• What Types Of Electronic Discovery Costs Can A Prevailing Party Recover Under Fed. R. Civ. P. 54(D)?
  • April 22, 2009 | Author: Steven M. Puiszis
  • Law Firm: Hinshaw & Culbertson LLP - Chicago Office
  • Fells v. Virginia Dept. of Transp., 2009 WL 866178 (E.D.Va. March 25, 2009)

    One of the latest ediscovery issues that courts have begun to struggle over is the nature and extent to which electronic discovery costs are recoverable by a prevailing party under Fed. R. Civ. P. 54(d). Because the costs of ediscovery in some instances can be staggering, the possible recovery of at least some of these costs has significantly raised the stakes of Rule 54(d) practice for both the prevailing and losing parties in federal court litigation.

    In Fells, the district court refused to award costs associated with the initial processing of electronic records, including the expense of metadata extraction and data file conversion. While the district court’s stated rationale for denying these costs can be questioned, it probably reached the right conclusion. The ediscovery costs which the prevailing party sought to recover in Fells related to the first steps taken to create a database that would facilitate discovery. However, the defendant abandoned the database after the plaintiff refused to limit the scope of the data involved. Thus, it is doubtful that the defendant could establish that those costs were “necessarily obtained for use in the case,” which is a prerequisite to recovery. As outlined below, various courts have approved the recovery of certain types of ediscovery costs, but their rulings have only begun to scratch the surface of the relevant issues.

    Statutory basis for the recovery of costs

    Rule 54(d) permits a district court to award costs to a prevailing party. It provides in pertinent part: “[u]nless a federal statute, these rules, or a court order provides otherwise, costs – other than attorney’s fees – should be allowed to the prevailing party.” The types of costs that a district court may in its discretion award are outlined in 28 U.S.C. §1920. Recoverable costs under §1920 include:

    • Fees of the clerk and marshal;
       
    • Fees of the court reporter for transcripts necessarily obtained for use in the case;
       
    • Fees and disbursements for printing and witnesses;
       
    • Fees for exemplification and copies of papers necessarily obtained for use in the case;
       
    • Docket fees;
       
    • Compensation of court-appointed experts, and interpreters, as well as the salaries, fees, expenses, and costs of special interpretation services.

    Rule 54(d) triggers “a strong presumption in favor of awarding costs to a prevailing party.” Majeske v. City of Chicago, 218 F.3d 816, 818 (7th Cir. 2000). Additionally, it should be noted that “district courts have broad discretion to determine whether and to what extent” a prevailing party may be awarded costs. Barber v. Roth, 7 F.3d 636, 644 (7th Cir. 1993). However, that discretion is not uncabined. The Supreme Court in Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 441 (1987), held that under Rule 54(d), a court’s authority to award costs is limited to those costs specifically enumerated in §1920. Rather than providing courts with the discretion to award costs not listed in §1920, Crawford Fitting held that Rule 54(d) provides courts with the “power to decline to tax as costs, the items enumerated in §1920.”

    District courts may not award costs that are not authorized by statute. Thus, under Rule 54(d), a prevailing party’s potential recovery is limited to the six categories of costs noted above in §1920. However, it is generally well recognized that courts have leeway “to interpret the meaning of the items listed in … §1920.” BDT Products, Inc. v. Lexmark Intern., Inc., 405 F.3d 415, 419 (6th Cir. 2005). And, as one might anticipate, some courts have been more liberal in their interpretation of §1920’s cost categories than others.

    Court and counsel have primarily focused on §§1920(3) and (4) as a basis for seeking the recovery of electronic discovery costs. When an ediscovery vendor has been appointed by the court, §1920(6) has also been invoked.

