The District Court
In the original case, the District Court (U.S. District Court for the Western District of Pennsylvania) had granted the summary judgment motions of the defense. The Clerk then considered the Bill of Costs that was submitted by the defendants and concluded the “electronic Discovery costs would be consider[ed] taxable, as opposed to just…..the cost of litigating”. The Plaintiff immediately filed a Motion to Appoint an EDiscovery Special Master to review the taxation of costs. The District Court refused to appoint a Special Master and subsequently affirmed the Clerk’s taxation of the vendor charges during EDiscovery. The courts decision “essentially found that the steps of the third-party vendors performed appeared to be the electronic equivalent of exemplification and copying.” The Plaintiff immediately appealed the decision
The Question on Appeal
The question considered by the Third Circuit was 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.’” The argument forced an analysis of what types of expenses may be taxed, based on statutory language.
The Third Circuit
On appeal, Race Tires Amer., Inc. v. Hoosier Racing Tire, Corp., --- F.3d ---, 2012 WL 887593 (3d Cir. Mar. 16, 2012) the Third Circuit vacated the District Court’s approval of taxable costs incurred during electronic discovery and remanded to the lower court with the instruction that they should re-tax in accordance with the new opinion. The court concluded that none of the 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 based its decision on a review of the original language of § 1920(4), as well as a study of the related history surrounding the implementation of the section by Congress. According to the court’s analysis, there was no indication that Congress intended to shift all the expenses of ESI discovery to the losing party. Additionally, there was no support in Supreme Court interpretation which had always viewed the cost statutes very narrowly. The Court however, did acknowledge that there might be strong policy reasons or equitable circumstances in particular cases to award the full costs of EDiscovery to the prevailing party, but concluded that the federal courts lack that type of authority under the current statutes.
The court concluded that none of the EDiscovery charges imposed by the plaintiff’s vendor are taxable and reduced the award in favor of defendant Hoosier from $125,580.55 to $30,370.42
The Takeaway
Cost-shifting may be achieved during the course of litigation, either by agreement or pursuant to court order issued under the authority of Fed.R.Civ.P. 26. After litigation, cost-shifting may be ordered as a sanction for conduct that reflects bad faith on the part of parties. But until the issue surrounding EDiscovery costs is addressed on a statutory level by Congress, attorneys should not count on any major recovery of EDiscovery costs.
With the chances of recovering all ESI costs unlikely, attorneys should continue work closely (and cooperatively) with opposing counsel to produce documents in the most cost-effective manner possible; using the best technology and human review possible to produce the least amount of documents in the most cost effective manner. Partnering with experienced litigation support companies who can advise clients on the best and most cost effective way to produce documents is one way to help control these costs before the are incurred.
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