The general rule in federal litigation is that the losing party bears the other side’s “costs.” 28 U.S.C. § 1920. A defendant who perceives some liability, albeit less than the plaintiff’s demand, can shift these costs via an offer of judgment under Rule 68 of the Federal Rules of Civil Procedure. Generally, Rule 68 allows a defendant to make a settlement offer, which remains open for 14 days. If the plaintiff does not accept the offer and recovers less at trial, the plaintiff is assessed the defendant’s “costs.”
However, Rule 68 has been an inadequate incentive to encourage settlements, mainly because of the federal definition of recoverable “costs.” Generally, recoverable costs include filing and service fees, court reporter fees, printing costs, exemplification and copying costs, and witness fees. Parkes v. Hall, 906 F.2d 658, 659-60 (11th Cir. 1990) (generally limiting costs subject to the cost-shifting provisions of Rule 68 to those enumerated in 28 U.S.C. § 1920). Attorneys’ fees are not included as “costs,” unless the substantive law at issue in the litigation defines “costs” to include attorneys’ fees.Marek v. Chesny, 473 U.S. 1, 9 (1985) (awarding attorneys’ fees under Rule 68 in civil rights litigation because 28 U.S.C. § 1988 allowed attorneys’ fees as costs). Another significant item, expert witness fees, generally are not recoverable as costs. Crawford Fitting Co. v. J.T. Gibbons, Inc. 482 U.S. 437 (1987). As a result, costs assessed in most cases total less than $20,000.
Some states have put more bite into their analogs to Rule 68 by allowing an offer of judgment to shift attorneys’ fees, as well as costs. See e.g. Ga. Code Ann. § 9-11-68; Fla. Stat. § 768.79. Those attorneys’ fees shifting laws, generally passed as part of tort reform, have been under assault on constitutional grounds. See Smith v. Baptiste, Case No. S09A1543 (Ga. Supr. Ct.) (pending); State Farm Mut. Auto Ins. Co. v. Nichols, 932 So. 2d 1067 (Fla. 2006) (fee-shifting statute held constitutional).
While Rule 68 remains limited to costs, the electronic age may increase the magnitude of assessable costs to a level that litigants must consider. The costs of responding to e-discovery can run into the hundreds of thousands, depending upon the volume of electronic documents; the number of servers, workstations and laptops; the accessibility and format of electronic information; and the potential need to restore and search backup tapes.
The federal courts have split on whether the expense of e-discovery is a recoverable cost. A federal court in Georgia recently addressed the question and found e-discovery expenses to constitute taxable costs. CBT Flint Partners, LLC v. Return Path, Inc., No. 1:07-cv-1822-TWT, slip op. at 11-12 (N.D. Ga. Dec. 30, 2009). That case involved allegations of patent infringement, which subsequently were rejected on summary judgment. The defendant then submitted a bill of costs, which included approximately $250,000 in charges from the defendant’s e-discovery vendor. That vendor was retained “to collect, search, identify and help produce electronic documents from [the defendant’s] network files and hard drives in response to [the plaintiff’s] discovery requests.” Id. at 10. Following the entry of summary judgment in its favor, the defendant sought an award of its e-discovery expenses as costs.
In its analysis, the court first noted that other courts have split on whether such expenses are taxable as costs. Compare Bus. Sys. Eng’g, Inc. v. Int’l Bus. Mach. Corp., 249 F.R.D. 313, 315 (N.D. Ill. 2008) (taxing costs for making documents electronically searchable); Lockheed Martin Idaho Tech. Co. v. Lockheed Martin Advanced Envtl. Sys., Inc., No. CV-98-316-E-BLW, 2006 WL 2095876, at *2 (D. Idaho July 27, 2006) (awarding costs incurred in creating litigation database due to “extreme complexity of the case”); with, Computer Cach Coherency Corp. v. Intel Corp., No. C-05-01766 RMW, 2009 WL 5114002, at *3 (N.D. Cal. Dec. 18, 2009) (taxing “costs incident to modern electronic document production” such as Bates-numbering and scanning but refusing to award costs for optical character recognition and metadata extraction);Kellogg Brown & Root Int’l, Inc. v. Altanmia Commercial Mktg. Co. W.L.L., No. H-07-2684, 2009 WL 1457632, at *5 (S.D. Tex. May 26, 2009) (denying award of costs for processing tapes to locate, retrieve, and store information, which court found was akin to the work of an attorney or paralegal in segregating responsive documents); Fells v. Va. Dep’t of Transp., 605 F. Supp. 2d. 740, 743-44 (E.D. Va. 2009) (same); Klayman v. Freedom’s Watch, Inc., No. 07-22433-CIV, 2008 WL 5111293, at *2 (S.D. Fla. Dec. 4, 2008) (same); Windy City Innovations, LLC v. Amer. Online, Inc., No. 04 C 4240, 2006 WL 2224057, at *3 (N.D. Ill. July 31, 2006) (same). The cases allowing taxation generally find that e-discovery costs constitute the “modern day equivalent of ‘exemplification and copies’.” CBT Flint Partners, LLC, slip op. at 11. Other cases have found that assembling records for production ordinarily is a task done by attorneys and paralegals and is not recoverable.
The court then concluded that e-discovery costs are more akin to copies than attorney services. “The services provided are not the types of services that attorneys or paralegals are trained for or are capable of providing. The services are highly technical. They are the 21st century equivalent of making copies.” Id.
While the analogy to making copies may under-appreciate the knowledge and skill necessary to extract data from hard drives, the conclusion that attorneys and paralegals do not have those skills is spot on. “The [vendor’s] services are certainly necessary in the electronic age. The enormous burden and expense of electronic discovery are well known. Taxation of these costs will encourage litigants to exercise restraint in burdening the opposing party with the huge costs of unlimited demands for electronic discovery.” Id. at 12.
Amen. The high cost of electronic discovery is not limited to IP litigation. Such costs in many insurance related cases, particularly class actions, can run into six figures. While courts can shift the cost of electronic discovery during the discovery period, the specter of bearing the entire cost at the end of the case now is a factor parties must consider.
Lew Hassett is Co-Chairman of the firm’s Insurance and Reinsurance Practice. His practice concentrates in the areas of complex civil litigation, including insurance and reinsurance matters, business torts and insurer insolvencies. Lew received his bachelor’s degree from the University of Miami and his law degree from the University of Virginia.
