The taxation of eDiscovery costs pursuant to 28 U.S.C. 1920(3)-(4) warrants serious modification as we debate the proposed Amendments to the Federal Rules of Civil Procedure.
The proposed Amendments place proportionality front and center of Rule 26. However, to truly make proportionality a rule with teeth, nothing will make requesting parties seriously consider what ESI is relevant to the claims and defense of a lawsuit then the prospect of getting hit with a six-figure cost award.
Ancora Techs., Inc. v. Apple, Inc., highlights this this situation brilliantly. Apple was the prevailing party and was initially awarded $116,366.87 in costs. That cost award was ultimately reduced to $20,875.48. Ancora Techs., Inc. v. Apple, Inc., 2013 U.S. Dist. LEXIS 121225 (N.D. Cal. Aug. 26, 2013).
Apple sought $71,611.52 for “License Fee [Hosting of data for production]” for several hundred gigabytes of data that resulted in 3.5 GB being produced pursuant to 28 U.S.C. 1920(3)-(4), which allows for recovering costs for fees and disbursements for printing and witnesses (subsection 3) and fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case (subsection 4). Ancora Techs., Inc., at *8.
The Court disagreed, explaining that the “Costs incurred in hosting documents electronically, and particularly in hosting costs that exponentially exceed the amount space needed for the amount of data actually produced, as here, simply do not fit under section 1920 ‘s narrow limit of ‘exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.'” Ancora Techs., Inc., at *9.
The Court also stated that compensable costs only pertain to the “preparation and duplication of documents, not the efforts incurred in assembling, collecting, or processing those documents.” Ancora Techs., Inc., at *10.
The Court rejected Apple’s argument that the hosting costs were recoverable because Ancora’s discovery requests required Apple to collect/preserve internal emails, thus the hosted application was used for the preparation of the discovery production.
The Court also rejected the argument because the cases Apple cited were outside the Northern District and after the Supreme Court case Taniguchi v. Kan Pacific Saipan, Ltd., U.S. , 132 S.Ct. 1997, 2006, 182 L. Ed. 2d 903 (2012), which narrowed what costs can be awarded under 28 U.S.C. 1920.
Bow Tie Thoughts
Parties will not take proportionality in drafting discovery requests seriously without the prospect of eDiscovery costs being award to a prevailing party. Proportionality needs teeth and awarding costs is a very effective means to that end.
Large companies generate large volumes of data. Preserving what is relevant often generates a large data set that must be winnowed down based upon discovery requests from an opposing party.
eDiscovery hosted applications are nothing like warehouses storing boxes. These applications have the ability to perform analytics beyond an attorney’s “intellectual effort” to identify responsive ESI for productions. It is simply wrong to think of them as an online warehouse that attorneys rummage through with keywords instead of their hands.
The court cases that have limited prevailing party costs have their genesis in the 1980s and 1990s, which have been applied to the real world of the 21st Century. The advanced search, data analytics and clustering features of a hosted review platform is in no way comparable to attorneys assembling a paper production.
The paper model being applied to hosted software applications and productions is simply not appropriate in controlling eDiscovery costs. One step towards addressing this issue is for attorneys to have service providers submit more detailed billing invoices describing what work was done and why it was necessary. Expert should submit affidavits to educate the Courts to demonstrate that the process is not simply a production assembly, but the preparation and duplication of ESI in response to a discovery request.
I believe this needs to change, either judicially or legislatively. Simply telling a prevailing party to take a $70,000 hit for hosting data collected based up the requests of the opposing party is unjust. There are many litigation costs parties should incur, but costs will not truly be considered by parties until Courts start awarding costs for online eDiscovery applications.