4th Circuit Narrows 28 USC § 1920(4) Taxation of Common eDiscovery Costs

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The Fourth Circuit confirms that while certain costs of ESI copying for discovery are taxable under Rule 54(d)(1), the taxable costs in a plain vanilla ESI production do not include the underlying ESI processing costs. The impact of this will often be substantial—the prevailing party in the case sought $101,858 in ESI-related costs—the court awarded $218.59. The caveat is that in a more complex production that includes metadata or specified formats, the costs to produce the metadata may be taxable. In Country Vintner of North Carolina, LLC v. E. & J. Gallo Winery, Inc., 718 F.3d 249 (4th Cir. 2013), the court concluded that 28 USC § 1920(4), applied to a basic eDiscovery production, “limits taxable costs to . . . converting electronic files to non-editable formats, and burning the files onto discs.”  Opinion at 21.  The case involved conversion of PST files to TIFF images, with the production of the TIFF images on CDs.  Apparently no load file was part of the production.  The Opinion recognized in a footnote that “we assume, without deciding, that taxable costs would include any technical processes necessary to copy ESI in a format that includes such information.”   Opinion, n.19 at 21.  This covers the load files.  A second footnote carves out the situation where the parties have agreed to a specific production format (“the production of ESI on a particular database or in a native file format”).  Id. n. 20 at 21. In a ruling by Judge Brinkema a month before the Country Vintner decision, essentially the same issues were addressed with essentially the same results.   In Nobel Biocare USA, LLC v. Tecnhique D’Usinage Sinlab, Inc. 2013 WL 819911 (E.D.Va. 2013), a more factually robust case, the court concluded . . . all of the cited authorities agree that although the costs of collecting, storing, and extracting electronically stored information may not be taxable, the costs of converting that information into the agreed-upon format and electronically Bates stamping it are analogous to copying costs, and therefore are taxable. Citing the Parties’ Joint Discovery Plan that provided for “searchable TIFF or PDF format,” Judge Brinkema allowed $30,000 for the production of more than 400,000 TIFF images. The 4th Circuit’s analysis begins with the Supreme Court’s recent observation that taxable costs under 28 USC § 1920 are “modest in scope” and “limited to relatively minor, incidental expenses.”  Taniguchi v. Kan Pacific Saipan, Ltd., 132 S.Ct. 1977 (2012).  The analysis then cites approvingly Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3rd Cir. 2011).  In that case, the appellate court reversed the trial judge’s ruling that allowed taxation of $365,000 of eDiscovery costs, and approved only $30,000 for “scanning and file format conversion” as it was “the functional equivalent of making copies” under the statute.   The approved file format conversion costs included conversion to TIFF and conversion of video from VHS to DVDs. The current standard in the Eastern District for taxable eDiscovery costs under 28 USC § 1920(4) seemingly distill to these points:
  • When the production is basic (e.g., PST files to PDF to TIFF), the taxable costs are the conversion costs (here PDF to TIFF) plus the costs to transfer to the production media.
  • The underlying ESI collection and processing costs are not taxable.
  • Ancillary production costs, such as electronic Bates-stamping, are taxable.
  • If the production requires metadata (for example, a common Summation or Concordance load file), then the taxable costs likely include the costs to put the data in the production format.
  • If in an agreement between the parties or specifications in the discovery Instructions further production (but not processing) requirements are imposed, those costs are likely taxable.
The big-ticket eDiscovery components—the document collection, processing, and attorney review—are not taxable.  Only eDiscovery costs analogous to costs of physical copying fall within the scope of 28 USC § 1920(4). The Country Vintner of North Carolina, LLC v. E. & J. Gallo Winery, Inc. Opinion Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

FRCP Rule 45 Amendments Take Effect on December 1, 2013

On December 1, 2013, amended Rule 45 will become part of the Federal Rules of Civil Procedure. This will introduce fairly significant changes in the procedures for obtaining third-party discovery.  The biggest changes concern third-party subpoenas, both for depositions and for production of documents. In the Rocket Docket, we often face the situation where discovery closes before a court elsewhere rules on a motion to enforce a third-party subpoena.  This can happen even when third-party subpoenas are served at the beginning of discovery.   Magistrate judges are understanding, and will likely extend discovery for the purposes of obtaining the third-party discovery, but the practical limits are still there due to the typical 9-month window between the filing of the Complaint and the trial in the Eastern District.  The Rule 45 amendments somewhat improve the situation because they permit transfer of subpoena-enforcement to the initial court by consent (barring consent, provide an opening to argue for transfer).  The Committee Note allows that “transfer may be warranted in order to avoid disrupting the issuing court’s management of the underlying litigation …” But the prospect of being caught in two different courts working on two very different timelines remains. The Major Changes to Rule 45 There are four major changes in the soon-to-be effective Rule 45 amendments:
  1. The court where the underlying matter is pending will now be considered the court “issuing” the subpoena for deposition testimony or document production.  This is in contrast to current practice where the court sitting in the district where the person is found is considered the “issuing” court.
