The article offers seven reasons why the issue of recoverable e-discovery costs might find itself on the high court's plenary docket in the near future. Here is the editor's abstract:
Despite its many benefits over manual review, e-discovery services still remain prohibitively expensive for many litigants. The cost to process, review, cull and produce a single gigabyte of data exceeds $7,000, according to some estimates. Needless to say, the bills pile up quickly for parties in even the most modest cases in which ESI is at issue. In recent years, parties prevailing at trial have requested that their opponents pay these e-discovery expenses by the federal "taxation of costs" statute, at Title 28, USC Section 1920(4). While some US courts have broadly interpreted this law to allow recovery of a wide range of e-discovery costs, others have been far more stingy. Now, as high profile rulings in different judicial circuits have taken conflicting paths, a drumbeat for clarification on the issue is loudening. Nicholas Wagoner, an attorney at Rogers, Morris & Grover and author of the blawg CircuitSplits, says that the issue is ripe for Supreme Court review. In this ACEDS exclusive, Wagoner builds a case for how e-discovery could soon crash the high court's docket.
In deciding whether to "weigh in on" any one of the 8,000+ cases seeking a spot on the Court's shrinking plenary docket each term, the Court follows a tradition whereby it will deny certiorari unless at least four justices vote to grant. While the justices maintain a shroud of secrecy around their criteria for deciding which cases to decide on the merits, Court watchers have detected a variety of factors on which the justices and their law clerks rely to quickly screen the cases that present important, pressing questions of federal law from the remaining 99% of cert. petitions seeking review.
As I mentioned above, Hoosier Racing Tire Corp. presents the Supreme Court with the opportunity to resolve a circuit split. But the justices have long since given up trying to decide every case presenting a conflict of law, preferring instead to hear only those cases which the justices feel present important conflicts of federal law. More on that later.
As a rule of thumb, the Court will typically deny certiorari in a conflict case unless the justices have the benefit of at least three prior circuit court decisions that squarely address the question presented to the Court. Recent decisions addressing the scope of recoverable e-discovery costs issued by the Third, Fifth, Seventh, and Federal Circuits, respectively, suggest that this issue has had sufficient time to "percolate" in the lower courts.
The issue presented in Hoosier Racing Tire Corp. is also important because its resolution by the Court would have a widespread effect on the legal system. As the petitioners point out, "The issue of who will bear costs associated with electronic discovery is faced by nearly every litigant in every lawsuit, and controlling the costs of electronic discovery has become an important aspect of any litigation strategy." Petition for a Writ of Certiorari, Hoosier Racing Tire Corp. v. Race Tires Am., No. 11-1520, at 6 (June 14, 2012) (PDF). Cases involving procedural provisions like the one at issue in Hoosier Racing Tire Corp. are also strong candidates for certiorari because they invoke the Court's institutional obligation to ensure the uniform application of federal procedure.
Moreover, while the Court is not receptive to cert. petitions arguing only that the lower court's decision was erroneous, the petitioners in Hoosier Racing Tire Corp. appropriately butress the other arguments for certiorari with a discussion of the merits. Specifically, the petitioners argue that the Third Circuit's construction of the Costs Statute is inconsistent with both the plain meaning of the statutory text (presumably catering to Justice Scalia's taste for textualism) and its legislative intent (appealing to Justice Breyer's desire to divine congressional intent from the legislative record). Because the Supreme Court reverses roughly 65%-70% of the cases it agrees to hear, the brief arguments addressing the merits of the Third Circuit's decision may strike a chord with one or more of the justices on the fence.
And finally, the likelihood that the Supreme Court will agree to review Hoosier Racing Tire Corp. will increase significantly if one or more "friends of the court" file amicus briefs elaborating on the practical implications of the issue's resolution. Under Supreme Court Rule 37, amicus briefs must "be filed within 30 days after the case is placed on the docket or a response is called for by the Court, whichever is later . . . ." While the court's docket does not reflect any amicus activity in this case yet, vendors peddling e-discovery services to corporate litigants have a strong incentive to file an amicus brief urging the Court to grant certiorari. A corporate litigant's decision to hire an outside vendor to compile, process, and code its electronic documents largely turns on whether the company is confident that it will be able to recover the costs if it prevails without having to suffer through prolonged litigation over the recoverable amount. For an industry that reportedly made "revenues equaling approximately $2.8 billion in 2009," e-vendors that wish to see the Third Circuit's decision in Hoosier Racing Tire Corp. overturned have a strong incentive to invest in an amicus brief (or two or three).
Are there any additional reasons why the Court should or should not grant cert. in this case? I encourage readers to share their thoughts in the comment box below.
Two weeks ago, the Hoosier Racing Tire Corp. and Dirt Motor Sports, Inc. filed a petition for certiorari seeking the Supreme Court's review of Hoosier Racing Tire Corp. v. Race Tires America, Inc., a case in which the Third Circuit significantly limited the scope of recoverable costs associated with the production of electronic documents during discovery (frequently referred to as "e-discovery").
As I pointed out back in March (here), the Third Circuit's narrow construction of 28 U.S.C. § 1920(4) is inconsistent with recent decisions out of the Fifth, Seventh, and Federal Circuits, respectively. Compare Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57 (3d Cir. 2010) (concluding that the Costs Statute does not permit the recovery of document processing, selection, or text-recognition costs incurred by an outside vender hired to create a searchable database of electronic documents for production); with Richo Co. v. AMI Semiconductor, 661 F.3d 1361, 1365 (Fed. Cir. 2011) (concluding that the Costs Statute extends to all “costs of producing a document electronically”); and Rundus v. City of Dall., 634 F.3d 309 (5th Cir. 2011) (affirming district court’s decision permitting the recovery of costs related to litigant’s response to the opposing party’s request for “paper documents to be converted into text-searchable electronic files”); Hecker v. Deere, 556 F.3d 575, 591 (7th Cir. 2009) (affirming district court’s award of costs related to the selection and conversion of electronic documents).
