The model ediscovery order for patent cases is groundbreaking. Just as the federal discovery rules presumptively limit parties to ten depositions, the model order presumptively limits the number of custodians from whom email can be sought. Its cost-shifting provisions will require parties to carefully consider the discovery they seek. It should reduce discovery costs and limit the gamesmanship that occurs with ediscovery. Too frequently, we find parties serving overbroad discovery requests or engaging in discovery about discovery, where the ultimate end game is not getting to the merits of a lawsuit, but rather to obtain discovery sanctions or force a settlement to avoid the cost of ediscovery. The model order will help parties address the merits of a claim sooner and achieve a quicker, less costly resolution. Many have puzzled over why jury trials are disappearing in federal courts. A major contributor is the cost of discovery. Limiting excessive ediscovery costs can only help civil jury trials flourish in our federal court system.

Read the full text of the article here.

After prevailing on a patent infringement claim, the defendant sought the recovery of its attorney’s fees and expenses. One of the items of expense claimed was $243,453.02 paid to an ediscovery vendor that collected, searched, identified and helped to produce electronic documents from the defendant’s network files and hard drives in response to the plaintiff’s discovery requests. The district court in CBT Flint Partners allowed the taxation of those costs in full against the plaintiff.

In several prior blog posts, we noted the wide divergence in the opinions addressing the taxation of ediscovery costs under 28 U.S.C. §1920. In some instances, the outcome turned on the particular subdivision of §1920 that the recovery was sought under, in others the prevailing party failed to demonstrate to the court’s satisfaction that the costs were “necessarily incurred” for use in the case, and in others, the prevailing party failed to adequately support or explain why the ediscovery costs were recoverable under any subdivision of §1920. We also highlighted a split in the circuits over the meaning of “exemplification” as the term is used in §1920(4). However, several of the decisions are difficult to reconcile and perhaps are best explained by how receptive a particular court is to the recovery of these types of costs in post-judgment proceedings. The Supreme Court, in Crawford Fitting Co. v. J. T. Gibbons, Inc., 42 U.S. 437, 441-42 (1987), explained that 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. Under that standard, a district court has ample discretion to deny the taxation of ediscovery costs on the losing party.

In CBT Flint Partners, the court noted that the parties agreed that their respective document productions would be made in an electronic format. Thus, it appears those costs were “necessarily incurred” for use in the case. However, the court did not address whether the challenged ediscovery vendor costs fit within any of §1920’s recoverable categories. Rather, the decision appears to be heavily influenced by policy considerations. The district court in CBT Flint Partners concluded “taxation of these costs will encourage litigants to exercise restraint in burdening the opposing party with the huge cost of unlimited demands for electronic discovery.”

The district court did note the division of opinion as to whether these types of costs are recoverable under §1920. It observed that the defendant “asserted – without contradiction – that production in paper form of the 1.4 million documents plus six versions of source code would have cost far more than the fees sought for the e-discovery consultant.” After carefully reviewing the invoices that were submitted to it, the district court ultimately ruled that the services provided were “highly technical in nature,” and “not the type of services that attorneys or paralegals are trained for or are capable of providing.” Thus, the court allowed the taxation of the ediscovery vendor’s costs in full.

Perhaps the lesson to be learned from CBT Flint Partners, is to be careful what you ask for in discovery. The cost of ediscovery in many instances can be staggering and the possible recovery of those costs by a prevailing party is a factor that cannot be ignored when developing and implementing your discovery and litigation strategies. While district court decisions are not precedential, the policy view expressed by the district court in CBT Flint Partners may resonate with other district court judges and will likely raise the price of poker in federal litigation.

The Report of the Judicial Conference Committee on Rules of Practice and Procedure (“Standing Committee Report”) which predated the enactment of the 2006 ediscovery amendments to the federal rules provided some insight. The Standing Committee Report did note that the features of an information system that make it burdensome or costly to access ESI can vary from system to system and will change over time. However, it provided several examples of “current technology” that do not generally fit under the rubric of reasonable accessibility. Those examples included “deleted information, information kept on some backup-tape systems for disaster recovery purposes, and legacy data remaining from systems no longer in use.” See THE NEW E-DISCOVERY RULES, Dahlstrom Legal Publishing, Inc. (2006) at p. 15. Unfortunately, that guidance was not carried over into the 2006 Advisory Committee Note to Rule 26(b)(2)(B).

The difficulty identifying and then proving that a particular source of information was inaccessible under the Rule has resulted in decisions such as Starbucks Corp. v. ADT Sec. Services, Inc., 2009 WL 4730798 *6 (W.D.Wash. April 30, 2009), where one court concluded:

The Court cannot relieve Defendant of its duty to produce those documents merely because Defendant has chosen a means to preserve the evidence which makes ultimate production of relevant documents expensive…. To permit a party to ‘reap the business benefits of such technology and simultaneously use technology as a shield in litigation would lead to incongruous and unfair results.

