Did you know? A prevailing defendant may recover e-discovery costs

Earlier this month, a Pennsylvania federal court held that plaintiffs in a contractual-dispute matter must reimburse the defendants, who prevailed on summary judgment, for all costs that the defendants incurred in the production of e-discovery.

Now that’s a hammer!

More on this decision and how it might apply in an employee lawsuit against an employer, after the jump.

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E-discovery ain’t cheap.
The case is Race Tires America, Inc. v. Hoosier Racing Tire Corp.. You can view a copy of the decision here.

This case was filed in 2007. As the court noted, the lengthy discovery period often focused on the exchange of electronic documents:

[D]iscovery of electronically stored information was considered in depth by the attorneys in this case before discovery commenced and the attorneys agreed upon and submitted an extensive proposed e-discovery Case Management Order, which the Court essentially adopted at the behest of counsel. As reflected in the Case Management Order, the attorneys were significantly involved in orchestrating their case and their e-discovery requirements.

Ultimately, the defendants prevailed on summary judgment and, after the Third Circuit affirmed, they submitted a Bill of Costs, pursuant to Rule 54(d) of the Federal Rules of Civil Procedure, seeking to recover over $400K in costs. The bulk of the costs that the defendants sought were electronic discovery-related. The plaintiffs objected that these costs were not recoverable under 28 U.S.C. Section 1920(4).

The plaintiff may be on the hook for e-discovery costs.
Federal Rule of Civil Procedure 54(d) provides that “[u]nless a federal statute, these rules, or a court order provides otherwise, costs — other than attorney’s fees — should be allowed to the prevailing party.” The Rule, as stated, is mandatory, and creates a “strong presumption” that all costs authorized for payment will be awarded to the prevailing party. Further, the court has wide latitude to award costs.

Section 1920 allows recovery of “[f]ees for exemplification and the costs of making copies of any materials where the materials are necessarily obtained for use in the case.” Section 1920 doesn’t mention e-discovery. Notably, however, Section 1920 was amended in 2008 to permit recovery of costs incurred “for printed or electronically recorded transcripts.” Yet, there is no amendment that specifically addresses electronic discovery. (Although, the Federal Rules of Civil Procedure were amended in 2006 to specifically address electronic discovery).

Notwithstanding that Section 1920 does not mention electronic discovery, the court concluded that Section 1920 does contemplate recovery of costs expended on electronic discovery. In doing so, it relied upon other cases holding that:

electronic scanning of documents is the “modern-day equivalent” of photocopying documents;

using a third-party e-discovery vendor is the “21st Cenutry equivalent of making copies” whose services “are certainly necessary in the electronic age”;

the scanning of documents may be “necessary to provide an adequate defense”;

“electronic production in response to Plaintiff’s discovery request falls within costs recoverable…”;

costs of converting paper documents to electronic documents are recoverable where the parties agreed that responsive documents would be produced in electronic format;

In this case, the court found that the requirements and expertise necessary to retrieve and prepare e-discovery documents for production were an “indispensable part of the discovery process.”

How does this decision affect employee claims?
To the extent that e-discovery plays a large role in an employee lawsuit, it is generally the employer that has more to search and more to produce. Consequently, the employer generally bears the greater e-discovery costs. Because the standard for discovery of evidence is so liberal, there is little that an employer can do to quell a plaintiff’s pursuit of electronic discovery.

Until now.

Emphasize the cost of e-discovery at the meet and confer conference. Based on personal experience, I find that, generally, employee counsel is not inclined to seek a lot of electronic discovery. Although the employer generally bears the cost of production, the employee’s attorney is still going to have to spend a lot of time reviewing that production. Therefore, it’s not a hard sell to limit the scope of what the defendant will search to find potentially relevant evidence. However, if the plaintiff’s attorney wants the entire universe of electronically stored information, remind that attorney what it will cost the plaintiff if he/she loses.

Remind the plaintiff at deposition what losing may cost. Mike Maslanka, over at Work Matters, believes that a deposition of the plaintiff can end on a high note by asking the plaintiff if the plaintiff is aware that, should the defendant prevail, the plaintiff will be responsible for paying all costs that the defendant has incurred. I like that. In fact, the next time I take that deposition, I may further educate the plaintiff by divulging just how much my client has spent in costs.

Use e-discovery costs as settlement leverage. Most settlement conferences happen after the close of discovery. If, by that point, you have spent a boatload in e-discovery costs, make sure to emphasize that at the settlement conference. Although it is not as if the plaintiff is going to write you a check to settle the case, significant e-discovery costs in a marginal case could certain drive down the settlement demand in a hurry.

Although there are some equitable factors that an employee-plaintiff may utilize to avoid having to pay some or all of the defendant’s costs (e.g., inability to pay), the burden is on the plaintiff to prove these factors. So, the employer still has a fair amount of leverage at its disposal.

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