Welcome to Module 3-H.

“Winning isn’t everything, it’s the only thing” – Examining big e-discovery cost awards for winners

It is now sweeter than ever to be a victor in federal court. That’s because some trial court judges are awarding winners their e-discovery costs under 28 U.S.C. §1920(4) and Rule 54(d)(1) FRCP. Courts are beginning to consider the services of an e-discovery vendor as “the 21st Century equivalent of making copies.” CBT Flint Partners, LLC v. Return Path, Inc., 676 F.Supp.2d 1376, 1381 (N.D. Ga. 2009). Other courts are ruling the other way, especially the Third Circuit, but for most courts it is still an open issue. It is an argument that every winner will want to make.

We are now talking about dozens of cases around the country where significant cost awards have been made to the prevailing party. This started off being a fairly evenly divided issue a few years ago and there were only a few cases. Now the tide seems to be turning and a flood of cases are coming out. More and more judges are siding with the winners and, for the first time, construing §1920 to include six-figure e-discovery costs. See Eg In re Aspartame Antitrust Litigation, No. 2:06-CV-1732, 2011 (E.D. Penn. Oct. 5, 2011) ($500,000 e-discovery costs award to defendants); Race Tires America v. Hoosier Racing Tire Corp., 2011 WL 1748620 (W.D. Pa. May 6, 2011) ($400,000 award by trial judge to defendants for e-discovery costs) (Reversed Third Circuit, 3/16/12); Tibble v. Edison International, 2011 Lexis 94995 (C.D. Cal., July 8, 2011) ($370,000 cost award to defendants who won nine out of ten counts and used the costs award to more than offset the plaintiffs’ judgment on one count).

Like it or not, this is America where everybody loves a winner and so this trend will probably continue and grow stronger. As Vince Lombardi said:

If winning isn’t everything, why do they keep score?

Vinny also said:

I firmly believe that any man’s finest hour, the greatest fulfillment of all that he holds dear, is that moment when he has worked his heart out in a good cause and lies exhausted on the field of battle – victorious.

You probably won’t have Gatorade poured over your head if you win in federal court, but now you might get showered with cash.

New Strategies

There is still wide-spread disagreement on this issue in the courts and many judges are still going the other way to disallow most e-discovery costs, but there seems to be a trend to interpret §1920(4) broadly, especially when hidden equitable factors are at play. But see Specht v. Google, Inc., 2011 U.S. Dist. Lexis 68968 (N.D. Ill. June 27, 2011) (cost application denied because the parties did not have an express agreement to produce discovery in electronic form). If you are a winner, you might as well go for it. You might as well try to have the losers reimburse you for all of your e-discovery vendor fees. As Vince Lombardi said:

We would accomplish many more things if we did not think of them as impossible.

At this early stage of the game it is hard to predict how a judge will rule, especially if they have never considered this issue before, but you have nothing to lose in trying. For that reason this will probably now come up in every case where there is a winner with any e-discovery costs. Winners will file a Bill of Costs with the Clerk and hope for the best. The Court Clerk and supervising District Court Judge, who makes the final decisions (it is de novo review), could well award all or part of the winner’s e-discovery costs. Or you could just receive a small award for your paper copy costs. At this early stage it is hard to predict how judges may rule, but as Lombardi said:

If you can accept losing, you can’t win.

The possibility of large e-discovery costs awards will also change the matrix in settlement discussions. Both sides of a dispute will have to take into consideration the other side’s e-discovery costs, because if they lose, they may have to pay the winner’s costs. This is one more thing to talk about and consider in every mediation. What are the parties respective exposures if they decide to roll the dice? Could the losing plaintiffs get taxed with hundreds of thousands of dollars of defendants’ e-discovery costs? Do the plaintiffs have any assets to satisfy such a cost judgment? Does a losing defendant have the ability to pay? Would a prevailing defendant after judgment be willing to waive their right to seek costs in exchange for a losing plaintiff giving up their right to appeal? You know these conversations are going on right now.

