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Taxation of Fees: Trends and Tips for Cost RecoveryWednesday, July 8, 2015
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Speakers
Bill Gallivan Founding Partner | Managing ExecutiveDigital WarRoom
Barry O’Melia Founding Partner | Software Operations OfficerDigital WarRoom
Helen Bergman Moure PrincipalLex Aperta pllc
Today’s Agenda
• Rules governing court decisions• Current conditions and trends• Tips and takeaways for maximizing recovery of fees• Questions• Appendix
Rules Governing Court Decisions
Start with FRCP 54Judgment – Fees and Costs
Attorneys FeesTitle V: Judgment – FRCP 54
• (d)(1) Costs other than attorneys fees (USC 28)• (d)(2) Attorneys fees
CostsUSC 28 describes what costs are recoverable
• Copy or exemplify• Other non-attorney fees (expertise not expected of attorneys)
Burden FRCP 26(c) modifies the scope/definition
Conditions for Recovering Attorneys Fees
• European Law: Most countries operate under a "loser pays" system, sometimes called the English rule • United States Law: each party is generally liable only for costs (i.e., photocopying fees, filing fees, etc.) but not the other side's
attorney's fees unless a specific statute or rule of court provides otherwise. • By Agreement: Some settlement agreements, arbitration agreements and other extrajudicial contracts may also stipulate a loser-
pays arrangement.
• Federal Rules: A number of Special federal laws provide for an award of attorney fees for a prevailing plaintiff, such as:– Antitrust actions– Civil rights violations, see Civil Rights Attorney's Fees Award Act of 1976– Class actions– Copyright and patent cases– Freedom of Information Act violations– Lemon law cases– Suits against the federal government where the position of the government was not "substantially justified"
• State Rules: In some jurisdictions, statutes may permit judges and juries to independently impose "loser pays"; Generally, state court judges have no common law authority to award such fees against the losing party.
Conditions for Recovering Attorneys FeesContinued…
• Most states have statutes under which attorneys' fees may be awarded to a prevailing plaintiff, – an action on a contract where the contract contains a provision allowing recovery, – an action brought under consumer protection laws. – Parties are sometimes awarded attorneys fees in divorce and child custody actions since such awards are made under the court's power to divide property or award alimony and child support.
• A majority of states allow generally for an award to any party in a lawsuit, – if another party has forced him to expend money on attorneys fees to defend against a claim utterly or substantially lacking any possible merit and brought in bad faith (frequently called "abusive
litigation" or a "frivolous lawsuit"). – For example, in Georgia, a trial court must award attorneys fees if a party has brought a claim "with respect to which there existed such a complete absence of any justiciable issue of law or fact
that it could not be reasonably believed that a court would accept the asserted claim, defense, or other position".[13] Meanwhile, a trial court may, but is not required to, award attorney's fees if a party has made a claim "that lacked substantial justification or...was interposed for delay or harassment, or if [the opposing party] unnecessarily expanded the proceeding by other improper conduct".[14]
• There are many ways of calculating prevailing-party attorney fees. – Most courts recognize that actual costs may be disproportionate and inequitable. Thus, many jurisdictions rely on other calculations. – Many courts or laws invoke a lodestar' calculation: reasonably expected billable hours multiplied by a reasonable hourly rate, sometimes multiplied by a factor reflecting the risk or complexity of
the case. – Courts in class actions frequently award fees proportionate to the damages recovered. – In 2013, a federal court awarded class counsel attorneys' fees totaling over $90 million for a $1.25 billion settlement in In Re Black Farmers Discrimination Litigation.[15] – The Class Action Fairness Act of 2005, which, among other provisions, regulates the fees that can be awarded in a class action, was passed in response to concerns that courts were not adequately
overseeing the award of such fees.
• The overriding principle in awarding attorney’s fees is reasonableness. Courts will often reduce attorney’s fee awards they find to be unreasonable and excessive. [ Common examples of unreasonable billing include:– billing for overhead, overstaffing for uncomplicated tasks, – rebilling recycled work product, – billing for improbably long days.[17]
Attorney Fees vs. Costs
Attorney Fees Generally Not Recoverable• Agreeing to “loser pays” at the beginning of litigation• Requesting party must establish “Bad Faith” or “Improper Conduct” or
“Harassment” or “Abusive Litigation” or “Frivolous” or “Lacked Justification”• Fees recovered are often calculated (not invoice value)
Non-Attorney Costs Less Clear• Cost decisions vary at state, district, circuit and appellate level• Costs are recovered with bill of cost and actual invoices/receipts
What is a Taxable Cost? USC 28
28 USC § 1920(1) Fees of the clerk and marshal; (2) Fees for printed or electronically recorded transcripts necessarily for case; (3) Fees and disbursements for printing and witnesses; (4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case; (5) Docket fees under section 1923 of this title; (6) Compensation of court appointed experts, interpreters, under 1828 of this title.
