“Who’s Gonna Pay for All This?” Can Prevailing Litigants Have Their E-discovery Charges Taxed as Costs Against Their Losing Opponents?Parties in today’s complex litigation world, and their counsel, need no reminder of the ubiquity of electronic discovery and the tremendous expense it occasions. Even before 2006, when “electronically stored information” (ESI) was expressly added to the federal rules, parties have had discovery obligations regarding electronic documents and data. E-discovery, and the costs associated with it, are not going away. (By some estimates, the volume of data existing in the world doubles every two years.) It is also increasingly common for case management orders to require production ESI in particular formats, with particular metadata fields, with the capability of being searched electronically – all of which entail increased expense, frequently from e-discovery vendors.

So, the question presents itself: To what extent can winning litigants have their e-discovery expenditures taxed as costs to their opponents? The short answer is, a lot less than a winning litigant would want, but perhaps more than a winning litigant might think.

Taxable Costs – The Rules 

Federal Rule 54(d)(1) provides that “[u]nless a federal statute, these rules, or court order provides otherwise, costs – other than attorney’s fees – should be allowed to the prevailing party.” The rule further provides that the clerk of court “may tax costs on 14 days’ notice.” 28 U.S.C. § 1920 in turn defines “costs” for purposes of Rule 54 and sets forth the items that the clerk may properly tax. Relevant to e-discovery, the statute also allows taxation of “fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case” (§ 1920(4)). This subsection of the statute is the battlefield for e-discovery cost fights.

What the Courts Are Saying

Six of the federal courts of appeal have interpreted § 1920(4) in the e-discovery context with varying results. The Third Circuit’s opinion in Race Tires America v. Hoosier Racing Tire Corp. was one of the earliest.  There, the district court’s taxation of more than $350,000 in e-discovery expenses was reversed by the appeals court. The Third Circuit’s central holding was that § 1920(4) covers making copies only, so expenses related to tasks that aren’t directed to copying or its “functional equivalent” cannot be taxed under the statute. This ruling invalidated charges for storage, searching, indexing, and deduplication of data – even for documents ultimately produced in the case. However, charges for converting data from native to TIFF format, scanning of documents to make digital duplicates, and reproduction of media from CDs to DVDs were found to be the functional equivalent of copying and therefore taxable. The court also held that “equitable considerations” – for example, that e-discovery vendors’ services are “specialized” and indispensable to the production of ESI – are not relevant, being “untethered from the statutory mooring” of § 1920. The Fourth and Ninth Circuits have taken similarly restrictive views.

The Federal Circuit adopted a slightly different analysis in CBT Flint Partners, LLC v. Return Path, Inc. It distinguished between “preparatory or ancillary steps” in the ESI production (not taxable) and steps “associated with the creation of an image and preservation of metadata” (taxable). The tasks necessary to convert data to a uniform production format (such as TIFF), performing format conversions, and copying the converted files to production media would all, in the court’s view, be a compensable part of “making copies.” The same court several years later – albeit in a nonprecedential opinion – observed that if an agreement between the parties requires expenditures for particular tasks necessary to conform the production to the parties’ agreement, such expenditures can fall within the ambit of § 1920.

Practice Pointers and Takeaways

  • The law is not settled yet. While most courts tend to distinguish between tasks that are a part of “copying” (taxable) and mere “preliminary steps” to copying (not taxable), it’s not yet clear what tasks fall into which bucket. Courts have disagreed, for example, on the compensability of expenses relating to optical character recognition, supplying confidentiality designations and bates numbering, and extraction and preservation of metadata. Consider the law in your circuit and district carefully when considering a cost request for e-discovery expenses.
  • That said, some costs are pretty clearly out. No court to date has allowed expenses for data hosting or storage (at least in the absence of an agreement between the parties that such costs could be shifted), nor has any court allowed recovery of ESI costs that didn’t relate to documents assembled and produced for one’s litigation opponent (in other words, tasks undertaken for counsel’s own convenience in litigating the case will not be recoverable under § 1920). And the law is also clear thus far that attorneys’ fees incurred in working with ESI are not taxable.
  • Vendor billing clarity is key. A little bit of preparation on the front end can make a big difference on compensability down the road. Have a clear understanding with the e-discovery vendor at the outset as to how it will bill for its services. The vendor must provide time and cost entries that detail exactly the services being provided; both overgeneralization and multi-task entries (the equivalent in this context of “block billing”) are likely to lead to invoices being non-taxable. Ensure that the vendor avoids technical jargon in its billing descriptions; multiple courts have rejected charges because the language used did not convey what work had been done in an understandable way. Keep in mind that the “audience” for these billing submissions is going to be court clerks, the district court, and its law clerks, none of whom are likely to have the same level of technical expertise on e-discovery processes that your e-discovery vendor does.
  • Case management orders and ESI protocols can impact taxability. As noted above, one court of appeals has held that if an ESI protocol requires production in a certain way, the steps necessary to comply with the protocol can be taxed as costs in favor of the prevailing party. Some district courts have followed. On the other hand, it has been held that the parties can by agreement remove from the scope of § 1920 expenses that which would have otherwise been taxable (for example, by agreeing that each side will bear all its own ESI costs). How the case management order or ESI agreement is worded can have definitive impact in an ESI cost fight, so foresight and care in drafting are essential.
  • Keep local rules in mind. Many districts have local rules that can impact ESI discovery in general, the costs associated with it, and the timing for filing cost bills.
  • Proportionality and other Rule 26 issues are not likely to matter much when it comes to taxation of costs. While the federal rules allow for cost shifting in various contexts – notably through the burden and proportionality concepts under Rule 26 – such concepts are not in play under Rule 54(d). An attempt to shift discovery costs as disproportionate or burdensome should be made by objection at the discovery stage, rather than in connection with a motion to tax costs.