It will also enter the matrix in motions for protective orders. The moving side will use the new costs rule to try to persuade the court to order the producer to go to the extra expense. This is a tempting argument to judges. When in doubt they may order the producing party to do more, to spend more, with the consolation that if they win, they can always get it back in a cost award. Please judges, don’t fall for that. Stay with proportionality, with Rule One. Most cases settle, and that means there is no prevailing party to be entitled to an award under §1920. Further, in many cases one side is collection-proof. That cost judgment will never lead to cash. Further, inability to pay is grounds for a loser to defeat a cost motion. The possible cost award repayment is always going to be remote and speculative, whereas the vendors fees are immediate and certain (and high).

Vendors Rejoice

This is a real bonanza for e-discovery vendors, and something of a downer for lawyers and law firms with special technical skills and built-in vendor services. Perhaps law firms can take consultation in Lombardi’s words:

It’s not whether you get knocked down, it’s whether you get up.

It will be interesting to see how firms respond to this new trend. Could more spin-off companies be in the works? That would also solve the many ethical issues of running an e-discovery business in a law firm.

The award of costs under §1920 cannot be construed to include any of the winner’s attorneys fees. The statute is only for an award of costs, even though the statute says fees as we will see. It means outside vendor fees, not inside law firm fees. It remains to be seen whether it will include non-fee cost billings by law firm litigation support departments, as opposed to billings by outside vendors for the same services. I do not think this specific issue has come up yet, but if you hear anything about it, please let me know.

Either way, the wording on bills to describe e-discovery charges by law firms and vendors is bound to change to try to track language used in the flurry of cases now coming out interpreting §1920. You are likely to need a technical dictionary to understand these fees in the future. Vendor’s will want to make their services look as technical, expert, and non-legal as possible. See Eg. Race Tires America v. Hoosier Racing Tire Corp., supra at *29:

A careful review of the vendor’s invoices reveals that the services provided were not the type of services that attorneys or paralegals are trained for or are capable of providing. The services were highly technical.

Craig Ball addressed this topic in February 2010, and, as usual, concluded with this good advice:

Lawyers seeking to tax e-discovery expenses as court costs should segregate and document disbursements that most closely correspond to § 1920 categories of taxable costs. It‟s useful to establish that the producing party incurred the expenses in response to a request by or agreement with an opponent or an instruction from the court (e.g., “produce as TIFF images with load files”) and that the cost was necessarily incurred to fulfill that request. It’s key to show that the benefits reached the requesting party or the court. Be specific, and closely track the statutory language, likening to printing, copying, exemplifying or even translating as appropriate. Studiously exclude costs principally benefiting the producing party or merely for counsel’s convenience, and consider whether using a court-appointed neutral for e-discovery enhances your ability to tax such expenses as costs.

Ball, Craig, Musings on Electronic Discovery, at pgs. 157-159, Are We Just ―Makin’ Copies? (Originally published in Law Technology News, February 2010).

Right now this is still a wide open book yet to be written. Creativity in description of the bills may be important. As Craig points out, it is important for counsel to be able to show a court that the expenses were necessary and were not incurred just for the convenience of counsel. This can be a hard line to draw, but the winners seem to have the better argument. After all, the winning litigants paid the bills, and they did so with no guaranty they would win or ever receive a costs award. The same argument applies as to any challenges to the amount of the costs as unreasonable. As Judge Terrence F. McVerry held in Race Tires:

Although the amount of costs assessed in this action is significant, the assessment is reflective of the amounts incurred by the prevailing parties without respect to their anticipation of being prevailing parties and, in that regard, can hardly be considered as “puffed,” exorbitant, or contrived. Such costs were, in fact, incurred – and in significant respects at the discovery demands of Plaintiffs. Although a reasonable defense to the imposition and request of the prevailing party for costs can be the actual inability to pay said costs, such defense has not been raised by the non-prevailing party here.

Race Tires America v. Hoosier Racing Tire Corp., supra at *35-36, aff’d in part, vacated in part, and remanded, Race Tires Am., Inc. v. Hooiser Racing Tire Corp., No. 11-2316, 1012 WL 887593 (3d Cir. Mar. 16, 2012).