    Cost of scanning and imaging documents

    Several courts have concluded that costs associated with scanning and imaging documents are recoverable under §1920(4), which authorizes the recovery of costs for exemplification and copies of papers. B.D.T. Products, 405 F.3d at 420 (“electronic scanning and imaging could be interpreted as ‘exemplification and copies of papers’”). In Brown v. McGraw Hill Cos., Inc., 526 F.Supp.2d 950, 959 (N.D. Iowa, 2007), one district court concluded “the electronic scanning of documents is the modern day equivalent of ‘exemplification and copies of paper,’ and therefore, it can be taxed pursuant to §1920(4).” See also, El Dorado Irrigation Dist. v. Traylor Bros., Inc., 2007 WL 512428, *10 (E.D. Cal. 2007) (holding “scanning is akin to photocopying. The purposes of the two methods are largely the same, to reproduce a document so that it may be utilized by multiple parties and individuals”).

    Metadata extraction, file conversion, and other ediscovery processing costs

    The district court in Fells disallowed the costs of processing electronic data involving the extraction of metadata, and the conversion of files. While acknowledging that the costs of scanning or imaging documents may be taxable under §1920(4), the court in Fells explained that scanning and imaging merely convert paper documents into an electronic files. It concluded that the processing and extraction costs which the defendant sought to recover were different, in that they involved the creation of electronically searchable documents. In the court’s view, electronic discovery costs associated with creating searchable documents, rather than merely reproducing paper documents in an electronic format are not recoverable under §1920(4).

    However, the court in Fells apparently failed to take into consideration several key points contained in the Advisory Committee Notes to Rule 34. The Notes to Rule 34 explain:

    [T]he option to produce [ESI] in a reasonably useable form does not mean that a responding party is free to convert electronically stored information from the form in which it is ordinarily maintained to a different form that makes it more difficult or burdensome for the requesting party to use the information efficiently in the litigation. If the responding party ordinarily maintains the information it is producing in a way that makes it searchable by electronic means, the information should not be produced in a form that removes or significantly degrades this feature.

    Rule 34 requires that a party maintain the “searchability” of any electronic documents or data it produces in discovery. Thus, when the documents or data a party is producing are electronically searchable in their native state, the costs of extracting metadata and converting them to an imaged format cannot be characterized as “creating” searchable documents as in Fells. Rather, those activities are simply maintaining the searchable feature of the electronic documents as required under the Advisory Committee Notes to Rule 34. Whether a party can demonstrate those costs were “necessarily obtained” under §1920(4) is another story.

    The decision in Fells should be contrasted against Neutrino Dev. Corp. v. Sonosite, Inc., 2007 WL 998636, *4 (S.D. Tex. March 30, 2007). Neutrino permitted the recovery of the cost of removing metadata from files that were produced electronically under §1920(3). The district court in Neutrino explained:

    In this instance, the electronic data was produced in lieu of costly paper production. Defendant was seeking to save costs by not printing out hundreds of documents, which require redaction of privileged information. This electronic production in response to Plaintiff’s discovery request falls within costs recoverable for “fees and disbursements for printing.”

    While Neutrino reached the opposite conclusion of Fells, the decisions are not necessarily irreconcilable. Admittedly, while the decisions were based upon different subparts of §1920, the key distinction appears to lie in the necessity of costs that were incurred. Given the fact that the defendant ultimately abandoned the database in Fells, the costs were not necessarily obtained for use in the case. Accordingly, one practical tip when seeking the recovery of any ediscovery costs is to explain in detail why those costs were vital to the efficient presentation of your case or defense when presenting a bill of costs to the court.

    Cost of court appointed electronic discovery vendors

    Section 1920(6) authorizes the recovery of costs associated with court appointed experts. In Davis v. City of Springfield, 2008 WL 818331, *8 (C.D. Ill. March 20, 2008), the court appointed an ediscovery vendor to assist the parties electronic discovery efforts in copying data on the City’s computers. Most of those costs were incurred when there were six plaintiffs, and in the end only one prevailed. Nonetheless, the court found that two-thirds of the vendor’s costs were recoverable under §1920(6).

