Defendants in federal court may now be armed with a new weapon to deter onerous discovery demands. A recent ruling by the Clerk of Court for the U.S. District Court for the Eastern District of Pennsylvania allowed the taxation of more than $576,000 in costs, including the costs of eDiscovery, against the losing plaintiffs. The potential for taxation of eDiscovery costs reflects a recent trend, particularly in the Third Circuit, and may provide defendants with significant leverage in resisting burdensome discovery requests.
In Hank’s Beverage Co. v. Ajinomoto Co., et al., No. 06-cv-1732 (E.D. Pa.), the plaintiffs’ price-fixing claims against defendant aspartame manufacturers were dismissed as time-barred by the trial court. After the Third Circuit upheld the dismissal, three defendants each submitted a bill of costs to the Clerk of Court requesting a cumulative amount of more than $576,000 from the plaintiffs. On July, 26, 2011, the Clerk granted the defendants’ application for costs, finding that there is a “heavy presumption” that the prevailing party is automatically entitled to costs if they are the type set forth by the federal statute governing taxation of costs, 28 U.S.C. § 1920. The eDiscovery costs were approved pursuant to Federal Rule of Civil Procedure 54(d)(1) and 28 U.S.C. § 1920(4), which allows for taxation of “fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” The Clerk noted a critical change to the language of Section 1920(4), which was amended in 2008. That amendment changed the phrase “fees for exemplifications of copies of papers” to “fees for exemplification and the costs of making copies of any materials.”
The most important part of the ruling is the Clerk’s finding that “the costs of hiring a private company that possesses the technology to search for, and/or recreate, copies of evidence in electronic form" are taxable because "neither attorneys nor employees of attorneys are competent to conduct such a search or recreate such documents in paper format."
In so ruling, the Clerk rejected plaintiffs’ argument that good faith and the economic disparity of the parties were relevant factors in taxation of costs. The Clerk’s ruling is subject to appeal to the Eastern District of Pennsylvania.
The decision in Hank’s Beverage comes on the heels of an opinion from another federal court in Pennsylvania approving taxation of nearly $360,000 in eDiscovery costs to a prevailing party under Rule 54(d)(1) and 28 U.S.C. § 1920(4). In Race Tires America, Inc. v. Hoosier Racing Tire Corp., No. 2:07-cv-1294, 2011 WL 178620 (W.D. Pa. May 6, 2011), the district court noted that no federal court has categorically disallowed taxation of eDiscovery costs since the 2008 amendment to Section 1920(4). This case is currently on appeal to the Third Circuit. Taken together, the Hank’s Beverage and Race Tires cases reflect a trend, at least in the Third Circuit, toward taxation of eDiscovery costs.
The impact of the decision in Hank’s Beverage on the rising cost of eDiscovery and the parties willingness to engage in meaningful discussions concerning the scope of document production remains to be seen. On the one hand, it is important to note that neither Hank’s Beverage nor Race Tires provides for taxation of attorney review time—ordinarily the largest eDiscovery expense—and instead are limited to vendor costs associated with collection, processing, and production of electronic data. It is also possible that the Eastern District of Pennsylvania, the Third Circuit, or other federal circuits will take a different view on the taxation of eDiscovery costs.
Still, there is no question that the potential taxation of even some eDiscovery costs is a potentially significant development for defendants struggling with rising discovery bills. (A recent study found that the average costs of eDiscovery for corporate defendants is approximately $3 million per case.)1 The potential to recover vendor costs associated with eDiscovery provides defendants with a very significant negotiating chip in their efforts to push back against unduly burdensome discovery requests.