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On May 6, 2011, in Race Tires Am., Inc. v. Hoosier Racing Tire Group Corp., No. 2:07-cv-1294, Judge Terrence F. McVerry of the United States District Court for the Western District of Pennsylvania, held that $367,000 of the defendants’ e-discovery costs were recoverable under 28 U.S.C. § 1920(4), which awards costs to a prevailing party in litigation. The recoverable e-discovery costs included fees charged by e-discovery vendors for creating a database to comply with the case management plan’s e-discovery requirements, forensically collecting and imaging hard drives, scanning documents to create electronic images pursuant to the parties’ agreement, processing and indexing electronic discovery data, extracting required metadata field from electronic records, enabling documents to be OCR searchable and converting documents to the TIFF format agreed upon by the parties. This opinion will be a cause of celebration to some, but may reflect the specific context of this particular litigation rather than a trend towards the routine shifting of fees charged by e-discovery vendors as taxable costs.

In Race Tires, the defendants had prevailed on their motion for summary judgment in the district court. The Third Circuit affirmed the grant of summary judgment and the defendants subsequently filed a Bill of Costs, requesting approximately $390,000 in e-discovery costs. The Clerk of Court determined that the defendants’ e-discovery costs should be taxed in the reduced amount of approximately $367,000.

The plaintiffs objected to the e-discovery costs taxed by the Clerk of Court and argued that they should be disallowed because electronic document collection, hard drive imaging and indexing and searching were not specifically enumerated under 28 U.S.C. § 1920(4) and therefore were not recoverable.

Judge McVerry rejected the plaintiff’s position. Judge McVerry first noted that, from the litigation’s outset, the parties and court had anticipated discovery would take place in the form of electronically stored information (“ESI”). Indeed, the parties had negotiated and the court entered a detailed case management plan and scheduling order which specifically addressed ESI. The court also noted that there were numerous discovery disputes, most often involving the production of e-discovery.

28 U.S.C. § 1920(4) allows recovery of “[f]ees for exemplification and the costs of making copies of any materials where the materials are necessarily obtained for use in the case.” Thus, the court started with how to apply the terms “exemplification” and “copying,” which originated in “the world of paper,” to the world of ESI.  Judge McVerry noted that, while some courts defined the terms “exemplification” and “copying” narrowly to focus on the physical preparation and duplication of documents, other courts took a broader view which accounted for the changes in technology.

Judge McVerry then reasoned that, although the Third Circuit has not yet addressed the issue of whether e-discovery costs are taxable under 28 U.S.C. § 1920(4), other courts had found that they were taxable, including the Sixth and Seventh Circuits. Judge McVerry also noted that another district court held that electronic scanning of documents was the “modern-day equivalent of exemplification and copies of papers” and therefore could be taxed.

In addition, Judge McVerry found that a number of district courts had held that invoices from e-discovery vendors were properly taxable when the services provided by the vendors were technical, rather than the type of services that attorneys or paralegals could provide. These technical services included forensic collection and processing of documents, creation of a litigation database and even the conversion of paper documents into electronic documents where the parties agreed that responsive documents would be produced in electronic format. 

Judge McVerry concluded that “the requirements and expertise necessary to retrieve and prepare [] e-discovery documents for production was an indispensable part of the discovery process,” and therefore that e-discovery costs were appropriately taxable. When reaching this conclusion, Judge McVerry noted that the parties had agreed upon producing documents in an electronic format and the plaintiff aggressively pursued e-discovery. The court also found that plaintiff requested and defendants produced a massive quantity of data that needed to be collected and processed before production.

The court then found that the Clerk of Court had appropriately taxed costs of approximately $367,000 and reasoned that, “[a]lthough the amount of costs assessed in this action is significant,” they were, in fact, incurred and could not be considered to be “‘puffed,’ exorbitant or contrived.”

Undoubtedly, prevailing parties will embrace the Race Tires holding in their efforts to recoup e-discovery fees. Those parties, however, should take note of Judge McVerry’s concluding statement — “the facts and circumstances of this case were unique and for that reason, this Memorandum Opinion should not be read as a pronouncement or representation of how this Court or any other member of this Court will rule on future disputes regarding the costs of e-discovery.”

For more information on this case, or general e-discovery obligations, please contact a member of Buchanan Ingersoll & Rooney's E-Discovery Team.