All is not lost, help has arrived. The task of identifying sources of ESI that are inaccessible has been streamlined by one of the principles promulgated in the Seventh Circuit’s Electronic Discovery Pilot Program. One of our prior blog posts highlighted the main features of the Seventh Circuit’s Pilot Program [Info about the program - PDF] which was developed in response to comments by the business community and practicing attorneys that the civil justice system’s pretrial discovery process is in need of reform. The purpose of the Seventh Circuit’s Pilot Program is to assist courts in the administration of Fed.R.Civ.P. 1 and secure “the just, speedy, and inexpensive determination” of every civil case.

A series of ediscovery principles were developed and codified into a standing order that is used as part of the Seventh Circuit’s Pilot Program. Principle 2.04(d) addresses the scope of preservation and identifies categories of ESI that are generally not discoverable in most cases. Those categories of ESI are:

• “Deleted,” “slack,” “fragmented,” or “unallocated” data on hard drives;
• Random access memory (RAM) or other ephemeral data;
• On-line access data such as temporary internet files, history, cache, cookies, etc.;
• Data in metadata fields that are frequently updated automatically, such as last-opened dates; and
• Backup data that is substantially duplicative of data that is more accessible elsewhere;
• Other forms of ESI whose preservation requires extraordinary affirmative measures that are not utilized in the ordinary course of business.

Principle 2.04(d) further provides that if any party intends to request the “preservation or production of these categories” of ESI, then that should be discussed at the party’s initial meet and confer conference or as soon thereafter as practicable. Obviously, Principle 2.04(D) streamlines the process of identifying inaccessible sources of information. While it does not categorically prohibit discovery of ESI from those sources, it suggests that discovery from them will not be permitted unless a good reason or compelling need is shown.

While this principle will primarily benefit those attorneys practicing in district courts within the Seventh Circuit’s boundaries, attorneys practicing outside of the Seventh Circuit’s “friendly confines” should be aware of principle and consider raising it as persuasive authority when resisting attempts to obtain discovery from those sources of ESI identified in Principle 2.04(d).

Please remember however, that identifying a source of ESI as inaccessible under Rule 26(b)(2)(B) does not obviate the client’s need to preserve that information. The Advisory Committee Note to Rule 26(b)(2)(B) highlights that conundrum by explaining: “whether a responding party is required to preserve unsearched sources of potentially responsive information that it believes are not reasonably accessible depends on the circumstances of each case.” Thus, the need to continue to preserve ESI from inaccessible sources should be another topic of potential discussion with opposing counsel at

Photo courtesy Flickr user eurleif under this Creative Commons license.

Several of our prior blog posts [e.g., here and here] have addressed how Rule 26’s proportionality principles can be used to control a party’s ediscovery costs. As we explained in one of those posts, because Rule 26(b)(2)(c) applies to all discovery requests, its proportionality standard potentially can be applied even to sources of electronic information that are reasonably accessible, so long as the burden or expense of the proposed discovery outweighs its likely benefit. And with the ABA reporting “Electronic discovery should be proportionate to [the] controversy,” we thought today would be a good time to post about a decision that applied Rule 26’s proportionality standard to a source of electronic information that was “reasonably accessible.” Addressing what it characterized as “a novel question,” the court in High Voltage Beverages granted the defendant’s request for a protective order under Rule to 26(b)(2)(c).

After the defendant produced 1.7 million pages of documents, plaintiff demanded that it search for alternative sources of documents relating to defendant’s investigation and selection of its VAULT mark. In response, defendant identified an additional 17 gigabytes (1.5 million pages) of documents from a senior executive which had been retained under litigation holds issued in unrelated lawsuits. Defendant did not object to producing that data, but because defendant believed it produced every document related to the clearance of its VAULT mark, defendant objected to incurring the cost of reviewing the documents. Defendant offered plaintiff the opportunity to key-word search the documents and plaintiff refused. In its request for a protective order, defendant explained that a de novo review of the 17 gigabytes of data would not result in the discovery of any documents that have not already been produced.

The court in High Voltage Beverages accepted the defendant’s representation that it had produced all documents in its possession concerning the VAULT mark and concluded the time and expense of reviewing the documents would be extraordinary. Thus, the court concluded that the burden and expense of the requested discovery outweighed its likely benefit and held the defendant did not have to review the data before producing it to the plaintiff. Therefore, the court denied plaintiff’s motion to compel and granted defendant’s motion for a Rule 26 protective order. It did require that defendant to again extend the opportunity to key-word search the documents prior to their production.

So the moral of the story is do not overlook Rule 26(b)(2)(c) cost-shifting arguments where appropriate. With the growing chorus that ediscovery costs are harming our civil justice system, courts are more likely to favorably consider Rule 26 cost-shifting arguments. Rule 26(b)(2)(c)’s proportionality standard can provide an effective tool to control your ediscovery costs.

Photo courtesy Flickr user Capt Kodak via this Creative Commons license.

A series of Principles Relating to the Discovery of Electronically Stored Information (“ESI”) were developed and codified in a standing order. These principles are intended to serve as supplemental procedural ediscovery guidelines for the parties in selected cases. Individual district court, magistrate, and bankruptcy judges in the Seventh Circuit have agreed to adopt the principles and implement them in selected cases during Phase I of the program, which runs through May 1, 2010.

