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July 30, 2019

The Future of Taxable eDiscovery Costs: A Deeper Look at Rimini Street, Inc v Oracle USA, Inc

In March, the United States Supreme Court, in the context of a copyright infringement case, held that a district court could only tax to the losing party those costs specifically authorized under 28 USC §§ 1821 and 1920. The holding negated an award to Oracle of $12.8 million for litigation expenses such as expert witness, eDiscovery and jury consulting fees. The Court did not specifically address what costs were included within the eDiscovery portion of the cost award. But, the Court’s holding left no room for ambiguity: “A statute awarding ‘costs’ will not be construed as authorizing an award of litigation expenses beyond the six categories listed in §§1821 and 1920, absent an explicit statutory instruction to that effect.”

In light of this holding, is there still room for the recovery of any eDiscovery costs? Before answering that question, let’s first examine the relevant taxable cost language and the checkered history of eDiscovery cost awards. 

Taxable Costs Applicable to eDiscovery

The two general taxable cost statutes are found at 28 USC §§ 1821 and 1920. Section 1821 concerns witness fees and plays no role in court decisions addressing taxation of eDiscovery costs. And, of the six categories of taxable costs authorized under Section 1920, only one has been cited when allowing the recovery of eDiscovery costs. Subparagraph four provides for the recovery of “[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case....” Congress did not define the terms used, but one thing we know is that Congress did intend to include electronic records within the ambit of “making copies.” In 2008, it amended the language of subparagraph four, substituting the word “materials” for “papers.”  

The Race Tires Case and Its Aftermath

In Race Tires America, Inc LLC v Hoosier Racing Tire, Corp 674 F3d 158 (3CA 2012), the District Court for the Western District of Pennsylvania faced the question of what, if any, eDiscovery costs, were taxable under Section 1920(4). The defendants, prevailing parties on their motion for summary judgment in this antitrust action, sought recovery for approximately $400,000 in eDiscovery costs for vendor eDiscovery expenses relating to imaging hard drives and servers, processing data and formatting electronically stored information. The district court approved approximately $370,000 of the request under the “exemplification” and “making copies” language. The court based its decision on the grounds that the: 
 
  1. Parties had agreed to an electronic production of documents; 
  2. Plaintiff doggedly pursued eDiscovery from the defendants; 
  3. Defendants produced massive quantities of ESI to plaintiff; and 
  4. The vendor’s services were necessary to retrieve and produce the ESI. 

The plaintiff appealed the award of costs. 

On appeal, the Third Circuit Court of Appeals upheld approximately $30,000 of the award to the defendants. Surveying the law, the appellate court found that “exemplification” had been interpreted to mean either producing illustrative evidence or the authentication of public records. Based on these definitions, the court determined that none of the vendor’s eDiscovery services fell within the purview of the statutory language. As to what fell within “making copies” the court found that “only the scanning of hard copy documents, the conversion of native files to TIFF, and the transfer of VHS tapes to DVD involved ‘copying,’ and that the costs attributable to only those activities [were] recoverable....” 

Since the appellate court decision in Race Tires, many cases have wrestled with the question of what eDiscovery costs are recoverable under Section 1920(4). Some, like the Fourth Circuit Court of Appeals, have agreed with Race Tires. See Country Vintner of North Carolina, LLC v E & J Gallo Winery, Inc. Others, like the Sixth Circuit have adopted broader interpretations of the statutory language. See Colosi v Jones Lang LaSalle Amers Inc (allowing recovery for the cost of imaging of hard drives). 

What Does Oracle Portend?

Does Oracle resolve these conflicting interpretations? Probably not. However, it does provide a clue that if the issue is squarely brought before the Court, it will interpret Section 1920(4) narrowly. This is in keeping with the Court’s 2012 decision in Taniguchi v Kan Pacific Saipan, where the Court interpreted Section 1920(6) concerning recovery of costs for “compensation of interpreters,” to exclude the cost of document translation. Referring to Section 1920 and taxable costs generally the Court stated:
 

Taxable costs are limited to relatively minor, incidental expenses as is evident from § 1920, which lists such items as clerk fees, court reporter fees, expenses for printing and witnesses, expenses for exemplification and copies, docket fees and compensation of court-appointed experts. Indeed, “the assessment of costs most often is merely a clerical matter that can be done by the court clerk.” *** Because taxable costs are limited by statute and are modest in scope, we see no compelling reason to stretch the ordinary meaning of the cost items Congress authorized in § 1920.

Reading Oracle in the light of Taniguchi it is unlikely that broad cost awards for eDiscovery services that do not closely resemble “making copies” will be sustained in the future. Costs incurred for imaging data sources, converting native data into a production format and transferring production data to a medium for delivery are most likely covered by Section 1920(4). Whereas, costs incurred for identifying, collecting, searching and reviewing documents, creating a database, hosting and storing data, and endorsing documents probably fall outside of the ambit of Section 1920(4). 

However, until the Supreme Court answers the question directly or Congress clarifies Section 1920(4), litigants would be well-advised to keep meticulous, itemized records of all eDiscovery expenses. When submitting a bill of costs, be sure to include those eDiscovery expenses allowed under current precedent and any others for which a good faith argument for extension of existing law can be made. 

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