At the end of litigation, unless the parties have settled and agreed that each party will bear its own costs, the prevailing party may want to seek recovery for its expenses (apart from attorney fees, which is a much broader topic and not within the scope of this piece), such as court reporter fees, document duplication, ediscovery processing and database fees, etc. Typically, ediscovery costs for collection, processing, review, and production of electronically stored information (ESI) are the largest cost component of litigation expense, so it is natural that the prevailing party desires to recover as much of this as it can from the losing party. This piece focuses on recovery of ediscovery expenses under the applicable federal statute and corresponding case law, but your results may vary depending on the laws of the jurisdiction you find yourself in.
The Federal Rule of Awarding “Costs” to the Prevailing Party
At the end of trial or dispositive motion, the prevailing party may have a right of recovery from the losing party for certain costs arising from the litigation. See, e.g., Fed. R. Civ. P. 54(d); 28 U.S.C. § 1920. Section 1920 states in pertinent part:
A judge or clerk of any court of the United States may tax as costs the following:
* * *
(3) Fees and disbursements for printing and witnesses;
(4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case[.]
Your particular venue may have similar rules or statutes for seeking recovery of costs following a decision by a court.1
In federal court, taxation of costs against the losing party is the rule, not the exception, in civil cases.2 The burden is on the losing party to show why costs should not be taxed, and when the district court denies costs to the prevailing party, the court must articulate its reasons.3 The standard of review for whether to award and the amount of costs under section 1920 is an abuse of discretion standard,4 although the district court has no authority to award costs other than the types enumerated under section 1920, which are reviewed on appeal de novo.5 This standard of review makes overturning cost awards difficult and requires counsel to conduct a critical review of the case law for recoverable “types” of costs.
Types of eDiscovery Expenses Awarded Under 28 U.S.C. § 1920.
Unfortunately for those seeking recovery of ediscovery awards, the types of costs recoverable are limited. Recently, the Sixth Circuit awarded costs for the imaging of the plaintiff’s hard drive in Colosi v. Jones Lang LaSalle Americas, Inc.6 In Colosi, the defendant requested plaintiff to produce relevant computer files during discovery and moved to compel when plaintiff resisted. Plaintiff then delivered her computer to her attorney’s office and demanded that defendant hire a third party vendor to image the computer under her attorney’s supervision. From this image, the defendant then searched for relevant files to which the district court held defendant was entitled. The Sixth Circuit held that the cost to image the hard drive was reasonable and necessary – analogous to the taxable cost of a party delivering copies in response to an opponent’s discovery request.7
The costs necessary to convert native files into digital images of documents (e.g. TIFF or PDF images) that are then actually produced to a requesting party are also taxable under section 1920. In addition, the costs for uploading the produced digital images and transferring them to opposing counsel through a File Transfer Protocol (FTP) are also taxable. In Balance Point Divorce Funding, LLC v. Scrantom,8 defendant sought costs from plaintiff following early dismissal of plaintiff’s claims. Defendant submitted evidence of costs of approximately $500 for converting native and PDF files to TIFF, uploading and transferring of those files to plaintiff, and sales tax on the charges. The court found that these charges were reasonable and within the scope of section 1920, but that charges of approximately $43,000 for collection, processing, culling, and hosting of collected documents were not taxable.9
Types of eDiscovery Expenses Not Permitted Under 28 U.S.C. § 1920.
The Balance Point decision is representative of the majority view in federal courts. The overwhelming majority do not allow recovery under section 1920 for the costs of processing, culling, hosting, review, and various other electronic document database costs—in short the bulk of ediscovery costs. These courts construe section 1920(4)’s “fees for exemplification” and “making copies” narrowly, holding that only the cost for scanning of hard copy documents and the conversion of native files to static TIFF or PDF format is recoverable.10 The stated reasoning is that document scanning or conversion of native documents to PDF or TIFF is essentially the electronic form of copying paper documents prior to producing them to opposing counsel, while the processing of electronically stored information (ESI), maintaining a database for storage, indexing, and review of the ESI is for the convenience of the party’s attorneys, and therefore not taxable.11
You can expect that courts in most jurisdictions will review carefully the invoices provided by the database vendor, focus only on the costs incurred for the physical preparation of the ESI actually produced in litigation, but not award costs associated with processing, hosting, deduplication, etc.
There have been a few courts that have construed section 1920 broadly to award costs covering a whole suite of ediscovery functions, including the creation of a litigation database, storage of data, imaging hard drives, keyword searches, deduplication, data extraction and processing.12 These cases, however, pre-date the U.S. Supreme Court’s decision in Taniguchi, which cautioned against a broad reading of section 1920 and overruled a Ninth Circuit decision that expansively interpreted section 1920.13 They are likely no longer good law.
An Alternative to Recovery of eDiscovery Costs
The parties may also agree to share costs of ediscovery services, and courts should respect this agreement and enforce it, even when later challenged by one of the parties to the agreement. In In re Ricoh Co. Patent Litigation,14 the parties jointly retained Stratify to host their ESI, agreeing to share the cost of the Stratify ediscovery database. Plaintiff prevailed on a motion for summary judgment against Ricoh, and sought recovery of its share of the Stratify expenses from Ricoh under section 1920. The trial court granted plaintiff’s bill of costs, but the Federal Circuit reversed, denying costs to plaintiff under section 1920 and upholding the cost sharing agreement between the parties.