Kenneth J. Winters, the Managing Director of the Sedona Conference®, and former Colorado Supreme Court Judge Rebecca Kourlis, the Executive Director of the Institute for Advancement of the American Legal System (“IAALS”) at the University of Denver, assisted in the development and review of these principles.

IAALS is developing questionnaires to assess the efficacy of the principles. The questionnaires will be completed by the judges and lawyers participating in Phase I of the program. The results of the IAALS’ questionnaires will be presented to the Seventh Circuit at its annual meeting in May, 2010. At that time, the program’s ediscovery principles will be reviewed and refined as needed. Phase II of the program is scheduled to proceed from June, 2010 through May, 2011. It is contemplated that in May, 2011, Phase II findings will be presented and the Seventh Circuit’s final ediscovery principles announced.

Among other things, the principles require in the event of a dispute during the meet and confer process, the appointment of an ediscovery liaison who should be prepared to participate in ediscovery dispute resolution. These principles also recognize that that Rule 26(b)(2)(C)’s proportionality principles should be applied when formulating a discovery plan; provide that sanctions can be imposed for the failure to cooperate and participate in good faith in the meet and confer process; identify categories of ESI, which are generally not discoverable in most cases; and provides that if a party intends to request the preservation or production of these categories of ESI, that such a request be discussed at the parties’ initial meet and confer session or as soon thereafter as practicable.

Some of the other noteworthy aspects of the Seventh Circuit’s principles include:

• Acknowledging Fed. R. Civ. P. 1’s forgotten role in ediscovery by providing the purpose of these principles is to assist courts in the administration of the Rule’s requirement of securing “the just, speedy, and inexpensive determination of every action and proceeding.”
• Recognizing that an attorney’s ethical duty of zealous representation is not compromised by conducting discovery in a cooperative manner.
• Specifying that Rule 26(b)(2)(C)’s proportionality standard should be applied when formulating a discovery plan, meaning that requests for production and responses thereto “should be reasonably targeted, clear and as specific as practicable.”
• Noting that ESI disputes will be resolved more efficiently if before the initial conference with opposing counsel, the attorneys for each party review and understand how their client’s data is stored and retrieved in order to determine what issues must be addressed during their initial meet and confer discussions.
• Authorizing a court to require additional discussions prior to the commencement of discovery and/or to impose sanctions where appropriate on any party or counsel that fails to cooperate and participate in good faith in the meet and confer process.
• Requiring in the event of a dispute concerning the preservation or production of ESI, the designation of an ediscovery liaison for the purposes of meeting, conferring, and attending court hearings.
• Providing the ediscovery liaison may be an in-house or outside counsel, a third-party consultant, or an employee of a party.
• Specifying the ediscovery liaison must be prepared to participate in ediscovery dispute resolution; know the parties’ ediscovery efforts; and have access to those who are familiar with the parties’ electronic systems and capabilities in order to explain those systems and answer relevant questions. The ediscovery liaison must also have reasonable access to those who are knowledgeable about technical aspects of ediscovery.
• Providing that vague and overly broad preservation orders should not be sought or entered and noting that the information sought to be preserved through a preservation letter or court order should be reasonable in scope and mindful of Rule 26(b)(2)(C)’s proportionality factors.
• Explaining that if the recipient of a preservation letter chooses to respond, the response should provide useful information regarding the preservation efforts undertaken by the responding party. Examples of useful and specific information for such a response include the information a responding party is willing to preserve, the steps taken in response to any preservation letter, any disagreements with the preservation request, and any further preservation issues that were not raised.
• Mandating that every party and its counsel are responsible for taking reasonable and proportionate steps to preserve relevant and discoverable ESI within its possession, custody, and control.
• Recognizing that discovery concerning another party’s preservation and collection efforts may be appropriate, but noting that if used inadvisably, can cause unnecessary expense, delay, and may unnecessarily implicate work product and attorney-client privilege. Requires that prior to initiating such discovery, the parties are expected to meet and confer concerning its need and the suitability of alternative means for obtaining that information. Acknowledges this requirement does not preclude deponents addressing the merits of the case from answering questions concerning the steps taken to preserve and collect ESI.
• Specifying that certain categories of ESI are considered generally “not discoverable” in most cases and requiring a party that intends to request the preservation of production of those categories of ESI, discuss that discovery request at the parties’ initial meet and confer session, or as soon as practical thereafter.
• Identifying categories of ESI that are generally not discoverable to include: (a) deleted, fragmented, unallocated data, or data found in the slack space of computer hard drives; (b) random access memory (RAM) or other ephemeral data; (c) temporary internet files, history, cache, cookies, and other forms of on-line access data; (d) data in metadata fields that are frequently updated automatically such as last-open dates; (e) backup data that is substantially duplicative of data that is more accessible elsewhere; and (f) other forms of ESI whose preservation requires extraordinary affirmative measures that are not utilized in the ordinary course of business.
• Requiring in the event of a dispute concerning the scope of a party’s preservation efforts that counsel meet and confer and fully explain their reasons for believing that additional efforts are not reasonable or appropriate.
• Encouraging parties, at their initial Rule 26(f) conference, to discuss ways to eliminate duplicative ESI, including horizontal or vertical deduplication, the filtering of data by date ranges, file types, custodians as well as the use of search terms, keyword searching, concept clustering, or other advanced methodologies.
• Providing that ESI or other tangible or hard copy documents, which are not text searchable, need not be made text searchable when produced.
• Recognizing the requesting party is responsible for the incremental cost of creating its copy of any requested information.
• Encouraging parties to discuss cost sharing for optical character recognition (OCR) or other upgrades of paper documents or other forms of non-text-searchable ESI.
• Noting that ESI stored in a database or a database management system can be produced by querying the database for discoverable information resulting in a report or a reasonably useable exportable electronic file for review by the requesting party or its counsel.