Besides, on the issue of convenience I know of no client willing to pay more for a service just so their lawyers can be convenienced. Get real. How many clients will pay for first class airfare? Clients will only agree to pay for e-discovery services if they are necessary and designed to save them money and/or risk. The whole convenience argument seems misplaced in this area. But in the paper days courts held that Bates stamping was not allowed as a cost because it was only done for the convenience of counsel. And they now try to make analogous arguments in high volume ESI discovery and productions.

It is instructive to see what was allowed, and what wasn’t, in the big cost awards case of In re Aspartame Antitrust Litigation, supra. The vendor costs award included fees associated with:

  1. data recovery,
  2. tape restoration,
  3. imaging hard drives,
  4. storage of data,
  5. deduplication,
  6. data extraction and processing,
  7. OCR’ing paper documents,
  8. the creation of a litigation database,
  9. keyword searches,
  10. privilege screening (i.e., keywords for privileged documents),
  11. data hosting,
  12. technical support,
  13. project management,  and
  14. the production costs for the creation of load files allowing documents saved as TIFFs to be loaded into review platforms.

Many of these sound like legal services to me, but apparently they were all done by vendors, including lawyers working for vendors who claim not to provide legal advice.

In Aspartame the cost award excluded fees associated with the vendor’s Attenex Document Mapper software described as “a document review tool with visual clustering of a document collection based on concepts extracted from those documents.” This was rejected, along with “concept based review platform and document analytics” as unnecessary. They were considered to be costs incurred merely for the convenience of counsel. The court in Aspartame seems to have engaged in a kind of Cadillac versus Chevy analysis that missed the cost-savings made possible with the Cadillac features of concept search, clustering, and data analytics. Perhaps with better explanations by counsel these costs would have been awarded too. The key here is to convince the judge that the bells and whistles actually saved the litigants money.

Hidden Equities Driving This Trend

It appears to me as if judges who are now making these large e-discovery costs awards should have applied principles of proportionality to prevent the winner from having to incur these large e-discovery costs in the first place. In many of the cases it is obvious that they did not. For instance, in Race Tires America v. Hoosier Racing Tire Corp, supra, the losing plaintiff was allowed 442 search terms and 119 separate requests for production. Not only that, there were eleven e-discovery related motions. The defendants were forced to run up e-discovery costs bills of over $400,000. I’m guessing they also incurred e-discovery related attorneys fees in the millions. All that and they won on summary judgment. What a waste of time and resources! The plaintiff did not even have enough evidence to create a genuine issue of material fact. Obviously the defendants were forced by the court to pay a disproportionally large amount to defend a very weak case.

This kind of situation sets up the equities for a judge to try to do some sort of rough justice for the winners. Before final judgment the judges had believed the losers who had assured them that they had a meritorious case, and that they could prove it if only they were given more discovery, including especially expensive e-discovery. So the judges gave it to them, and forced the winners to pay e-discovery vendors huge fees to get the job done. Then when it came time to put the evidence down, to show the cards, at summary judgment or trial, the losers were shown to be all bluff and bluster. They lost.

Now the judges could clearly see that they had had the wool pulled over their eyes. The losers did not have a case. They were just trying to get a settlement or they were on a fishing expedition hoping to get lucky and find some evidence to support their case, any case (they could freely amend, often after trial to conform to the evidence). Now that the case is over, the judges know the truth, they know that the losers had a weak case. This is what that the winners had been telling them all along. Under these circumstances, judges are more than happy to do rough justice by making the fool-me-once losers pay for the winners’ e-discovery costs. That is part of the hidden equity going on here to broaden the interpretation of this statute to include all types of e-discovery costs. This is the hidden equity to do rough after-the-fact justice for the winners.

Notice I don’t say plaintiffs or defendants here. Cost awards are party neutral. If the plaintiff wins, and they often do, they can get their e-discovery costs. If the defendant wins, they can get theirs. This is not about plaintiffs and defendants. This is about winners and losers. As Lombardi said:

Some of us will do our jobs well and some will not, but we will be judged by only one thing-the result.

