Legal View: To the victor go e-discovery costs?

By John C. Nutter
The Daily Record Newswire

The party who obtains a judgment in a lawsuit in federal court is generally entitled to seek an award of costs and disbursements. The categories of recoverable costs are set forth in 28 U.S.C. § 1920.

In recent years, e-discovery costs have become a major issue in the outcome of many areas of litigation. The costs of gathering and preparing electronically stored information for production can be staggering and can alter the balance of power in a contested litigation. Given the level of these costs, attorneys for successful litigants in federal court have lately begun attempting to include them in the bill of costs.
28 U.S.C. § 1920 provides that the court or the clerk may tax “fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” Some federal courts have recently allowed the recovery of e-discovery consultant costs under this provision. The amounts recovered are not small change.

For example, in CBT Flint Partners LLC v. Return Path Inc., 676 F. Supp. 2d 1376 (N.D. Ga. 2009), the Northern District of Georgia allowed the successful defendant to collect e-discovery costs in its bill of costs. CBT Flint involved a patent infringement claim in which the defendant was granted summary judgment dismissing the claim after discovery. The defendant sought $243,453 in costs it paid to its e-discovery vendor for assisting with collection, searching, identification and production of electronically stored information.

The court weighed the issue carefully but determined that the costs were properly recoverable by the prevailing defendant, because the services provided are the “21st century equivalent of making copies.”

The court specifically noted that the plaintiff had requested a large volume of information in its discovery requests and stated that “taxation of these costs will encourage litigants to exercise restraint in burdening the opposing party with the huge cost of unlimited demands for electronic information.” In total, plaintiff was charged with more than $250,000 in costs.

Other courts have considered the types of services provided by the e-discovery vendor in determining whether the costs are recoverable. For example, the Sixth Circuit affirmed a recovery of costs for electronic scanning and imaging because such services “could be interpreted as exemplification and copies of papers” under 28 U.S.C § 1920, see BDT Prods. Inc. v. Lexmark Int’l Inc., 405 F.3d 415 (6th Cir. 2005). There, plaintiff was assessed more than $348,000 in costs.

Another court allowed the recovery of e-discovery costs associated with preparation of a privilege log and the creation of hard drives, CDs and DVDs used to transfer the parties own data so that it could be reviewed electronically.

Other federal courts, including the Eastern District of New York, have declined to tax such costs. In Morgenstern v. County of Nassau, 2009 WL 5103158 (E.D.N.Y. 2009), that court found that e-discovery consultant costs were akin to expert witness fees and thus not recoverable.

Another court did not allow recovery of costs for electronic data extraction and storage. The court compared this process to the work by an attorney or paralegal in locating and segregating documents for production, which is not recoverable under the statute, rather than actually copying documents; see Kellogg Brown & Root Int’l Inc. v. Altanmia Comm. Marking Co., 2009 WL 1457632 (S.D. Tex. 2009).

The concept of recovering e-discovery costs does not appear to have taken off in New York state court. This is most likely because CPLR 8301, contrary to the federal statute, only allows recovery of copy costs for certified copies used for trial and reasonable expenses for “printing” papers for a hearing.

This development is a cautionary tale for parties, especially plaintiffs in federal court, whose claims turn out after discovery to be weaker than initially expected. These parties now face the prospect of having their claims dismissed and being assessed a large bill of costs in addition to the legal fees they have already paid their attorneys.

Thus, a party defending a potentially weak and frivolous claim that cannot be dismissed before discovery should consider making the opponent aware at an early stage that it may be subject to a large bill of costs. It is also important to carefully tailor discovery requests which involve electronically stored information. Of course, the balance is difficult for the requesting party as its primary goal is to obtain anything relevant in discovery.

Given the level of costs involved, I would expect this issue to reach more of the Circuit Courts in the coming years. 
          
John C. Nutter is an associate with the Rochester, N.Y., litigation law firm of Leclair Korona Giordano Cole LLP. He concentrates his practice in the areas of commercial, securities and employment litigation. He can be reached at jnutter@leclairkorona.com or through the firm’s website at www.leclairkorona.com.