A Bill of Costs shall be filed in the case and, upon allowance, included in the judgment or decree.
Specifically Excluded Fees
Clerks in all circuits have denied requests under USC 28 for reimbursement of:1. Attorney Fees2. Postage, Courier, UPS, and FedEx Fees3. Travel Expenses4. Online Research Fees5. Paralegal Fees 6. Bond Costs, Copying of Documents/Motions or Other Briefs, Appendices, or Excerpts
FRCP 26 – Burden Arguments
Burden Arguments can broaden the definition of recoverable costs at judgment even if they are denied early on.
FRCP 26 *Modified in 2006• FRCP 26 (b)(2)(iii): Court Initiative via “the burden or expense of the proposed
discovery outweighs its likely benefit” – requires reasonable notice.• FRCP 26 (c): Protective orders can be filed for overly broad/burdensome discovery.
Even if protective orders are not granted, can be useful at judgment.
Appellate Courts Weigh-In
FRCP 68: Offer of Judgment – Use with Burden Argumenta) Making an Offer; Judgment on an Accepted Offerb) Unaccepted Offer c) Offer After Liability is Determinedd) Paying Costs After an Unaccepted Offer
FRAP 39: Costs – Focus on Interpretation of Definitions• Whom assessed• Costs for and against the United States• Costs of copies• Bill of costs• Costs on appeal taxable in the District Court
Implementation of Appellate Rule 39
Limits What• Is the cost of specific documents or fees recoverable?Limits How Much• The rate per page Limits How Many • The number of copies of each documentDocument with Bill of Costs • The calculation method used to arrive at the total amount requested
Circuit Max Per Page* Max Appendix* Max # of Copies Average Award
First $0.10 $0.20 9 (6) Average
Second $0.20 N/R 6 (7) Average
Third $0.10 $2.00 10 (2) High
Fourth $4.00 (Photo/Color) N/R 8 (1) Highest/Increasing
Fifth $0.15 $0.25 15 (9) Low
Sixth $0.25 N/R 1 (11)Lowest/Decreasing
Seventh $0.10 $2.00 15 (8) Low
Eighth $0.15 $2.00 10 (5) Average
Ninth $0.10 N/R 9 (10) Low
Tenth $0.50 N/R 7 (4) Average
Eleventh $0.25 N/R 7 (7) Average
D.C. $0.07 ($1.02/Color) $0.20 12 (3) High
Federal $0.08 $2.00 16 (7) Average
1st * Per File N/R Not Recoverable 2nd * Per Load File (7) Insufficient Data
How Much, How Many?Circuit Court Interpretation of FRAP 39 – Wide Variance
Current Conditions and Trends
Appellate Cost Award Trends
65%
16%
17% 2%
Agree
Modified
Reversed
Dismssed
Decisions
• Average costs of awards are increasing
• Definition of print, exemplify, and copy is broadening - Copy for Production vs. Copy for Preservation
Are Ediscovery Costs Recoverable?
Case Law Adding Confusion to “What” is RecoverableExemplification: Imaging and bates/exhibit numberingCopying: Productions and exhibitsCopying: For preservationNon-Attorney Expertise: Non-attorney costs necessary for copying
• Source Code• Dynamic “Database” Driven Documents
All Other Ediscovery Costs: Processing, Hosting, Review*Differences between jurisdictions are dramatic
Case Law Suggesting Narrow Definition
2012 Landmark Decision
• Ediscovery costs disallowed• $367K vacated• Production printing, scanning and print to image only• Supreme Court Precedent: Kouichi Taniguchi v. Kan Pacific Saipan, Ltd
“translation services disallowed” …… so is ediscovery a type of translation?
Case Law Suggesting Diverging Definition
2013 4th Circuit Clarification of Narrow ScopeThe Country Vintner of North Carolina v. E& J Gallo Winery Inc. • Gallo seeks $111K, can recover less than $1K• Only conversion of native files to Tiff or PDF
2015 9th Circuit Broadens CcopeOnline DVD-Rental Antitrust Litig., No. 11-18034• Focus on 28 USC 1920(4) language “necessarily obtained for use in a case.”
