The State of the Law on Shifting the Costs of E-Discovery

by Conduent
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Though there has been significant price compression in the market over the last several years, the ever increasing volumes of corporate data during that time have seen the costs of e-discovery continuing to rise, while many litigants hope to shift some of the expense to their adversaries. Although some favorable case law exists, most recent decisions limit the taxation of e-discovery costs to prevailing parties under Federal Rule of Civil Procedure 54(d) and 28 U.S.C. § 1920(4), which have narrowed recovery to activities analogous to “exemplification” and “making copies of any materials where the copies are necessarily obtained for use in the case.”

For example, here is a brief look at some recent e-discovery cost-shifting rulings:

  • 2009: In Hecker v. Deere & Co., the Seventh Circuit allowed the shifting of costs of converting computer data into a readable format.
  • 2011: In Rundus v. City of Dallas, the Fifth Circuit affirmed the recovery of costs related to a request for converting hard-copy documents into text-searchable electronic files.
  • 2012: In Race Tires America Inc. v. Hoosier Racing Tire Corp., the Third Circuit approved the taxation of costs of converting electronically stored information (ESI) into TIFF files but found other processing costs, such as searching, culling, and deduplication, not taxable as they were not the electronic equivalent of making paper copies.
  • 2013: In Country Vintner of North Carolina LLC v. E. & J. Gallo Winery Inc., the Fourth Circuit narrowly construed section 1920(4), limiting recovery to a paltry $218.59 for converting native files into TIFF and PDF format and copying those files to CDs for production.
  • 2013: In CBT Flint Partners, LLC v. Return Path, Inc., a split Federal Circuit, applying Eleventh Circuit law, concluded that taxable costs include “costs necessary to duplicate an electronic document in as faithful and complete a manner as required by rule, by court order, by agreement of the parties, or otherwise,” but that “only the costs of creating the produced duplicates are included, not a number of preparatory or ancillary costs commonly incurred leading up to, in conjunction with, or after duplication.” In ruling, the court divided e-discovery into three stages. The first involves the costs of imaging files and extracting metadata, which are recoverable as they are necessary to produce copies in a particular format with intact metadata. The second involves preproduction costs, including indexing, decrypting, deduplicating, filtering, analyzing, searching, and reviewing the ESI; these costs are not recoverable, with the exception of creating load files. The third consists of copying ESI to physical media for production, the costs of which are recoverable.

As Rule 54(d) indicates, courts can extend recovery beyond the section 1920(4) categories if the rules themselves, a federal statute, or a court order provides otherwise. In the last year, decisions taxing costs have been issued under several statutes. For example, the Southern District of California awarded discovery costs as part of a motion for fees in Gabriel Technologies Corp. v. Qualcomm, Inc. under federal patent law and California’s Uniform Trade Secrets Act. The court allowed the recovery of $2.8 million for the use of TAR, search-term consulting, and related activities and nearly $400,000 for managed review because these methods were more efficient and cheaper than the alternatives. Also last year, one district court awarded e-discovery costs to the prevailing party in a case filed under the Lanham Act and Copyright Act, and another awarded the costs of uploading data, creating a search index, and hosting data under the False Claims Act.

However, favorable cost decisions will likely remain an aberration until Congress or the U.S. Supreme Court takes up these issues. Therefore, litigators must study the case law in the relevant jurisdiction and find creative ways to manage their e-discovery costs. One way is to limit costs by shifting these costs up front; in 2012, a district upheld the terms of a contract that allowed the prevailing party in any litigation to recover its attorneys’ fees, costs, and litigation expenses and awarded more than $3 million in e-discovery costs, mostly attributable to the storage and hosting of ESI. Many parties will balk at these types of contractual arrangements given the uncertainty of litigation; therefore, a more reasonable approach is to use e-discovery experts to develop cost-saving strategies, such as employing the latest tools and technology to limit the pool of documents for review.

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