Several years ago, in an article to the members of the Illinois Association of Defense Trial Counsel, I wrote that if left unchecked, the cost of electronic discovery will prove to be the biggest single threat to our civil jury trial system. Only time will tell whether these steps will fulfill their purpose of streamlining ediscovery and reducing the cost of federal-court litigation or whether a more “radical” step such as some form of mandatory cost as under the Texas rules will be required.

Pilot photo courtesy of Flickr user UNC – CFC – USFK under this Creative Commons license.

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.

In this multi-district litigation, plaintiffs brought claims against the defendants asserting various state law theories because the defendants sold motor fuel at a specific price per gallon without adjusting for temperature expansion. In discovery, plaintiffs sought information concerning the defendants’ activities dating back to 1970. They noted that in 1974, the National Conference on Weights & Measures began considering the issue of temperature adjustments in the retail sale of motor fuel. During this time, the defendants allegedly contributed to industry studies on average fuel temperatures, and lobbied against temperature adjustments. Plaintiffs also claimed that during this time frame, the defendants created documents which acknowledged that when temperatures rise above 60 degrees Fahrenheit, selling motor fuel which has not been temperature adjusted unjustly enriches the seller. Additionally, in the 1990’s, the Canadian government passed legislation permitting the installation of automatic temperature compensation (“ATC”) equipment in retail gas stations.

Defendants initially objected to the plaintiff’s discovery requests about their activities prior to January 1, 2001 on the ground that it was unduly burdensome. The defendants subsequently agreed to provide plaintiffs with responsive, non-privileged pre-2001 documents found in their active files, but resisted searching for pre-2001 data or documents in their archived files.

While the defendants’ undue burden arguments did not convince the court that that the pre-2001 information did not have to be produced, it nonetheless fashioned a remedy attempting to balance the cost of that discovery, given the parties competing interests. While the court never mentioned Rule 26(b)(2)(b) or Fed. R. Evid. 502 in its decision, it essentially allowed the plaintiffs to have a “quick peek” of the requested information subject to a nonwaiver order. The decision provides a good example of the type of factual information that a party needs to provide when making an undue burden argument under Rule 26.

The court initially noted that the party objecting to discovery has “the burden to show facts justifying their objection by demonstrating that the time or expanse involved in responding to requested discovery is unduly burdensome.” Horizon Holdings, Inc. v. Genmar Holdings, Inc., 209 F.R.D. 208, 213 (D.Kan. 2002). It explained that this burden imposes an obligation “to provide sufficient detail and explanation about the nature of the burden in terms of time, money and procedure required to produce the requested documents.” Id.

Pre-2001 documents and data

In the Motor Fuel Temperature case, one group of defendants provided a declaration explaining that a search of the archived documents by category code identified 48,721 boxes of records potentially relevant to the plaintiff’s discovery requests. The cost to simply retrieve those boxes from storage was estimated at $197,000, and that did not include the expense of search for responsive documents within each box. Another defendant provided a declaration explaining that it had identified 6,750 boxes, likely to contain responsive documents which were located in three different offices. That defendant estimated that searching those boxes for responsive information would require 5,063 hours of time at a cost of $253,150. A third defendant’s declaration explained that its archived email systems included formerly independent entities that had merged with it, each of which had its own archived email systems that were difficult to access and search. This included thousands of backup tapes that were not electronically searchable, and would have to be individually reviewed. A third-party vendor would have to be hired at a substantial cost simply to facilitate the review of the data on those tapes.

The court apparently felt that there was good cause to order production of this information because it directed the defendants to make their pre-2001 records available to the plaintiffs as they are maintained in the ordinary course of business at each defendant’s expense. However, to the extent that plaintiffs wanted to search thousands of boxes of records, the court directed that they had to do so at their own expense. Moreover, the court directed that if the plaintiffs selected any records or documents for copying, the defendant in possession of the records would be entitled to then review them for responsiveness, privilege or any other objection. Notably, the court explained that the defendants’ production of these documents as directed by the court, did not waive any privilege objections. If, after reviewing any of the defendants’ pre-2001 documents, the plaintiffs identified a specific pre-2001 email or other electronically stored information that they believed relevant to the lawsuit, the court provided that the plaintiffs may then seek discovery of that specific ESI.

