Want to increase your chances of cost recovery from electronic data discovery? Mooz provides six factors that can affect the court's decision and improve counsel's changes of saving exorbitant costs.

In today's world of exploding digital content, complying with discovery requests often means identifying, preserving, collecting, coding, reviewing and producing gigabytes, if not terabytes, of data. To satisfy these electronic data discovery (EDD) obligations – many of which are now codified in the recent amendments to the Federal Rules of Civil Procedure – litigants regularly turn to a wide variety of electronic discovery specialists to collect data, code it and build sophisticated computerized databases that make it possible for discovery reviews to proceed efficiently and for litigators to prepare for trial.

The costs of these activities can be expensive, running from tens of thousands to hundreds and even millions of dollars in a single case, prompting litigants to seek vehicles for shifting this financial burden to their opponents. The recent amendments to the Federal Rules of Civil Procedure now codify the courts' long-standing authority to shift unduly burdensome production costs to the party requesting the discovery.^[1] This authority, however, rarely gets exercised and, at best, addresses only isolated requests for production and not the lion's share of EDD-related costs.

Six years ago, the Sedona Conference advocated that this issue be addressed by allowing prevailing parties to recover electronic discovery costs.^[2] The recent decision in Lockheed Martin Idaho Technologies Co. ("LMITCO")^[3]indicates that courts may be increasingly inclined to adopt this approach when exercising their discretion under 28 U.S.C. § 1920 and its state counterparts – at least under certain circumstances.

The LMITCO Decision

LMITCO was a complex case that resulted in a total production of more than 10 million pages, dating back as far as the 1950s, that came from both the three parties to the litigation and over 10 non-parties. Recognizing the potential for this massive production to impede an efficient trial process, the court ordered the parties to exchange proposed exhibits in electronic form and to present all documentary evidence electronically at trial.

LMITCO's counsel responded to these challenges by building an electronic database and retaining a third-party vendor to perform the coding, imaging and database maintenance services necessary to populate it. The bill for these services came to $4.6 million. After prevailing in the litigation, LMITCO sought to recover these costs under Dist. Idaho Loc. Civ. R. 54.1(c)(8) and 28 U.S.C. § 1920(4).^[4]

The court granted LMITCO's request, holding that

[T]he litigation database was necessary due to the extreme complexity of this case and the millions of documents that had to be organized. While the creation of the database is expensive, it is not unreasonably so, and it saved immense time for counsel who otherwise would have to sift through the documents by hand. Given these circumstances, the Court finds that these costs are recoverable under § 1920(4).

LMITCO at *3.

A deeper review of the background in this case, and of other relevant case law, indicates that a number of factors may have caused the court to exercise its discretion to permit this cost recovery. By understanding these factors up front, counsel can improve the odds of obtaining cost recovery for EDD-related items should his or her client prevail in the litigation.

Factors that Influence Cost Recovery

Courts wield broad discretion in determining whether to allow the recovery of EDD-related costs and, as a general rule, will tax only costs that are necessary, reasonable, and appropriate. ^[5] A number of factors influences how a court will come out in making this determination and counsel can improve the chances of obtaining cost recovery by addressing them during the course of the litigation.

1. Rulings During Litigation

Courts increasingly issue implicit or explicit rulings on the necessity, reasonableness and appropriateness of EDD-related activities early on in the litigation. These rulings can provide a significant foundation for a claim for costs after the litigation concludes. ^[6]

For example, in LMITCO, the court's requirement that proposed that exhibits be exchanged, and documentary evidence presented, in electronic format undoubtedly assisted LMITCO's motion to recover costs.^[7] While the court acted on its own volition in LMITCO, at least two jurisdictions have implemented rules that institutionalize the court's early involvement. The rules of the Fifth Circuit require a party to get advance approval in order for any expense, including those related to EDD, to be recoverable.^[8] California has adopted rules that expressly contemplate the need for technology in conjunction with discovery and trial and provide for an early review of the need and benefit of its use.^[9] Rulings coming out of meet and confer conferences under the amended Federal Rules also could start to address these issues.

2. Complexity of Case

Courts also appear disposed to take the complexity of the case into account when determining whether EDD-related services qualify as a "necessity." The LMITCO court expressly noted the "extreme complexity of the case."^[10] California creates an express statutory right to seek authorization for the use of technology in discovery in a " case designated as complex under Section 19 of the Judicial Administration Standards."^[11]

3. Volume of Documents

The volume of documents involved in discovery represents another factor which can support a finding of necessity and reasonableness. The LMITCO court expressly based its taxing of cost on the fact that the production involved "millions of documents."^[12] In Northbrook Excess, at least one judge was persuaded by "the context of a ‘six year paper war.'"^[13]

4. Competitive Bidding

Competitive bidding provides important evidence of an expense's reasonableness. LMITCO undoubtedly benefited from being able to show that it selected its vendor through "a process of competitive negotiation." The California rules arguably mandate competitive bidding as a prerequisite to using technology in litigation.^[14]

5. Expense Offsets

Showing that the services in question reduced overall costs also provides powerful evidence in favor of allowing recovery. ^[15] This is especially true where the costs saved would be otherwise recoverable under Section 1920.

