Third Circuit Disallows Cost Shifting of the Majority of ESI Expenses

Published Date: 
April 4, 2012
Authors: 
Evan J. Shenkman (Morristown),
Ryan T. Warden (Morristown),

Race Tire America, Inc. v. Hoosier Racing Tire Corp., 2012 WL 887593 (3d Cir. Mar. 16, 2012): In a matter of first impression (for any federal appeals court), the Third Circuit has determined that the majority of costly activities related to the discovery and production of electronically stored information (ESI) undertaken by the defendants’ ESI vendor, such as hard drive imaging, data processing and keyword searching, were not litigation expenses recoverable by the prevailing defendants.

28 U.S.C. § 1920(4) provides that “fees for exemplification and the costs of making copies” may be recoverable by a prevailing party. Federal district courts across the country have split over the categories of ESI vendor costs recoverable by a prevailing party under §1920(4), with some courts finding all ESI costs recoverable (as being necessary for discovery in today’s day and age), and with other courts holding that only ESI expenses akin to exemplification and copying are recoverable. Unfortunately for defendant-employers, the Third Circuit took the conservative position, concluding that §1920(4) extends only to the prevailing defendants’ (approximately $30,000 worth of) tasks akin to “exemplification” and “making copies,” i.e., scanning and file format conversion, and disallowed recovery of costs for defendants’ additional ($335,000 worth of) ESI-related expenses, such as imaging, data processing and keyword searching. As emails and other ESI evidence are relevant in many labor and employment cases, the cost of being a frequently-sued employer has now increased dramatically in the Third Circuit and perhaps elsewhere.

Note: this article was published in the April 2012 issue of the New Jersey eAuthority.