Supreme Court, Putnam County, February 26, 2019

Boies Schiller Flexner, LLP, New York City (Robert J. Dwyer of counsel), and Skadden, Arps, Slate, Meagher & Flom, LLP, New York City (John L. Gardiner of counsel), for plaintiff.

Jay Ward Brown, New York City, for defendant.

Plaintiff seeks reimbursement from defendant for out-of-pocket costs of $265,454.57 he incurred in connection with the production of 47 million pages of documents in response to defendant's document requests.^[FN1] Defendant opposes the request. Each party apparently believes he needs to reenact their protracted dispute as a means of proving or vindicating their respective positions. The court has expressed its concerns and reservations about the scope of discovery, but has allowed the parties to pursue their claims. The claimed production costs and the amount of materials produced compel some explanation.

Plaintiff Maurice R. Greenberg, the former chairman and chief executive officer (CEO) of American International Group, Inc. (AIG), a multinational insurance firm, brings this defamation action against defendant Eliot L. Spitzer, the former Governor and Attorney General of New York State, in response to a series of public statements made by Spitzer in relation to Greenberg's tenure at, and management of, AIG. Greenberg's amended complaint alleges that Spitzer made defamatory statements on two occasions—July 13, 2012, and July 16, 2012. Greenberg also alleges that Spitzer's book, Protecting Capitalism Case by Case, contains defamatory statements.

The instant defamation action was commenced on July 12, 2013, immediately before the statute of limitations expired. The events that are the subject of the allegations took place years earlier in 2004 and 2005, at a time when defendant, in his capacity as New York Attorney General, pursued claims against members of the financial services industry, including banks, brokerage firms, and others, including AIG. The claims, in certain instances, gave rise to overlapping judicial proceedings{**63 Misc 3d at 556} in state and federal courts, as well as administrative enforcement actions involving the Securities and Exchange Commission (SEC). During this period, defendant was nicknamed "the Sheriff of Wall Street." Not surprisingly, his efforts found supporters and detractors. In this climate, the national economy crashed in 2007-2008, and the crash was followed by a lengthy economic recession. Demonstrations, in the form of an[*2]"Occupy Wall Street Movement," took place promoting an end to economic inequality and injustice at the hands of the world's financial giants. Responsibility, or blame, for the nation's economic woes was the subject of numerous discussions in print and electronic media, as well as local and national political campaigns. In October 2004, defendant Spitzer, as Attorney General, announced that his office was investigating fraud and anti-competitive practices in the insurance industry.

In this climate, plaintiff and defendant clashed. In May 2005, defendant, as Attorney General of the State of New York, commenced an action against plaintiff under General Business Law article 23-A alleging, inter alia, that plaintiff, in his capacity as chairman and CEO of AIG, initiated at least two "sham" or improper reinsurance transactions with General Reinsurance Corporation, Inc., which misled the investing public as to AIG's true financial conditions. At this time, AIG was also involved in lawsuits filed by the SEC, the United States Department of Justice, and the Office of the New York Attorney General.

This court (Lubell, J.) granted a motion to dismiss, in part, and the decision and order was the subject of appeals and cross appeals. The Appellate Division affirmed that decision and order, in part, and reversed it, in part. (Greenberg v Spitzer, 155 AD3d 27 [2d Dept 2017].) Thereafter, the parties began pretrial discovery. Defendant's document requests covered a period of 14 years and 12 lawsuits, in addition to documents relating to more than 40 accounting actions at AIG.^[FN2] Defendant's first request for production and inspection of documents{**63 Misc 3d at 557} included, among others, "any and all documents related to" litigations; and "any and all documents supporting" plaintiff's contention that the defamatory statements at issue in this action are "materially false," including defendant's statements: that plaintiff "defrauded the market"; that plaintiff's "accounting was fraudulent"; and that certain transactions at AIG were "created for the purpose of deceiving the market," constituted "fraud," and were "deceptive," "wrong" or "illegal." Not surprisingly, plaintiff's compliance with these broad requests totaled more than 47 million pages. Depending on the source or location of the information, they were provided on a DVD, on a hard drive or other storage media, or onto an electronic database. Plaintiff, his counsel, or AIG produced additional documents. In contrast, it is claimed that defendant produced less than 10,000 pages of documents in response to plaintiff's request.

