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Cost Shifting/Taxation of Costs for eDiscovery Expenses: A Case Update

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Posted on July 26th, 2016

Litigation is expensive, particularly when the parties do not plan comprehensive eDiscovery strategies, are unprepared to handle extensive electronic data, or become engaged in drawn-out discovery disputes. In federal cases, the prevailing party to a civil action can recover some costs associated with the litigation expenses from the losing party, subject to review by the court. Many courts have held that certain costs related to eDiscovery are taxable under 28 U.S.C. § 1920.

Here is an update of recent cases involving taxation of electronic discovery costs:

Taxation of ESI Discovery Costs: Recent Cases

  • Procaps S.A. v. Patheon, Inc., Case No. 12-24356 (S.D. Florida, Feb. 2, 2016): After a long and tortured discovery phase, this multi-million dollar antitrust suit was ultimately disposed of on summary judgment in favor of Defendant. Defendant filed its bill of taxable costs, which included costs Defendant incurred in producing documents in searchable TIFF format with metadata, the format specified by Plaintiffs in its production requests. To make production in the requested format, Defendant had to scan paper documents and convert them to TIFF images, and extract native data into created load files and convert the documents from native format to TIFF images.  Plaintiff opposed the taxation of these costs, arguing that electronic copying charges were not taxable. Defendant argued that the costs were incurred not for its own convenience but in response to Plaintiff’s demands. Analyzing Taniguchi v. Kan Pacific Saipan, Ltd., 132 S.Ct. 1997 (2012) as well as a trend in 11th Circuit law limiting recovery of eDiscovery costs, the court permitted Defendant to recover costs for formatting, imaging, extraction and creating load files. However, the court struck costs for keyword searching or extracting text or OCR from native files, and it reduced Defendant’s costs accordingly.
  • Associated Electric & Gas Insurance Services, et. al. v. BendTec, Inc., Case No. 14-1602 (D. Minn., Feb. 24, 2016: Plaintiffs sued Defendant for $30 million in damages, but Defendant prevailed, obtaining a judgment. Defendant filed its bill of costs, to which Plaintiff objected. The court denied over $125,000 in ESI management costs, and Defendant filed a Motion to Review the denial. The costs at issue were for the creation and maintenance of an electronic database for Defendant to hold documents produced by Plaintiffs and to collect and secure its own documents. Defendant built a software platform and hired a security firm to process and secure the data. In its review, the court found that there was no abuse of discretion in denying the costs. 28 U.S.C. § 1920(4) permitted costs for making copies or for exemplification, and noted that TIFF conversion and scanning could be included as such costs, but processing ESI and keyword searches could not. Costs for storing ESI are not recoverable, and the court upheld the decision to deny the costs.
  • Camesi et. al. v. University of Pittsburgh Medical Center et. al., Case No. 15-1865 (3rd Cir., Mar. 21, 2016): In this class action case, Plaintiffs sued Defendants for violations of the Fair Labor Standards Act (FSLA). Plaintiffs requested certain ESI, triggering a lengthy discovery dispute. Plaintiffs were forced to file two motions to compel production, in in granting the second motion the court found that Defendants were not complying with the discovery rules. Ultimately, Plaintiffs’ class was decertified upon motion of Defendants. Plaintiffs then appealed, but the appeal was dismissed, and Defendants filed a bill of costs. The bill included $310,000 in copying costs for ESI. Plaintiffs objected, and the district court upheld the costs. Plaintiffs appealed to the Third Circuit. The Court of Appeals determined that only the conversion of native files to TIFF or scanning originals to make duplicates are considered “copying costs” for purposes of 28 U.S.C. § 1920, and not “charges necessarily incurred to discharge discovery obligations.” Although Defendants argued that the cost items related solely to the allowed expense of “digital duplication”, the Court found the declaratory evidence submitted by Defendants insufficiently detailed to make a determination. The case was reversed and remanded to the district court for further review.
  • Deere & Co. v. Duroc, LLC et. al., Case No. 14-1697 (Fed. Cir., May 26, 2016): In this patent infringement case, summary judgment was entered in favor of both Defendants, and costs were ordered against Plaintiff. Defendants submitted a bill of costs, which was affirmed after a telephonic hearing. However, upon Plaintiff’s appeal, the summary judgment was vacated and the case remanded for trial.  The following jury verdict resulted in entry of judgment for Defendants, who again submitted their costs bill.  Plaintiff objected to costs requested relating to producing documents as TIFF images accompanied by metadata load files, a production format which had been mutually agreed upon by the parties. The district court held that these costs were recoverable, and Plaintiff appealed to the Federal Circuit. The Court of Appeals upheld the lower court ruling allowing the costs.  The appellate court affirmed the District Court’s ruling, finding no abuse of discretion in the determination that the costs were incurred in preparation and performance of copying, or in the lower court’s consideration of the parties’ production format agreement as a factor in allowing the costs.

Questions About the Taxation of Costs for eDiscovery?

Producing and reviewing electronically stored information can be a daunting task for any attorney, even those who have a firm grasp of technology. Before you embark on an individual or class action case involving electronic data, speak to a plaintiff eDiscovery expert to learn how we can assist you in efficiently dealing with these costs.

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