  2. Amended Rule 45(b)(2) provides for nationwide service of the subpoena (the same process is followed in criminal cases).  . The caveat here is that a subpoena is returnable (i.e., where the deponent or the documents are to be produced) only within the state where the recipient or documents are found (depending on the state’s rules), or within 100 miles of where the recipient lives or works.  This applies to trial subpoenas as well.  The inclusion of trial subpoenas under this provision clarifies a situation that arose in the Vioxx Litigation.  (Note that a party representative or a corporate officer might be compelled to appear at a deposition where the litigation is pending, but a trial subpoena for that same person is limited by the in-state/100-mile rule).
  3. You must serve notice to the other parties to the litigation before service of the subpoenas.  Notice must include a copy of the subpoena itself.
  4. As explained above, the amendment adding Rule 45(f) permits transfer of compliance proceedings—both protective orders and motions to compel– back to the court where the underlying matter is pending.   Objections should be made in the court where the subpoena recipient resides, and absent consent, a motion to compel must be initiated in that court as well, but then transfer is a possibility.
The rule-makers achieve their goal in simplifying third-party discovery, but from our vantage point in the Eastern District, an easier standard for transfer of enforcement proceedings to the issuing court would be preferred.  Even under the “exceptional circumstances” standard, distant courts may be inclined to send third-party discovery issues to the issuing court. Let’s use a hypothetical to help understand how a Rule 45 Subpoena might be treated after the changes take effect: Our Hypothetical Case: Partner Holdings, LLC v. Delta Investments, Inc.   Partner Holdings is embattled in a hotly contested dispute with Delta Investments in the U.S. District Court for the Western District of Texas over a bungled telecommunications deal.  Partner serves Rule 45 discovery in December 2013 on Tango 3P Communications, a Virginia LLC located in Fairfax County, Virginia.  Partner notifies Delta, and then issues the Rule 45 subpoena from the Western District of Texas, the subpoena is served on the Virginia registered agent for Tango 3P. Assume you represent Tango 3P Communications.  As a practitioner, how do you properly quash the third-party subpoena under the amended Rule 45? Partner’s request seeks confidential trade secrets and commercial information as well as privileged information in the form of documents within 21 days. Additionally, Partner requests documents from Tango 3P other telecommunication contracts with Delta which are unrelated to Partner’s current litigation with Delta.  Partner directs Tango 3P to deliver its responses to Partner’s law firm’s Washington, D.C. office. Note that the requirement of notice before service does not mean that Partner would have to produce to Delta the documents produced by Tango 3P.  This still requires a Rule 34 Request for Production. What grounds are there to quash the subpoena? Since Partner is only seeking documents from Tango 3P, the grounds available to quash the subpoena are:
  1. A failure to allow for a reasonable time to comply;
  2. The subpoena seeks privileged information, or
  3. The request is an undue burden on the recipient.
Under amended Rule 45, the proper court for a motion to quash the subpoena is the jurisdiction where the recipient is located, in this case, the Eastern District of Virginia. This is the first filing for Tango 3P and requires Tango 3P to open a “Miscellaneous” matter with the Clerk and pay the filing fee (the current filing fee in the EDVa is $46). Tango 3P then must file the following:
  • A notice of the motion;
  • A memorandum of law;
  • Supporting affidavits;
  • A proposed order; and
  • Proof of service on the issuing party.
