Modern complex litigation necessarily entails significant e-discovery costs. As those costs have ballooned, so have litigants’ attempts to secure an award of those costs after prevailing on the merits of their claims or defenses. Litigants have attempted to secure this award of e-discovery costs under Rule 54(d) of the Federal Rules of Civil Procedure and 28 U.S.C. § 1920. Rule 54 provides that costs, other than attorney fees, “should be allowed to the prevailing party.” In turn, § 1920 provides that a court may tax certain items as costs, including “[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). Unfortunately, courts have adopted varying interpretations of the scope of § 1920 in relation to e-discovery charges.
Broad Interpretation of § 1920(4) to Include Most E-Discovery Costs
Several federal district courts have broadly interpreted § 1920 to apply to most e-discovery costs. For example, in 2011, in In re Aspartame Antitrust Litigation, the Eastern District of Pennsylvania taxed the costs for creating a litigation database, storing data, imaging hard drives, conducting keyword searches, extracting and processing data, and even the technical support necessary to complete those tasks. 817 F. Supp. 2d 608, 615 (E.D. Pa. 2011). The court concluded that this broad interpretation was warranted because the e-discovery tasks allowed “discovery to be conducted in an efficient and cost-effective manner.” Id. The court did, however, eventually draw a line in the sand, declining to tax the cost of a visual clustering document review tool because “while undoubtedly helpful,” this technology “exceeds necessary keyword search and filtering functions.” Id. at 616. Like the Aspartame court, many of the federal district courts have based their broad interpretation of § 1920 on the “indispensable” nature of the services to the ultimate act of production. The courts conclude that the costs are unavoidable because they are highly technical and outside the expertise of the prevailing party’s attorneys. See, e.g., Tibble v. Edison Int’l, No. CV 07-5359, 2011 WL 3759927, at *7 (C.D. Cal. Aug. 22, 2011) (concluding that the e-discovery costs were “necessarily incurred” to respond to discovery requests); Parrish v. Manatt, Phelps, & Phillips, LLP, No. C 10-03200 WHA, 2011 WL 136112, at *2 (“The tasks of collecting client documents, reviewing those documents, and determining which documents are relevant and essential—and often costly—parts of investigation and discovery.”).
Other Courts Interpret § 1920(4) More Narrowly
Other courts have construed § 1920(4) to cover a much more limited portion of typical e-discovery costs. The Third Circuit, for example, in Race Tires America, Inc. v. Hoosier Racing Tire Corp., concluded that only the costs attributable to converting the native files to Tagged Image File Format (TIFF), the agreed-upon default format for production of electronically stored information (ESI); scanning documents to create digital duplicates; and transferring VHS tapes to DVDs were "copying" costs within § 1920(4). 674 F.3d 158, 167–71 (3rd Cir. 2012). The court acknowledged that other courts have allowed essentially all e-discovery charges to be taxed as costs, but in its view, such holdings “are untethered from the statutory mooring.” Id. at 169. The statute, according to the court, authorizes awarding only the cost of “making copies,” not “all steps that lead up to the production of copies.” Id. So although the extensive processing of ESI may be essential to producing the data in an intelligible form, that simply does not mean that those services constitute “making copies.” Id. at 170. Using this conclusion as its basis, the Third Circuit reduced the defendants’ e-discovery cost award by 90 percent, finding that such costs were performed prior to actually converting, scanning, or transferring documents and data.
A few months after the Third Circuit issued Race Tires, the Supreme Court addressed the scope of § 1920 outside of the e-discovery context. See Taniguchi v. Kan P. Saipan Ltd., 132 S. Ct. 1997 (2012). The court reiterated that taxable costs are “modest in scope” and limited to “relatively minor, incidental expenses.” Id. at 2006.
Based in part on the Supreme Court’s guidance, the Fourth Circuit followed Race Tires in Country Vintner of North Carolina LLC v. E. & J. Gallo Winery, Inc. and held that § 1920(4), at least in that case, only extending to the e-discovery costs attributable to “converting electronic files to non-editable formats, and burning the files onto discs.” 718 F.3d 249, 253 (4th Circ. 2013).
Most recently, on December 13, 2013, the Federal Circuit became the latest court to weigh in on this issue. The court attempted to provide more guidance to litigants as to what is and what is not taxable as costs. In CBT Flint Partners, LLC v. Return Path, Inc., the Federal Circuit (construing Eleventh Circuit law) adopted a relatively narrow application of § 1920(4)—but not quite as narrow an application as in Race Tires and Country Vintner. The court reviewed the legislative history surrounding the 2008 amendment of § 1920(4), which substituted “making copies of any materials where the copies are necessarily obtained for use in the case” for “copies of papers necessarily obtained for use in the case.” The court concluded that the legislative history suggested that the 2008 change was modest in nature and not intended to have a “dramatic . . . bottom-line effect on litigants.” Id. at 1326. Based on the limited reach of § 1920(4), e-discovery charges only fell within the statute if they “were necessary to duplicate an electronic document in as faithful and complete manner as required by rule, by court order, by agreement of the parties, or otherwise.” Id. at 1328. According to the court, it does not apply to preparatory or ancillary costs to such duplication. Id.