Canadian data

Plaintiffs also sought pre-2001 information concerning how the defendants implemented and used ATC equipment at gas stations in Canada. The defendants argued that obtaining station specific information in Canada would be overly burdensome. One defendant pointed out that the requested information would have to be obtained from 750 service stations throughout Canada which would require 35 weeks to obtain and review. Another defendant demonstrated that it had 246 service stations in Canada, and would take 300 hours to simply gather the information. The court was persuaded by those figures that the plaintiffs’ requests were unduly burdensome. It ordered that the defendants which provided declarations in support of their objection to gather a sample of information from ten representative service stations.

Each party should provide a factual predicate establishing undue burden

The court, however, overruled the undue burden arguments of the remaining defendants which failed to submit declarations concerning their Canadian operations. The court noted that two defendants submitted “factually divergent” declarations, and that the burden on one defendant was not likely representative of the burden on the other defendants. So a word of caution, each party in any multi-party case should provide the necessary factual predicate for its undue burden argument or run the risk that the court will find one or more of the parties failed to meet its burden of proof. It is common in litigation involving multiple parties on one side of the ledger to divide up tasks among themselves so that each party is not reinventing the wheel and incurring unnecessary legal costs. However, each party should supplement lead counsel’s undue burden objection with their own supporting declaration, or run the risk of the same outcome.

Lady Justice photo courtesy Flickr user vaXzine under this Creative Commons license.

In Newman v. Borders, Judge John Fasciola relied upon Rule 1 of the Federal Rules of Civil Procedure to limit a party’s request for an additional 30(b)(6) deposition sought by the plaintiff in a motion to compel. Newman involved a racial discrimination claim where the discovery costs dwarfed the potential recovery. Thus, in order to bring the discovery dispute to “a just and inexpensive conclusion,” rather than allowing another costly 30(b)(6) deposition requested by the plaintiff, Judge Fasciola ordered the defendant to submit an affidavit from a knowledgeable company representative answering a series of nine questions which he outlined, addressing the issues that were the subject of the motion to compel.

In light of the costs of electronic discovery, given Rule 1’s mandate that the Federal Rules should be interpreted to secure the “inexpensive determination of every action and proceeding,” it should be part of any party’s playbook to control ediscovery costs. Frequently however, it seems that court and counsel lose sight of Rule 1’s approach. Perhaps Newman, and other likeminded decisions will signal the way to control the costs of discovery.

The Newman lawsuit stemmed from an incident at a Borders book store where a store detective approached and questioned the plaintiff. The plaintiff believed the incident was racially motivated, and subsequently brought a §1981 discrimination claim against Borders. Borders defended the action noting that the plaintiff was questioned only because the store detective saw him take an item from the shelf, and place it into a bag which he had brought into the store.

During the course of discovery, plaintiff sought to take a Rule 30(b)(6) deposition of a Borders’ representative. One of those topics to be covered in that 30(b)(6) deposition was “Borders’ document, information, and record collection and retention policies and practices.” During the course of the 30(b)(6) deposition, the Borders’ representative was questioned regarding the company’s policy dealing with the retention and destruction of emails. However, that was not one of the topics listed in the 30(b)(6) notice. The witness did not know the company’s email retention policy, and while the witness was aware that emails were backed up by the IT department, she did not know how long they were retained. The representative also did not know whether Borders had a written policy regarding the retention of emails, did not know what custodians’ emails were searched or what search terms were used.

The plaintiff subsequently filed a motion to compel requesting Borders designate another 30(b)(6) witness to testify as to the company’s email retention policies, and any searches conducted for emails. In opposing that motion, Borders pointed out that the plaintiff never sought any documents retention or email policies in any formal discovery requests, and that plaintiff never specifically referred to the defendant’s email policies or search protocols for responsive emails in the description of the topics to be covered in 30(b)(6) deposition.

Discovery of Document Retention and Email Policies

Judge Fasciola recognized that a party’s document retention policies including its policies involving electronically stored information are a proper subject of discovery. He also noted that these policies can be the topic of a 30(b)(6) deposition, and that a party must produce a “30(b)(6) designee,” who can knowingly address these topics. If necessary, a party must educate its designee so that the witness can address the topic on the company’s behalf.

Rule 30(b)(6) Deposition Notices Must Clearly Define the Topics to be Covered

Judge Fasciola also observed however, that any party seeking a Rule 30(b)(6) deposition must clearly delineate the topics to be covered at the deposition. He noted that in Newman the terms “email” and “electronically stored information” were conspicuous by their absence in the description of the topics to be covered in the 30(b)(6) deposition. After carefully reviewing the deposition notice, Judge Fasciola concluded that any reasonable lawyer would not have thought that Borders’ email retention policies and its email search protocols were going to be topics at the deposition.

Fed. R. Civ. P. 1

Rule 1 of the Federal Rules of Civil Procedure requires that the federal rules “be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding.” Judge Fasciola noted that a court has “the unquestioned right (if not the duty) to bring discovery disputes to a just and an inexpensive conclusion” under Rule 1.

