The Franchise Memorandum

In Sound Security, Inc. v. Sonitrol Corp., 2009 WL 1835653 (W.D. Wash. June 26, 2009), franchisor Sonitrol served nonparty discovery requests on the Sonitrol National Dealers Association (“SNDA”), an association of Sonitrol franchisees. SNDA moved the court for an order shifting the costs of complying with those discovery requests to Sonitrol, arguing that as a nonparty to the litigation, it should not be required to bear the cost of responding. The court denied that motion and ordered SNDA to bear its own costs and attorneys’ fees.

The court found that Sonitrol’s discovery requests were reasonable and not excessive, and noted Sonitrol’s efforts to reduce the cost of complying with them. The court also found that SNDA had its own interest in the outcome of the litigation as the association for Sonitrol franchisees, and held that a nonparty to litigation cannot shift its discovery costs if it has a substantial interest in the outcome of the case. SNDA’s interest was shown by its willingness to expend tens of thousands of dollars in attorneys’ fees in responding to discovery requests directed to the franchisee, not to SNDA itself.

This case illustrates the high degree of federal district courts’ discretionary control over the allocation of discovery costs.  Under Federal Rule of Civil Procedure 45(c)(2)(B)(ii), a court order compelling production or inspection “must protect a person who is neither a party nor a party’s officer from significant expense resulting from compliance.” Although the court acknowledged that the expenses for which SNDA sought reimbursement, including fees, were “significant” (more than $86,000), it applied equitable factors and left SNDA to bear those expenses itself, requiring Sonitrol to reimburse only SNDA’s copying and mailing costs, as it had volunteered to do.