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The e-discovery costs winners can recover

Courts have differing opinions of what exactly is recoverable

The high cost of electronic discovery has triggered intense efforts at reducing that cost through technological means, such as computer-assisted document review. In addition, there is a substantial body of case law involving attempts to shift the costs of e-discovery to the requesting party where production would be “unduly burdensome.” Most recently, a new front has been opened that holds potential promise for prevailing parties who seek to recover costs.

Under 28 U.S.C. §1920(4), prevailing parties have always been able to recover “fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” Enterprising prevailing parties have argued that e-discovery costs are the modern equivalent of photocopying and other similar costs covered by the statute, and some courts have agreed. However, courts have been inconsistent in their rulings on the types of costs that can be recovered as exemplified in several recent cases.

In CBT Flint Partners LLC v. Return Path, Inc., the court held that e-discovery vendor services are “highly technical” and thus the costs associated with converting documents to electronic form for purposes of production were recoverable, noting that those activities represented the “21st Century equivalent of making copies.” Courts have largely agreed that the costs associated with simply converting paper documents to electronic form are a form of copying or “exemplification” recoverable under the statute.

Certain courts have interpreted the statute even more broadly, allowing for significant recoveries of e-discovery costs. In Lockheed Martin Idaho Techns. Co. v. Lockheed Martin Advanced Environmental Systems, Inc., the court awarded $4.6 million to the prevailing party under §1920(4), including for the creation of a litigation database. Other courts have permitted the recovery of costs associated with keyword searches and even equipment rental for data processing. While many of these costs do not appear to fall literally under the traditionally understood meaning of copying or exemplification, some courts have exercised their discretionary power to permit the recovery of such costs.

Conversely, in Race Tires Am., Inc. v. Hoosier Racing Tire Corp,  the 3rd Circuit significantly narrowed the scope of recoverable costs under §1920(4). The district court had awarded $125,580.55 to one defendant and $246,101.41 to another defendant in e-discovery costs, including vendor costs for imaging and processing data. Vacating the lower court decision, the 3rd Circuit reduced the recoverable sum by more than 90 percent, finding that the majority of tasks were not “copying” or “exemplification” as required by the statute. The court concluded that “of the numerous services the vendor 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.’”

Although the 3rd Circuit’s Race Tires decision has been widely discussed, it has not been universally followed by other courts. In In re Online DVD Rental Antitrust Litig., the court “took note of the Third Circuit’s well-reasoned opinion in [Race Tires],” but held that, in the absence of directly analogous 9th Circuit authority, it was more appropriate to interpret 1920(4) broadly to permit recovery of a wide variety of e-discovery costs.

Courts have addressed several other e-discovery costs under §1920, but with inconsistent results, including for costs associated with electronic bates stamping, data hosting, and general vendor and consultant fees.

If broadly construed e-discovery costs are considered recoverable to prevailing parties under taxation of costs statutes, our legal system could start to look a lot more like the “loser pays” system of civil law countries. The vast sums spent on e-discovery by large business enterprises make it a risky venture for plaintiffs to embark on litigation involving significant e-discovery for their adversaries. If the case is lost and the losing party has to foot the bill for the opposing party’s e-discovery costs, the economic results could far surpass the funds lost in the kind of ongoing financing of the case to which plaintiffs lawyers are accustomed.

Contributing Author

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Adam Cohen

Adam Cohen is a Principal with Ernst & Young LLP.  He is the co-author of the annually updated legal treatise “Electronic Discovery:  Law and Practice”,...

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