Because the case was littered with a number of discovery disputes, he noted that the legal fees incurred to date likely dwarfed the plaintiff’s potential recovery and, therefore, refused to allow another costly deposition. In lieu of another Rule 30(b)(6) deposition, Judge Fasciola directed Borders to submit an affidavit from a knowledgeable representative addressing the following nine questions:

• What kind of e-mail system does Borders have? (i.e., Outlook, Lotus Notes or proprietary)?
• Is that system programmed to delete emails automatically that have been in existence for a certain period of time? If the answer is yes, what is the period of time and was that system shut off or kept on after the incident involving plaintiff?
• Does Borders have a policy that requires either the retention or deletion of e-mails and, if so, what is the policy and is it in writing? If it is in writing, it will be appended to the affidavit.
• Was it necessary to make efforts to prevent the deletion of emails after the incident involving plaintiff, and, if so, what efforts were made?
• Is Borders aware of the deletion of any emails pertaining to the incident involving plaintiff?
• Who was responsible for search for any emails pertaining to the incident involving plaintiff?
• How did this person or these persons conduct the search? What receptacles of electronically stored information were searched? Network serves, individual hard drives?
• If individual hard drives were searched, whose were they?
• Did the search involve the use of keywords and, if so, what were they?

Conclusion

Frequently, attorneys pursuing civil rights litigation have little concern over the extent of discovery because if they prevail, they can recover their fees under 42 U.S.C. §1988. That scenario is aggravated when electronic discovery is involved. In Newman, Judge Fasciola relied on Rule 1 to limit some discovery costs. Parties should also not overlook Rule 26(b)(2)(C) which authorizes a court to limit the extent of discovery otherwise allowed when “the burden or expense of the proposed discovery outweighs its likely benefit.” See Fed. R. Civ. P. 26(b)(2)(C)(iii). In a future post, we will discuss the application of Rule 26(b)(2)(C) to discovery in civil rights claims brought against municipalities and other units of local government.

Michael Doyle comments on this case over at Suits & Sentences.

Stop sign photo courtesy Flickr user ladybeames under this Creative Commons license.

Defendant Mid America Engine ran a keyword search on its electronically stored information and produced responsive documents to plaintiff Surplus Source Group. After Surplus Source complained about shortcomings in the production, Mid America asked for information from Surplus Source that would help Mid America conduct a second search. Six weeks later, Surplus Source’s lawyer responded by email, outlining the purported deficiencies. Mid America’s in house counsel replied that same day, asking for particular keywords with which to search. More than two weeks after that, Surplus Source provided those keywords. By that time, however, Mid America had already conducted the second search.

Surplus Source moved to compel Mid America to run a third keyword search using the terms Surplus Search had proposed. The court found that the additional discovery was warranted, but ordered Surplus Source to pay for the third search, up to the amount that the second search cost. Mid America would be responsible for the rest.

Operating under the teaching of Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340 (1978), the court recognized that normally “the responding party must bear the expense of complying with discovery requests.” It also recognized its ability to shift the costs of discovery to the requesting party where doing so would protect the responding party from “undue burden or expense.” In this case, the court found that Mid America had “shown a persistent willingness to aide [Surplus Source] in crafting an ESI search that would yield the documents if they do, in fact, exist.” Had Surplus Source provided the search terms to Mid America sooner, the court found, the third search would not have been necessary.

By shifting the costs in this manner, the court did not drastically alter the traditional cost-bearing framework, which requires the responding party to pay. Mid America had paid for the second search, which did not satisfy Surplus Source. But the court believed Surplus Source’s dissatisfaction arose, at least in part, because of its own delay. If the third search was to take place, Surplus Source would pay the amount already incurred by Mid America for the second search. To the extent the third search was more extensive, and therefore, more expensive, Mid America would be responsible for that. In this way, the court cleverly shifted to Surplus Source the portion of duplicate costs occasioned by the delay in supplying keywords.

One of the latest ediscovery issues that courts have begun to struggle over is the nature and extent to which electronic discovery costs are recoverable by a prevailing party under Fed. R. Civ. P. 54(d). Because the costs of ediscovery in some instances can be staggering, the possible recovery of at least some of these costs has significantly raised the stakes of Rule 54(d) practice for both the prevailing and losing parties in federal court litigation.

In Fells, the district court refused to award costs associated with the initial processing of electronic records, including the expense of metadata extraction and data file conversion. While the district court’s stated rationale for denying these costs can be questioned, it probably reached the right conclusion. The ediscovery costs which the prevailing party sought to recover in Fells related to the first steps taken to create a database that would facilitate discovery. However, the defendant abandoned the database after the plaintiff refused to limit the scope of the data involved. Thus, it is doubtful that the defendant could establish that those costs were “necessarily obtained for use in the case,” which is a prerequisite to recovery. As outlined below, various courts have approved the recovery of certain types of ediscovery costs, but their rulings have only begun to scratch the surface of the relevant issues.