6. Nature of Service

Finally, the recoverability of EDD-related costs under Section 1920 may turn on whether the item in question involved "legal work" or some other form of "intellectual capital creation" as opposed to mere execution necessary to make documents available for use in the litigation. The former generally are not recoverable^[16] while the latter generally are.

The lesson here is to clearly separate out costs for "database design," "field structures," "attorney supervision," "data analysis," and the like from the more ministerial tasks of "coding," "imaging," "database maintenance," and the like.^[17]

Conclusion

The costs of complying with EDD requests can be enormous and likely will continue to grow over time. The law around recovering these costs still is in its infancy. Nonetheless, an emerging body of authority exists for prevailing parties who exercise proper diligence through out discovery and trial to make a credible claim for recovering these costs under Section 1920.

1 Fed. R. Civ. P. 26(b)(2)(B). See also Wash. R. Civ. P. 26; Tex. R. Civ. P. 196.4.

2 B. Caulfield & Z. Svihra, Electronic Discovery Issues for 2002: Requiring the Losing Party to Pay for the Costs of Digital Discovery, 2 Sedona Conf. J. 181 (2001).

3 Lockheed Martin Idaho Technologies Co. v. Lockheed Martin Advanced Environmental Systems, Inc., No. CV-98-316-E-BLW, 2006 WL 2095876 (D. Idaho)

4 LMITCO also successfully sought to recover $613,000 in consultant fees for managing the electronic exchange and presentation of evidence.

5See, e.g., Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 441-42 (1987) (appropriate scope of district court's discretionary authority to tax costs is found 28 U.S.C. § 1920); Northbrook Excess & Surplus Ins. Co. v. Proctor & Gamble Co., 974 F.2d 633, 642-44 & n.15 (7th Cir. 1991) (upholding district court's discretion to tax losing party with costs associated with EDD, but remanding for further findings on necessity and reasonableness of database); E.E.O.C. v. Sears, Roebuck & Co., 114 F.R.D. 615, 625-26 (N.D. Ill. 1987) (cost of microfilm not recoverable because "unnecessary and for counsel's convenience").

6 In addition to rulings by the court, a prevailing party also may be able to rely upon agreements or stipulations with the other party. See Cal. Civ. Proc. Code § 2017.730 (2005) (allowing parties to stipulate to use of technology in conjunction with EDD); Fed. R. Civ. P. 54(d).

7Compare Oklahoma Natural Gas Co. v. Apache Corp., 355 F.Supp 1246, 1257-58 (N.D. Ok. 2004) (cutting award of attorneys fees for coding exhibits and updating exhibit data base in half because small number of witnesses and critical exhibits rendered computerized presentation of exhibits unnecessary).

8See Harris Corp. v. Sanyo N.Am. Corp., No. 3:98-CV-2712-M, 2002 U.S. Dist. LEXIS 3608 (N.D. Tex. Mar. 4, 2002) (refusing to tax costs for copying, printing and disk copying because prior approval not obtained).

9 Cal. Civ. Proc. Code § 2017.730 (2005).

10LMITCO, 2006 WL 2095876 at *3.

11 Cal. Civ. Proc. Code § 2017.730 (2005).

12LMITCO, 2006 WL 2095876 at *3.

13 Northbrook Excess, 924 F.2d at 645 (dissenting opinion).

14 Cal. Civ. Proc. Code § 2017.730(c)(4) (2005) (requiring that use of technology "promote competition among vendors and providers of services").

15See LMITCO 2006 WL 2095876 at *3 (database saved considerable attorney time compared to manual review); Northern Excess, 924 F.2d at 643-45 (majority and dissent discussing district court's finding that computerized document system was a less expensive substitute for otherwise recoverable costs). Cf. Columbia Steel Casting Co. v. Portland Gen. Elec.Co., Civil No. 90-524-FR, 1993 U.S. Dist. LEXIS 11293 (D. Or. 1993) (finding computerized work taxable as part of an award of attorney's fees under 15 U.S.C. § 15(b) where it reduced fess that are otherwise taxable and normally billed to clients).

16 While costs stemming from "legal work" generally are not recoverable under Section 1920 they may be recoverable under a statutory or contractual right to attorney's fees.

17See generallyWindy City Innovations, LLC v. America Online, No. 04-C-4240, 2006 WL 224057, *3 (N.D.Ill. 2006) (OCR encoding services, "perform [] the work an attorney, paralegal, or law clerk would have to perform in its absence [and thus] expenses for such systems are more properly considered expenses incidental to an award of attorney fees, not costs of the suit.").