The Lawletter Vol 37 No 2
Federal courts have begun addressing the issue of whether costs incurred in producing electronically stored information ("ESI") in discovery may be taxed to the losing party. In general, Federal Rule of Civil Procedure 54 provides that costs, other than attorney's fees, "should be allowed to the prevailing party." Fed. R. Civ. P. 54(d)(1). However, Congress has specified the litigation expenses that qualify as taxable "costs." In particular, 28 U.S.C. § 1920 provides that a court may tax as costs, among other things, "[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case[.]" 28 U.S.C. § 1920(4).
In Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012), the defendants paid more than $365,000 to electronic discovery vendors for their assistance in various tasks, including (1) preserving and collecting ESI; (2) processing the collected ESI; (3) keyword searching; (4) culling privileged material; (5) scanning and conversion to TIFF format (the agreed-upon default format for production of ESI); (6) optical character recognition conversion; and (7) conversion of videotapes from VHS format to DVD format. After granting summary judgment to the defendants, the district court concluded that all of the costs were taxable to the plaintiff. On appeal, the Third Circuit reversed most of the award, concluding that only the cost of performing those tasks that constituted "fees for exemplification and the costs of making copies" could be taxed to the losing party. While none of the costs qualified as "exemplification"—fees incurred in producing exhibits—the costs of converting native files to TIFF and scanning documents to create digital duplicates were the electronic equivalent of fees for "making copies of material," as were the expenses incurred in transferring VHS recordings to DVD format. Notably, those fees amounted to only a little over $30,000, thereby reducing the award of costs by more than 90% of what had been granted by the district court. The remainder of the electronic discovery vendors' charges for gathering, preserving, processing, searching, culling, and extracting ESI simply did not amount to "making copies" and so were not taxable under § 1920(4).The Third Circuit did also note that while there is a presumption that a party responding to discovery requests bears the expense of complying with such requests, a responding party may invoke the district court's discretion under Federal Rule of Civil Procedure 26(c) to grant orders protecting him or her from "undue burden or expense" in complying with discovery requests, including orders conditioning discovery on the requesting party's payment of the costs of discovery. Thus, a party faced with a particularly onerous request for ESI may seek a cost-shifting protective order before hiring a vendor at great cost to produce such ESI.