One Spam Text Does Not Confer Standing in the Eleventh CircuitOne unwanted text message does not confer standing in federal court in the Eleventh Circuit — so holds the court in Salcedo v. Hanna. The case confirms that one text message is qualitatively, and jurisprudentially, different from the kind of intrusions that give rise to an Article III injury-in-fact.

The plaintiff in Salcedo claimed that he received a single unsolicited text message for a discount on legal services from his former lawyer. He brought a putative TCPA class action against the lawyer and his firm, and the defendants moved to dismiss for lack of standing. Even though the district court denied the motion, it certified its order for interlocutory appeal under 28 U.S.C. § 1292(b), and the Eleventh Circuit — which, in our experience, takes very, very few discretionary interlocutory appeals — granted the defendants’ petition for review.

The Eleventh Circuit reversed, finding that receiving a text message “is not the kind of harm that constitutes an injury in fact.” It analogized “[t]he chirp, buzz, or blink of a cell phone receiving a text message” to “walking down a busy sidewalk and having a flyer briefly waived in one’s face. Annoying, perhaps, but not the basis for invoking the jurisdiction of the federal courts.” The court also distinguished junk fax cases, noting that a junk fax ties up a fax machine for “a minute or so” and imposes a tangible cost for printing the fax. Texts, on the other hand, cost nothing: “receiving a text message uses no paper, ink, or toner” and doesn’t preclude receiving other messages, texts or phone calls at the same time. While some recipients may have to pay a fee per text message received, the plaintiff did not allege that he paid any such fee. As a result, “receiving a fax message is qualitatively different from receiving a text message.”

The court also looked to Congress’s intent to support its conclusion: “We first note what Congress has said in the TCPA’s provisions about harms from telemarketing via text message generally: nothing.” It concluded that “congressional silence is a poor basis for extending federal jurisdiction to new types of harm” and distinguished text messages from unwanted telemarketing phone calls. For the Eleventh Circuit, a received text that may cause a brief alert to sound on your phone is not the same as a clanging telephone that disturbs your domestic tranquility.

The over-arching distinction that the court drew is that text messages are qualitatively different from unwanted faxes or phone calls. The word “qualitative” appears five times, and the last heading before the opinion’s conclusion is “quality, not quantity.” This quality/quantity distinction defies simple explanation. While the court memorably stated that “Article III standing is not a ‘You must be this tall to ride’ measuring stick,” much of the analysis focuses on how receiving a single text message imposes less harm than other kinds of occurrences that the Eleventh Circuit has found to confer standing.

We’d caution against bestowing landmark status on Salcedo, at least as to subject matter jurisdiction. The result is obviously a good one for defendants facing TCPA liability. But that result draws heavily on the pleaded facts of the case, and plaintiffs’ lawyers will certainly try pleading around it. It may be that sharper allegations of harm will at least let a plaintiff survive a Rule 12(b)(1) challenge to a complaint, and we’ll have to wait for the next case to see.

Salcedo is more likely to help companies facing TCPA liability at the class certification stage. The more specific allegations of harm required to create standing can only make class certification more difficult, as the unique harm facing the class representative may not be shared by the putative class as a whole — something we have previously explored for post-Spokeo standing challenges generally.

Two more things to watch: the Eleventh Circuit highlighted its disagreement with the Ninth Circuit’s decision in Van Patten v. Vertical Fitness Group, LLC, 847 F.3d 1037 (9th Cir. 2017). Under Van Patten, in the Ninth Circuit, a single text message can confer Article III standing, but the Eleventh Circuit called that decision “unpersuasive” and characterized the Ninth Circuit’s reasoning as relying on “broad overgeneralizations.” This budding circuit split invites the Supreme Court to grant certiorari at some point, though likely not until other circuits join the competing camps.

In the meantime, we would expect plaintiffs to select forums in the Ninth Circuit instead of the Eleventh Circuit. The Southern District of Florida has long been a hotbed for TCPA class actions, but Salcedo could change the plaintiffs’ bar’s calculus, at least for TCPA claims based on unsolicited texts. Moreover, the Eleventh Circuit’s willingness to grant interlocutory review of this case suggests that the court was looking for an opportunity to address the jurisdictional issues arising from single-text TCPA cases. Such cases present some of the starkest disparities between the lack of harm to the plaintiff and the potential for ruinous consequences for defendants.