On June 25, 2018, the court appointed Joel M. Aurnou, a former judge, as Referee, to supervise discovery. Since that time, the parties have met, conferred, and addressed many of the discovery issues. Plaintiff raised the issue of recovering reproduction costs prior to the appointment of the Referee, and again with the Referee, who indicated a motion was necessary, [*3]as the issue was beyond the scope of the order appointing the Referee. To their credit, counsel attempted to resolve the issue. Their correspondence, attached to the moving papers, expresses each party's position. Defendant claims plaintiff's high production costs are self-inflicted, and arise from plaintiff's commencement of the action, knowing that massive discovery would ensue. He also suggests that plaintiff's action is an attempt to relitigate past battles and "take no prisoners" in the process. According to defendant, plaintiff's unwillingness to cooperate with defendant to limit the scope of discovery, or share access to a database and thereby avoid the need to spend substantial sums converting documents into various formats evinces plaintiff's intention. Finally, defendant also suggests that plaintiff has produced so much material because he intends to use it to prove his case, while asking defendant to pay for it.

Plaintiff's position with respect to the reproduction costs is straightforward—"the party seeking discovery of documents {**63 Misc 3d at 558}. . . should pay the cost of their [reproduction]." (Rubin v Alamo Rent-A-Car, 190 AD2d 661, 663 [2d Dept 1993], quoting Rosado v Mercedes-Benz of N. Am., 103 AD2d 395, 398 [2d Dept 1984].) In contrast, defendant asserts the cost falls on the party producing the documents. (U.S. Bank, N.A. v GreenPoint Mtge. Funding, Inc., 94 AD3d 58, 62-64 [1st Dept 2012].) U.S. Bank also follows the guidelines set forth in Zubulake v UBS Warburg LLC (217 FRD 309 [SD NY 2003]). The different approaches have not been resolved by the Court of Appeals.^[FN3]

Plaintiff also argues that the rule adopted by the Second Department in Rubin is binding on this court, relying on Mountain View Coach Lines v Storms (102 AD2d 663, 664 [2d Dept 1984]). There, Justice Titone, writing for the Second Department, stated:

"At the outset, we note that if the Third Department cases were, in fact, the only New York authorities on point, the trial court followed the correct procedural course in holding those cases to be binding authority at the nisi prius level. The Appellate Division is a single State-wide court divided into departments for administrative convenience and, therefore, the doctrine of stare decisis requires trial courts in this department to follow precedents set by the Appellate Division of another department until the Court of Appeals or this court pronounces a contrary rule." (Id. at 664 [citations omitted].)

Notably, in Mountain View, the Second Department acknowledged it was "free to reach a contrary result" and did so after finding the corresponding Third Department holding to be "in conflict with settled principles." (Id. at 665.) This court is bound to apply the law as promulgated by the Appellate Division, Second Judicial Department. In applying that law, the values of certainty, stability, and predictability of decisions are promoted.

