Electronic discovery costs recoverable by a prevailing party under 28 U.S.C. §1920

June 11th, 2009 | By Steve Puiszis

Kellogg Brown & Root, Intern., Inc. v. Altanmia Commercial Mktg. Co. W.L.L., 2009 WL 1457632 (S.D. Tex. May 26, 2009)

In one of our prior posts, we discussed the types of ediscovery costs that a prevailing party can recover under Fed. R. Civ. P. 54. The Kellogg Brown & Root (“KBR”) decision addresses that issue. Much of the ediscovery costs which the prevailing party in KBR sought to recover were incurred either before the opposing party issued its discovery requests or after the court entered summary judgment for the prevailing party. Thus, Kellogg Brown, as the prevailing party, could not demonstrate that those ediscovery costs were “necessarily obtained for use in the case.”

The KBR decision was written by the highly respected Judge Lee Rosenthal, who chairs the Judicial Conference Committee on Rules of Practice and Procedure. In KBR, Judge Rosenthal comprehensively reviews the relevant decisions which have addressed the recovery of ediscovery costs under 28 U.S.C. §1920, and identifies a “circuit split” on one point directly relevant to the types of costs that may be recovered under §1920(4). Accordingly, KBR is a decision well worth your time to review when addressing the issue of recoverable ediscovery costs.

The KBR lawsuit stemmed from an agreement in which Altanmia agreed to transport fuel from Kuwait to Iraq. The dispute involved whether Kellogg Brown was responsible for reimbursing Altanmia for the cost of vehicles lost or damaged in fulfilling that contract. After the Court entered summary judgment in favor of Kellogg Brown, it submitted a bill of costs seeking reimbursement under 28 U.S.C. §1920(4) for “exemplification and copies of papers.” Under §1920(4), a prevailing party may seek the recovery of fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.

Kellogg Brown claimed that much of those costs involved “data extraction and storage” stemming from its the use of a third-party ediscovery vendor. Kellogg Brown claimed that after Altanmia served its request for documents, it had to access its back-up tapes and send those tapes to a vendor to extract and store responsive information.

Judge Rosenthal began her analysis by noting that under Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 441-42 (1987), a district court may not award costs falling outside of §1920’s statutory categories, and may decline to award costs even when they fall within those categories. She then noted a circuit split on the meaning of “exemplification” as the term is used in §1920(4).

The Seventh Circuit, in Cefalu v. Village of Elk Grove, 211 F.3d 416, 427 (7th Cir. 2000), adopted a broad definition of the term “exemplification.” As we noted in our prior post, the Seventh Circuit in Cefalu explained that exemplification “signifies the act of illustration,” and concluded that in view of the “illustrative purpose of exemplification,” so long as “the means of presentation furthers the illustrative purpose of an exhibit… it is potentially compensable.” Other circuits however, have adopted a narrow definition of §1920(4) based upon the definition of exemplification from Black’s Law Dictionary as: “An official transcript of a public record, authenticated as a true copy for use as evidence.”

Judge Rosenthal noted that the terms “‘exemplification’ and ‘copying’ originated in and were developed in the world of paper.” So it should come as no surprise that courts have reached inconsistent results when applying those concepts to the world of electronic documents.

A number of courts have concluded that “electronic scanning and imaging” is tantamount to exemplifying and copying papers. See BDT Products, Inc. v. Lexmark Intern, Inc., 405 F.3d 415, 419-20 (6th Cir. 2005); Brown v. McGraw-Hill Cos., Inc., 521 F.Supp. 2d 950 (N.D. Iowa 2007). Even so, the costs of scanning documents for production and use in an electronic format are not recoverable under §1920(4) when the scanning is accomplished for the convenience of counsel and is not “necessary for use in the case.” Roehrs v. Conesys, Inc., 2008 WL 755187 at *3 (N.D. Tex. March 21, 2008); Conoco, Inc. v. Energy & Envtl. Intern., L.C., 2006 WL 734396 at *2 (S.D. Tex. March 22, 2006).

The Fells decision, which was the subject of our prior post, held that ediscovery costs involving the “initial processing, metadata extraction and file conversion” were not recoverable because they were not among the types of costs enumerated under §1920. The court in Fells refused to extend §1920(4)’s allowance for costs of exemplification and copying to cover the cost of extracting data, and converting files which thereby made the documents electronically searchable. However, those costs in Fells were incurred in developing a database for use in discovery which was ultimately abandoned and never used. Thus, the prevailing party in Fells could not show that those costs were “necessarily incurred” for use in that case.

