The extent to which e-discovery costs are recoverable by prevailing parties in U.S. federal litigation has become a topic of controversy among courts and practitioners. This article focuses on cost recovery against non-prevailing parties after the conclusion of litigation. Some contend that very few e-discovery costs are recoverable. Others argue that such a reading of current law is nonsensical given the inherent complexities and costs associated with the handling of electronic data. Now, more than ever, knowing and understanding a jurisdiction’s decisions on the taxation of e-discovery costs can provide counsel with a significant edge. Focusing on this issue at the outset of litigation can help with negotiating reasonable e-discovery limits and maximizing the potential for cost-recovery at the end of the case.
Since 2008, courts have consistently acknowledged that at least some e-discovery costs are recoverable by a prevailing party; however, courts are split about which specific costs are actually recoverable. As a starting point, courts look to Federal Rule of Civil Procedure 54(d)(1), which provides that prevailing parties should be allowed to recover their costs unless a federal statute, rule or court directs otherwise. The specific costs that may be taxed are set forth in 28 U.S.C. Section 1920. In evaluating the taxability of e-discovery costs, courts rely on the language in 28 U.S.C. Section 1920(4) which provides that the court “may tax as costs … fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.”
Notably, in 2008, Congress changed the language of this statute from “copies of paper” to “copies of any materials” in order to encompass electronic information in the rule. Thus, while courts are restricted to the categories of costs enumerated in Section 1920 in their decision of whether to reward such costs, “courts are free to interpret the meaning of the cast of categories listed within Section 1920.”
District courts have interpreted the statutory language quite differently. Some have used a broader approach and allowed for the taxation of costs incurred for collection, processing, creation of electronic databases and the use of e-discovery vendors in preparing documents for production.
Others have quite narrowly construed what actions constitute “copying” and have limited taxable costs to those for scanning of documents or burning CDs. For example, in Race Tires Am. v. Hoosier Racing Tire Corp., the 3rd Circuit reversed the district court’s taxing of costs for creating a document review database, the imaging of hard drives, data extraction and data processing. Any of those tasks could be considered “copying” based on a broad interpretation of the statute. The court, however, only deemed appropriate the taxation of costs for scanning documents to create electronic images and file format conversion. In doing so, the court opined:
“Section 1920(4) does not state that all steps that lead up to the production of copies of materials are taxable. It does not authorize taxation merely because today’s technology requires technical experience not ordinarily possessed by the typical legal professional. It does not say that activities that encourage cost savings may be taxed. Section 1920(4) authorizes awarding only the cost of making copies.”
Despite this ruling, this issue is far from settled. Many courts have taken into account the constant changes in technology in awarding extensive e-discovery costs, explaining that many e-discovery costs “are the 21st Century equivalent of making copies.” Others point to the fact that the losing party caused the prevailing party to incur substantial e-discovery costs through discovery requests and demands for production of documents in electronic format. Since Race Tires was decided, several district courts in the 9th Circuit have stated that, in the absence of directly analogous authority in their circuit, the taxation against the losing party of many e-discovery costs is appropriate. Seeking clarification on this issue, the defendants in Race Tires recently asked the Supreme Court to weigh in.
Unless or until the Supreme Court interprets the federal e-discovery cost laws, the recoverability of e-discovery costs will continue to be an evolving area of the law. Because there is no uniform approach regarding the extent of costs that can be recovered, it is important for counsel to stay up to date on emerging precedents, and be prepared to effectively advocate their client’s positions on what costs are or are not subject to recovery under Section 1920(4).