Defendant argues that U.S. Bank has implicitly, if not explicitly, overruled Rubin. There is some appeal to that argument. When a "rule . . . is out of tune with the life about us, at variance with modern-day needs and with concepts of justice and fair dealing[,] [i]t should be discarded." (Bing v Thunig, 2 NY2d 656, 667 [1957] [eliminating the exemption of hospitals from the doctrine of respondeat superior based on the actions{**63 Misc 3d at 559} of particular individuals].) The principle of stare decisis is not so rigid as to be eternally fixed in stone; its value and import often depends on the issue [*4]before the court and the circumstances surrounding the decision. In People v Hobson (39 NY2d 479 [1976]), Chief Judge Breitel observed that certain statutes are no more than skeletal outlines, with the construction and interpretation undertaken on a case-by-case approach, which allows for greater flexibility. Discovery statutes that confer substantial discretion in the trial courts fall into this category. (Kavanagh v Ogden Allied Maintenance Corp., 92 NY2d 952, 954 [1998]; Matter of U. S. Pioneer Elecs. Corp. [Nikko Elec. Corp. of Am.], 47 NY2d 914, 916 [1979].) Finally, while McKinney's Consolidated Laws of New York, Book 1, Statutes § 72 (a) is declaratory of the doctrine of stare decisis, the accompanying Comment includes the recognition that "[a]ll legislation, however, is to be interpreted in the light of the social and economic conditions of its time, and where the previous construction took place so long ago as to have become antiquated it need not be followed." In this regard, the Uniform Rules for the New York State Trial Courts expressly require the trial court to consider "the anticipated cost and burden of data recovery and proposed initial allocation of . . . cost." (22 NYCRR 202.12 [c] [3] [x].) The same language can be found in the Rules of the Commercial Division of the Supreme Court. (22 NYCRR 202.70 [g] [rule 8] [b] [x].) These rules reflect a change in the practice approved in Rubin, and they relate to the modern issues of electronic discovery and its cost. The fact that current court rules require cost consideration and initial cost allocation suggests the former rule requires some flexibility. Such flexibility is consistent with the observation of Chief Judge Fuld stated in Silver v Great Am. Ins. Co. (29 NY2d 356, 363 [1972]): "[S]tare decisis does not compel us to follow blindly a court-created rule—particularly one, as here, relating to a procedural matter—once we are persuaded that reason and a right sense of justice recommend its change." It is also the function of the court to harmonize all parts of a statute in a manner consistent with the general intent of the whole statute. (See Statutes § 98.)

The broad mandate of CPLR 3101 (a) defines the scope of discovery as requiring "full disclosure of all matter material and necessary in the prosecution or defense of an action." CPLR 3103 (a) provides for protective orders "denying, limiting, conditioning or regulating the use of any disclosure device" {**63 Misc 3d at 560}with such protective orders "designed to prevent unreasonable . . . expense" to any person. There is no specific statutory authority imposing a party's production costs on the party making a discovery request.^[FN4] The costs of production by a nonparty under CPLR 3122 (d) is not at issue here.^[FN5] CPLR 3111 imposes the "reasonable production expenses of a non-party witness shall be defrayed by the party seeking discovery." CPLR 3116 (d) imposes the expense of a [*5]deposition on the party taking it. The obligation to impose the costs of production on either party at this stage is a product of decisional law, without legislative standards. (Colon v City of New York, 285 AD2d 523 [2d Dept 2001].)

As a practical matter, electronic discovery was never envisioned when the CPLR was drafted more than 50 years ago. The issues raised by electronic discovery, after a lengthy record of precedent regarding "paper" discovery, do not lend themselves to automatic importation as there is no comparison between paper discovery and electronic discovery. Costs are but one example. Public Officers Law § 87 (1) (b) (iii) establishes a $.25/page cost, and Public Health Law § 18 (2) (e) establishes a $.75/page cost.^[FN6] Applying these costs to the 47 million pages produced by plaintiff would total $11,750,000 to $35,250,000, depending on the cost per page. Here, plaintiff is seeking recovery of $265,454.57, or the equivalent of $.005/page. The cost of electronic storage is nominal, and consequently, records are maintained in huge quantity to provide for recovery in the event of electronic failure, rather than for retrieval of a particular document or group of documents.