Generally, very little of the costs incurred by parties are recoverable under section 1920 by the prevailing party. While some portion certainly should be attempted, even that is limitable by the discretion of trial courts. Unfortunately, discretion does not permit courts to award “types” of unrecoverable fees, but instead is limited to the amount and discretion to prevent recovery of otherwise recoverable costs. Fortunately, the new Federal Rules explicitly endorsing discovery proportionality can assist parties in limiting the amount of money they can be forced to incur. Additional relief may come in the form of creative agreements by the parties in sharing expenses. But the bottom line is that parties are well-advised to spend their ediscovery budget carefully—they should not rely on any potential future cost-shifting.
1 For example, an arbitration tribunal often has broad powers to award a wide range of costs against the losing party. See International Chamber of Commerce Rules of Arbitration, art. 37, ¶¶(4)(5); see also Tex. R. Civ. P. 131 (“The successful party to a suit shall recover of his adversary all costs incurred therein, except where otherwise provided.”). ↩
2 Balance Point Divorce Funding, LLC v. Scrantom, 305 F.R.D. 67, 70-71 (S.D.N.Y. 2015) (citing Whitfield v. Scully, 241 F.3d 264, 270 (2d Cir.2001)). ↩
3 Id. at 71. Each cost “item” can be awarded (or withheld) individually, and numerous reasons are provided in the case law (such as obstructive behavior by the prevailing party, lack of necessity for the cost(s), relative hardship or indigency, or nominal “amount” of award). See generally 10 Charles A. Wright, Arthur R. Miller, & Mary Kay Kane, FEDERAL PRACTICE AND PROCEDURE § 2668 (3d ed.). ↩
4 The reviewing court will first review de novo whether the taxed expenses fall within § 1920’s list of allowable costs. If the court determines they do fall within § 1920, then the court will not overturn the district court’s determination that the cost was reasonable and necessary absent clear abuse of discretion. Colosi v. Jones Lang LaSalle Americas, Inc., 781 F.3d 293, 295 (6th Cir. 2015). ↩
5 Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445 (1987); see also Colosi, 781 F.3d at 295 (“We review de novo whether taxed expenses fall within § 1920’s list of allowable costs.”). ↩
6 781 F.3d 293 (6th Cir. 2015). ↩
7 Id. at 298 n.2 (citing CBT Flint Partners, LLC v. Return Path, Inc., 737 F.3d 1320, 1334 n.1 (Fed. Cir. 2013) (O’Malley, J., concurring in part and dissenting in part) and noting disagreement on the facts with the Third Circuit in Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158, 166 (3d Cir.2012)). It would appear that Colosi is likely limited to the situation where a party images an adversary’s computer as part of the adversary’s production, and would not control in the more common scenario where a party images its own computer before review and production of responsive data. ↩
8 305 F.R.D. 67 (S.D.N.Y. 2015). ↩
9 Id. at 73-75. ↩
10 Colosi v. Jones Lang LaSalle Americas, Inc., 781 F.3d 293 (6th Cir. 2015); In re Online DVD Rental Antitrust Litigation, 779 F.3d 914, 928 (9th Cir. 2015); CBT Flint Partners, LLC v. Return Path, Inc., 737 F.3d 1320, 1326 (Fed. Cir. 2013) (interpreting 11th Cir. law); Country Vintner of North Carolina, LLC v. E. & J. Gallo Winery, Inc.,718 F. 3d 249, 261 (4th Cir. 2013); Race Tires America v. Hoosier Racing Tire Corp., 674 F.3d 158, 171 (3d Cir. 2012); Eolas Technologies, Inc. v. Adobe Systems, Inc., 891 F.Supp.2d 803, 806 (E.D.Tex. 2012); Fells v. Virginia Dept. of Transp., 605 F.Supp.2d 740 (E.D.Va. 2009). ↩
11 The general principle is that section 1920(4) allows recovery only for the reasonable costs of actually duplicating documents, not for the cost of gathering and organizing those documents as a prelude to duplication. CBT Flint Partners, 737 F.3d at 1326; Akanthos Capital Mgmt., LLC v. CompuCredit Holdings Corp.,2 F.Supp.3d 1306 (N.D.Ga. 2014). ↩
12 See, e.g., In re Aspartame Antitrust Litig., 817 F.Supp.2d 608, 615 (E.D.Pa. 2011); Lockheed Martin Idaho Techs. Co. v. Lockheed Martin Advanced Environmental Sys., Inc., CV-98-316-E, 2006 WL 2095876 (D. Idaho July 27, 2006). ↩
13 Taniguchi v. Kan Pacific Saipan, Ltd., 633 F.3d 1218, 1221 (9th Cir.2011) (“District courts are free to interpret the meaning of the cast of categories listed within § 1920”), rev’d, 566 U.S. ___, 132 S. Ct. 1997, 2002 (2012).↩
14 661 F.3d. 1361, 1367 (fed. Cir. 2011) (interpreting 9th Circuit law). ↩