New Third Circuit Decision Limiting Taxable Costs for E-Discovery in Federal Court

The Third Circuit Court of Appeals has handed down an important decision clarifying—and sharply limiting—the costs for electronic discovery that may be taxed against a losing party. In Race Tires America, Inc. et al., v. Hoosier Racing Tire Corp., 2012 U.S. App. LEXIS 5511 (3d Cir., March 16, 2012), the Third Circuit reviewed the district court’s award of more than $365,000 in charges from e-discovery vendors for activities such as hard drive imaging, data processing, keyword searching and file format conversion. The district court premised its award on the federal taxable costs statute, 28 U.S.C. § 1920, which states that “[a] judge or clerk of any court of the United States may tax as costs the following: . . . (4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case[.]” The Third Circuit rejected the view of some lower courts that Section 1920(4) broadly shifts responsibility for e-discovery costs to the losing party and held instead that only costs of making copies are taxable under the statute. In particular, of the many services performed by the prevailing parties’ vendors, only the scanning of hard copy documents, the conversion of native files to Tagged Image File Format (TIFF) and the transfer of VHS tapes to DVD were held taxable.

The takeaway from the Race Tires America decision is that costs awardable under Section 1920(4) are limited to "making copies" and that, in general, parties are expected to bear the costs of responding to discovery. This decision may increase the volume and breadth of e-discovery requests because it reduces the fear of litigants that they will ultimately bear the costs of such requests if they do not prevail in the litigation. However, keep in mind that the statute is not the only means of shifting costs for burdensome discovery requests. Parties opposing discovery may also invoke the district court‘s discretion under F.R.Civ. P. 26(c) to grant protective orders against undue burden or expense, including orders conditioning discovery on the requesting party‘s payment of costs. In an appropriate case, parties opposing discovery may also seek sanctions for frivolous litigation under F.R.Civ. 11.

Please keep this decision in mind as you seek and oppose awards of costs for e-discovery. Thanks to Scott Dunlop of our Pittsburgh, Pennsylvania office for highlighting this important decision.

Special Case Law Alert - May 27, 2012