The Fourth Circuit Court of Appeals has determined that E. & J. Gallo Winery, Inc., the prevailing party in deceptive trade practices litigation filed by North Carolina wine wholesaler The Country Vintner, was entitled to receive only a small fraction of its costs arising from the production of electronically stored information (ESI) under the federal taxation-of-costs statute, 28 U.S.C. § 1920(4). The Country Vintner of N.C., LLC v. E. & J. Gallo Winery, Inc., No. 12-2074 (4th Cir., decided April 29, 2013).

After the trial court granted its pre-trial motions, Gallo sought more than $100,000 in discovery-related costs for (i) “flattening” and “indexing” ESI, (ii) “searching/review set/data extraction,” (iii) “TIFF production” and “PDF production,” (iv) electronic “Bates numbering,” (v) copying images onto a CD or DVD, and (vi) “management of the processing of electronic data,” “quality assurance procedures,” “analyzing corrupt documents and other errors,” and “preparing the production of documents to opposing counsel.” Citing Third Circuit precedent, the trial court allowed recovery of about $200 for “TIFF Production,” “PDF Production” and “CD Copy” only. Gallo filed an appeal.

The Fourth Circuit provided an overview of § 1920(4), following its development from 1853 to the most recent version adopted in 2008. The court rejected Country Vintner’s argument that the statute applies “only to the costs related to materials attached to dispositive motions or produced at trial,” finding that the circuits in which the issue has been considered allow the taxing of the costs of copies in discovery. Emphasizing that “taxable costs are a fraction of the non-taxable expenses borne by litigants for attorneys, experts, consultants, and investigators,” the court also rejected Gallo’s argument that its ESI processing charges constitute the “costs of making copies … necessarily obtained for use in the case.” In this regard, the court was also persuaded by the Third Circuit precedent.

Regarding Gallo’s argument that ESI processing charges are taxable as “fees for exemplification,” the court noted a circuit split on the matter, but determined it need not interpret this part of § 1920(4), because the processing would not constitute “exemplification” under any interpretation. Thus the court affirmed the lower court’s determination that “only the conversion of native files to TIFF and PDF formats, and the transfer of files onto CDs, constituted ‘making copies’ under § 1920(4).”