WLF Legal Opinion Letter
Two Rulings Reflect Judicial Frustration With Federal Discovery Rules
By R. Ben Sperry
July 23, 2010 (Vol. 19 No. 16)
In law, rules are often both "over-inclusive and under-inclusive." This is especially true in the case of the Federal Rules of Civil Procedure (FRCP) dealing with discovery. FRCP Rule 26(b)(1) allows discovery "regarding any non-privileged matter that is relevant to a party's claim or defense," including that which would be inadmissible in court, as long as the search "appears reasonably calculated" to lead to the discovery of admissible evidence. The ability of plaintiffs and defendants to use broad discovery requests in order to discourage their opponent leads to inefficiency in the civil justice system. Inadvertent missteps can also occur in the case of broad discovery because of the vast amount of documents that fall under many requests. If a party does not disclose all documents covered by a discovery request, sanctions, including a retrial if a court rules the evidence to be material, could be imposed. Two recent cases lend support to these propositions and highlight the need for substantial changes to the FRCP to reduce the likelihood of discovery abuse.
In South Carolina, the state's Supreme Court recently issued an important ruling indicating it would not tolerate abusive discovery practices.1 The narrow issue at hand in Oncology & Hermatology Assocs. of S.C., LLC v. South Carolina Dep't of Health & Envtl. Control, 692 S.E.2d 920, 925 (S.C. 2010) was "whether the 2004-2005 South Carolina Health Plan standards applied to the relocation of SRHS's linear accelerator." Defendant Spartansburg Regional Healthcare System requested reams of irrelevant, though certainly revealing data, including the plaintiff's business model, previous use of its linear accelerator, as well as communications and agreements with third parties. A state administrative law judge (ALJ) rubber-stamped the discovery request, and the South Carolina Supreme Court, in a move its opinion described as "as rare as the proverbial ‘hen's tooth,'" id. at 924, granted a direct writ of certiorari and vacated the ALJ's discovery order.
The Court ruled the discovery requests the defendant sent to the plaintiff were "a shotgun approach and sought virtually all information concerning every facet" of the plaintiff's operation. Id. at 922. The justices expressed their frustration over the discovery process in general rather plainly:
We have no desire to micromanage discovery orders. It is our hope that in resolving this matter, we will speak to trial courts generally. While discovery serves as an important tool in the truth-seeking function of our legal system, we are concerned that ‘discovery practice' has become a cottage industry and the merits of a claim are being relegated to a secondary status.
Id. at 924. The Court vacated the discovery orders, writing that although the discovery rules are meant to encourage broad disclosure, "there are limits, which we see trial courts generally unwilling to recognize and enforce." Id.
In Atlanta, a U.S. District Court vacated a $37 million trade secrets verdict won by Lockheed Martin and granted a new trial due to the company's withholding of discoverable documents.2 Lockheed filed suit against a competitor, L-3 Communications, for the use of trade secrets associated with the design and construction of military aircraft. In response, L-3 filed a separate antitrust suit in the U.S. District Court in Dallas. It was due to this second suit that L-3 was able to determine Lockheed did not release all the relevant documents in response to a discovery request in the trade secrets suit. Important Lockheed e-mails were not among the 863,137 pages of documents Lockheed turned over to L-3 during discovery in the first trial. Instead, these e-mails were disclosed during discovery for the second trial among 22 million pages of online correspondence. Because some of the e-mails revealed that Lockheed knowingly allowed a Brazilian company to use trade secrets, the District Court in Atlanta ruled that Lockheed deprived L-3 of material information that they could have used for a defense. Lockheed insisted they withheld the e-mails unintentionally, but the court granted a new trial.
These cases are two sides of the same coin. In one, broad discovery rules encouraged a party to request a large amount of irrelevant information in an attempt to discourage an opponent. In the other, broad discovery rules led to the production of a large mass of documents that -- inadvertently or not -- still did not contain all the relevant information. Broad discovery rules lead to both results because parties have little incentive to restrain themselves in their discovery requests. In Oncology, this meant requesting as much information as possible with the hope that it would cause the plaintiff to drop the challenge. In Lockheed, the sheer volume of papers and documents that could plausibly fall under broad discovery requests gave incentive for a party to allegedly cheat and attempt to withhold information, and it increased the chance of accidental withholding of relevant documents. In these different ways, the current rules incentivize uncooperative behavior by parties because they do not place definite boundaries on the scope of discovery.
The need for reform of the Federal Rules of Civil Procedure is apparent when one considers the problems presented in these cases. The fact that the courts were able to grant relief to the parties adversely affected in these particular cases means little for the many parties who have settled out of court rather than face the large costs associated with broad discovery. Further, relying upon courts to fashion remedies in every case for discovery issues would lead to inconsistent rulings and judicial inefficiency. Making the rules for discovery more clear and definite would allow parties to be more cooperative, as the Coase Theorem suggests.3 By narrowing "the definition of discoverable information to those materials directly relevant to an issue to be tried,"4 the FRCP would become more clear and definite, which would help fulfill the goal of promoting the "just, speedy, and inexpensive determination of every action and proceeding."5
R. Ben Sperry, a 2010 summer fellow with Washington Legal Foundation, is studying law at George Mason University Law School where he is a candidate member of the George Mason Law Review.
1. SCRCP 26(b)(1) contains wording very similar to that of FRCP 26(b)(1).
2. See Lockheed Martin, Corp. v. L-3 Commc'n Integrated Sys., L.P., NO. 1:05-CV-902-CAP (N.D. Ga. Mar. 31, 2010).
3. Dr. Ronald Coase, a University of Chicago economics professor, first presented the eponymous theory. He argued that when rights are well-defined and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the original allocation of the rights. See Ronald A. Coase, The Problem of Social Cost, 3 J.L. & Econ. 1 (1960).
4. Daniel Troy and John O'Tuel, A Toolkit For Change: How The Federal Civil Rules Advisory Committee Can Fix A Civil Justice System "In Serious Need Of Repair, 25 WLF Legal Backgrounder 19 (Washington Legal Found., Washington, D.C.) May 21, 2010, at 4.
5. Fed. R. Civ. P. 1.