As proof of "the importance of the issue," the petitioners point out that "[t]he Third Circuit's opinion has recieved considerable attention in the three months since it was handed down." Petition for a Writ of Certiorari, Hoosier Racing Tire Corp. v. Race Tires Am., No. 11-1520, at 8 (June 14, 2012) (PDF). The petition continues:
The Third Circuit opinion creates a circuit split that has been acknowledged in the short time since its opinion issued. See Circuit Splits, A blog about cases ripe for review, http://www.circuitsplits.com/e-discovery/ (highlighting the Third Circuit opinion and the contrary opinion in Ricoh and other electronic discovery cases). This division is unlikely to be resolved without the intervention of this Court.
Id. at 18.
Tomorrow I will discuss several other reasons why the questions presented in this case may catch the Supreme Court's eye.
Under Federal Rule of Civil Procedure 54(d)(1), the “prevailing party” in a lawsuit may recover the costs (other than attorneys’ fees) associated with litigation “unless a federal statute, [the Federal Rules of Civil Procedure], or a court order provides otherwise.” According to a study published in the Insurance Journal back in 2005 (here), the average U.S. company at any given time “balances a docket of 37 U.S. lawsuits.” Many of the lawsuits brought by and against companies require parties to exchange mountains of documents, consume gallons of toner, and produce enough copies to wipe out a small rainforest.
Needless to say, a company's victory in the courtroom will not be celebrated in the boardroom if the cost of litigation exceeds the total recovery or liability avoided. To reduce the cost of litigation and in some cases expedite the process, commercial litigants have turned to "e-discovery," which generally involves the exchange and review of information by litigants electronically over the course of litigation. For an excellent 10-minute overview of e-discovery, check out the following video:
As George Linge and David Cohen note in their recent white paper on the subject, “a growing number of court decisions indicate that a prevailing party may recover some e-discovery costs.” The two attorneys explain that, “[w]here a party requests the production of documents in an electronic format, some courts have found costs related to the technical aspects of making such a production (as distinct from the legal aspects associated with reviewing documents) to be ‘necessary’ and, therefore, taxable, rather than merely for the convenience of counsel.” See, e.g., In re Ricoh Company, Ltd. Patent Litigation, 2011 WL 5928689, *3 (Fed. Cir. 2011) (costs related to vendor’s “electronic document database” taxable, but subject to parties’ cost-sharing agreement); In re Aspartame Antitrust Litig., No. 2:06-CV- 1732-LDD, 2011 WL 4793239, at *3 (E.D. Pa. Oct. 5, 2011) ("We . . . award costs for the creation of a litigation database, storage of data, imaging hard drives, keyword searches, deduplication, data extraction and processing."). But see Race Tires America, Inc. v. Hoosier Racing Tire Corp., 2011 WL 1748620, at *8-9 (W.D. Pa. 2011), vacated byNo. 11-2316 (3d Cir. Mar. 16, 2012) (limiting the prevailing party's recovery of e-discovery costs to "only the scanning of hard copy documents, the conversion of native files to TIFF, and the transfer of VHS tapes to DVD"); Rawal v. United Air Lines, Inc., No. 07 C 5561, 2012 WL 581146, at *2-4 (N.D. Ill. Feb. 22, 2012) (refusing to award electronic processing costs as taxable).
Other courts have altogether refused to allow the prevailing party to recover costs associated with e-discovery. Linge and Cohen canvass the conflicting authority on this issue as follows:
Despite its logic, the principle embodied in In re Ricoh . . . and Aspartame remains subject to conflicting case law. Some courts have found that scanning documents for use in electronic format is only for the convenience of counsel, and thus not “necessary.” See Roehrs v. Conesys, Inc., 2008 WL 755187, at *3 (N.D. Tex. Mar. 21, 2008). But see BDT Products, Inc. v. Lexmark International, Inc., 405 F.3d 415 (6th Cir. 2005) (finding electronic scanning and imaging to be necessary and therefore recompensable); Brown v. McGraw-Hill Cos., Inc., 526 F. Supp. 2d 950 (N.D. Iowa 2007) (same). And some courts have declined to assess costs related to e-discovery vendors because they are hired to “search for and retrieve discoverable … documents,” tasks which would be done by paralegals and attorneys in a non-electronic case. Klayman v. Freedom’s Watch, Inc., 2008 WL 5111293, *2 (S.D. Fla. 2008). See also Kellogg Brown & Root International, Inc. v. Altanmia Commercial Marketing Co., W.L.L., 2009 WL 1457632 (S.D. Tex. 2009). But see CBT Flint Partners, LLC v. Return Path, Inc., 676 F. Supp. 2d 1376,1381 (N.D. Ga. 2009) (calling e-vendor services “the 21st Century equivalent of making copies” and “not the type of services that attorneys or paralegals are trained for or are capable of providing”); Parrish v. Mannatt, Phelps, & Phillips, LLP, 2011 WL 1362112 (N.D. Cal. 2011); Cargill Inc. v. Progressive Dairy Solutions, Inc., 2008 WL 5135826 (E.D. Cal. 2008).
The two attorneys advise that “[d]ocumenting e-discovery costs is a critical component of any cost recovery effort and must not be overlooked as courts are unlikely to award undocumented costs." See Francisco v. Verizon South, Inc., 272 F.R.D. 436 (E.D. Va. 2011) (denying certain costs for lack of documented support); Tibble v. Edison Int’l, 2011 WL 3759927 (C.D. Calif. 2011) (supporting documents include invoices, competitive bidding papers, and evidence of market rates)."
