Canadian Lawyer

BY DERA J. NEVIN TECH SUPPORT E-discovery: a 'taxing' burden? Two recent U.S. decisions raise questions about e-discovery costs and the role of vendors. parties move from a paper-based world of scanning and coding to a world of electronically stored information (ESI) processing. Lawyers and litigants who are not prepared for the shift risk bearing the costs, literally. The circumstances underlying the O n March 16, the United States Court Of Appeals for Racing Tire Corp., a decision that con- siders whether e-discovery costs are tax- able against the losing party under the cost taxing statute, 28 USC 1290(4). The court interpreted that statute narrowly and held that only those e-discovery costs equivalent to costs of making copies were taxable. As a result, only $30,000 of the $365,000 in electronic discovery costs requested was recover- released Race Tires America Inc. v. Hoosier the Third Circuit able under the taxation statute. The decision is an important preced- ent for cost recovery and shifting, and will undoubtedly affect e-discovery strategy in future cases. Lawyers are now on notice that the strategy for shifting costs needs to be developed at a very early stage in the litigation, and arguably, before any meet-and-confer conference or engaging an e-discovery vendor. The decision also highlights the indispensible role that e-discovery vend- ors play in a changing landscape. Vendor management is emerging as a key issue in e-discovery, particularly as litigant 20 M AY 2012 www. CANADIAN Lawyermag.com taxation decision in Race Tires are straightforward. The case was initiated in September 2007 and was resolved several years later in favour of the defendants on a motion for summary judgment. All parties had engaged in extensive electronic discovery, and each had hired its own e-discovery vendor. The defendants had produced 430,733 pages of ESI and 178,413 documents in electronic format. At the end of the case, the defendants sought taxation of their costs. They were awarded costs by a taxation officer. On appeal, the Dis- trict Court upheld this decision, noting that "the requirements and expertise necessary to retrieve and prepare . . . e-discovery documents for production were an indispensible part of the discov- ery process." However, the Third Circuit Court of Appeals viewed the issue solely as one of statutory interpretation, noting that Con- gress had specified the litigation expenses that qualify as "taxable costs." It considered the section that permitted the 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. obtaining official transcripts authenticated " Exemplification refers to

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