    Provide competent explanations of services that were provided

    Since the prevailing party bears the burden of demonstrating that its costs are allowable under §1920, do not forget to furnish the court with an explanation of the ediscovery services for which reimbursement is sought. In Committee Concerning Community Improvement v. City of Modesto, 2007 WL 4365584 *5 (E.D.Cal. Dec.11, 2007), the district court was presented with an invoice for tasks such as “image export set up fee” with no accompanying explanation. It should not come as any surprise that the court exercised its discretion, and denied this and other unexplained ediscovery costs. Technical jargon or “geek speak” appearing in invoices have to be explained if you expect a court to reimburse your costs associated with these types of activities.

    Review the Seventh Circuit’s Cefalu decision for eligible exemplification costs

    In Cefalu v. Village of Elk Grove, 211 F.3d 416 (7th Cir. 2000), the court addressed a prevailing party’s Rule 54(d) claim seeking the reimbursement of the costs associated with a multi-media presentation system used to display the party’s exhibits to a jury. While the decision did not address ediscovery costs, the logic of the court’s opinion is relevant to the issue of what expenses properly qualify as exemplification costs under §1920(4).

    In Cefalu, the court relied upon dictionary definitions of exemplification since the term is undefined in §1920. Cefalu concluded that exemplification “signifies the act of illustration,” and went on to explain that in view of the “illustrative purpose of exemplification,” so long as “the means of presentation furthers the illustrative purpose of an exhibit … it is potentially compensable.” The Seventh Circuit specifically noted that “[e]nlarging a crucial document, for example, may be the only practical means of permitting a witness to point out the forensic features of that document.” Cefalu, 211 F.3d at 428. The same can be said of some of the processing costs of ESI. The court in Cefalu also rejected any formal distinction between the physical preparation of a document, and the means chosen to present it. Logically, that suggests that the costs involved in processing and loading ESI into a database for use during discovery and trial should qualify under §1920(4).

    The court in Cefalu cautioned, however, that even where a particular expense item qualifies as exemplification, a district court must still determine whether it was “necessarily obtained for use in the case” which involves an analysis of whether the involved cost was “vital to the presentation of the information, or was it merely a convenience, or worse an extravagance.” Id. at 429. Cefalu also reminds us that costs which are not reasonably necessary to the presentation of one’s case do not qualify for reimbursement under §1920(4), and that courts retain “the equitable authority to deny compensation to a prevailing party for costs that are [otherwise] compensable under the statute.”

    Option to seek pretrial determination of the issue

    The court in Cefalu also reminded parties “who are concerned about the prospect of reimbursement” under Rule 54(d) may raise the issue “in advance of trial” at a Rule 16 pretrial conference. Cefalu, 211 F.3d at 429 n.6.

    Rule 54(d) does not provide an adequate substitute for cost-shifting under Rule 26(b)(2)(C)

    In Overlap, Inc. v. Alliance Bernstein Investments, Inc., 2008 WL 5780994 *3 (W.D. Mo. Dec. 29, 2008), the court addressed whether good cause existed to produce certain emails and attachments on a defendant’s backup tapes. The defendants backup tapes were “indexed and organized in a manner that would allow Defendant to substantially narrow the volume of data that would need to be restored.” The court ordered the defendant to initially bear 100% of the costs associated with the search and production of any responsive documents on their backup tapes. However, the court noted in passing that “this expense qualifies as a component of the cost to be awarded to the prevailing party, so if Defendant prevails at trial, it may recover these costs.” Id.

    Given the fact that somewhere between 96% and 98% of all civil lawsuits settle, it is doubtful that such a ruling will provide any solace to a defendant ordered to produce and bear the cost of discovery from an inaccessible source. Rule 26(b)(2)(C) permits courts to shift some or all of the cost of producing inaccessible ESI to the requesting party. Rule 54(d) simply does not provide an adequate substitute for initial cost shifting under Rule 26(b)(2)(C). When a defendant settles a case, even on a cost of defense or nuisance value basis, it cannot claim prevailing party status, and thereby, seek the recovery of these costs. Thus, Rule 54(d) should not be viewed as a substitute for cost shifting under Rule 26(b)(2)(C) as in Overlap.