Timing is key. The motion should be filed prior to the return date of the subpoena or within 14 days of service, whichever is earlier.  Missing the 14-day limit is grounds for denial of the motion. Before setting the motion for a hearing date, you must consider the local rules of the issuing court and whether those rules require the parties to meet and confer.  In Tango 3P’s case, both the Western District of Texas and the Eastern District of Virginia require parties to meet and confer in good faith before even filing the motion (and must state in their memorandum that a meet and confer actually happened).  A failure to meet and confer is grounds for the magistrate judge to deny the motion to quash.  This should come as no surprise to practitioners in the EDVa, where meaningful meet and confers are demanded by the magistrate judges, and parties are admonished (and sometimes penalized) for failing to abide by the rules. In the hypothetical, the motion to quash is heard by the magistrate judge five days before the return date of the subpoena. The judge decides against transferring the motion to the Western District of Texas, partly because Tango 3P objects to the transfer and partly because the circumstances presented in the motion are not exceptional. The judge agrees with your argument that Partner’s requests seek privileged and confidential communications, but disagrees with your position that the time to comply with the demand is unduly burdensome or that the additional requests made concerning Tango’s contracts with Delta is overly broad. The judge grants in part and denies in part your Motion to Quash and directs Tango 3P to comply within 30 days of the judge’s ruling. If there are compliance issues, the EDVa court may enforce its order.  The amended Rule also permits transfer of compliance issues, and in fact encourages the involved judges to consult with each other. Conclusion The amendments to Rule 45, especially as they concern third-parties, simplify the subpoena process and afford more protection to third-parties attempting to quash subpoenas for production of documents or testimony. The amendments also provide more protection to non-issuing parties in discovery matters by demanding notice prior to service of the subpoena. Take care in preparing Rule 45 subpoenas, providing the required notice, be wary of the 14-day objection provision, and be on the lookout for the possibility of having to enforce or defend a subpoena in a foreign jurisdiction Committee Report on Rule 45 Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

The Form 52 Report: An Often Overlooked Opportunity to Avoid or Resolve Discovery Issues

The Form 52 Report is an often overlooked opportunity to avoid or resolve discovery issues in the early stages of a federal lawsuit.  The Report and the subsequent Rule 16(b) Scheduling Order have added importance in the Eastern District of Virginia where discovery closes only 16-18 weeks after commencement. Most attorneys (even seasoned litigators) when questioned about the Form 52 Report, ask “What report?”   The Form 52 Report is the parties’ report to the Court in advance of the Rule 16(b) Scheduling Conference.  It documents their Rule 26(f) meeting and agreements and is eventually entered as an order by the Court.  The report is so fundamental that a copy is included in the Appendix of Forms immediately after Federal Rules of Civil Procedure.  The Report states the parties’ discovery-related agreements – and disagreements – for inclusion in the Rule 16(b) Order. This Blog Post identifies the timing in the litigation of the Form 52 Report and shows that it very well may be the best opportunity to bring multiple discovery issues before the magistrate judge for early consideration.  This Blog Post lists seven issues that are candidates for coverage in the Report.  A recent example of a Form 52 Report is available here. Form 52 Report in the Discovery Timeline The Form 52 Report enters the picture shortly after the Court’s initial order opening discovery and setting the date for the Rule 16(b) Scheduling Conference.  EDVA Local Rule 16(B) provides that “as promptly as possible after a complaint . . . has been filed,” the Court shall schedule [the Rule 16(b) conference].    In our court, this order arrives usually about eight weeks after filing the lawsuit.   Under Rule 26(f), the parties must confer regarding a list of discovery and case management issues identified in the Rule at least 21 days in advance of the Rule 16(b) Conference.  The initial Order typically directs that the Form 52 Report be filed at least a week before the Rule 16(b) Conference.  The graphic below shows this extraordinarily tight timetable. Timeline Form 52 Report   The Rule 16(b) Scheduling Order shapes discovery and potentially resolves multiple issues that might otherwise arise during discovery and prior to the Pretrial Conference.  The Form 52 Report is the best opportunity to influence the contents of the Rule 16(b) Scheduling Order because magistrates often incorporate the report contents in their Scheduling Orders.   And even if the parties are not in full agreement on all points, the Form 52 Report can state both sides of an issue, and quite likely the magistrate will decide the issue when he or she issues the Scheduling Order. Matters to Consider for Inclusion in the Form 52 Report                Here’s a list of seven issues outside of the standard fare that are candidates for inclusion in the Form 52 Report:
  1. ESI and Document Preservation.  Preservation is the “sleeper” issue in eDiscovery.  Consider including specific ESI preservation requirements in the Report.  The pending Rules Amendment scheduled for December 1, 2015 will highlight ESI preservation and identify it as a subject to be covered in the Rule 16(b) Scheduling Order.  Get on this bandwagon early.
