Race to the High Court: Hoosier Racing Seeks High Court Review of Third Circuit’s Slashing of E-Discovery Cost Award

The skyrocketing costs of e-discovery in modern day litigation will now be getting at least some attention from the nation’s highest court.

Not long ago we reported on a decision by the Third Circuit Court of Appeals to slash recovery of costs by a prevailing party under 28 U.S.C. §1920 in Race Tires America, Inc., et al. v. Hoosier Racing Tire Corporation et al., No. 11-2316 (3d Cir. Mar. 16, 2012). In Race Tires, the Third Circuit, while acknowledging a spilt in the circuits, held that costs sought and awarded under §1920 must bear a reasonable connection to duplication of materials in the traditional sense to be recoverable by a prevailing party. Thus, certain e-discovery vendor activities — including conversion of the native files to TIFF images, the scanning of documents for the purpose of creating digital duplicates and the copying of the videos to DVD — could be reimbursed under the statute, while others, like consultant’s charges for data collection, preservation, searching, culling, conversion, and production, could not.

Since Race Tires, other courts considering this issue have not fallen in line, highlighting the pre-existing split among the circuits. For example, only a few weeks after Race Tires came down, the Court in In re Online DVD Rental Antitrust Litig., No. M 09-2029 PJH, (N.D. Cal. Apr. 20, 2012) permitted taxation of more than $710,000 in costs, including those related to electronic discovery services, to the prevailing party, stating:

The court declines to disallow remaining costs on the grounds argued by plaintiffs (e.g., TiFF conversion costs; copying/”blowback” costs purportedly not documented; document productions purportedly not delivered; professional fees re visual aids). Furthermore, although the court takes note of the Third Circuit’s well-reasoned opinion in Race Tires Am., Inc. v. Hoosier Racing Tire Crop. [sic], ––– F.3d ––––, 2012 WL 887593 (3d Cir. Mar.16, 2012), the court concludes that in the absence of directly analogous Ninth Circuit authority, and in view of the court’s prior order in connection with the Blockbuster subscriber plaintiffs’ motion for review of the clerk’s taxation of costs, broad construction of section 1920 with respect to electronic discovery production costs –under the facts of this case –is appropriate.

See also Petroliam Nasional Berhad v. GoDaddy.com, Inc., No. C 09-5939 PJH, at *4 (N.D. Cal. May 8, 2012) (disregarding the Race Tires opinion and permitting broader range of electronic discovery production costs).

On June 14, 2012, the stakes were raised significantly when Race Tires and Dirt Motor Sports petitioned for a Writ of Certiorari seeking review of the Third Circuit’s decision by the United States Supreme Court. The Petition can be found here. The Petitioners highlighted the split among the circuits, and argued that the Third Circuit failed to appreciate and properly interpret the plain language reference to copying of “any materials” as set forth in the amended statute by holding that “only scanning and file format conversions” could be considered “making copies” under §1920. Noting that “the issue of who will bear costs associated with electronic discovery is faced by nearly every litigant in every lawsuit,” and controlling these costs “has become an important aspect of any litigation strategy,” the Petitioners argued that the Third Circuit’s approach “ignores the plain language of ‘making copies of any materials’ and is an outdated approach to assessing recovery for modern discovery demands.”

The Petitioners relied heavily on the interpretation of §1920(4) by the Federal Circuit in In re Ricoh, Ltd. Patent Litig, 661 F.3d 1361, 1365 (Fed. Cir. 2011). The Ricoh court held that the amended §1920(4) specifically contemplates that the “costs of producing a document electronically can be recoverable.” In the Petitioners’ view, because the Ricoh court did not limit recovery to any subset of activities performed by e-discovery vendors, the “Federal Circuit would presumably permit all of the various categories identified by the Third Circuit.” (A curious argument given that the Federal Circuit was expressly applying the regional circuit law of the Ninth Circuit in interpreting §1920(4) in that case, and, as Race Tires shows, other circuits differ markedly in their interpretation of the statute). Petitioners further argued that Ricoh and other decisions that have allowed recovery of broad e-discovery costs highlight the split in the circuits (specifically a conflict with decisions out of the Federal, Ninth, Seventh and Fifth Circuits) and that the Third Circuit had failed to appreciate the significance of the 2008 amendment to §1920(4). Interestingly, Petitioners stressed that that the plain meaning of the word “make” in subsection 4 connotes a process of document preparation that encompasses more than copying in the traditional, pre-electronic age sense.

While predicting which cases the Supreme Court will deem appropriate for review is generally not a productive exercise, the Court’s treatment of the Race Tires Petition may be seen as a barometer as how seriously the judiciary generally is viewing the issue of spiraling e-discovery costs. Until we hear from the High Court, however, we stand by our prior recommendation to carefully document costs for all e-discovery vendor activities and be prepared to present those costs for reimbursement under §1920 if you prevail in your case.