Recovering e-discovery costs in federal court

Being a party to litigation often means devoting significant amounts of time and resources to complying with an opposing party’s extensive requests for e-discovery. But is e-discovery compliance a sunk cost? Not necessarily. More and more commonly, federal courts have been willing to allow prevailing parties to recover the costs of certain e-discovery compliance efforts. By carefully documenting the processes and costs necessary to produce responsive electronic data, you provide the court with a solid basis for restitution of those costs. In Race Tires America, Inc. v. Hoosier Racing Tire Corp., No. 07-1294, 2011 U.S. Dist. LEXIS 48847 (W.D. Pa. May 6, 2011), for example, the court reimbursed the successful defendants for over $367,000 in e-discovery costs.

28 U.S.C. § 1920 dictates what costs may be recovered by a prevailing party in federal court. For e-discovery costs, courts tend to focus on Section 1920(4), which allows a court to assess “[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” Section 1920(4) was specifically amended by Congress in 2008 to allow the assessment of e-discovery costs, in particular by changing the phrase “copies of papers” to “copies of any materials.” As U.S. District Judge Terrence McVerry noted in the Race Tires case, however, even before the 2008 amendment, “courts in many jurisdictions had come to recognize that ‘exemplification’ in the modern era, includes electronic copying.”

The Race Tires opinion provides a good survey of the types of e-discovery costs that have been assessed against losing parties by federal courts. Examples include costs for electronic scanning, use of a third-party vendor to collect and identify network files, and costs for the conversion of paper documents into electronic files where the parties agreed that responsive documents would be produced in electronic format.

Some courts, by contrast, take a narrower view of Section 1920(4). Some refuse to assess e-discovery costs where the work done by a third-party vendor resembles the work that would be done by paralegals and attorneys in a non-electronic case (and, therefore, would be unrecoverable under Section 1920). Others have found that the scanning of documents is a convenience for counsel, rather than a necessary expense.

Judge McVerry observed that the distinction between non-recoverable and recoverable electronic costs can lie in whether the costs “tend to serve a party’s aesthetic preferences rather than exemplification of evidence.” For example, steps taken to improve the format and design of electronic evidence may be found to merely serve aesthetic preferences, while processes such as scanning and conversion of non-electronic materials are more likely to represent recoverable exemplification costs.

In Race Tires itself, the parties’ mutually agreed-upon discovery plan was crucial to the court’s analysis. The parties agreed to conduct discovery electronically at the outset of the litigation and the plaintiff then “aggressively pursued e-discovery” from the defendants, asserting 119 separate requests for documents and electronically stored information that imposed over 442 search terms. The defendants used third-party vendors to produce the requested electronic documents, and sought to recover those costs after prevailing on summary judgment. The court noted that the vendor costs represented highly technical services, not akin to the work of attorneys or paralegals, and that there was no indication that electronic scanning was used merely for the convenience of the parties or their attorneys. In light of the parties’ agreement and the plaintiff’s discovery requests, “the requirements and expertise necessary to retrieve and prepare [the] e-discovery documents were an indispensable part of the discovery process.”

In order to ultimately recover your e-discovery costs, Race Tires and other federal decision suggest several best practices:

• Agree on an e-discovery plan with the opposing party. This is an excellent way to later establish that your electronic production costs were necessarily incurred.
• Thoroughly document the work done by any vendors or consultants who identify, preserve, and collect your electronic data. Make sure this work is documented separately from the quintessential work of attorneys, such as a review for privilege and responsiveness.
• Be mindful of the distinction between electronic production and electronic enhancement. Essentially, this is a question of “For whom?” Was the cost incurred necessary to give the opposing party what it asked for, or does it serve your own case in some way?

In the end, with a careful approach, your e-discovery costs need not be sunk costs.

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Posted in 28 USC 1920, Articles, e-discovery compliance, e-discovery consultants, e-discovery costs, e-discovery plan, e-discovery vendors, electronically stored information, ESI, exemplification, recovery of e-discovery costs

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