Avoiding Taxation of Costs for Electronically Stored Information

Wednesday, 27 April 2016 16:19 Written by  Patricia Collins

By Patricia C. Collins, Esquire Reprinted with permission from the April 24, 2016 issue of The Legal Intelligencer. (c) 2016 ALM Media Properties. Further duplication without permission is prohibited

The Federal Rules of Civil Procedure regarding electronically stored information present challenging procedural and substantive issues for parties to litigation.  More practically, and, in most cases as a threshold issue, they present cost challenges for litigants.  The United States Court of Appeals for the Third Circuit recently reviewed whether the costs related to electronic discovery are taxable to the losing party under 28 U.S.C. § 1920(4) in Camesi v. University of Pittsburgh Medical Center, United States Court of Appeals for the Third Circuit No. 15-1865 (March 21, 2016). 

28 U.S.C. § 1920(4) (“Section 1920”) permits a judge or clerk of court to tax as costs the fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.    The prevailing party would include those costs in a bill of costs and the amount would be included in the judgment or decree.  This provision is at the heart of the dispute in Camesi.    In that case, the University of Pittsburgh Medical Center (“UPMC”) prevailed in a claim under the Fair Labor Standards Act (“FLSA”).  The case involved extensive discovery after the grant of conditional certification under the FLSA.  That discovery included the conditional class’s request for electronically stored information (“ESI”).  There were multiple motions to compel and for protective orders, resulting in the entry of a consent order that stayed further discovery of ESI until the Court ruled on competing motions to certify or decertify the conditional class.

Prior to the issuance of the stay, the parties had engaged in discovery of ESI that included, as the District Court found, “meaningful, good faith” efforts from UPMC to comply.  Specifically, UPMC asserted that it incurred $310,000 in “copying costs” as it related to the production of ESI.  In support thereof, UPMC submitted a declaration from its ESI vendor and vendor invoices for “process to Ontrack Inview.”  Neither UPMC nor the ESI vendor provided more specific detail as to the services provided. 

The United States District Court for the Western District of Pennsylvania granted UPMC’s motion to decertify the class.  UPMC thereafter filed a bill of costs pursuant to Section 1920.  Plaintiffs objected to the bill of costs, and the parties briefed the matter for the court.  The Clerk taxed costs, including $310,000 in ESI costs, pursuant to Section 1920(4). 

The Third Circuit relied on its earlier decision in Race Tires America, Inc. v. Hoosier Racing Tire Corp, 674 F.3d 158 (3d Cir. 2012) to evaluate whether the ESI costs were taxable under Section 1920.  The Court reiterated the finding in Race Tires that there exists no Congressional intent to shift all the expenses of the production of ESI to the losing party.  In Race Tires, the Third Circuit found that only the conversion of native files to TIFF and the scanning of documents to create digital duplicates constituted “making copies” under Section 1920(4).  The Court drew an analogy to “pre-digital” discovery, wherein a prevailing party could not recover the costs for services “leading up to the action production” of document to be copied for discovery under Section 1920(4).  Given the degree of expertise required of the ESI vendor, as well as the substantial fee required of the party hiring the vendor, these services could not constitute “making copies.” 

 Turning to the facts before the Court in Camesi, the Court noted that UPMC and the ESI vendor provided no detail as to the nature of the services that constituted the $310,000 in costs.   Plaintiffs asserted that the lower court failed to conduct a “meaningful review” of those costs or an evidentiary hearing.  Plaintiffs asserted that those services would necessarily have included services that do not constitute conversion of native files to TIFF or scanning of documents to create digital duplicates.  Instead, those services would have included uploading documents, hosting data, and reviewing data prior to production. 

UPMC asserted that the vendor’s services amounted to “creating digital duplicates” as that term is used in Race Tires.  The Third Circuit took issue with that argument, noting that Race Tires only permits the costs for creating digital duplicates in the context of copying material from a hard copy or a digital format to a reasonable format produced for the use of the requesting party. 

The Court vacated the award of $310,000 in costs and remanded the matter to the district court.   In so doing, the Court recommended that the District Court hold an evidentiary hearing or take additional evidence to be sure that it only taxed costs under the Third Circuit’s “narrow construction” of Section 1920(4).  In particular, the Third Circuit took issue with UPMC’s “vague description” of the services provided, and its overly broad use of the term “digital duplication.” 

The cost of ESI often outweighs the value of the case.  For example, in this case, Plaintiffs asserted that the taxation of $310,000 in costs to the named plaintiffs would bankrupt those parties.    Indeed, an opt—in class dispute under the FLSA nicely encapsulates this issue.  The case will likely involve ESI in most cases, as it relates to payroll and scheduling information generally maintained electronically.  The case will also likely involve small claims on behalf of many class members, none of whom alone could afford the costs for ESI.  Yet, in Camesi, those very plaintiffs were charged with $310,000 in ESI costs. Indeed, it appears the District Court awarded those costs without requiring any more specific explanation of the ESI services provided. 

Camesi highlights important issues for both sides in a case involving ESI.  Before either party demands excessive and unreasonable ESI from the other, both sides should consider the costs of being wrong.  To the extent any of those costs meet the narrow construction set forth in Camesi and Race Tires, they will be taxed to the losing party.  Further, when working with vendors, Camesi highlights the importance of detailed invoices, and defining services in a way that amounts to taxable costs under Race Tires and Camesi.  Bills of costs for these matters must be detailed if prevailing parties expect to recover some of the costs of ESI. 

 


 
  

Last modified on Wednesday, 27 April 2016 16:27
Patricia Collins

Patricia Collins

Patty has been practicing law since 1996 in the areas of Employment Law, Health Care and Litigation, with extensive experience in advising employers and health care providers as well as complex litigation in federal and state courts. Patty’s knowledge of employment law includes the Employee Retirement Income Security Act; federal and state employment discrimination laws, and employment contracts and wage claims.

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