Taxation of EDiscovery Costs is Clearly Not Settled Law

The Past Ruling
On 5/7 (see post) , I wrote about the Third Circuits ruling in Race Tires Amer., Inc. v. Hoosier Racing Tire, Corp., --- F.3d ---, 2012 WL 887593 (3d Cir. Mar. 16, 2012 in which the court vacated the lower court’s approval of taxable costs incurred during electronic discovery.  The court concluded that none of the relevant vendors’ charges “would not qualify as fees for ‘exemplification’” and that “of the numerous services the vendors performed, only the scanning of hard copy documents, the conversion of native files to TIFF, and the transfer of VHS tapes to DVD involved ‘copying’” and were thus recoverable.

The court focused on whether 28 U.S.C. § 1920(4) “authorizes the taxation of an electronic discovery consultant’s charges for data collection, preservation, searching, culling, conversion, and production as either ‘exemplification [or] the . . . making [of] copies of any materials where the copies are necessarily obtained for use in this case.’”  This led many to believe that taxation would not be generally allowed until the Federal Rules were specifically modified to include EDiscovery costs.

The Current Ruling
Within a week of the Third Circuits ruling, a Northern District Court in California declined to follow Race Tires, and allowed some taxation of EDiscovery costs in,  In re Online DVD Rental Antitrust Litig., No. M 09-2029 PJH, 2012 WL 1414111 (N.D. Cal. Apr. 20, 2012).  The plaintiffs moved for review of the clerk’s taxation of costs, including those that were related to electronic discovery. Despite the Third Circuits recent narrow interpretation of 28 U.S.C. § 1920(4), the court granted the motion in part and denied in part the plaintiffs motion, refusing to disallow the costs related to electronic discovery in this case. 

While the order is rather short and easily read, I am supplying the two key paragraphs that outline the courts decision regarding why the costs were granted:

’Title 28 U.S.C. § 1920 authorizes a judge or clerk of the district court to tax costs. Pursuant to Federal Rule of Civil Procedure 54(d), costs (other than attorney’s fees) should be awarded to a prevailing party unless a statute, rule, or court order provides otherwise. Fed.R.Civ.P. 54(d)(1). “Rule 54(d) creates a presumption in favor of awarding costs to prevailing parties, and it is incumbent upon the losing party to demonstrate why the costs should not be awarded.” Stanley v. University of So. Cal., 178 F.3d 1069, 1079 (9th Cir.1999). The reasons offered by plaintiffs in support of their request to vacate the entire amount of costs taxed in favor of Netflix are not sufficient to overcome the presumption in favor of awarding costs. Therefore, plaintiffs’ request that the court deny any award of costs to Netflix is DENIED.”

Based on that interpretation the court then wrote:

“The court declines to disallow remaining costs on the grounds argued by plaintiffs (e.g., TiFF conversion costs; copying/”blowback” costs purportedly not documented; document productions purportedly not delivered; professional fees re visual aids).  Furthermore, although the court takes note of the Third Circuit's well-reasoned opinion in Race Tires Am., Inc. v. Hoosier Racing Tire Crop., ––– F.3d ––––, 2012 WL 887593 (3d Cir. Mar.16, 2012), the court concludes that in the absence of directly analogous Ninth Circuit authority, and in view of the court's prior order in connection with the Blockbuster subscriber plaintiffs' motion for review of the clerk's taxation of costs, broad construction of section 1920 with respect to electronic discovery production costs—under the facts of this case—is appropriate.  See also Taniguchi v. Kan Pacific Saipan, Ltd., 633 F.3d 1218, 1221 (9th Cir.2011) (although the court is restricted in awarding costs to the categories enumerated in § 1920, “[d]istrict courts are free to interpret the meaning of the cast of categories listed within § 1920”).”

The Courts Conclusion
Following adjustments to the clerk's original award, the court disallowed costs of $27,644.50; the total award to Netflix was adjusted from $737,838.79 to the amount of $710,194.23.   However the court then stayed the payment of this award until the conclusion and final resolution of any appeals related to this action.

The Takeaway

Clearly this is an area of law that is in a state of flux, with decisions on both sides of the issue.  It is not likely to be fully resolved until either the statutory language is addressed by Congress, or a case is accepted by the US Supreme Court for hearing.  In the meantime, recovery of these expenses is tenuous at best, and the most prudent court of action is for parties to control the costs of EDiscovery by relying on the concepts of “reasonableness” and “cooperation” between the parties, which is a hard road for many attorneys to follow.

2012 WL 1414111
Only the Westlaw citation is currently available

Comments

[T]

It is notable that in the Netflix case, Netflix had previously been award over $700,000 in costs in the same litigation against one group of plaintiffs. So in total, Netflix was awarded over $1.4 million in costs by the Court for this case.