Additionally, plaintiff's reliance on Rubin is weakened by a comparison in the amount of documents sought. Rubin involved a lost income claim. At issue was the production of five years of billing invoices and redacted medical records, such that information about fees charged and payments made would be{**63 Misc 3d at 561} provided. Rubin's reliance on Rosado further undermines plaintiff's argument. There, the discovery involved translation costs for eight pages of text in German and seven pages of German engineering schematics.^[FN7] Further, the Court in Rosado labeled the principle that "each party should shoulder the initial burden of financing his own suit" as a "general assumption" and it has not been otherwise codified except in limited circumstances. (103 AD2d at 398-399.) The production costs in Rubin and Rosado pale in comparison to those here, and the volume of materials at issue is significantly different. The differences between Rubin and the instant action require a different approach.^[FN8]

Discovery issues surrounding electronically stored information are continually unfolding. Different methods of storage and retrieval affect the mechanics and cost of production. File cabinets have yielded to microfiche and tape storage, which have been succeeded by CDs, DVDs and zip drives, which in turn have been replaced by hard drive storage. And now, there is cloud storage. The ease with which information may be collected and retained creates an additional layer of costs. The Civil Practice Law and Rules do not obligate the possessor of the information to perform the work desired by the requesting party beyond general production. After reproduction, there remains the need to sort and retrieve the most relevant pieces of [*6]information. The use of "search engines" may be employed to facilitate the effort. In the absence of legislative action, disparate results may flow from the application of outdated rules. Court rules, primarily those of the Commercial Parts, attempt to address the issues in largely unchartered areas affected by evolving technology. (22 NYCRR 202.12 [b], [c]; 202.70.) Ultimately, the state trial courts are left to their best efforts and discretion to address the emerging issues.

In contrast, the federal courts have moved with greater speed and clarity. Consequently, it is not surprising that the First Department has chosen to follow the federal standards in U.S. Bank. Plaintiff objects to the cost shifting from the requesting party to the producing party as held in U.S. Bank. In other respects, plaintiff implicitly concedes the propriety of the criteria used in the reproduction effort. That criteria includes:{**63 Misc 3d at 562} the tailoring of the request for information and documents; the availability of information from other sources; production costs; the resources of each party; the ability of each party to control costs; the issues at stake in the litigation; and the benefits to the parties involved. (See Zubulake.)^[FN9] The salutary efforts by counsel to refine the type and amount of information sought and to utilize existing databases, among other efforts, speak to the utility of the criteria employed. This criteria would also be appropriate when considering an application for a protective order under CPLR 3103. Although defendant claims that plaintiff insisted upon a more broad production to address the myriad of accounting issues, rather than to agree on search terms, defendant relies on essentially the same applicable criteria.

The issue that separates the parties is who bears the initial production cost. The court has the power "to prevent unreasonable . . . expense, . . . disadvantage, or other prejudice to any person." (CPLR 3103 [a].) This consideration is also appropriate at the preliminary conference, and plaintiff initially raised the issue some time ago. (22 NYCRR 202.12 [c] [3] [x].) The amount of $265,454.57 is a significant expense for production costs. Although defendant does not seriously dispute the amount of work involved, or how the costs were generated, the court has some concerns about the lack of explanation.^[FN10] Without an explanation, the court cannot fully determine the legitimacy of the claimed expense, whether there was a less expensive alternative, or whether the form of production was cost-effective. Yet, it is also apparent to the court that the consolidation of much of the materials sought from different proceedings in one place by plaintiff's counsel seemed to significantly reduce the costs of obtaining the documents from multiple sources, as well as the time involved in doing so. In addition, the court presumes each party has sufficient resources to cover these expenses as no claim is made on the contrary. Finally, while the parties' dispute has taken on the appearance of an episode of Game of Thrones, to each of them, there is much at stake.{**63 Misc 3d at 563}

At this stage of the proceedings, recognizing the enormity of the expense (which was not known at the time of the discovery demands or preliminary conference), the court will require [*7]defendant to reimburse plaintiff to the extent of one half of the production costs of $265,454.57, or the amount of $132,727.29, subject to a further determination and award of disbursements at the conclusion of the action. (See CPLR 8301; Vinings Spinal Diagnostic v Progressive Cas. Ins. Co., 15 Misc 3d 270, 273 [Nassau Dist Ct 2006].)