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Third Circuit Slashes Tire Company’s Recovery Of E-Discovery Costs

Posted  March 26, 2012

The U.S. Court of Appeals for the Third Circuit has  vacated a district court award in excess of $367,000 for e-discovery costs to the winning defendants in Race Tires America Inc. v. Hoosier Racing Tire Corp.

As we reported in an earlier edition of Antitrust Today, Judge Terrence F. McVerry of the U.S. District Court for the Western District of Pennsylvania ordered the plaintiff, Race Tires America Inc., to pay these costs after granting summary judgment in favor of the defendants.

Race Tires argued that defendants entered into exclusive contracts which allegedly shut it out of the dirt oval track market. Judge McVerry held that Race Tires could not show it sustained an antitrust injury because such contracts are permissible when a sports entity freely decides it wants exclusivity and has precompetitive, good faith or business motives for entering into the agreements.

After the Third Circuit affirmed the ruling in 2010, the district court clerk taxed almost all of the defendants’ e-discovery costs to the plaintiff under 28 U.S.C. § 1920(4). The statute allows recovery of “(f)ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.”

At issue on appeal was whether section 1920(4) authorizes the taxation of e-discovery vendor charges for data collection, preservation, searching, culling, conversion and production as either “exemplification” or “making copies” of materials where necessary for use in the case.

In a decision by Judge Thomas Vanaskie, the Third Circuit sharply reduced the recovery to $30,000. The court held that none of the vendors’ work qualified as “exemplification” and that the only “copying” that was performed was the scanning of hard copy documents, converting native files to the .tif format, and the transfer of videotapes to DVDs.

The appellate court reasoned that shifting the costs of e-discovery was inconsistent with the “American rule” against shifting the expense of litigation to the losing party and that “[n]either the language of § 1920(4), nor its history, suggests that Congress intended to shift all the expenses of a particular from of discovery – production of ESI – to the losing party.”