State Law Suggesting Broadest Definition
Colorado Decision
Circuit, District and State Courts
Green = BroadYellow = Not ClearRed = Narrow
Practical Examples:CBT v. Cisco IronPort
• Broad Request: CBT compels Cisco IronPort to produce a massive amount of data
• Burden: Cisco IronPort has asserted—without contradiction—that production in paper form of the 1.4 million documents plus 6 versions of source code would have cost far more than the fees/damages sought
• Agree to Form of Production: The parties agreed that document production would be made in electronic format
• Cisco Seeks Attorney Fees: Judge Thrash “Could not establish bad faith.”
Cisco IronPort Awarded Ediscovery Fees
From Judge Thrash’ Order:
• Detailed Accounting: “A careful review of the GGO invoices reveals…”• Highly Technical Services: “ …that the services provided are not the type of services that attorneys or paralegals are trained
for or are capable of providing. The services are highly technical. They are the 21st Century equivalent of making copies.”• Referenced: Cargill Inc. v. Progressive Dairy Solutions, Inc., No. CV-F-07-0349, 2008 WL 5135826, at *6 (E.D.Cal.2008)
“Progressive provides an explanation of the invoice-case management was done electronically because of the volume of documents; scanning of documents was necessary to provide an adequate defense to the several motions and trial presentation. Accordingly, this cost[ ] is recoverable."
• Cisco Recovers Ediscovery Fees: The objection to taxation as costs of the ediscovery consultant's fees is overruled and denied. ….The remaining objections are overruled and denied for the reasons given by Cisco IronPort in its response to the motion.
Order Takeway: “The services are certainly necessary in the electronic age. The enormous burden and expense of electronic discovery are well known. Taxation of these costs will encourage litigants to exercise restraint in burdening the opposing party with the huge cost of unlimited demands for electronic discovery”.
IronPort Ediscovery Opinion Highlights the Confusion
• There is a division of opinion as to whether these [ediscovery] costs are recoverable under 28 U.S.C. § 1920See Kellogg Brown & Root Intern., Inc. v. Altanmia Commercial Marketing Co. W.L.L., No. H-07-2684, 2009 WL 1457632 (S.D.Tex. May 26, 2009) (collecting cases)
• Some courts have allowed these costs as being the modern day equivalent of "exemplification and copies."
• Others have not allowed these costs on the grounds that assembling records for production is ordinarily a task done by attorneys and paralegals and is not a recoverable cost.
Kelora Matter (NDCA)
• Kelora is losing party in 3 related patent infringement cases (eBay, Cabelas, Target)• The clerks awarded costs including “ediscovery costs as Fees for exemplification and the cost of making copies”• Award costs to prevailing party citing: Ass'n of Mexican-Am. Educators v. State of Cal., 231 F.3d 572, 591 (9th Cir. 2000)
• Kelora must specify reasons for denying costs. Quan v. Computer Sciences Corp., 623 F.3d 870, 888-89 (9th Cir. 2010)
• A bill of costs "must state separately and specifically each item of taxable costs claimed.“ “The burden in on party seeking costs to establish the amount of costs…” City of Alameda v. Nuveen, No. C 08-4575 SI, 2012 WL 177566, at *1 (N.D. Cal. Jan. 23, 2012)
• Appropriate documentation of costs required: Plantronics, Inc. v. Aliph, Inc.. See No. C 09-01714 WHA (LB), 2012 WL 6761576, at *3 (N.D. Cal. Oct. 23, 2012)
• Costs of “necessary” ediscovery are taxable under 28 USC 1920(4)– Intent of the 2008 amendment to the wording– Parrish v. Manatt, Phelps & Phillips, LLP, C 10-03200 WHA, 2011 WL 1362112, at *2 (N.D. Cal. Apr. 11, 2011)
• Intellectual efforts including research, analysis and distillation of data not taxable Townsend v. Holman Consulting Corp., 914 F.2d 1136, 1141 (9th Cir. 1990)
• Court awarded ediscovery fees to 10 of 12 defendants
Detailing Costs
The parties seeking costs are required to provide “enough detail to establish that each cost is taxable under section 1920”.• All invoices (Accounting System)• Breakdown by type of service connected to section 1920 (XLS)• Declaration that describes each line item (PDF)
Assemble Documentation
If taxation of costs looks likely, be prepared:• Make copies of every invoice for the matter• Identify the subset of fees as more narrowly defined by the 3rd Circuit Court
of Appeals. (Copy and Exemplification)• Identify all other fees required to “retrieving, restore, and converting data
into a usable or reproducible form”.• Track expenses with your service provider detailing month by month fees
for: a) Narrow: Copying and exemplification,b) Broader Fees: Retrieving, processing, filtering and converting, andc) Summary of All Fees
Declaration by Expert
For Clients: Cash is King
Matter Attorney Fees
Total Discovery
FeesAsked For Plantiff
Position Actual Award Comments
Race Tire v. Hoosier (2012) N/A ? $365K Nothing
Taniguchi $30K$360K overturned by 3rd Circuit.
