Will Taxation Control the Costs of e-Discovery?

The costs of e-discovery have grown significantly as companies rely more and more on electronically stored documents in their day-to-day operations.  Litigants and courts have struggled with the issue of e-discovery as parties on both sides request a growing number of documents that have been stored electronically.  This has helped to increase costs, as firms often hire e-discovery vendors to assist in the highly technical process of retrieving and procesing electronically stored information.  Several recent  district court rulings may go a long way toward reducing some of the costs of e-discovery.

costs-of-e-discoveryVendor Costs

A May 6th opinion in the Western District of Pennsylvania, July and October rulings in the Eastern District of Pennsylvania, and an October opinion in the Southern District of California, all approved taxation of the costs of e-discovery in separate cases.  In Race Tires America Inc, v. Hoosier Racing Tire Corp., the court ruled that approximately $370,000 in vendor costs were not done at the convenience of defense counsel, but to meet the e-discovery demands of the plaintiff.  In Hank’s Beverage Co. v. Ajinomoto Co., the clerk of the Eastern District of Pennsylvania permitted taxation of approximately $560,000 in e-discovery costs.  The clerk held that the hiring of a vendor to search for and recreate documents by the defendant were a direct result of e-discovery requests by the plaintiff.  The Eastern District ruled again, on October 5th, that approximately $500,000 in e-discovery costs should be taxed (In re Aspartame Antitrust Litigation), and an October 12th opinion from the Southern District of California upheld taxation of $70,000 in e-discovery costs (Jardin V. Datallegro, Inc.).

Convenience v. Necessary

The recent rulings seem to indicate that the federal courts are in agreement ontaxation for scanning of documents.  Most federal courts have held that costs for scanning paper documents into an electronic format are necessary for use in the case.  One Iowa district court described scanning as the modern version of “exemplification and copies of paper.”  However, courts are generally taking notice of whether costs of e-discovery are incurred necessarily or for the convenience of counsel, leaving the determination of whether particular services are taxable, such as conversion of electronic files to other formats, up to interpretation.    For example, the Aspartame court approved taxation of costs associated with creating a litigation database, processing and hosting electronic data, making documents OCR searchable, and extracting metadata, but drew the line at visual clustering and conceptual analytics technologies as “for the convenience of counsel.”

Effect on e-Discovery

These cases seem likely to impact the way parties will approach e-discovery in the future.  Should the courts continue to find that e-discovery costs are taxable, litigants may be less likely to provide broad-spectrum e-discovery requests due to the potential for being penalized monetarily.  Despite the fact that attorney review of documents is typically the most costly aspect of e-discovery, and are not taxable, vendor fees can be a significant part of the costs of e-discovery.  Litigants will need to adequately track e-discovery costs and provide documentation regarding court orders and demands from opposing parties as proof that e-discovery costs were necessary to respond to requests and  not  for the convenience of counsel.

There is little question that the recent district court rulings will have an effect on the costs of e-discovery.  What remains to be seen is how extensive the effect will be and whether other courts will follow these precedents when determining the taxability of e-discovery costs.  For more information on how taxation may affect the costs of e-discovery and for strategies to reduce e-discovery costs, call Advanced Discovery at (866) 560-5898 or visit the Contact Us section of our website!

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