eDisovery costs are a debatable topic: Just how much is your firm responsible for?
Did you know that at least one US Court of Appeals’ opinion has cast doubt on a prevailing party’s ability to be reimbursed for costs incurred in engaging in “eDiscovery?”
If you represent any party that needs to conduct or respond to eDiscovery requests, consider the following:
In 2011, court cases from across the country illustrated an emerging trend where prevailing parties were awarded reimbursement of eDiscovery costs. An example of this “emerging trend” can be found in the opinion of the United States District Court for the Western District of Pennsylvania in Race Tires Amer., Inc. v. Hoosier Racing Tire, Corp., No. 2:07-CV-1294, 2011 WL 1748620 (W.D. Pa. May 6, 2011).
In that opinion, Judge Terrence F. McVerry ruled that the winning defendants in an antitrust case were entitled to reimbursement of more than $367,000 in eDiscovery costs. This award was based on the defendant’s eDiscovery efforts, which included copying nearly 500 GB of data in response to over 400 search terms and the creation of a litigation database.
In reaching his decision, Judge McVerry relied on the fact that Congress, in the Judicial Administration and Technical Amendments Act of 2008, modified the wording of Section 1920(4), changing the phrase “fees for exemplifications and copies of papers” to read “fees for exemplification and the costs of making copies of any materials.”
Judge McVerry stated that, since that amendment, “no court has categorically excluded eDiscovery costs from allowable costs.” As you would expect, the plaintiffs appealed the District Court’s ruling to the Third Circuit Court of Appeals, which released its opinion on March 16, 2012.
The Third Circuit’s opinion casts doubt on the ability of parties to recover eDiscovery costs in future cases. The Third Circuit – including the Hon. Thomas I. Vanaskie, one of the leading judicial authorities in eDiscovery – held that only an “isolated portion” of a party’s eDiscovery costs was recoverable should that party prevail in the litigation. The Third Circuit significantly reduced the amount that the corporate defendant could recover and stated the following:
The decisions that allow taxation of all, or essentially all, electronic discovery consultant charges, such as the District Court’s ruling in this case, are untethered from the statutory mooring. Section 1920(4) does not state that all steps that lead up to the production of copies of materials are taxable. It does not authorize taxation merely because today’s technology requires technical expertise not ordinarily possessed by the typical legal professional. It does not say that activities that encourage cost savings may be taxed.
In its conclusion, the Third Circuit held that “(w)e conclude 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 that the costs attributable to only those activities are recoverable under § 1920(4)’s allowance for the costs of making copies of any materials.”
The Third Circuit also stated that the recoverable costs should equal the difference between the electronic discovery vendors’ charges awarded by the District Court and the charges of the defendant’s electronic discovery vendors that they found to be taxable. This amounted to almost a 90 percent reduction in what the prevailing party could recover to recoup its eDiscovery expenses in that particular case.
In summary, the Third Circuit’s Race Tires decision has significantly slowed the momentum toward broad-based shifting of eDiscovery costs for prevailing parties pursuant to 28 U.S.C. §1920(4), certainly within the Third Circuit.
However, unless and until the Supreme Court provides guidance on this issue, the option to seek such costs in other jurisdictions remains viable.
Regardless of the jurisdiction, prevailing parties should always at least seek reimbursement of copying expenses, including conversion, scanning and other duplication-related costs, for both paper and electronic materials, and ensure that to accomplish this, their vendors clearly document the costs involved in those activities from the outset of their involvement in the case.
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