Change in the Law To Expand Beyond Paper Costs

This new trend in allowing six-figure e-discovery cost awards came about because of a little known technical amendment in 2008 to 28 U.S.C. §1920(4). Apparently losers don’t have lobbyists because no one seemed to notice or much care when the statute for court costs was amended to remove the limitation to paper, which has been in their from the start. The obscure little statute has wonderfully archaic language that gives parties and judges a lot of latitude to interpret. It allows for an award of costs for:

Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case;  (It used to say “making paper copies” instead of copies of “any materials.”)

Parties are now starting to argue successfully that this little change in the statute showed Congressional intent for broad construction of §1920 to include non-paper related costs incurred in 21st Century litigation. Big money is now being made by winner attorneys interpreting exemplification and making copies. Pre-2008 amendment cases that went the other way and disallowed e-discovery costs are now all distinguishable. Again quoting Judge McVerry in Race Tires:

Prior to 2008, district courts struggled with the issue of whether e-discovery costs were recoverable under Section 1920(4). In 2008, Congress changed the relevant language of Section 1920(4) from “[a] judge or clerk of any court of the United States may tax as costs the following: . . . fees for exemplifications and copies of papers” to “fees for exemplification and the costs of making copies of any materials.” Judicial Administration and Technical Amendments Act of 2008, Pub. L. No. 110-496, § 6, 122 Stat. 4291, S. 3596. After the amendment, no court has categorically excluded e-discovery costs from allowable costs.

However, even before the 2008 congressional modification to Section 1920, courts in many jurisdictions had come to [*19] recognize that “exemplification,” in the modern era, includes electronic copying. See, e.g., Cefalu v. Village of Elk Grove, 211 F.3d 416, 427-28 (7th Cir. 2000) (explaining that exemplification “signifies the act of illustration;”: so long as “the means of presentation furthers the illustrative purposes of an exhibit . . . it is potentially compensable”); BDT Prods. v. Lexmark Int’l, Inc., 405 F.3d 415, 420 (6th Cir. 2005) (finding that “electronic scanning and imaging” may constitute “exemplification,” within the meaning of Section 1920); Brown v. McGraw-Hill Co.’s Inc., 526 F. Supp.2d 950, 959 (N.D. Iowa 2007) (finding that “the electronic scanning of documents is the modern day equivalent” of ‘exemplification and copies of paper’ as set forth in Section 1920; El Dorado Irrigation Dist. v. Traylor Bros., Inc., No. CIV. S-03-949, 2007 U.S. Dist. LEXIS 14440, 2007 WL 512428, at *10 (E.D. Cal. 2007) (“[S]canning is akin to copying. The purposes of the two methods are largely the same, to reproduce a document so that it may also be utilized by multiple parties and individuals.”

Race Tires America v. Hoosier Racing Tire Corp., supra *17 at FN6. Reversed on appeal by the 3rd Circuit, but the trial judge’s reasoning may still be persuasive in other courts not governed by the Third Circuit.

So it seems clear that courts after 2008 are free to interpret anew the meaning of the ancient paper-based terms of exemplify and copy. What does this mean in the today’s digital world of ESI collection, processing, analysis and review? What do fees for digital exemplification and copying include? For more and more judges burned by losers who pushed through e-discovery, it means all, or substantially all, of the fees and costs the winners incurred with their e-discovery vendors. More and more judges in this position will likely conclude that “the steps the third-party vendor performed appeared to be the electronic equivalents of exemplification and copying.” Race Tires America, at *21.

Are You Wearing a Technology Consultant Hat or a Lawyer Hat?

