Given the ever expanding presence, methods and costs of e-discovery in litigation today, it is imperative that inside and outside counsel consider and be informed as to whether these costs will ultimately be recoverable under 28 U.S.C. § 1920 (Section 1920) and whether there are other means available prior to and during litigation to address potential cost shifting or cost recovery associated with e-discovery.
Section 1920 generally governs the taxation of costs by a prevailing party against the losing party under Federal Rule of Civil Procedure 54(d)(1). Specifically, subsection four permits the clerk or court to tax as costs “[f]ees for exemplification and costs of making copies of any materials where the copies are necessarily for use in the case.” However, the scope of what constitutes “exemplification and costs of making copies” in the context of electronic discovery is unclear and courts are divided as to the extent which Section 1920(4) allows a prevailing party to recover all of its costs for a vendor retrieving, organizing and producing electronic stored information (ESI) from its opponent. The analysis is often case specific and dependent on the district court’s interpretation of the statute.
In a recent case, Race Tires America, Inc. v. Hoosier Racing Tire Corp., the 3rd Circuit Court of Appeal considered whether Section 1920(4) authorized the district court to tax an e-discovery vendor’s charges for data collection, preservation, searching, culling, conversion and production as exemplification or the cost of making copies. In construing the statute narrowly, the 3rd Circuit concluded that only the vendor’s conversion of native files to TIFF format and the scanning of documents to create digital duplicates would constitute “making copies” and that none of the vendor’s activities would qualify as “exemplification.” Accordingly, the appellate court held that the prevailing party was entitled only to a small fraction of the hundreds of thousands of dollars it spent on e-discovery charges. On the other hand, a district court in the Southern District of California awarded prevailing party costs under Section 1920 not only for converting electronic data to a TIFF format, but also costs paid to e-discovery technicians for the physical production of data. Jardin v. DATAllegro, Inc.
Given this divide, counsel should consider ways to guard against the uncertainly of the district court’s interpretation of Section 1920(4). One method may be for inside counsel to include language in the company’s contract(s) that provides an entitlement to recover all expenses and costs incurred as a prevailing party. For example, in Tampa Bay Water v. HDR Engineering, Inc., the district court awarded $3.1 million in e-discovery costs for the collection, storage, formatting, coding and organization of ESI. The district court recognized that such costs may not normally not taxable under Section 1920(4), but were fully recoverable that case pursuant to the parties’ contract. Another way to potentially address this situation could be for all parties, at the beginning of discovery or the case, to agree to cost sharing or cost shifting related to e-discovery. For example, in In re Ricoh Co. Patent Litigation, the appellate court reversed the district court’s award of prevailing party costs for a third-party electronic database service (which provided secure processing, review, production and hosting services), as the parties had agreed to share equally the costs of this service.
Because this jurisprudence is continually evolving, counsel should remain informed so that they can appropriately advise their client prior to incurring electronic discovery costs.