  2.  ESI Production Timetables.   A common experience is when the discovery due date yields only a bland statement that a party will produce responsive documents.  In EDVa where discovery must be completed within 16-18 weeks, a delay in the physical production throws a wrench into the discovery planning.  Consider including a production timetable in the Form 52 Report.   On approach is to prepare the first Rule 34 Requests for ESI and Document Production in advance of the Rule 26(f) Conference and make this an agenda item.  Having the requests in front of the parties encourages a substantive discussion not only on the specifics of the discovery but also on the timetable
  3. Privilege Log and FRE 502(d) Order.   Production of Privilege Logs often significantly trail the ESI and document production, and the preparation of these logs can be expensive and time-consuming.   Put the issue on the table at the time of the Rule 26(f) Conference and include agreements or positions in the Form 52 Report.Couple the Privilege Log issues with discussion of a FRE 502(d) order.  The 2006 eDiscovery Amendments to the Federal Rules set up the processes for protection against inadvertent production of privileged materials, but to secure the protections, you will need an order to put them in place.  Including this in the Form 52 Report that is entered by the court accomplishes that task.
  4. eDiscovery Production Formats.  If you can take production formats off the table as an issue, then discovery will go more smoothly.  The Rules allow the requesting party to specify the formats, and then it is the responding party’s duty to either object or propose alternate formats.   But rather than going through a protracted process to arrive at the formats, bring this issue forward at the start.
  5. Protective Orders, Including Potential Cost Shifting.  If the case requires a Protective Order in advance of discovery, aim to negotiate the order early.  If feasible, mention the need for Protective Orders in the Form 52 Report, and provide any consent order to the magistrate along with the Form 52 Report.   Pending Rule amendments include mention of discovery cost shifting as an appropriate issue for a Protective Order.   Recent case law directs that cost shifting will not be addressed in any significant way in a post-trial cost petition.   There, the time to introduce the issue is as early as possible, which would be the Form 52 Report.
  6.  Stipulation that ECF Service is the Equivalent of Personal Service.    The 1-Week Discovery Sprint is one way in which the EDVa Court keeps the docket moving at warp speed.   See R. Larson, The 1-Week EDVa Discovery Spring: From Filing to Ruling in 7½ Frantic Days (EDVa Update Blog , June 4, 2014).   But the sprint process only works if there is personal service on the opposing party or counsel before 5 p.m. on the first Friday before the proposed hearing.  This can be difficult if the opposing counsel is not nearby—good luck in getting the messenger from Alexandria to the far side of Tysons Corner before 5 p.m. on a Friday afternoon in July.Consider including in the Form 52 Report a stipulation that for purposes of discovery motions, ECF filing and service is the equivalent of personal service under Rule 5(b)(2)(A).  You can go one step further and stipulate to the waiver of the additional 3 days that accompanies ECF service under Rule 6(d).  Either or both of these steps should keep open the 1-Week Sprint option on motions to compel discovery.
  7. Special Discovery Issues.  If you have discovery requirements or issues that may be unique to the case, get them before the Court in the Form 52 Report.  For example, if you expect to take more than one Rule 30(b)(6) deposition of a party, perhaps confirm that the first deposition will not bar the second.   Or, if you foresee that your case requires more than five depositions, put the issue before the magistrate judge early
Summary Discovery arrives quickly in the EDVa Courts, and at least in the Alexandria Division, it all takes place within a 16-18 week window.   Since much of the discovery process will be governed by the Rule 16(b) Scheduling Order, counsel should consider using the Form 52 Report as the mechanism to get significant issues before the magistrate judge and perhaps included in the Scheduling Order.   And even if the Scheduling Order does not cover all the desired issues, you may want to at least raise the issues in the Form 52 Report so that when you later find yourself before the magistrate, you can show where the issues were previously raised—along with your positions.