Statutory basis for the recovery of costs

Rule 54(d) permits a district court to award costs to a prevailing party. It provides in pertinent part: “[u]nless a federal statute, these rules, or a court order provides otherwise, costs – other than attorney’s fees – should be allowed to the prevailing party.” The types of costs that a district court may in its discretion award are outlined in 28 U.S.C. §1920. Recoverable costs under §1920 include:

• Fees of the clerk and marshal;
• Fees of the court reporter for transcripts necessarily obtained for use in the case;
• Fees and disbursements for printing and witnesses;
• Fees for exemplification and copies of papers necessarily obtained for use in the case;
• Docket fees;
• Compensation of court-appointed experts, and interpreters, as well as the salaries, fees, expenses, and costs of special interpretation services.

Rule 54(d) triggers “a strong presumption in favor of awarding costs to a prevailing party.” Majeske v. City of Chicago, 218 F.3d 816, 818 (7th Cir. 2000). Additionally, it should be noted that “district courts have broad discretion to determine whether and to what extent” a prevailing party may be awarded costs. Barber v. Roth, 7 F.3d 636, 644 (7th Cir. 1993). However, that discretion is not uncabined. The Supreme Court in Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 441 (1987), held that under Rule 54(d), a court’s authority to award costs is limited to those costs specifically enumerated in §1920. Rather than providing courts with the discretion to award costs not listed in §1920, Crawford Fitting held that Rule 54(d) provides courts with the “power to decline to tax as costs, the items enumerated in §1920.”

District courts may not award costs that are not authorized by statute. Thus, under Rule 54(d), a prevailing party’s potential recovery is limited to the six categories of costs noted above in §1920. However, it is generally well recognized that courts have leeway “to interpret the meaning of the items listed in … §1920.” BDT Products, Inc. v. Lexmark Intern., Inc., 405 F.3d 415, 419 (6th Cir. 2005). And, as one might anticipate, some courts have been more liberal in their interpretation of §1920’s cost categories than others.

Court and counsel have primarily focused on §§1920(3) and (4) as a basis for seeking the recovery of electronic discovery costs. When an ediscovery vendor has been appointed by the court, §1920(6) has also been invoked.

Cost of scanning and imaging documents

Several courts have concluded that costs associated with scanning and imaging documents are recoverable under §1920(4), which authorizes the recovery of costs for exemplification and copies of papers. B.D.T. Products, 405 F.3d at 420 (“electronic scanning and imaging could be interpreted as ‘exemplification and copies of papers’”). In Brown v. McGraw Hill Cos., Inc., 526 F.Supp.2d 950, 959 (N.D. Iowa, 2007), one district court concluded “the electronic scanning of documents is the modern day equivalent of ‘exemplification and copies of paper,’ and therefore, it can be taxed pursuant to §1920(4).” See also, El Dorado Irrigation Dist. v. Traylor Bros., Inc., 2007 WL 512428, *10 (E.D. Cal. 2007) (holding “scanning is akin to photocopying. The purposes of the two methods are largely the same, to reproduce a document so that it may be utilized by multiple parties and individuals”).

Metadata extraction, file conversion, and other ediscovery processing costs

The district court in Fells disallowed the costs of processing electronic data involving the extraction of metadata, and the conversion of files. While acknowledging that the costs of scanning or imaging documents may be taxable under §1920(4), the court in Fells explained that scanning and imaging merely convert paper documents into an electronic files. It concluded that the processing and extraction costs which the defendant sought to recover were different, in that they involved the creation of electronically searchable documents. In the court’s view, electronic discovery costs associated with creating searchable documents, rather than merely reproducing paper documents in an electronic format are not recoverable under §1920(4).

However, the court in Fells apparently failed to take into consideration several key points contained in the Advisory Committee Notes to Rule 34. The Notes to Rule 34 explain:

[T]he option to produce [ESI] in a reasonably useable form does not mean that a responding party is free to convert electronically stored information from the form in which it is ordinarily maintained to a different form that makes it more difficult or burdensome for the requesting party to use the information efficiently in the litigation. If the responding party ordinarily maintains the information it is producing in a way that makes it searchable by electronic means, the information should not be produced in a form that removes or significantly degrades this feature.

Rule 34 requires that a party maintain the “searchability” of any electronic documents or data it produces in discovery. Thus, when the documents or data a party is producing are electronically searchable in their native state, the costs of extracting metadata and converting them to an imaged format cannot be characterized as “creating” searchable documents as in Fells. Rather, those activities are simply maintaining the searchable feature of the electronic documents as required under the Advisory Committee Notes to Rule 34. Whether a party can demonstrate those costs were “necessarily obtained” under §1920(4) is another story.

The decision in Fells should be contrasted against Neutrino Dev. Corp. v. Sonosite, Inc., 2007 WL 998636, *4 (S.D. Tex. March 30, 2007). Neutrino permitted the recovery of the cost of removing metadata from files that were produced electronically under §1920(3). The district court in Neutrino explained:

In this instance, the electronic data was produced in lieu of costly paper production. Defendant was seeking to save costs by not printing out hundreds of documents, which require redaction of privileged information. This electronic production in response to Plaintiff’s discovery request falls within costs recoverable for “fees and disbursements for printing.”

