The use of e-discovery vendors has become a significant and established part of the discovery process in many commercial litigations. Attorneys recognize the highly technical work these vendors perform in processing and analyzing electronically stored information (“ESI”), and the expenses are often assumed to be unavoidable. In the fall 2012 edition of the E-Discovery Update, we discussed whether the 28 USC § 1920(4) (“Section 1920(4)”) costshifting provision, that allows “fees for exemplification and the costs of making copies” to be taxed against a losing party, would provide a new avenue for recovery of these often essential e-discovery costs. At the time, the case law implementing Section 1920(4) was unsettled and inconsistent. While the Third Circuit, in Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012) (“Race Tires”), narrowly construed the application of this provision, substantially limiting the ESI vendor costs that could be shifted to the losing party under Section 1920(4), other federal courts have provided for broader cost recovery. The issue remains undecided by any federal court within the Second Circuit. However, since our last Update there have been a number of endorsements of the Race Tires decision by other courts. These decisions have followed the holding of Race Tires, further suggesting that regardless of the costs necessarily incurred by a prevailing party in discharging e-discovery obligations, the courts largely do not believe they are authorized under Section 1920(4) to tax the full spectrum of vendor costs against an opposing party.
In Race Tires, the trial court awarded the prevailing defendants over $365,000 in e-discovery vendor costs. On appeal, the Third Circuit addressed the issue of what fees were taxable under Section 1920(4). Race Tires, 674 F.3d at 162-63. In analyzing what constituted “making copies,” the court examined the statute’s legislative history, plain text, and prior interpretations of costs that were deemed taxable thereunder. Id. at 166-70. The Race Tires court differentiated between the actual copying and production of materials, the cost of which the court held was taxable to the losing party, and steps that led up to the production of copies (such as document review or employment of project managers) the cost of which were not taxable. Id. at 169. The court held that only the conversion of native files to TIFF, the scanning of documents to create electronic images, and the conversion of VHS to DVD format were taxable as making “copies” of materials. Id. It reduced the award to $30,000. Id.
The Fourth Circuit has recently adopted the Race Tires holdings as to what constitutes “taxable costs” under Section 1920(4). In Country Vintner of N. Carolina, LLC v. E. & J. Gallo Winery, Inc., 718 F.3d 249, 259 (4th Cir. 2013), the court noted the “persuasive” reasoning in Race Tires, and limited the costs taxable against the losing party to converting electronic files to non-editable formats and burning the files onto discs. Id. at 260. It thus affirmed the district court’s grant of only $218, out of the more than $100,000 originally sought. Id. at 262. The court noted the degree of expertise that might be required of an e-discovery vendor involved in the process, but still followed Race Tires in refusing costs that “Congress ha[d] not made taxable” under Section 1920(4). Id. at 260.
The Federal Circuit also recently barred the recovery of various e-discovery costs under Section 1920(4). CBT Flint Partners, LLC v. Return Path, Inc., 737 F.3d 1320 (Fed. Cir. 2013) held that a host of tasks performed by a vendor — including keyword searching, document review software training, document decryption, and deduplication — fell outside of the scope of Section 1920(4). Id. at 1330-1332. Nonetheless, the court permitted the recovery of certain vendor costs, and it explicitly distinguished itself from the Race Tires court by allowing recovery for the costs of hard drive imaging and metadata extraction. Id. at 1333.
District courts in various other circuits have cited Race Tires and its conclusions when substantially cutting e-discovery costs that were sought as taxable by a prevailing party. See, e.g., Chicago Bd. Options Exch., Inc. v. Int’l Sec. Exch., LLC., 2014 WL 125937, at *8-9 (N.D. Ill. Jan. 14, 2014); Phillips v. Wellpoint Inc., 2013 WL 2147560, at *6-7 (S.D. Ill. May 16, 2013); Amana Soc’y, Inc. v. Excel Eng’g, Inc., 2013 WL 427394, at *5-6 (N.D. Iowa Feb. 4, 2013).
While it has been influential outside of its jurisdiction, the Third Circuit’s opinion in Race Tires has not been the final word on recovering e-discovery costs under Section 1920(4). One jurist in the District Court for the Northern District of California has already explicitly rejected the Race Tires holding in two cases. See Petroliam Nasional Berhad v. GoDaddy.com, Inc., 2012 WL 1610979, at *4 (N.D. Cal. May 8, 2012) (taking note of Race Tires “but conclude[ing] that in the absence of directly analogous Ninth Circuit authority, broad construction of § 1920 with respect to electronic discovery costs – under the facts of this case – [was] appropriate”); In re Online DVD Rental Antitrust Litig., 2012 WL 1414111, at *1 (N.D. Cal. Apr. 20, 2012) (holding that the court had the ability to broadly construe Section 1920 “with respect to electronic discovery production costs” and, given the specific facts of the case, awarded to plaintiffs over $700,000 in costs, including, among other things, .tiff conversions and professional fees). Id. at *2.
Race Tires may be viewed as influential if the matter is taken up by the Second Circuit. Until then, Section 1920(4) may still be a tool for recovering vendor fees within the Second Circuit. But, as more courts adopt Race Tires, the availability of Section 1920(4) as a tool for a prevailing party to seek reimbursement for large vendor costs seems less promising.