To determine whether the particular costs at issue were recoverable under this interpretation, the court divided the e-discovery costs at issue into three stages. In the first stage, an e-discovery vendor forensically copied the hard drives that contained the requested documents and then processed the data to extract individual documents with the documents’ original properties intact. Id. In stage two, the extracted documents were organized into a database, and then indexed, decrypted, de-duplicated, filtered, analyzed, searched, and reviewed to determine responsiveness and whether they contained privileged information. Id. In stage three, the documents that were identified for production were copied onto memory media, or in the case of particular source code at issue in the case, onto a secured computer for review by the requesting party. Id.
As for stage one, the court noted that when parties are required to produce documents in a uniform production format such as TIFF images, a party must often make a first copy of a document, perform the required format conversion, and copy the converted files to production media. Id. at 1329. When production of metadata is required, a party will typically be required to apply “special techniques” to extract the documents while preserving all associated metadata. According to the court, these types of indispensable steps “are fairly considered costs of making copies of the requested documents.” Id. The court noted that the necessary steps will turn on the form requested or agreed to by the parties, and if no particular form is requested, a party may only be entitled to recover the costs associated with a simpler process. Id. at 1330.
In stage two, the court considered the tasks in this stage to be only necessary for a party to comply with its discovery obligations, not tasks necessary for the copying of the documents. Therefore, activities such as de-duplication, project management, keyword searching, conducting statistical previews, document review training, and planning meetings are not covered under § 1920(4). One activity that was covered within stage two, at least in part, was the creation of “load files” for the produced documents. A load file is a file that relates to electronically processed files and indicates where individual files belong together as documents, whether the documents include attachments, and where each document begins and ends. Load files also often contain other metadata associated with the particular document, such as author, recipient, and creation date. The CBT Flint court concluded that the “start-stop” information in the load files was akin to slip sheets in the paper world. The cost associated with creating such information is recoverable because a document request should be understood as requesting documents that are separated in a way that enables the receiving party to discern where one document ends and another begins. Id. at 1976. Whether the creation of load files containing other metadata is covered by § 1920(4) depends on whether such data is required to be produced, either by the court or the requesting party. If it is, then it comprises part of the cost of “making copies.” Id.
Finally, the court concluded and the parties agreed, that stage three costs—those associated with copying the identified responsive documents onto the production media—fell within the taxable costs covered by § 1920(4).
Although the court adopted a fairly limited interpretation of § 1920(4), it noted that its interpretation was not as narrow as Race Tires and Country Vintner. As discussed above, those courts held that the costs associated with imaging the source media and extracting the documents in a way that preserved the metadata did not fall within the purview of § 1920(4). The CBT Flint court believed that these actions were often necessary to produce documents in a requested form, not merely preparatory to the production of those documents, and therefore were covered under § 1920(4).
Courts Generally Agree on the Taxability of Some E-Discoverability Costs
As shown by these cases, the federal courts do not follow a uniform interpretation of § 1920(4) in determining whether particular e-discovery costs are taxable as costs. Due to this lack of uniformity, parties must research this issue in the specific jurisdiction in which they are litigating before making decisions based on an anticipated ability to recover e-discovery costs under § 1920(4). Some principles, however, remain constant regardless of the court in which an action is pending:
• The cost of copying the electronic data onto a medium for production is generally viewed as taxable. Therefore, the costs of the production media itself as well as any transfer fees charged by the e-discovery vendor are likely taxable as costs.
• The costs directly attributable to producing a document in a particular requested form are typically recoverable. For example, the specific cost of converting a native file into a requested TIFF file format will typically be considered taxable. But where the conversion cost is attributable to a production form that was not requested, some courts have held that the conversion fees are not recoverable.
Unfortunately, the large portion of e-discovery costs typically does not fall within these two categories, so litigants may not be able to avoid significant uncertainty as to the recoverability of a substantial portion of their e-discovery costs.
Regardless of whether particular e-discovery costs are ultimately recoverable from a losing party, one thing is for certain: A party will have more difficulty recovering general, vague, and non-specific e-discovery costs. Even a court adopting a broad view of § 1920(4), will likely find it difficult to tax hundreds of thousands of dollars against a losing party based on vague invoices that fail to reflect the true nature of the associated services. Parties should therefore require all service providers to bill their services in detail and be prepared to explain why particular services were necessary to accomplish a particular task. Armed with this information, a party will have a fighting chance of showing that the services were necessary to producing the data to the opposing party as opposed to mere preparatory or ancillary expenses that are less likely to be covered by § 1920(4)
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