Section 1920 clearly does not allow for an award of attorney fees. The Federal Rule of Civil Procedures, Rule 54, that triggers an award under §1920 has not changed. The U.S. does not follow the English Rule allowing for an award of fees to the prevailing party in almost every case. Instead, fee awards are only allowed in the U.S. when authorized by statute or by the parties agreement. Rule 54(d)(1) makes it clear that attorney fees are not part of the costs award. It provides that “unless a federal statute, these rules or a court order provides otherwise, costs–other than attorney’s fees–should be allowed to the prevailing party.” (emphasis added)

I don’t think this is fair to law firms that have invested small fortunes in litigation support departments and providing some of their lawyers special technical skills. This trend to allow e-discovery cost awards for services when rendered by vendors, but not when rendered by law firms, seems like an unfair boost to outside consultants and non-professional corporations. The truth is, the line between fees for legal services and technical services is grey and blurry. It is hard to say what the long-term consequences of this cost-award trend will be, except that it is quite likely to move the grey line away from practicing attorneys and law firms. Still, I am consoled by Lombardi’s words:

The greatest accomplishment is not in never falling, but in rising again after you fall.

Conclusion

If you win a case in federal court, asks for an award of all of your e-discovery costs. It’s that simple and does not cost much to do. Who knows, you might just get all or a substantial part of your costs paid back by the loser. In the meantime, be careful how you word the cost billings. Make sure it is obvious to the judge that you are not just doing e-discovery for the hell of it, that it is necessary and highly technical and damn hard. But don’t get too flowery in your descriptions for fear someone will accuse you of driving a sports car because it is hot and convenient for you to be flashy, not because it will get you there faster and thus save your client a ton of money. And in all settlement discussions, bring this up, let the other side know what your expenses are and that they might have to pay them. Also beware of the bogus argument in discovery that more discovery should be allowed and forget about proportionality because you could get it back at the end of the case anyway.

A big cost award is still a long shot, even if you are a winner. But your team worked hard to get there and you should go for it. Remember the inspirational words of coach Vince Lombardi:

Teamwork is what the Green Bay Packers were all about. They didn’t do it for individual glory. They did it because they loved one another.

Perfection is not attainable, but if we chase perfection we can catch excellence.

Leaders are made, they are not born. They are made by hard effort, which is the price which all of us must pay to achieve any goal that is worthwhile.

The quality of a person’s life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor.

We didn’t lose the game; we just ran out of time.

SUPPLEMENTAL READING: Read the Third Circuit March 16, 2012 Opinion, commonly called Race Tires II. What parts do you agree or disagree with and why?

EXERCISE: Find Race Cars III to hear the final word by the Third after remand and second appeal. Think out a plan of action that the winner could have used to avoid becoming a loser in the end.

Additional Exercise: Figure out what costs in the first award made by the trial judge would still be considered reasonable today. What vendor cost has really come down in the last few years?

Students are invited to leave a public comment below. Insights that might help other students are especially welcome. Let’s collaborate!

Copyright Ralph Losey 2015

Ralph Losey is a practicing attorney who specializes in electronic discovery law. He is a principal in a U.S. law firm with over 50 offices & 800 lawyers where he supervises electronic discovery work and litigation support. Ralph has written over two million words on law and technology, including six books on electronic discovery. His latest books are "E-Discovery for Everyone" (ABA 2017) and "Perspectives on Predictive Coding" (ABA 2017) (ed. & contributor). His blog is widely read in the industry: "e-DiscoveryTeam.com." Ralph is the founder and principal author of "Electronic Discovery Best Practices" and "e-Discovery Team Training," a free online course covering all aspects of e-discovery. Ralph's sub-speciality is the search and review of electronic evidence using multimodal methods, including artificial intelligence. He also has a free online training program to teach these advanced methods - the "TAR Course." Ralph has devoted a month of his time each year since 2013 to research and test various AI-enhanced document review methods. In 2015 and 2016 Ralph and his Team participated in the TREC Total Recall Track experiments sponsored by the National Institute of Standards and Technology. Ralph has been involved with computers and the law since 1978. His full biography is found at RalphLosey.com. Ralph is the proud father of two children, Eva M. Losey and Adam Colby Losey, a high-tech lawyer married to another e-discovery lawyer, Cat Jackson Losey, and, best of all, Ralph has been married since 1973 to Molly Friedman Losey, a mental health counselor and life-long friend.

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