May 16, 2011
By: G. Franklin McKnight IV and Kymberly Kochis
This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
In a dispute between tire company competitors over whether certain conduct amounted to antitrust violations, the United States District Court for the Western District of Pennsylvania recently ordered that the prevailing defendants were entitled to repayment of their e-discovery costs, an amount in excess of over $367,000. In so ruling, the Court in Race Tires America, Inc. v. Hoosier Racing Tire Corp. and Dirt Motor Sports, Inc. found that third-party vendor e-discovery costs warranted reimbursement under federal law because the requirements and expertise necessary to retrieve and prepare e-discovery documents for production were an indispensable part of the discovery process. The Court likewise found that the amounts charged for e-discovery services were reasonable, noting that the parties mutually agreed upon e-discovery terms, costs were incurred due to the plaintiff's aggressive pursuit of e-discovery and, although the costs assessed were significant, the assessment reflected amounts incurred without respect to defendants' anticipation of being prevailing parties.
In reaching its decision that e-discovery costs incurred in this matter were taxable costs under 28 U.S.C. § 1920(4) as "fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case," the Court noted that prior decisions have allowed a prevailing party to recover the costs of converting paper documents into electronic files where the parties agreed that responsive documents would be produced in electronic format. While such a conversion was not at the heart of this matter, the Court noted that the parties negotiated an e-discovery agreement in good faith and that plaintiff aggressively pursued discovery under it, serving 273 requests and imposing 442 search terms. In response, a massive amount of electronically stored information (ESI) was produced by defendants, including 490 gigabytes of electronic data and over 270,000 files. The search terms alone returned over seven million hits of potentially responsive ESI. The Court found that the actions taken by the defendants were necessary to comply with their discovery obligations and that the costs incurred satisfied section 1920(4).
For similar reasons, the Court found that the amounts incurred were reasonable. The Court noted that defendants did not seek reimbursement for legal fees charged by attorneys or paralegals who reviewed documents, but only the costs paid to third-party vendors to produce the requested ESI. The Court also found no evidence that e-discovery was merely a convenience. A review of the vendor's invoices revealed that the services provided were highly technical and not the type of services that attorneys or paralegals were capable of providing. The Court also noted that although a reasonable defense to the imposition of costs can be an inability to pay those costs, no such defense was raised.
The Court's opinion in Race Tires America presents a cautionary tale for litigants pursuing aggressive e-discovery as well as an opportunity for parties to recover e-discovery costs. Parties responding to e-discovery requests can incur tremendous amounts of e-discovery costs in order to comply with document requests and protect their defenses. The Race Tires America opinion suggests that if these costs are reasonable, a party may be able to recoup them if the party prevails, absent a showing that such costs were unnecessary or serve solely an aesthetic purpose. This point, however, is tempered by the Court's pronouncement that the circumstances of the case were unique and should not be read as a representation of how the Court will rule on future e-discovery cost disputes. Furthermore, as plaintiff has appealed the decision to the Third Circuit, further guidance on this issue may be forthcoming.
For further insight on the impact of e-discovery issues on the insurance industry, please contact G. Franklin McKnight at 215.358.5197 or fmcknight@nldhlaw.com or Kymberly Kochis at 212.233.2906 or kkochis@nldhlaw.com.
