable, “such as the hours expended by [the subpoenaed entity's counsel] to enable Plaintiff's counsel to sit down and review the contested documents.” Id.

         Under the particular circumstances presented here, this court concludes that Croner's efforts to address confidentiality issues are reasonable and compensable. Plaintiffs are correct that such concerns generally do not preclude discovery when there is a protective order in place. See, e.g., Realtek Semiconductor Corp. v. LSI Corp., No. 5:14-mc-80197-BLF-PSG, 2014 WL 4365114 at *3 (N.D. Cal., Sept. 3, 2014) (concluding, on a motion to compel compliance with a subpoena, that confidentiality concerns did not warrant modification of the subpoena).[4] Plaintiffs and Croner each claim that they would have prevailed on a motion to quash. This court can only speculate as to what the result would have been had any such motion been filed. What has been demonstrated to this court's satisfaction on the record presented is that Croner's efforts to protect client confidentiality were not made to be obstreperous, but were the result of compliance with the subpoena. Indeed, if any of the parties in this case were asked to produce a non-party's confidential information, the stipulated protective order requires them to do what Croner did---give notice to the affected non-party of the discovery request and the information at issue. (Dkt. 48 ¶ 9.2). And, before entertaining any motion to quash or for protective order, this court certainly would require the parties and affected entities to first make an effort to resolve their concerns between themselves.

         Here, Croner and its counsel appear to have worked collaboratively as “go-betweens” with clients and with plaintiffs' counsel to resolve confidentiality concerns and get plaintiffs the discovery they wanted, without resorting to motions practice. In the end, Croner's clients were appeased; plaintiffs timely got the discovery; and no one required ...

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