Courts continue to struggle with the extent to which prevailing parties can recover their eDiscovery costs under 28 U.S.C. § 1920. On March 16, 2012, the Third Circuit addressed the recovery of eDiscovery costs, reversing the majority of the district court’s decision awarding defendants over $365,000 in costs, and limiting cost recovery to conversion of native files to Tagged Image File Format (TIFF) and the scanning of documents to create digital duplicates. Race Tires America Inc. v. Hoosier Racing Tire Corp., No. 11-2316 (3d Cir. Mar. 16, 2012). The Third Circuit “believed it imperative to provide definitive guidance to the district courts in our Circuit on the question of the extent to which discovery expenses are taxable.”

In discussing whether eDiscovery costs are recoverable, the Third Circuit noted that Section 1920 “define[s] the full extent of a federal court’s power to shift litigation costs absent express statutory authority,” and that the question of whether a particular expense falls within the purview of Section 1920, and thus may be taxed in the first place, is an issue of statutory construction, subject to de novo review.

The Court stated that the question presented was whether Section 1920(4) authorizes the recovery of charges for “data collection, preservation, searching, culling, conversion and production as either the ‘exemplification [or] the … making [of] copies of materials where the materials are necessarily obtained for use in the case’”. In deciding to exclude many of the claimed costs for collection and preservation, processing, and review, the Third Circuit held that only the conversion of native files to TIFF and the scanning of documents “are generally recognized as the taxable making copies of materials.”

The decision in Flagg v. Detroit, 2011 WL 6131073 (E.D. Mich. Dec. 9, 2011) is the latest in a series of decisions related to the City of Detroit’s destruction of relevant evidence. In this decision, the court considered the city’s objections to the plaintiff’s attorneys’ fees and costs, and it demonstrates the danger of overreaching in making claims for attorneys’ fees and costs. Although the court noted that the city’s failure to provide a consistent and straightforward account of what documents were destroyed had added to the plaintiff’s fees and costs, the court dramatically reduced plaintiff’s requested attorneys’ fees from the $715,342.50 to $150,000 and reduced its requested costs $20,279.63 to $17,000. In doing so, the court concluded that the plaintiff’s rates as well as the number of hours were too high given that the tasks did not demand an especially high level of legal skill and some of the hours claimed were not attributable to the city’s destruction of evidence. The court also noted that other aspects of the plaintiff’s billing records reflected overreaching, such as two attorneys billing twenty-one hours to the matter in a single day and multiple attorneys appearing at each day of a five-day evidentiary hearing.

In In re Aspartame Antitrust Litigation, 2011 WL 2793239 (E.D. Pa. Oct. 5, 2011), after extensive electronic discovery, the district court granted defendants’ motion for summary judgment and the clerk of the court granted costs as requested in defendants’ bills of costs. Plaintiffs asked that the costs be denied or reduced. In considering the request, the court noted that the electronic discovery in the case was a “staggering” 1.5 terabytes, and the largest portion of the disputed costs related to the creation of “a litigation database, conducting keyword and privilege screens … making documents OCR searchable, [and] extracting metadata and related activities.” The parties had worked together to use keyword filtering and de-duplication, and the district court was persuaded by the cost effective measures taken. The court examined each service actually performed and considered whether the cost was reasonable. Costs related to database creation, data storage, hard drive imaging, keyword searches, deduplication, data extraction and processing, privilege screening, creation of CDs and DVDs, hosting costs, OCR costs, formatting productions, fee load file creation, and technical support were all deemed taxable and reasonable. The court denied costs for the defendants’ review tool, document branding, bates labeling, and converting TIFFs to PDFs because such services were for the convenience of the attorneys and not a necessity.

Another recent decision also addressed an award of costs for electronic discovery services. In Synopsys Inc. v. Ricoh Co., No. 2011-1199, (Fed. Cir. Nov. 23, 2011), the court considered whether third party electronic database service costs were taxable, and if so, if the parties’ agreement to share this cost was binding on the court. Applying Ninth Circuit law to interpret 28 U.S.C. § 1920, which places the burden on the non-prevailing party to demonstrate why costs should not be awarded, the court ruled that the database cost was taxable. Moreover, Section 1920 expressly recognized “contractual authorization” to exempt a taxable cost. Given this exemption, the prevailing party could not now reject its agreement to cost-share by shifting its payment responsibilities to the non-prevailing party and seeking reimbursement for those agreed costs.

Chief Judge Irma Gonzalez has also recently considered a claim for electronic discovery costs in Jardin v. DATAllegro, Inc., 2011 WL 4835742 (S.D. Cal. Oct. 12, 2011). She dismissed plaintiff’s contention that there should be no award of costs, holding that where there was good faith, costs should not be denied, even if the issues are close and difficult and there is economic disparity between the parties that does not involve financial hardship. Acknowledging that authority is mixed as to whether costs related to electronic discovery are recoverable, Chief Judge Gonzalez further explained that “a categorical rule prohibiting costs for converting data into an accessible, readable, and searchable format would ignore the practical realities of discovery in modern litigation.” Generally, costs for physical preparation and duplication of documents are recoverable, while costs for the intellectual effort involved in their production are not. However, in the present case, such conversion was necessary for the litigation due to the sheer volume of data involved. The court also held that costs for project management—overseeing the process of converting data into TIFF format to prevent errors or duplicative processing—were recoverable because project management did not constitute “intellectual effort involved in document production.”