Court Directs Production in Native Electronic Form Notwithstanding Prior Hard Copy Production

In re Honeywell Int’l, Inc. Sec. Litig., 230 F.R.D. 293 (S.D.N.Y. 2003)

Class plaintiffs served a third party subpoena on defendant’s accountant, PriceWaterhouseCoopers (“PWC”), and PWC produced approximately 63,500 pages of documents. Plaintiffs moved to compel production of certain categories of documents withheld by PWC from that production, while PWC cross- moves to quash the subpoena.

Among other things, plaintiffs sought an electronic version of PWC’s working papers, copies of PWC’s document retention policies, and all correspondence, memoranda, electronic documents, e-mail and other documents concerning Honeywell for the period of January 1, 1999, through March 31, 2001. PWC produced its working papers in paper form, but plaintiffs wanted production in electronic form (or in hard copy in the order the records were kept in the usual course of business). Plaintiffs complained that the way the working papers were produced made it impossible to determine which attachment belonged to a particular work paper.

Opposing the request, PWC’s main argument was that the electronic copies of its work papers were only accessible with the aid of its proprietary software, and therefore any production of the electronic files would reveal PWC’s trade secrets. PWC also argued it had produced all the work papers in hard copy and that plaintiffs should have to pay any other expense imposed on the nonparty PWC. It argued that it had addressed plaintiffs’ concerns by providing a complete index and annotated charts of the attachments and working papers.

The Court found that PWC’s prior production of working papers was insufficient because they were not produced as kept in the usual course of business, and because PWC did not provide plaintiffs with an adequate means to decipher how the documents are kept in the usual course of business. “Under Rule 34(b) of the [FRCP], PWC is obligated to produce its work papers in their electronic form.” After reviewing the parties’ additional submissions about the most efficient way PWC could produce the work papers electronically, the court directed PWC “to produce electronically its work papers by either (1) producing a copy of its work papers on CD-ROMs that could be viewed using commercially-available software; or (2) producing a copy of its work papers on CD-ROMs that could be viewed using PWC’s proprietary software, as well as producing the proprietary software to the extent is it necessary to view the work papers.”

Rejecting PWC’s contention that the first option would be time-consuming and would exceed $30,000, the court declined to order any offset or reimbursement, citing two reasons: (1) if PWC desired to save time and money on its production it could opt for the second electronic production alternative, which PWC recognized would not be time-consuming or excessively costly; and (2) “PWC could have avoided the added expense it now faces by producing the work papers in electronic form at the outset, rather than choosing to produce hardcopies of its work papers with hieroglyphic indices that render the work papers essentially incomprehensible.”

In a footnote, the court rejected PWC’s concerns about the proprietary nature of the software, noting that there was a stipulated protective order in place that would apply, and noting that none of the litigants were competitors of PWC so the likelihood that a rival would obtain it and use it to PWC’s competitive disadvantage was di minimus.

Finally, the court stated it “declines plaintiffs’ invitation to rule on whether PWC may convert some of its work papers to a PDF file format to protect their integrity. At this stage of discovery, this Court does not deem t necessary to direct PWC to adopt any particular procedure.”

In addition to the electronic documents, plaintiffs also sought a copy of PWC’s document retention policies from January 1999 to the present, as well as all documents reflecting how the documents sought by the subpoena were preserved, maintained and collected by PWC for production to plaintiffs. To support the motion, plaintiffs referred to a recent SEC administrative settlement in an unrelated matter where PWC allegedly altered and destroyed work papers. Finding that the plaintiffs lacked a concrete basis for the request, the court denied this part of the motion.