Flattened By Race Tires: The Third Circuit Limits What Types of E-Discovery Costs Are Recoverable by a Prevailing Party

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An article by Mike Zabel posted on the ediscoverylawreview blog of Cozen O'Connor.

This article discusses the recent case of Race Tires America, Inc. v. Hoosier Racing Tire Corp. et al., in which the U.S. Court of Appeals for the Third Circuit limited the recovery of eDiscovery costs that were awarded by the lower court.

The article states, "The Third Circuit reversed that District Court’s decision in Race Tires, as the appellate court opted for a limited, rather than expansive reading of § 1920(4). The court identified only two e-discovery costs that were recoverable in the case: 1) the conversion of native files to an ESI format which had been agreed upon by the parties, and 2) the scanning of physical documents to create digital duplicates. As a result, the court reduced the defendants’ award of costs to just over $30,000.

In the opinion, Judge Vanaskie emphasized the historical purpose of § 1920 and its statutory predecessors, and the “‘American rule’ against shifting the expense of litigation to the losing party.” The court cited Supreme Court precedent for the principle that § 1920 was intended to provide “rigid controls on cost-shifting in federal courts” and thus that the statute “defines the full extent of a federal court’s power to shift litigation costs absent express statutory authority.”

The article goes on to further explain, "Prior to the ESI era, Judge Vanaskie noted, there could also be a lengthy process involved in producing copies for discovery which included collecting, processing, and reviewing paper files for relevancy and privilege, and the costs of those activities were never taxable under the statute. Similarly, the court reasoned, the costs of “gathering, preserving, processing, searching, culling and extracting ESI” may be necessary expenses leading up to the production of ESI, but they cannot be considered the costs of “making copies.”

Several components of e-discovery do qualify as “making copies,” according to the Third Circuit. The court expressly approved of scanning paper documents into electronic form and transferring VHS tapes to DVD as taxable costs. Additionally, because the parties in Race Tireshad agreed to produce ESI in TIFF format, the court allowed the defendants to recover the costs of converting non-TIFF electronic files into TIFF format. These recoverable costs represented roughly $30,000 worth of the defendants’ e-discovery bill, which totaled more than $367,000."