Judge Rosenthal also observed that in a number of instances, district courts had rejected attempts to recover costs for work performed by an outside ediscovery vendor to search, find and retrieve discoverable ESI. Those courts have concluded that in a non-electronic document case, the same activities would be performed by paralegals or associates, and would not constitute compensable items of costs under 28 U.S.C. §1920. See, e.g., Klaymin v. Freedom’s Watch, Inc., 2008 WL 5111293 (S.D. Fla. December 4, 2008); Windy City Innovations, LLC v. America Online, Inc., 2006 WL 2224057 at *3 (N.D. Ill. July 31, 2006) (disallowing the costs of coding and keyword searching because “the computer document coding systems for which AOL was seeking costs ‘performed [ ] the work of an attorney, paralegal or law clerk would have to perform in its absence [and thus] expenses for such systems are more properly considered expenses incidental to an award of attorneys’ fees not costs of suit’ that are recoverable in a bill of costs”).

Judge Rosenthal noted that the ediscovery vendor in KBR processed Kellogg Brown’s tapes in order to locate, retrieve and store information that might be responsive to Altanmia’s production request. She concluded “the steps of extracting data from an electronic medium, and storing it for possible use in discovery is more like the work of an attorney or legal assistant in locating and segregating documents that may be responsive to discovery than it is like copying those documents for use in a case.” The extraction and storage “did not involve certification of public documents or the preparation of demonstrative exhibits.” Thus, Judge Rosenthal concluded that the costs which Kellogg Brown sought to recover did not fit within §1920(4)’s categories of exemplification and copying.

Judge Rosenthal also distinguished Neutrino Dev. Corp. v. Sonsite, Inc., 2007 WL 998636 at *4 (S.D. Tex. March 30, 2007), where the district court allowed the recovery of costs associated with extracting privileged metadata from ESI produced in discovery. In Neutrino, the prevailing party sought recovery of those costs under §1920(3) which permits the recovery of “fees and disbursements for printing.” Those costs were allowed because they were incurred in lieu of costly paper production because the defendant was attempting to save costs by not printing the documents. Judge Rosenthal observed that Kellogg Brown did not seek recovery under §1920(3) and thus, Neutrino did not support an award of costs for data extraction and storage under §1920(4).

Kellogg Brown submitted a sworn affidavit of its counsel that the costs it was seeking were “reasonable and necessary for the litigation.” Judge Rosenthal noted however, that many of the documents that were copied were not produced in discovery or submitted in motions filed with the court. Some courts have held that §1920(4) only encompasses costs of copying documents and exhibits received as evidence or prepared for use in presenting evidence, and not the costs of copying documents for production in discovery. So, for example, in Little Rock Cardiology Clinic, P.A. v. Baptist Health, 2009 WL 763556, at *3-4 (E.D. Ark. Mar. 19, 2009), the cost of reproducing ESI, including scanning and production of the data on a CD-ROM which was incurred for a discovery response was not recoverable under §1920(4) because costs for discovery production are not taxable in that court’s view.

Other courts, however, are far less restrictive and allow the recovery of costs for copies of documents or ESI produced in discovery. See, e.g., E.E.O.C. v. W & O, Inc., 213 F.3d 600, 623 (11th Cir. 2000) (explaining “copies attributable to discovery are a category of copies recoverable under §1920(4).” However, Kellogg Brown did not produce in discovery the data extracted by its third-party vendor, so it was essentially left in the same position the prevailing party in Fells, unable to show the costs were “necessarily incurred.” This factor, coupled with the fact that the invoices from the third-party ediscovery vendor revealed that much of the extraction and storage costs were incurred either before the defendants issued their discovery requests or after the court’s summary judgment ruling, doomed Kellogg Brown’s attempt to recover those costs.

Conclusion and Practice Considerations

Rule 34 allows parties to specify the production format of ESI. A party is no longer permitted to unilaterally decide to produce its data or documents in a paper format, which as KBR demonstrates, can make recovery of its production costs problematic under §1920(4). Noticeably absent from the decisions addressing the recovery of ediscovery costs under §1920 is the impact which this change to Rule 34 has wrought. Perhaps this is understandable since Congress has not seen fit to bring §1920 in line with modern practices now required under Rule 34. It seems odd that the federal rules would allow a party to specify production of the opponent’s discovery in a format other than paper, but not permit recovery of those costs which were necessarily incurred in lieu of copying those documents. That conundrum makes the rationale adopted by the district court in Neutrino in the context of §1920(3), understandable and appealing.

Courts have narrowly circumscribed the types of ediscovery costs that can be recovered under §1920(4), and many parties have not attempted to invoke other subsections of §1920 when seeking to recover at least some of their ediscovery costs. One hurdle that counsel has to overcome when seeking the recovery of ediscovery costs is to provide the court with an understandable explanation of the services that were provided. Simply relying on the “geek speak” contained in many ediscovery vendor invoices will likely result in those costs being disallowed. Judge Rosenthal noted the invoices she reviewed referred to “‘Extracted Data Storage’ or ‘Extracted Data and/or OM Storage.’” Remember that the party seeking the recovery of costs under §1920 bears the burden of proving then costs were “necessarily obtained.” While an item-by-item description is not required, KBR demonstrates that an attorney’s conclusory affidavit is not enough. Thus, counsel must be prepared to affirmatively demonstrate to the court’s satisfaction that the ediscovery costs were necessarily obtained for use in the case in order to have any hope of recovery.

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