As electronic discovery costs continue to grow and the complexity of litigation increases, lawyers and corporations need to pay closer attention to the document requests that they make during the discovery process. Why? Because ever since Race Tires II awarded EDiscovery costs in favor of the prevailing party, there has been an increase in the number of cases that award these types of expenses. Therefore, expected EDiscovery costs should be added to the list of things to consider before filing a case, and strong consideration should given to the methods utilized to capture and review the data.
Focusing on crafting a reasonable discovery request and then employing the most cost effective method to analyze and control the data are key to guarding against a large bill should you lose your case. In addition, cost shifting can be prevented if the parties participate in a jointly developed review process with shared expenses. Given the sophistication of software today, it is quite easy to put up confidential walls between data in the same system.
Courts in California and Pennsylvania have recently found that the prevailing party can recovery EDiscovery costs under FRCP 54. How the court interprets 28 U.S.C. § 1920(4), with key language that states, “fees for exemplification and the cost of making copies of any materials where the copies are necessarily obtained for use in the case” is the determining factor. Recently this language has been interpreted to mean that electronic discovery costs that are related to the duplication and production of data are in fact recoverable.
Three recent cases are summarized briefly below to show the results of this recent trend. To obtain the details, you should read the full rulings. My focus is on awareness and options to help you avoid these types of situations moving forward.
In Jardin v. DATAllegro, Inc., argued in the U.S. District Court for the Southern District of California, the court granted the defendants summary judgment on non-infringement and dismissed their counterclaims. Judgment was entered and included electronic discovery costs as valid taxed costs against the plaintiff, based on Rule 54 (d) which creates a presumption in favor of awarding costs to the prevailing party. .
The court focused on two types of EDiscovery costs in its ruling: (1) costs that were associated with converting electronic data into a TIFF file format and (2) costs associated with electronic discovery project management. The court found that the costs to convert data “was a necessary part of discovery” in this case because the FRCP require the production of electronically stored information in a format that is useful. Conversion to Tiff format allowed for better document control during the discovery process (numbering, metadata, etc). The basis for the rule is that it is now often necessary to have electronic information to have any meaningful discovery. Regarding project management, the court parsed out the expense needed to prepare and produce documents vs. the lawyers’ judgment developing strategy in review of documents. Since the project managers duties were limited to overseeing data conversion, his costs were allowed.
In Tibble v. Edison Internation, The U.S. District Court for the Central District of California also awarded electronic discovery costs. Edison prevailed on 11 claims while the plaintiffs prevailed on one part of an ERISA claim. While both parties sought an award of costs as the prevailing party, the court determined that the Edison "prevailed in the substantial part of the litigation."
The defendants' submitted for approximately $530,000 in electronic discovery, specifically requesting that the costs for "utilizing the expertise of computer technicians" to unearth computerized data sought by the plaintiffs' discovery requests. The opinion differentiated between costs incurred "merely for the convenience of counsel" and those "necessarily incurred in responding to . . . discovery requests." The court ruled that the costs necessarily incurred were in fact taxable. While ultimately, the court declined to award attorney's fees, rendering the defendants' request for taxation of costs moot; effectively the court granted the request for taxation of costs as an offset up to the amount of any attorney fee award.
In re Aspartame Antitrust Litigation, the U.S. District Court for the Eastern District of Pennsylvania upheld the taxation of most of the $575,000 in electronic discovery costs that had been awarded by the Clerk against the losing plaintiff’s. The basis for the ruling was that costs incurred, other than attorneys’ fees, have a “heavy presumption” of being automatically taxed and awarded to the prevailing party according to legislative history. This presumption forces the non-prevailing party to bear the burden of demonstrating the opposite, that costs should not be awarded. The plaintiffs claimed: an inability to pay, the lawsuit was brought in good faith, that the costs sought were not sufficiently explained, and that the costs were incurred as a result of the defendants' bad faith. The Clerk did not find these arguments persuasive and dismissed them.
The court upheld the majority of clerk's award, noting that "in cases of this complexity, electronic discovery saves costs overall by allowing discovery to be conducted in an efficient and cost-effective manner." Allowable costs included: the creation of a litigation database, storage of data, imaging of hard drives, keyword searches, privilege screen searches, deduplication, data recovery, data extraction, data processing, running documents through an optical character recognition (OCR) program, creating load files, creating production CDs and DVDs, and the technical support required to complete these tasks. This is a formidable list of allowable costs. The court reduced the costs submitted for scanning documents since there was no valid reason that all documents needed to be scanned in color. The court denied the costs for the use of clustering software, for converting documents from TIFF into PDF format, finding such costs were incurred for solely for the convenience of counsel,, since the parties had agreed to production in TIFF, PDF, or native format, document branding and Bates labeling. This case lays out a fairly comprehensive list of what the courts are beginning to delineate as reasonable recoverable costs.
Some Preliminary Conclusions
• Since there is a strong presumption in favor of awarding costs to the prevailing party, and argument to refute those costs must be extremely strong and well documented.
• All parties engaged in litigation should be prepared to pay an opponent’s EDiscovery costs (at least a substantial portion), if you receive a negative ruling.
• Attorneys and clients need to include an estimate of these costs during their Early Case Assessment meetings where discussions focus on the costs and benefits of litigating a claim.
• Discovery requests should be crafted conservatively, with a focus on the key information needed, rather than broad-based data gathering.
• Whenever possible, negotiated a joint EDiscovery plan that limits the data gathered by:
o restricting custodians
o shortening time frames
o developing joint search term lists
o developing data filtering and sampling parameters.
• If a cost sharing agreement is reached, make sure that it is detailed and that both sides understand the commitments made under the agreement. If there is a possibility a party may seek costs for a shared hosted review database, a clause should be put into the agreement about cost-shifting for a prevailing party. The time to raise this issue is during a Rule 26(f) meet and confer meeting, not after the litigation ahs concluded.. As always, the devil is in the details and if it is not written down, it is highly unlikely that it will be remembered the same way by opposing parties.
• Perhaps most importantly, counsel needs to keep accurate records on the costs involved in each step of the EDiscovery process. When and if the Court requests details on your costs, you need to be prepared to provide them.
Comments