The law governing the recovery of costs in litigation, 28 U.S.C. § 1920(4), permits a prevailing party 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.” Drafted before the era of e-discovery, this section has served as the catalyst for a long-standing debate over what e-discovery expenditures are properly taxable.
Although a list of recoverable and non-recoverable e-discovery costs would be the simplest way to offer prevailing litigants guidance on making a request to the court under Section 1920(4), such a black-and-white endeavor has proved impossible under the current judicial framework. Various courts disagree—and some have even flip-flopped—over the proper scope of the law and which costs are recoverable.
A spectrum of e-discovery costs have been considered under the applicable statute, including:
• Leveraging the expertise of an e-discovery vendor. Courts have overwhelmingly approved taxation where a party seeks to recover certain costs associated with hiring a third party to assist with document production tasks. Which tasks are taxable is the issue that remains unsettled.
• E-discovery activities analogous to copying. Numerous courts have permitted recovery for the costs of copying and scanning hard copy documents, converting native files to TIFF, and transferring VHS tapes to DVD. In Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012), the Third Circuit vacated the district court’s broad reading of Section 1920(4) yet upheld the recovery of costs for “copying” services performed by e-discovery vendors. That said, at least one decision prohibits recovery for any costs that “involved more than merely converting a paper version into an electronic document.” Francisco v. Verizon South, Inc., 272 F.R.D. 436, 446 (E.D. Va. 2011).
• E-discovery tasks essential to document production. Various courts have allowed recovery where they found e-discovery expenditures were for activities integral to advancing litigation. For example:
- The Eastern District of Pennsylvania awarded the defendants approximately $500,000 in In re Aspartame Antitrust Litigation, 817 F. Supp. 2d 608 (E.D. Pa. 2011), for constructing a litigation database, imaging hard drives, performing keyword searches, deduplicating documents and extracting data.
- In Hank’s Beverage Co. v. Ajinomoto Co., No. 06-cv-1732, 2011 U.S. Dist. LEXIS 119917 (E.D. Pa. July 26, 2011), the court permitted recovery of $560,000 for processing native files, restoring backup tape files, hosting and storing documents in electronic databases, scanning hard-copy documents, deduplicating documents and filtering documents.
In contrast, other courts have limited recovery under a narrower interpretation of Section 1920(4). For example:
- Noting that “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,” said the Third Circuit in Race Tires America, disallowing the taxation of collecting, preserving, processing, indexing, and applying keyword searches to electronically stored information (ESI).
- Likewise, the court in Fast Memory Erase, LLC v. Spansion, Inc., No. 3-10-CV-0481-M-BD, 2010 U.S. Dist. LEXIS 132025 (N.D. Tex. Nov. 10, 2010), refused to permit recovery for costs relating to ESI collection, extraction, and storage.
The U.S. Supreme Court declined to weigh in on this controversial issue, denying the Race Tires defendants’ petition for appeal on October 1, 2012, so this area of law to remains unsettled for now.
Conduent frequently assists clients preparing taxation motions and has a solid understanding of the showing that should be made to maximize a litigant’s likelihood of success.