WILMINGTON TRUST COMPANY, et al., Plaintiffs, v. AEP GENERATING COMPANY, et al., Defendants Case No. 2:13-cv-01213 United States District Court, S.D. Ohio, Eastern Division Filed March 28, 2016 Counsel Stephen Eric Chappelear, Russell Jay Kutell, Frost Brown Todd LLC, Columbus, OH, Drew C. Ensign, Matthew D. Thurlow, William R. Sherman, Edward J. Shapiro, Latham & Watkins LLP, Washington, DC, Thomas James Giblin, Latham & Watkins LLP, New York, NY, for Plaintiffs. James B. Hadden, Murray Murphy Moul Basil LLP, Columbus, OH, Benjamin G. Cornfeld, Brian R. Campbell, Jared E. Ruocco, Rollo Clyde Baker, IV, Sascha N. Rand, David L. Elsberg, Peter E. Calamari, Quinn Emanuel Urquhart Oliver & Hedges, LLP, New York, NY, for Defendants. Kemp, Terence P., United States Magistrate Judge OPINION AND ORDER *1 This order will address Defendants' motion to compel (Doc. 159), which asks the Court to order Plaintiffs to produce and search for additional documents on three topics: (1) Plaintiffs' “reasonable expectations” when entering into the sale and leaseback agreement for Rockport Unit 2 and other similar transactions; (2) Plaintiffs' views about “Prudent Utility Practice” as it relates to resolving environmental litigation; and (3) Plaintiffs' views about what the law required of operators of coal-fired electrical generation facilities at the time the prior litigation was resolved. A somewhat separate issue is raised about the adequacy of the search terms Plaintiffs used to locate the documents which they did produce. The motion is fully briefed. For the following reasons, the motion will be granted in part and denied in part. I. Background The issues raised by the motion to compel can be stated in this way. Plaintiffs have made a number of claims about why Defendants' actions in settling a prior environmental case have impaired their residual interest in Rockport Unit 2, a coal-fired electrical generation facility which Plaintiffs have leased to Defendants, keeping a residual interest in the facility after the lease expires. Plaintiffs assert that the consent decree impaired that interest, that it was not in keeping with prudent practice within the utility interest to have entered into it, and that, by doing so, Defendants breached an implied covenant of good faith and fair dealing. The discovery requests which are the subject of this motion are, according to Defendants, simply designed to uncover information about these theories. They can be divided into three sets of topics: whether similar actions have occurred at other power plants in which Plaintiffs have a similar interest; how the economics of the sale and lease-back transactions have worked out both at Rockport Unit 2 and at other facilities; and whether Plaintiff's search terms, used in order to recover ESI, were sufficiently broad and inclusive. The Court will lay out the parties' arguments about each of these three matters separately. A. Environmental Actions at Other Facilities This set of requests itself has three sub-parts. Defendants have asked for (1) documents that would identify any of the Plaintiffs' ownership interests in other coal-fired power plants; (2) documents relating to the proposed installation of pollution control equipment at the Homer City Generating Station (located in western Pennsylvania), which is one such plant; and (3) documents relating to whether any of the Plaintiffs have either installed or considered installing pollution control equipment at other plants in which they have an interest. Defendants assert that Plaintiffs have taken the inflexible position that they will not produce (or even search for) documents relating to any power plant but Rockport Unit 2. That, say Defendants, is simply untenable; if Plaintiffs are contending, in this case, that entering into an agreement like a consent decree which requires the installation of pollution controls on a system-wide basis is not prudent practice or is a breach of a covenant to deal in good faith, it is certainly relevant to know whether Plaintiffs themselves have done so in similar situations. Additionally, to the extent that Plaintiffs assert that the installation of scrubbers on Rockport Unit 2 was not prudent or was a breach of covenant, Plaintiffs should have to explain when and how they have been involved in the installation (or proposed installation) of scrubbers on other similar facilities. *2 As to this issue, Plaintiffs assert that Defendants have simply mischaracterized the theory of recovery contained in the complaint. This case is not, Plaintiffs assert, about the advisability or propriety of entering into consent decrees generally; rather, it is about this specific consent decree, in which Defendants agreed to add a scrubber at Rockport Unit 2 in order to address environmental problems which occurred at other units in which Plaintiffs have no interest, and to pass the cost of that scrubber on to the Plaintiffs. That being so, Plaintiffs argue that what may have occurred at other facilities in which they have an interest is simply irrelevant. They provide specific information as to how two of the plants identified in Defendants' motion—Homer City and Bruce Mansfield—differ from this situation. They add that it would be very expensive and burdensome for them to search their records about this issue, and that public records would yield the same information. B. Financial