Third Circuit Addresses Taxable Costs: Vacates Award of the District Court, Remands with Instructions to Re-Tax Costs in Accordance with Opinion

Race Tires Amer., Inc. v. Hoosier Racing Tire, Corp., 674 F.3d 158 (3d Cir. 2012)

On appeal, the Third Circuit vacated the District Court’s approval of taxable costs related to electronic discovery and remanded with instruction to re-tax in accordance with this opinion.  Specifically, the court concluded that the relevant vendors’ charges “would not qualify as fees for ‘exemplification’” and that “of the numerous services the vendors performed, only the scanning of hard copy documents, the conversion of native files to TIFF, and the transfer of VHS tapes to DVD involved ‘copying’” and were thus recoverable.

Following the District Court’s grant of the defense summary judgment motions, the Clerk for the District Court considered the Bills of Costs submitted by the defendants and ultimately concluded that “electronic discovery costs would be consider[ed] … taxable, as opposed to just … the cost of litigating.”  In response, Plaintiff filed a Motion to Appoint a Special Master Regarding E-Discovery Issues and a Motion to Review Taxation of Costs.  “[O]n May 6, 2011, the District Court declined to appoint a Special Master and affirmed the Clerk’s taxation of the electronic discovery vendor charges.”  In so deciding, the court “essentially found that ‘the steps the third-party vendor(s) performed appeared to be the electronic equivalent of exemplification and copying.’”  Plaintiff timely appealed.

The question presented on appeal was whether 28 U.S.C. § 1920(4) "authorizes the taxation of an electronic discovery consultant’s charges for data collection, preservation, searching, culling, conversion, and production as either ‘exemplification [or] the . . . making [of] copies of any materials where the copies are necessarily obtained for use in this case.’”  "[W]hether a particular expense falls within the purview of section 1920, and thus may be taxed in the first place, is an issue of statutory construction, subject to de novo review."

In short, the court held that none of the work performed by the vendors would qualify as “exemplification” and that only “the scanning of hard copy documents, the conversion of native files to TIFF, and the transfer of VHS tapes to DVD, involved ‘copying.’”  Briefly summarizing its underlying analysis, the court stated:

Neither the language of § 1920(4), nor its history, suggests that Congress intended to shift all the expenses of a particular form of discovery— production of ESI—to the losing party.  Nor can such a result find support in Supreme Court precedent, which has accorded a narrow reading of the cost statute in other contexts.  See, e.g., Crawford Fitting Co., 482 U.S. at 442.  Although there may be strong policy reasons in general, or compelling equitable circumstances in a particular case, to award the full cost of electronic discovery to the prevailing party, the federal courts lack the authority to do so, either generally or in particular cases, under the cost statute. FN12

FN12. Cost-shifting may be effected during the course of litigation, either by agreement or pursuant to court order issued under the authority of Fed.R.Civ.P. 26.  After litigation, cost-shifting may be ordered as a sanction for vexatious conduct that reflects bad faith, as opposed to “misunderstanding, bad judgment, or well-intentioned zeal.”  LaSalle Nat’l Bank v. First Conn. Holding Grp., LLC, 287 F.3d 279, 289 (3d Cir.2002) (citations omitted).

Accordingly, the court determined that “none of the charges imposed by [defendant] DMS’s vendor are taxable” and also reduced the award in favor of defendant Hoosier from $125,580.55 to $30,370.42, a difference of $95,210.13.

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