A Quick Study in Doxing and Personal Jurisdiction: Vangheluwe v. GotNewsIn the digital age, the internet not infrequently stretches the bounds of traditional jurisprudence and raises tricky new questions. An example from earlier this year is Vangheluwe v. GotNews, LLC, where a federal court in Michigan grappled with this question: How significant to personal jurisdiction is “doxing” a resident of the forum state? The Eastern District of Michigan’s shorthand answer is: It all depends on the dox.

What is Doxing?

Doxing (sometimes spelled “doxxing”) is the internet-spawned practice of disclosing or publicizing on the internet an individual’s private or identifying information, such as his or her identity, or personal or work address. The goal typically is to harass or retaliate against the “outed” person by exposing private or identifying information to an online audience.

Underlying Facts

Vangheluwe arose out of events at the now infamous “Unite the Right” rally in Charlottesville, Virginia, in August 2017. During or shortly after that event, a Dodge Challenger driven by James Alex Fields, Jr. sped into a crowd of counter-protestors, killing one and injuring numerous others. Promptly thereafter, users of the online forum 4Chan located and posted public records showing that the vehicle was at some point owned by one Jerome Vangheluwe, a resident of Michigan. A reporter for the online outlet GotNews learned this information, located and reviewed social media pages for Jerome Vangheluwe’s son Joel, and proceeded to post an article titled “BREAKING: #Charlottesville Car Terrorist is Anti-Trump, Open Borders Druggie.”

Individuals also rushed to implicate (wrongly) the Vangheluwes on Twitter and elsewhere. Lita Coulthart-Villanueva tweeted “Killer confirmed. Jerome Vangheluwe,” followed by his home address in Michigan. Richard Weikart tweeted that “Joel Vangheluwe from Romeo, Michigan . . . was the attacker.” Paul Nehlen tweeted a link to the GotNews article (including its “car terrorist” headline).

The Vangheluwes – who did not own the Challenger and had nothing to do with the rally – were not amused, particularly after receiving “countless anonymous threats” and being warned by Michigan State Police to leave their home for their own safety. They brought defamation and related claims against two news entities and 20 individuals (including the three mentioned above) in the U.S. District Court for the Eastern District of Michigan. Coulthart-Villanueva (a California resident), Weikhart (from Indiana) and Nehlen (from Wisconsin) all filed motions to dismiss, arguing that the court lacked personal jurisdiction over them.

The Ruling

Construing the Supreme Court’s decision in Calder v. Jones (a defamation case involving a magazine publication), as well as more recent circuit online defamation case law, the court concluded that merely posting a defamatory statement about the plaintiff online is insufficient to hale the poster into the plaintiff’s forum state — rather, “the poster’s conduct must have involved the plaintiff’s state in some additional way.”

Applying this test, the court determined that one of the tweeters could properly be subject to personal jurisdiction in Michigan. Coulthart-Villanueva’s tweet included the Vangheluwes’ physical address, making it “reasonable to infer that [her] tweet was intended to cause some action in Michigan or catch the eye of those most able to make contact with the Vangheluwes, i.e., Michiganders.” The fact that Coulthart-Villanueva’s tweet had no “likes,” was not retweeted, was deleted within two hours, and had a total of four comments (two of which pointed out that she had misidentified the driver) gave the court “pause,” but not enough to grant the motion to dismiss.

By contrast, the court held that the other two individuals were not properly subject to suit in Michigan. Nehlen, who had linked the GotNews article in his tweet, did not provide either of the Vangheluwe’s “current whereabouts with any specificity” (the article did identify Jerome as being from Michigan and Joel as having attended high school in Romeo, Michigan). Analyzing the article’s content, the court found that Nehlen’s tweet lacked “a Michigan focus” that would subject him to suit in that state. The court reached the same conclusion about Weikart’s tweet, which did identify Joel as being from Romeo, Michigan, finding that “nothing about the tweet suggests he was targeting a Michigan audience.”

Our Take

Personal jurisdiction in internet defamation cases is an evolving area, particularly in view of the more restrictive approach to personal jurisdiction taken by the Supreme Court in recent decisions such as Walden v. Fiore. Vangheluwe (as well as the Seventh Circuit’s earlier decision in Tamburo v. Dworkin) shows that the old “effects test” of Calder v. Jones is far from dead, at least not in the realm of online defamation. The Vangheluwe court’s lengthy analysis of the doxing tweets also shows that personal jurisdiction issues in cases such as these will involve a close parsing of the poster/tweeter’s words, as well as the intended audience of the communication. For now, the bottom line appears to be this: The closer a tweet or post comes to encouraging behavior or action within the forum state, the more likely personal jurisdiction will be found.