Considerations The second major category of documents which are addressed by Defendants' motion relate to the Plaintiff's financial expectations arising out of the sale and lease-back of Rockport Unit 2 and other similar facilities. Defendants have characterized Plaintiffs' claims as asserting that Defendants had an obligation to maximize the value of the plant at the end of the lease term. However, if Plaintiffs were more interested in obtaining tax benefits from the transaction, and did obtain those benefits, Defendants argue that their claim of some reasonable expectation of a residual benefit as well is significantly undercut. Thus, they have asked for a number of documents which would show how closely the financial benefits obtained through this and other sale and lease-back arrangements have tracked Plaintiffs' initial projections. On this issue, Plaintiffs claim that there is simply no dispute that they have realized both the tax benefits which they expected to accompany the sale and lease-back and that they have also received the rents due under the agreement. They also assert that their financial interest in the transaction related to all portions of it, including the value of their residual interest, and that it is that value, and not any of the other financial considerations, which is the issue in this case. They also assert that, again, how these types of considerations played out in other situations is not relevant to this case. Further, having produced approximately 1,000,000 pages of documents relating just to Rockport Unit 2, they suggest that to engage in similar document production for as many as 20 other sale and lease-back transactions would be onerous. Finally, they note that tax records are generally treated as highly confidential, and that the Court should be very circumspect when considering whether to require such production. C. Search Terms The third issue raised by the motion to compel relates to the search terms used by Plaintiffs in their effort to locate responsive ESI. Defendants describe the number of these terms—six or seven for each Plaintiff—as “unfathomably small.” They consisted mainly of the names of the parties and the name of the power plant. Apparently, Plaintiffs did run some additional searches at the behest of Defendants, but that, according to Defendants, did not solve the problem. Defendants give examples of terms which were not used, such as certain abbreviations for Rockport Unit 2, the word “modification” (referring to the 2013 modification of the consent decree), and permutations of the word “scrubber.” Defendants attribute part of the problem to Plaintiffs' refusal to collaborate on the initial search terms, and also attribute the somewhat late filing of this portion of their motion to Plaintiffs' combined refusal to collaborate and their delay in producing documents. On this issue, Plaintiffs contend that the sheer volume of their document production—roughly 60,000 in number—belies any assertion that their search terms were inadequate. They note that they did run additional searches with terms suggested by Defendants, and the net result was to add 14 documents to the production set. They strongly object to any order that they run additional searches, noting that Defendants have not proposed any specific new set of search terms to be run and that it is not likely that any additional production of documents from new searches would be worth the effort. *3 In addition to these specific arguments, Plaintiffs claim that Defendants unduly delayed in bringing their motion, and that the Court should deny the bulk of it for that reason. Defendants, of course, dispute this contention as well. The Court will address each of these matters below. II. Discussion The general principles involving the proper scope of discovery are well known. The Federal Rules of Civil Procedure authorize extremely broad discovery. United States v. Leggett & Platt, Inc., 542 F.2d 655, 657 (6th Cir. 1976), cert. denied 430 U.S. 945 (1977); see also Lewis v. ACB Business Servs., Inc., 135 F.3d 389, 402 (6th Cir. 1998)(“The scope of discovery under the Federal Rules of Civil Procedure is traditionally quite broad”). Therefore, Fed.R.Civ.P. 26 is to be construed liberally in favor of allowing discovery. Dunn v. Midwestern Indemnity, 88 F.R.D. 191, 195 (S.D. Ohio 1980). However, recent amendments to Fed. R. Civ. P. 26(b)(1) highlight certain proportionality factors which the parties are to consider in making discovery requests, responses, or raising objections. See Advisory Committee Notes to December 1, 2015 amendments (“[t]his change reinforces the Rule 26(g) obligation of the parties”). Thus, under current Fed.R.Civ.P. 26(b)(1), the parties may obtain discovery regarding any non-privileged matter which is relevant to any claim or defense and proportional to the needs of the case. The proportionality analysis requires consideration of a number of factors, including the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, and the importance of the discovery in resolving the issues. Consideration must also be given to whether the burden or expense of the proposed discovery outweighs its likely benefit. Fed. R. Civ. P. 26(b)(1)'s inclusion of the proportionality factors enforces the collective obligation to consider proportionality in discovery disputes; it does not, however, permit a party to refuse discovery simply