Closing The Loop

A case challenging whether it is lawful for a prevailing party in litigation to recover eDiscovery fees, often the most daunting of all legal costs, has percolated up to the Eighth Circuit Court of Appeals, where a three-judge panel has been asked to void the ruling of a lower court denying $250,000 in data processing costs incurred by defendant H&R Block. While other appellate courts have considered the question -- all drawing the same conclusion, that expenses that can be construed to fall under the federal cost-taxing statute's "copying" language are recoverable -- few if any have been prompted to interpret the seemingly narrow definition of that word so broadly.

Specifically, the prevailing defendant has asked for all costs incurred for stages of the discovery process that entail duplication of data, from ingestion and metadata extraction for load file creation through to imaging and Bates endorsements for production. It has also demanded that the circuit court clarify "that taxable ESI-related copying costs can include costs for tasks such as hard drive imaging" -- opening a window for parties to recover costs related to data collection and, even, preservation.

But perhaps most significantly, the prevailing defendant has asked for awards in part on the basis that the plaintiff's demands were, in so many words, unnecessarily burdensome -- even though the plaintiff's formatting requests, TIFF images with corresponding load files, appear to be standard practice.

In pertinent part, attorneys for H&R Block argue:

"If parties are allowed to make costly demands requiring the production of ESI in a specified format, while knowing that they risk paying only a fraction of the expenses that will necessarily be incurred for reproducing the data in that format, they can—and no doubt will—multiply the expenses that they impose on their opponents in order to obtain additional leverage in settlement negotiations and the associated litigation."

That statement is potentially at odds with the requirements in Rule 34(b), where requesting parties are permitted to specify the forms in which ESI is to be produced and where producing parties "must" either disclose information as it kept in the usual course of business or, otherwise, organize and label it to correspond with requests. Failures toward these ends often manifest as "document dumps," weapons often used to bury requesting parties.

But the defendant's arguments also cut to the very heart of the debate over how and whether to tax eDiscovery costs against losing parties, and the dynamics at play. On the one hand, as the Supreme Court has said, “[t]he threat of discovery expense will push cost-conscious defendants to settle even anemic cases before reaching [merits] proceedings.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 559 (2007).  And, it might add, "well-funded defendants who think they can settle anemic cases for less than it would cost to see its defenses through to victory."


"The defendant's arguments also cut to the very heart of the debate over how and whether to tax eDiscovery costs against losing parties, and the dynamics at play."

On the other hand, some have argued, the specter that a losing plaintiff may have to pay its opponent's eDiscovery costs, often among the most onerous in litigation, can deter plaintiffs from bringing claims in the first place. The cost recovery issue looms especially large in cases where parties are not equally balanced in terms of funds and information. Often, it is the case, as it is here, that requesting parties are at a resource disadvantage, but, at the same time, are also on the receiving end of the vast majority of electronic evidence.

(To be sure, though, the plaintiff in the H&R Block case, whose lawyers sued over a $4 "compliance fee" and whose claims were tossed upon summary judgment, makes far from a perfect victim. The case arises out of a putative class action brought by the plaintiff, Ronald Perras.)

Taxing Rule 34 Compliance? 

In siding with the prevailing defendant, the appellate court would add another powerful voice to the growing body of case law from the Sixth, Ninth, Fourth, Third and Federal Circuits suggesting that where a losing party has requested ESI "in a specific format," the prevailing party is entitled to the costs it incurred to duplicate information in the requested manner.

The H&R Block court, paraphrasing the Federal Circuit in In re Ricoh Co. Patent Litigation, framed it this way:

"'If a party from whom documents are sought is subject to no particular requirements governing the format or other characteristics of the produced documents,' only the costs of a simpler process will be chargeable under section 1920(4). The requesting party, the court noted, can weigh the advantages of a more comprehensive production of ESI in a way that facilitates review against a less sophisticated process that, though less expensive, may 'significantly complicate other needed aspects of the litigation process.'”

In the cost-taxing cases that have come before other circuits, appellate courts have been faced with how to allocate costs associated with rigorous production requirements -- such as the hoops to produce delicate source code through which parties had to jump in CBT Flint Partners, LLC v. Return Path, Inc., 737 F.3d 1320, 1328 (Fed. Cir. 2013). The H&R Block case, where the prevailing party appears to have been asked to turn over ESI in a commonly requested form -- TIFF images with corresponding load files -- puts a fine point on the fact that courts are willing to tax costs against losing parties who specify any form of production at all, as Rule 34 explicitly allows.

The coalescence of jurisprudence around this line of thinking may strike some as especially curious...

The coalescence of jurisprudence around this line of thinking may strike some as especially curious given the increasing acceptance that ESI must be produced in such a way that essential metadata is included and that, given the proliferation both of complex information subject to litigation and the potpourri of proprietary tools used to make sense of this data, almost any production that is to be usable for evidentiary purposes likely must be technically tailored in some way. (Editor's note: Logikcull, which does not require load files, is an exception in this regard).

Cost-recovery: Another Turn in the Spotlight 

The cost-taxing issue,  attention to which has waxed and waned since the Third Circuit's seminal ruling in Race Tires America, has come to life due to the soaring costs of litigation associated with electronic information, and to the rewriting by Congress of the federal cost-taxing statute, 28 U.S.C. § 1920(4). In 2008, it was revised to include "fees for exemplification and the costs of making copies of any materials...." Previously, it only addressed "fees for... copies of paper." (emphasis added) (The cost-taxing statute works in tandem with Rule 54, which allows costs other than attorneys' fees to prevailing parties.)

The amended language was intended to reflect the reality that evidence is increasingly electronic-based, but, on the whole, appellate courts -- when faced with interpreting the meaning of the ambiguously-worded statute -- have typically favored narrow awards for activities, such as conversion of documents to different formats and document imaging, that are clearly true to the semantic meaning of "copying." These processes, courts have said, are the electronic equivalent to paper-based tasks like photocopying: the physical duplication of materials.

To the contrary, at the district court level, guidance has been -- and still is -- far from clear.

Prior to the Third Circuit's 2012 decision in Race Tires, which vacated a wide range of eDiscovery costs taxed against a losing plaintiff, some courts had allowed awards blanketing a broad range of costs (including those, in one instance, for predictive coding), while considering a variety of factors such as whether the discovery task is performed for convenience of counsel (generally not taxable) or to secure materials that are "necessarily obtained for use in the case" (generally taxable, as 1920(4) indicates).

The Race Tires court, the first circuit to address the issue, pumped the breaks on broad awards, concluding only costs for scanning and file format conversion -- less than 10 percent of all eDiscovery costs by some estimates -- could be recouped by 1920(4).

Then, on the heels of Race Tires, the Supreme Court decided in Taniguchi v. Kan Pacific Saipan, Ltd., 132 S.Ct. 1997 (2012), that a prevailing defendant seeking costs of translating documents could not recover those by Section 1920(6), which allows costs for “interpreter” fees. Though eDiscovery costs were not at issue in that the case, the court's decree that all taxable costs are “limited by statute and modest in scope” was thought to have closed the door on the awarding of any expenses that weren’t expressly outlined in the cost-taxing statute.

But since then, other courts to have considered the question have failed to come to a consensus over the statute's exact meaning and intent, and have, in some cases gradually expanded the scope of costs allowed by the "copying" language.

The immediate case is Ronald Perras v. H&R Block, Inc. It is on appeal from the Western District of Missouri. The case has been screened for oral argument, though a date has yet to be calendared. The defendant's appellate motion is available here.

This post was authored by Robert Hilson, a director at Logikcull.com. He can be reached at robert.hilson@logikcull.com.

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