Taxing ESI Costs – Is the Creation of an Electronic Database a Taxable Cost?

By October 23, 2012

By Steve I. Silverman 
Last month, Kluger Kaplan’s ESI Group began exploring the scope of Rule 54 as it applies to the taxing of ESI discovery costs, our previous blog post can be found here.  The takeaway was that 28 U.S.C. §1920(4) should be expanded to make specific provisions for ESI discovery.  A recent order, entered last week by Judge King, held that the substantial cost incurred in creating an electronic database was not recoverable as a taxable cost.

Judge King determined that plaintiff’s counsel created the database for its own convenience.  Judge King did not rule on whether the creation of such a database would be taxable if it had been created for the purposes of facilitating responses to a request for discovery, citing to case law on both sides of the argument before ruling that “Ruden, as Plaintiff’s former counsel, created and maintained the electronic database solely for its own benefit and not for the purpose of facilitating responses to discovery requests.”
This order, though, begs the question: had the plaintiffs physically copied the documents instead of building an electronic database, they would have been able to tax approximately $18k as costs (at a penny a page). In his order, Judge King discusses the complexity of the proceedings and cites to plaintiff’s database custodian who said that, with 1.8 million docs, the production would have been useless without the database.
However, without delving into the custodian’s rationale, the court found the database was, among other things, “created solely for [plaintiff’s] benefit or convenience,” and denied taxation.  First, by not reconciling its finding that the database was created for plaintiff’s convenience with the testimony from the database custodian that the database was critical to the document review process, the order raises more questions than answers, further highlighting the need for Congressional reform on this issue.  Second, because the court did not decide whether a database compiled for the purpose of responding to discovery is a taxable cost, Judge King leaves the question open, paving the way for motions to tax costs in these circumstances.
This is a key issue to watch as the taxing of ESI costs continues to make its way through the federal courts.  I look forward to discussing the exciting case law that will undoubtedly be forthcoming on this topic.