by making a boilerplate objection that the information requested is not proportional. See Advisory Committee Notes to December 1, 2015 amendments. Further, the party seeking discovery does not bear the burden of addressing all of the proportionality factors. Id. Also, despite other changes to Rule 26, it is still the case that information need not be admissible in evidence in order to be discoverable. Fed. R. Civ. P. 26(b)(1); see also Mellon v. Cooper-Jarrett, Inc., 424 F.2d 499, 500-501 (6th Cir. 1970) (noting that “[t]he scope of examination permitted under Rule 26(b) is broader than that permitted at trial”). The Court has the duty to deny discovery directed to matters not legitimately within the scope of Rule 26, and to use its broad discretionary power to protect a party from harassment or oppression which may result even from a facially appropriate discovery request. See Herbert v. Lando, 441 U.S. 153 (1979); see also Lavado v. Keohane, 992 F.2d 601 (6th Cir. 1993)(“[I]t is well established that the scope of discovery is within the sound discretion of the trial court”)(quoting Chrysler Corp. v. Fedders Corp., 643 F.2d 1229, 1240 (6th Cir.), cert. denied 454 U.S. 893 (1981)). Further, the Court has discretion to limit or even preclude discovery which meets the general standard of relevance found in Rule 26(b)(1) if the discovery is unreasonably cumulative or duplicative, can be obtained from some other source which is more convenient, less burdensome, or less expensive, or if the party seeking the information has had ample opportunity to obtain it in the action. See Fed. R. Civ. P. 26(b)(2). It is with these general principles in mind that the present discovery motion will be resolved. A. Environmental Actions at Other Facilities *4 Plaintiffs begin their opposition to producing any information about other facilities on grounds that it is not relevant. They buttress that argument with concerns about the cost of conducting such discovery and the spectre that the trial of this case will devolve into a series of “mini-trials” in which the differences between what occurred with respect to Rockport Unit 2 and other generating facilities will have to be demonstrated, and which will unduly complicate the proceedings. They then explain, in their brief, why other facilities, including Homer City and Bruce Mansfield, are different from Rockport. The Court finds each aspect of this argument to be problematic. As far as relevance (at least for discovery purposes) is concerned, Plaintiffs are pursuing the theory that Defendants' actions were not in keeping with prudent practice in the utility industry. Although expert testimony is likely to be important in establishing both what standards exist in that industry and how they apply to this case, experts must necessarily rely on examples of how other power plant owners or operators have conducted themselves. Any claim of routine practice must be based, at some basic level, on “a sufficient number of specific instances of conduct to support th[e] inference” that the practice is indeed routine or customary. See Mobil Exploration and Producing U.S., Inc. v. Cajun Const. Services, Inc., 45 F.3d 96 (5th Cir. 1995). It may well be that Plaintiff's expert will not rely on any evidence about other plants in which Plaintiffs' have an interest, but that does not mean that those plants—some of which have concededly been retrofitted with pollution control devices or subject to consent decrees—are not appropriate counter-examples which can be used to rebut such expert testimony. The fact that Plaintiffs have revealed certain facts about these plants in making their arguments about why these plants are different shows that this is a factual issue, and Defendants should not be forced to rely on Plaintiffs' selective disclosure of the facts in determining whether the similarities or differences are the more important. There is at least arguable relevance to some of the information which Defendants seek. Additionally, the concern that allowing such discovery will spawn a number of “mini-trials” and unduly complicate the case is ordinarily an argument relating to admissibility of evidence at trial and not to the discoverability of such evidence. That is a factor to be considered in a Rule 403 analysis, but no such analysis can be done without the information first having been discovered. Just because the trial judge might exclude some or all of the evidence under Rule 403, the Court should not also prevent some amount of discovery from going forward. See Levick v. Maimonides Medical Center, 2011 WL 1673782, *3 (E.D.N.Y. May 3, 2011)(“While Rule[ ] 403 ... may limit the admissibility of the [evidence] at trial, this does not determine its discoverability”). Further, Rule 403 presumes that the information at issue is relevant, and sets forth other reasons to justify its exclusion; it is entitled “Excluding Relevant Evidence for Prejudice, Confusion, Waste of Time, or Other Reasons.” The much larger issue here is proportionality. Some of what Defendants have asked for—for example, a document or documents indicating the names and locations of other power plants in which Plaintiffs have an interest—can probably be supplied in what Defendants describe as a “simple spreadsheet.” See Doc. 159, at 11. On the other hand, Plaintiffs have credibly demonstrated that if they were required to produce as much