Closing The Loop

Normally, parties are responsible for paying their own costs. But as litigants have grown more assertive in their attempts to recoup those costs upon obtaining successful judgments, court orders requiring the losing party to pay the prevailing party’s discovery-related costs have become increasingly commonplace.

Despite arguments to the contrary, these decisions and the legal battles upon which they are based -- where parties must make arguments for and against which costs can be recovered and why -- appear to have little precedential consequence because the costs are case-specific and, so far at least, the courts’ analyses lack consistency. But these cases are incredibly revealing of how judges and litigants think about discovery, of their confusion over how the mechanics of modern discovery actually work, and of the conspicuous lack of imagination as to how discovery can be done better.

The latest such example comes out of Chicago, where a federal judge has denied some $60,000 in discovery costs incurred for data processing and hosting that a prevailing defendant attempted to recover. That January 26 order in Intercontinental Great Brands vs. Kellogg can be read here.

At the heart of this and decisions of similar subject matter are attempts to decipher which if any costs associated with "electronic discovery" can be interpreted to fit within the confines of the federal cost-taxing statute. That law, which works together with Federal Rule 54, allows winning parties to recover from losing parties "fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case."

This word salad is hard enough to understand as is. But judges must clear the additional, more treacherous hurdle of trying to figure out what its authors intended for the statute to mean when they revised it in 2008 to account for the advent of "e-discovery" and whatever the understanding of that nascent process was at the time.

As the Third Circuit explained in the influential Race Tires America v. Hoosier Racing Tire Corp case:

"(Lawmakers were) asked to consider whether the list of taxable costs should be amended to include expenses associated with new courtroom technologies....

The(ir) most recent amendment to the statute... permitting an award to the prevailing party of the cost of making copies of 'materials,' plainly signifies that § 1920(4)'s allowance for copying costs is not limited to paper copying. We must accordingly decide whether any of the electronic discovery vendor charges in this case qualify as the 'costs of making copies of any materials.'"

For a prevailing party to recoup its costs, two conditions must be met. First, those fees must fit whatever definition of "exemplification and the costs of making copies of materials" the presiding judge decides to impose. And second, the judge must deem that the fees were incurred to reproduce materials that were "necessarily obtained for use in the case" which excludes from recovery, for example, costs incurred to reproduce materials that were obtained for the convenience of counsel.

The only "e-discovery" activities that most every court agrees fall within the definition of "making copies" are file conversion and electronic scanning. By contrast, as the Race Tires court said and the Kellogg court has now reiterated, "gathering, preserving, processing, searching, culling, and extracting ESI... simply do not amount to 'making copies.'"

Does modern discovery not involve copying?

It's of course true that, with physical evidence -- a knife, for instance -- gathering the knife, preserving it, preparing it to be analyzed, examining it, and presenting it in court does not at any step entail "copying" the knife. There is only one knife.

But that's not how electronically stored evidence works. And assertions to the contrary only serve to reinforce outdated notions of how discovery is performed, and foster misunderstanding as to how it occurs in modern practice.

Consider how Logikcull is used. Users drag-and-drop files into the browser-based platform, thereby copying those files. Files are then imaged, or copied, for review. And additional copies of files are created every time a production is created, and each time the production is downloaded for use outside the system.

In other words, copying is an essential element of modern discovery. Performing a forensic collection is copying. Preserving evidence usually entails copying. Producing out of a database is copying.

So what should be made of the Kellogg court's denial of discovery costs on the basis that "'processing' costs (are) not recoverable because services leading up to the actual production do not constitute 'making copies'"?

For one, technology has the effect of rapidly dating discovery-related case law. The Kellogg court's arguments in denying costs mainly relied on the Third Circuit's assessment of discovery in Race Tires, which occurred in 2008. Discovery was a very different process then, and the tools it required were not nearly as powerful as those available today. Yet neither an analysis of the process or consideration of the tools appear to have changed.

The greater implication is that some discovery-related case law -- partly because it is naturally backward looking and often grounded in paper-days assumptions, and partly because many of its authors and participants are not well-versed enough in the subject matter to be accurately authoritative -- reinforces antiquated views and methods of discovery. Potential consequences may be that innovation is slowed and adoption of innovative solutions is discouraged, or at least not incentivized. What if, to use an extreme example, parties reverted to doing all-paper discovery because they felt, under this line of legal assessment, those costs were more likely to be recovered? (In fact, they are. See Kellogg's discussion of "blowbacks.")

In the cost-recovery arena, at least, the current legal framework does not, with exceptions, seem to make allowances for more efficient ways to perform legal services. In turn, as the volume of data continues to rise, proportionate outcomes may become harder to obtain.

Assessments of whether materials were "necessarily obtained" for use, which, to reiterate, is a precondition for cost recovery, also attest to a limited understanding of modern discovery practices -- and assume a linear "e-discovery" model where steps occur one after the other and distinctly from each other. This thinking yields decisions where, for instance, costs for native to TIFF conversion are recoverable, but those for OCR are not.

But with the advent of automation, discovery processes -- imaging, file conversion, flagging of potentially privileged files, data transfer, etc. -- are likely to occur concurrently. Some entail copying. Others do not. But they cannot be decoupled from one another. All activities must be performed in tandem for materials (discovery data) to be obtained, which is to say: They are all necessary.

This obviously complicates the determination of which costs are taxable and which are not. It is also true that the current cost-recovery framework does not account for the rise of flat-fee or subscription-based pricing, where costs for various products and/or services are bundled and nearly impossible to parse from one another.

Cost-taxing is among the niche issues grounded in, and limited by, outmoded thinking around discovery and legal technology. But it is symptomatic of broader systemic constraints that temper innovation and efficiency even as they are most needed.

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