A major expense for defendants in class actions is the cost for electronic discovery vendors to collect, search through, process and host electronic data to be produced in discovery.  These often amount to hundreds of thousands of dollars.  These costs are likely to rise with the advent of computer-assisted predictive coding (see my March 9, 2012 post).  Can a prevailing party recover some or all of these large costs?  The Third Circuit recently held that scanning of hard copy documents, conversion of native electronic files to TIFF format, and transfer of VHS tapes to DVD format were recoverable, but other costs were not.  The recoverable costs here (and this case was not a class action) amounted to about $30,000 out of a total of $365,000.  In some class actions the scanning and conversion costs are considerably larger.  If a named plaintiff has to bear that cost, many cannot do so without suffering a substantial financial hardship, so the risk of incurring this cost can be a significant disincentive for a named plaintiff to bring a class action, and a not inconsequential bargaining chip in settlement discussions.  In some jurisdictions, plaintiff’s counsel may be able to bear these costs if they lose, although in other jurisdictions ethical rules may not permit that.  Even if plaintiff’s counsel is responsible for the costs, however, many plaintiffs’ firms will not take lightly having to pay out of pocket tens of thousands of dollars in e-discovery costs.

In Race Tires America, Inc. v. Hoosier Racing Tire Corp., No. 11-2316, 2012 U.S. App. LEXIS 5511 (3d Cir. Mar. 16, 2012), the dispute centered on the proper interpretation of the federal statute regarding taxable costs, which provides, in pertinent part, that costs taxed against a losing party may include “[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case . . . .”  28 U.S.C. § 1920(4).  The district court had awarded the full $365,000, on the theory that the e-discovery charges were the modern equivalent of “exemplification and the costs of making copies.”  Race Tires, 2012 U.S. App. LEXIS, at *13. 

The Third Circuit explained that the costs statute goes back to 1853, long before anyone imagined copy machines, let alone e-mails and massive computer databases full of them.  There was a change in 2008 at the recommendation of the Judicial Conference of the United States, which modified “copies of papers” to “copies of any materials,” but otherwise the language goes back to a pre-computer era when you would need either a printing press or someone to write out copies by hand.

The Third Circuit first addressed whether “exemplification” would encompass e-discovery costs.  It concluded that “exemplification” must have a different meaning from “making copies,” based on the principle of statutory construction that separate terms used should be presumed to have distinct meanings.  The court concluded, based on dictionary definitions and prior case law, that “exemplification” refers to presentation of illustrative evidence (such as demonstrative exhibits) or authentication of public records, neither of which would apply to the e-discovery costs being claimed.

The Third Circuit then analyzed the meaning of “making copies.”  Laypersons might find it amusing that lawyers and judges really debate things like what it means to “make copies.”  The Third Circuit again went to a dictionary on that question, finding that “copy” means “an imitation, transcript, or reproduction of an original work.”  Id. at *22-23.  The court concluded that:

[W]e identify the following general categories of services comprising the vendors’ electronic discovery services: collecting and preserving ESI; processing and indexing ESI; keyword searching of ESI for responsive and privileged documents; converting native files to TIFF; and scanning paper documents to create electronic images.

Of the activities undertaken by the vendors, only the conversion of native files to TIFF (the agreed-upon default format for production of ESI), and the scanning of documents to create digital duplicates are generally recognized as the taxable “making copies of material.”

Id. at *25.  The Third Circuit further reasoned that the various steps that would be required before the digital era to identify potentially responsive documents and review them for responsiveness and privilege were not recoverable costs; only the actual copying was.  So the use of computers to do some of the kinds of things that lawyers or paralegals used to, and still do with hard copy documents would not be recoverable.  The court noted that Rule 26(c) allows a party in a motion for protective order to ask a court to shift additional costs, but that was not sought here.

This is unlikely to be the last word on recoverability of e-discovery costs, but it appears to be the first appellate decision on the issue.  Insurers and other defendants should remember to take advantage of the recoverability of at least a portion of e-discovery costs when they can, and try to collect as much as possible.  Recoverable costs are often an afterthought or not even thought about when you win on a dispositive motion.  An amendment to the federal statute may also be in order to expand recoverability of e-discovery costs and thereby deter frivolous litigation and encourage parties to narrow the scope of what they seek in e-discovery so as not to run up a large bill of costs.  Don’t forget though that in complex insurance claim litigation, insurers that demand extensive e-discovery from an opposing party can also be stuck with a larger bill of costs if they lose.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.