documentation about all of those other projects as they have about Rockport Unit 2, the task will be herculean, and the benefit would clearly be outweighed by the cost and expense of the document production. There is a need to find a middle ground, and also to recognize that this type of discovery might have to proceed in stages. *5 At the outset, the Court agrees that Defendants should be able to learn the names and locations of other power plants in which any of the Plaintiffs have an interest similar to their interest in Rockport Unit 2. Next, Defendants are entitled to some basic information about those plants, including whether any of them are subject to consent decrees concerning pollution control devices, or whether, even absent a consent decree, the operator has installed such devices to address environmental issues either at that plant or at other plants which are under common ownership or operation. If those types of events have occurred, Defendants are also entitled to know at least the basic details, such as why and when those actions took place and what they consisted of, as well as any documents indicating that any of the Plaintiffs have expressed concern about how those actions affected the residual value of the plant. It seems to the Court that since these would be fairly major actions, it ought not to be too difficult to locate and produce a basic set of documents which provide most if not all of this information. What the Court does not envision, however, is the type of comprehensive search for any and all documents which might relate in some way to these types of actions. Were these plants also the subject of this case, that type of search might be necessary, but they are not, and a much more limited scope of discovery is therefore appropriate to insure that the cost does not outweigh the benefit. Once the basic information is provided, should Defendants have narrowly targeted follow-up inquiries, that is a matter about which the parties can negotiate, but there is insufficient justification to require Plaintiffs to follow the standard routine of identifying all potential custodians, crafting key word searches, and sorting through mounds of documents which may add little or nothing to the basic information which illustrates similarities or dissimilarities between what happened at Rockport Unit 2 and at other facilities. However, to the extent described in this portion of this Opinion and Order, Defendants' motion to compel will be granted. B. Financial Considerations Despite Defendants' assertion that the value of Plaintiffs' residual interest in Rockport Unit 2 cannot be disconnected from Plaintiffs' overall financial expectations when the sale and lease-back agreement was executed, the Court fails to see the relevance of information about the other financial aspects either of this particular agreement or other similar agreements involving other power generating facilities. In the First Amended Complaint, Plaintiffs allege that the expected useful life of Rockport Unit 2 is 45-60 years, and that the term of the lease (33 years) created a significant residual value for Plaintiffs. They assert that by including Rockport Unit 2 among the power plants which, under the consent decree, would be retrofitted with pollution control devices despite the fact that Rockport Unit 2 was not the target of the environmental suit filed by the USEPA, Defendants impaired the residual value of the lease. That is true, according to Plaintiffs, because Defendants themselves will not be paying for the installation of the scrubbers (which have an estimated cost of $1.4 billion), and because if the scrubbers are not installed, Plaintiffs will have to shut down the plant well before the expiration of its useful life. Although the complaint alleges, generally, that “[t]he commercial attractiveness of the sale/leaseback arrangement to the Owner Participants arose from several sources, including the rent payments during the Basic Lease Term, certain tax benefits related to the ownership of the leased property, accounting treatment accorded such leases, and the residual value of Rockport 2 during the period after the end of the Basic Lease Term,” see Doc. 121, ¶ 19, it does not allege that Defendants impaired any of these economic benefits other than the residual value of the plant. The references to “the reasonable expectations for which each Trust bargained in the Transaction Documents” in Count III, which pleads a claim for breach of the covenant of good faith and fair dealing, cannot simply be read in isolation from the rest of the complaint, and does not create an issue about the remainder of the Plaintiffs' economic incentives to sign the agreement. *6 Plaintiffs assert in their opposing brief that they “have acknowledged that they have to date received the tax benefits they anticipated and that Defendants have paid rent as promised.” Doc. 177, at 7. If the complaint is not sufficiently clear on this point, that statement makes it so. Defendants argue that they should not be forced to take Plaintiffs at their word on this point, but, in the Court's view, as long as Plaintiffs are not seeking recovery of damages on these matters, it makes no difference in the case whether Plaintiffs are or are not satisfied with these other economic benefits of the transaction. Further, Defendants' theory seems to be that if Plaintiffs actually