Taxation of E-Discovery Costs – What Might You Be On the Hook for at the End of the Case?
By: EMILY E. DUKE
May 2, 2012
Two cases out of the Federal Courts in Pennsylvania have many debating the pros and cons of whether courts should award e-discovery costs to prevailing parties. The taxation of costs statute allows “fees for exemplification and the costs of making copies of any materials … necessarily obtained for use in the case.”
In May 2011, a court in the Western District of Pennsylvania awarded the prevailing party over $365,000 in vendor costs associated with e-discovery under the taxation of costs statute. The costs allowed included: preservation and collection of electronically stored information (ESI), processing the ESI, keyword searching and privilege culling, scanning and formatting of the ESI, and creating searchable images. Nearly six months later, a sister court in the Eastern District of Pennsylvania awarded the prevailing party over $500,000 in e-discovery costs. The award included costs associated with processing, de-duplicating, hosting, and keyword searching electronic data. It also awarded forensic restoration costs. About the only thing it didn’t award was concept searching, as that was “advanced technology” used for the convenience of counsel.
The May 2011 case was appealed, and recently the Third Circuit issued a ruling significantly scaling back the taxation of costs. The Third Circuit held that scanning documents and converting ESI to a format agreed upon by both sides (in that case, TIFF format) were the only taxable costs because only those tasks were actually “making copies of materials.”
The issue of exactly what e-discovery costs are taxable has become the subject of heated debate amongst the bar. Some practitioners argue that electronic data is far more complex than paper, and it requires specialized handling and analysis that is substantially different than the processing of paper discovery. These practitioners argue that as technology has advanced, and the volume of electronic data has exploded, copying is no longer a simple matter of going to the file cabinet and slapping paper on a copier. Just copying the data from a client’s servers must be done in a manner that preserves electronic “fingerprints” or metadata – something that can be an expensive proposition. Others, argue that the statute only allows replication costs, and that much of this specialized handling simply functions as a tool to reduce the volume of data requiring attorney review, something that is purely for the convenience of the parties and that the statute was never intended for.
In the District of Minnesota, $100,000 in e-discovery costs were recently awarded to the prevailing party in a multi-party civil liberties ($162k was requested) case that lasted over two years and involved over 40 days of depositions and 230,000 pages of documents. The court awarded $100,000 in e-discovery costs, including forensic imaging of computers and, apparently, costs for a competitively-bid document management system. So stay tuned to see how the debate continues in your jurisdiction!
In re Aspartame Antitrust Litigation, No. 07-CV-1732 (E.D. Pa. October 5, 2011).
Race Tires of America, Inc. v. Hoosier Racing Tires Corp., No. 07-1294 (W.D. Pa. May 6, 2011); reversed in part by No. 11-2316 (3d Cir. March 16, 2012)
American Civil Liberties Union of Minnesota v. Tarek ibn Ziyad Academy et al., No. 09-CV-00138 (February 28, 2012)(Judge Donovan W. Frank).