While Neutrino reached the opposite conclusion of Fells, the decisions are not necessarily irreconcilable. Admittedly, while the decisions were based upon different subparts of §1920, the key distinction appears to lie in the necessity of costs that were incurred. Given the fact that the defendant ultimately abandoned the database in Fells, the costs were not necessarily obtained for use in the case. Accordingly, one practical tip when seeking the recovery of any ediscovery costs is to explain in detail why those costs were vital to the efficient presentation of your case or defense when presenting a bill of costs to the court.

Cost of court appointed electronic discovery vendors

Section 1920(6) authorizes the recovery of costs associated with court appointed experts. In Davis v. City of Springfield, 2008 WL 818331, *8 (C.D. Ill. March 20, 2008), the court appointed an ediscovery vendor to assist the parties electronic discovery efforts in copying data on the City’s computers. Most of those costs were incurred when there were six plaintiffs, and in the end only one prevailed. Nonetheless, the court found that two-thirds of the vendor’s costs were recoverable under §1920(6).

Provide competent explanations of services that were provided

Since the prevailing party bears the burden of demonstrating that its costs are allowable under §1920, do not forget to furnish the court with an explanation of the ediscovery services for which reimbursement is sought. In Committee Concerning Community Improvement v. City of Modesto, 2007 WL 4365584 *5 (E.D.Cal. Dec.11, 2007), the district court was presented with an invoice for tasks such as “image export set up fee” with no accompanying explanation. It should not come as any surprise that the court exercised its discretion, and denied this and other unexplained ediscovery costs. Technical jargon or “geek speak” appearing in invoices have to be explained if you expect a court to reimburse your costs associated with these types of activities.

Review the Seventh Circuit’s Cefalu decision for eligible exemplification costs

In Cefalu v. Village of Elk Grove, 211 F.3d 416 (7th Cir. 2000), the court addressed a prevailing party’s Rule 54(d) claim seeking the reimbursement of the costs associated with a multi-media presentation system used to display the party’s exhibits to a jury. While the decision did not address ediscovery costs, the logic of the court’s opinion is relevant to the issue of what expenses properly qualify as exemplification costs under §1920(4).

In Cefalu, the court relied upon dictionary definitions of exemplification since the term is undefined in §1920. Cefalu concluded that exemplification “signifies the act of illustration,” and went on to explain 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.” The Seventh Circuit specifically noted that “[e]nlarging a crucial document, for example, may be the only practical means of permitting a witness to point out the forensic features of that document.” Cefalu, 211 F.3d at 428. The same can be said of some of the processing costs of ESI. The court in Cefalu also rejected any formal distinction between the physical preparation of a document, and the means chosen to present it. Logically, that suggests that the costs involved in processing and loading ESI into a database for use during discovery and trial should qualify under §1920(4).

The court in Cefalu cautioned, however, that even where a particular expense item qualifies as exemplification, a district court must still determine whether it was “necessarily obtained for use in the case” which involves an analysis of whether the involved cost was “vital to the presentation of the information, or was it merely a convenience, or worse an extravagance.” Id. at 429. Cefalu also reminds us that costs which are not reasonably necessary to the presentation of one’s case do not qualify for reimbursement under §1920(4), and that courts retain “the equitable authority to deny compensation to a prevailing party for costs that are [otherwise] compensable under the statute.”

Option to seek pretrial determination of the issue

The court in Cefalu also reminded parties “who are concerned about the prospect of reimbursement” under Rule 54(d) may raise the issue “in advance of trial” at a Rule 16 pretrial conference. Cefalu, 211 F.3d at 429 n.6.

Rule 54(d) does not provide an adequate substitute for cost-shifting under Rule 26(b)(2)(C)

In Overlap, Inc. v. Alliance Bernstein Investments, Inc., 2008 WL 5780994 *3 (W.D. Mo. Dec. 29, 2008), the court addressed whether good cause existed to produce certain emails and attachments on a defendant’s backup tapes. The defendants backup tapes were “indexed and organized in a manner that would allow Defendant to substantially narrow the volume of data that would need to be restored.” The court ordered the defendant to initially bear 100% of the costs associated with the search and production of any responsive documents on their backup tapes. However, the court noted in passing that “this expense qualifies as a component of the cost to be awarded to the prevailing party, so if Defendant prevails at trial, it may recover these costs.” Id.

Given the fact that somewhere between 96% and 98% of all civil lawsuits settle, it is doubtful that such a ruling will provide any solace to a defendant ordered to produce and bear the cost of discovery from an inaccessible source. Rule 26(b)(2)(C) permits courts to shift some or all of the cost of producing inaccessible ESI to the requesting party. Rule 54(d) simply does not provide an adequate substitute for initial cost shifting under Rule 26(b)(2)(C). When a defendant settles a case, even on a cost of defense or nuisance value basis, it cannot claim prevailing party status, and thereby, seek the recovery of these costs. Thus, Rule 54(d) should not be viewed as a substitute for cost shifting under Rule 26(b)(2)(C) as in Overlap.