derived the tax benefits and rents they anticipated, they got what they wanted out of the deal, and that Plaintiffs should have to produce documents showing they received those benefits so Defendants can prove that fact. But the fact Defendants wish to prove is, in the Court's view, not relevant, and even if it were, Plaintiffs do not dispute Defendants' version of it. Simply put, this case is about the value of the residual interest, and, more specifically, whether Defendants' actions impaired that value in a way that breached some legal duty they owed to the Plaintiffs. The resolution of that question depends neither factually nor legally on what other types of benefits Plaintiffs expected to receive from the transaction or whether they received them. The Court will therefore deny the motion to compel as it relates to this type of information for either Rockport Unit 2 or other similar investments made by any of the Plaintiffs. C. Search Terms On this issue, the parties differ significantly as to the significance of the volume of Plaintiffs' document production. Plaintiffs, comparing it to the number of documents which Defendants have produced, say that it is evidence that the terms they used were more than sufficient. Defendants contend that the actual number of documents produced is relatively small, especially for some of the Plaintiffs, and that the issue of whether search terms are appropriate is not really an after-the-fact inquiry but one related to the logical relationship of the actual or proposed terms to the issues in the case. Using that standard, they argue that the small number of terms searched is clearly inadequate. Search terms are not an end in themselves, but merely a means by which potentially responsive documents are located. The test of the adequacy of any set of search terms must necessarily be the effectiveness of those terms in identifying responsive documents and allowing the producing party, after doing appropriate screening, to present to the requesting party a set of documents which are both responsive and relatively complete. When documents of a certain type, or pertaining to certain subjects, cannot be found in the production set, that may give rise to a suspicion that the search protocol did not accomplish its goal, but “a party's suspicion that all responsive documents have not been produced, without more, is generally insufficient to warrant an order compelling production.” Swanson v. ALZA Corporation, 2013 WL 5538908, *4 (N.D. Cal. Oct. 7, 2013). Nevertheless, the record should reflect “that a thorough and reliable search was conducted.” New Orleans Regional Physician Hospital Organization, Inc. v. United States, 122 Fed.Cl. 807, 818 (Fed. Cl. 2015). Certainly, it would have been better had the parties addressed this issue early on, and agreed either to a list of search terms or agreed that once Plaintiffs ran their list, some additional sampling would be done using additional terms suggested by Defendants. It appears some additional terms were run, with Plaintiffs asserting that very few new and responsive documents were uncovered. On balance, given the current record, it does appear to the Court that Plaintiffs retrieved and produced a very substantial number of documents using their terms, and Defendants have not, despite being in possession of these documents for some time, concretely identified any specific deficiencies in the document production. They have not argued that there is any issue in the case about which they will be unable to conduct adequate additional discovery unless they get more documents (with the exception of the categories of documents which are the subject of the remainder of this Opinion and Order). The Court is left to speculate whether, even if it ordered Plaintiffs to craft new terms (and it is unclear what those would be) and to do a new search, anything of value would be produced. Absent more solid evidence that Plaintiffs have failed to produce either a reasonable number of documents, or documents which fairly respond to Defendants' requests, the Court finds no basis on which to direct Plaintiffs to re-search the records they have already searched using any additional set of search terms. III. Conclusion *7 For the reasons stated in this Opinion and Order, Defendants' motion to compel (Doc. 159) is granted in part and denied in part as set forth above. Plaintiffs are directed to comply with the Court's directives concerning information about other power plants and to produce any additional documents within thirty days. IV. Motion to Reconsider Any party may, within fourteen days after this Order is filed, file and serve on the opposing party a motion for reconsideration by a District Judge. 28 U.S.C. § 636(b)(1)(A), Rule 72(a), Fed. R. Civ. P.; Eastern Division Order No. 14-01, pt. IV(C)(3)(a). The motion must specifically designate the order or part in question and the basis for any objection. Responses to objections are due fourteen days after objections are filed and replies by the objecting party are due seven days thereafter. The District Judge, upon consideration of the motion, shall set aside any part of this Order found to be clearly erroneous or contrary to law. This order is in full force and effect even if a motion for reconsideration has been filed unless it is stayed by either the Magistrate Judge or District Judge. S.D. Ohio L.R. 72.3.