On March 16, the 3rd Circuit found in Race Tires that federal courts are not empowered to shift the costs of e-discovery
production except under the narrow circumstances explicitly provided for in Title 28 United States Code section 1920
( 28 U.S.C. 1920), which allows the prevailing party to recover
costs from the losing party for “exemplification” and the cost of
making copies (see “Court reduces e-discovery costs award by
more than 90 percent,” on InsideCounsel.com).
In September 2007, tire supplier Race Tires America (RTA)
sued rival tire company Hoosier Racing Tire and motorsports
sanctioning body Dirt Motor Sports (DMS), alleging violations
of the Sherman Antitrust Act, which prohibits anti-competitive
activities in the marketplace. RTA was incensed over Hoosier’s
adoption of a “single tire rule” for certain motorsports and
related exclusive supply contracts for race tires between Hoosier
and a number of sanctioning bodies, including DMS.
As in many similar cases, both of the defendants had an extensive amount of electronically stored information (ESI), and the
Federal District Court for the Western District of Pennsylvania
had issued a case management order (CMO) directing them to
work with the plaintiffs to compile an agreed-upon list of keyword search terms. The CMO, among other things, also stipulated
the formats in which the files should be produced. The defendants retained different vendors to assist with the ESI production,
with Hoosier producing 430,733 pages of ESI and DMS producing 178,413 documents in electronic format. The production cost
Hoosier more than $125,000 and DMS more than $240,000.
The defendants then moved for summary judgment, which the
district court granted.
After prevailing, the defendants sought to recover the e-discovery costs, including hard drive imaging, data processing,
Race Tires America, Inc. v. Hoosier Racing
Tire Corp.; Dirt Motor Sports, Inc.
keyword searching and file format conversion, from RTA. The
district court, under 28 U.S.C. 1920, granted the request, reasoning that the vendors’ services were indispensable, and therefore
it was appropriate to shift the cost to the losing party.
Cost Control This decision was seen as a breath of fresh air
by companies sick of paying outsized e-discovery costs.
“When the district court decided the case, it gave a glimmer of hope to a lot of companies hoping to get some relief with
the massive amount of e-discovery costs that they frequently
encounter. Even with technology advancements, e-discovery
costs continue to rise year after year as data sizes double and
quadruple.” says Robin Stewart, of counsel at Lathrop & Gage.
The celebration, however, was short-lived. On appeal, the
3rd Circuit rejected the district court’s broad interpretation
of the statute and held that only two narrow categories of e-discovery costs were assessable: exemplification of materials,
and making copies (under 28 U.S.C. 1920( 4)). The court concluded that none of the vendors’ activities in the case could be
regarded as an exemplification of materials, and that only scanning and file format conversion can be considered making copies.
As a result, the defendants could only recover about $30,000 of
the e-discovery charges from RTA.
“The 3rd Circuit took a very strict view of the statute and
focused on its actual language,” says Troutman Sanders Partner
Alison Grounds. “It has sort of been a stretch to take the defini-
tion of ‘copy’ or ‘exemplification’ and extract that across all of the
processes involved in producing electronic documents.”
Grounds explains that the initial idea behind parties incur-
ring their own fees was to not deter plaintiffs from bringing
lawsuits. But because the statutes addressing costs are so out-
dated and don’t account for the tremendous burden that massive
e-discovery costs have placed on the legal system, a different
problem has arisen. Instead of parties fully trying cases in
court, they’re settling just because of the threat e-discovery
Alitia Faccone, co-chair of McCarter & English’s e-discovery committee, agrees.
“We need to figure out a way to rein in the cost and the enormity of what we’re asking people to do so that we can get to the
heart of these cases and do what the litigation process is intended
to do, which is look at the substantive issues and come to the right
decision about the law applied to those issues,” she says.
40 InsIde Counsel n June 2012
Proportionality Push Another reason for the importance of
cost shifting is that there’s typically no financial obligation for the
requesting parties in many discovery disputes, who therefore have
no incentive to be reasonable and proportional in their request.
“There needs to be a way of making sure that requests are
proportional to costs, and that you don’t have a structure set