CBT v. Cisco IronPort
$1.2M Denied $243K $187K $20K $161K
Broad ask. Sufficient GGO Documentation, CBT failed to show CIP not entitled to costs.
Kelora v. eBay (2013) Denied $185K $162K $19K $103K Broad ask. Denied processing, filtering, data
mining, some PM.
Kelora v. Costco N/A $68K $35K $8K $31K Narrow ask. Only hosting denied.
Kelora v. HP ? ? $80K $10K $62K Asked for production fees. Production hosting denied.
Oracle v. Google N/A $7.5M $2.9M Disingenuous request
DVD Rental v. Netflix ? $700K <$500K
OCR is taxable. Documentation was lacking/non-specific.
Anything is Possible
“The discrepancies from circuit to circuit highlight the fact that this issue is worthy of the Supreme Court’s consideration,”Deborah Pollack-Milgate, Lead Attorney for Racing TireBarnes & Thornburg, in Indianapolis
• The EDPA has awarded $$$ in ediscovery costs since Racing Tire.
Convenience vs. NecessaryDesired vs. Required
• In Hank’s Beverage Co. v. Ajinomoto Co. clerk of the EDPA permitted taxation of $560,000 in ediscovery as required by plaintiff.
• Aspartame Antitrust Litigation EDPA $500,000 in ediscovery costs allowed as required by plaintiff.
• Colosi v. Jones Lang LaSalle Ams., Inc., 2015 U.S. App. 6th Cir. Ohio 2015 Court of Appeals further allowed the recovery of costs for imaging a hard drive.
Trend is Broader Definition
Best Venue: NDCA broadest but we see the trend going national. Pattern of Successful Behavior: In all cases where taxation of fees is broad, several patterns of requirement have emerged:• Notification: The adverse party was made aware of the excessive or
burdensome costs before they were incurred.• Expertise: The cost of technology, and expertise was necessary to
translate documents into easily usable and reproducible documents for the requesting party.
• Documentation: The fees, services and invoices of the service provider or technical expert were well documented and preserved.
Tips and Takeaways
Summarize Taxable Costs on EDRM
#1. Exemplification
#2. Production Imaging
#3. Copying Original
#4. Expert Copying
#5. Expert Other
#5. Expert Other
#1 – Easiest to Recover Costs#5 – Hardest to Recover Costs
Remember
• Venue: Know the law in your jurisdiction (local rules vary)• Burden: Argue early and often, seek protective order FRCP26(c)• Consider Offer of Judgment: Make it clear what costs you are requesting • Out-Source: In-house attorneys and paralegals fees are hard to recover• Select Experienced Experts: Declarations often required with Bill of Costs• Require/Keep Detailed Invoices: Unambiguous descriptions, no block billing• Map Invoices to Case Law Definitions: Ensure your service provider invoice terms
and wording are aligned with terms for activities subject to potential cost shifting• Declaration: Have an expert prepare a declaration connecting service descriptions to
the current/various definitions of
Questions
Thank You!
For more information contact us at:
Digital WarRoom866.927.7006
www.digitalwarroom.comLinkedin.com/company/digital-warroom
@DigitalWarRoom
Resources
Links to Case Law & Other Helpful Links
Case Law Links:• Kelora Matter
http://www.leagle.com/decision/In%20FDCO%2020130408794.xml/EBAY%20INC.%20v.%20KELORA%20SYSTEMS,%20LLC• CBT v. Cisco IronPort http
://www.leagle.com/decision/In%20FDCO%2020091231A19.xml/CBT%20FLINT%20PARTNERS,%20LLC%20v.%20RETURN%20PATH,%20INC
Useful Links:• http://www.uscourts.gov/uscourts/FormsAndFees/Forms/AO133.pdf
– Page 19, Section G of Attorneys Handbook
• http://www.pawd.uscourts.gov/Documents/Forms/ATTORNYHANDBOOK.pdf• http://www.srr.com/article/e-discovery-cost-shifting#sthash.vboh5ApO.dpuf
First Circuit
Second Circuit
Third Circuit
Fourth Circuit
Fifth Circuit
Ninth Circuit
Eleventh Circuit
District of Columbia Circuit
Federal Circuit
No Specific Forms (Receipts Only)
• Sixth Circuit• Seventh Circuit• Eighth Circuit• Tenth Circuit
