Case Law

#CaseoftheWeek Episode 79: Evaluating the Reasonableness of Costs for Recovery under FRCP 37(b)

Episode 79 is the second and final part in this case law series relating to the Raymond James & Assocs., Inc. v. 50 N. Front St. TN, LLC matter. In Part I, Kelly Twigger discussed whether a party was subject to sanctions under FRCP 37(b) for producing 800,000 pages of documents without a responsiveness review following the court’s orders. 

This week, we review and analyze the decision from February 8, 2022 by United States Magistrate Judge Tu M. Pham. During the livestream Case of the Week, Kelly discussed the scope and basis of the award of costs and fees following the Court’s ruling granting sanctions for a party’s document dump of more than 800,00 pages with no responsiveness review, as well as the facts needed to support the request.

Keep reading or watch the video to understand the ediscovery issues.


Good morning and welcome to episode 79 of our Case of The Week series published in partnership with ACEDS.

My name is Kelly Twigger. I am the founder and CEO of eDiscovery Assistant, as well as the principal at ESI Attorneys. Thanks so much for joining me on our broadcast this morning.

As you know, if you’ve joined us on our Case of The Week series previously, each week we select a decision from our eDiscovery Assistant database that we look at to determine whether it’s got some practical implications for you to be able to exercise in your practice on a daily basis and leverage to the benefit of your clients.

All right. Let’s dive into this week’s decision. As I mentioned, this week’s decision is a follow up from our case that we discussed last week on episode 78, which was a motion for sanctions for failure to comply with two court orders and essentially consisted of a document dump in which the party who received the document dump had to sift through and is looking for costs related to that motion.

The decision today comes from Raymond James and Associates, Inc. Vs. 50 North Front Street in Tennessee, LLC. This is a decision from United States Magistrate Judge Pham. As I mentioned last week on Episode 78, Judge Pham has 53 decisions in our eDiscovery Assistant database, an extremely prolific writer in the eDiscovery space and very thoughtful.

As always, the decision in this case is tagged with our proprietary issue tagging structure and those issues for this decision include technology-assisted review, search terms, manner of production, sanctions, cost recovery, and cost shifting.

Facts

Now, as I mentioned, we are before the Court to award monetary sanctions following the Court’s granting of sanctions in its ruling on August 2nd, 2020, which we covered in episode 78 of Case of The Week.

That order by the court-imposed sanctions on 50 North under Federal Rule of Civil Procedure 37(b)(2) for 50 North’s failure to comply with multiple court orders that preceded the motions to compel and granted Raymond James’ request to recover the cost of manually reviewing 283,000 documents that were produced by 50 North without a responsiveness review.

Essentially, we had a document dumped by 50 North, and Raymond James sifted through those documents, then moved for sanctions for failure to comply with court orders that had ordered 50 North to do a responsiveness review, and the Court granted that motion for sanctions. Now we’re before the Court on Raymond James request for cost recovery on that motion for sanctions.

At the Court’s direction, Raymond James filed a brief, explaining the necessity of its fees and expenses that were originally incurred in the manual review of those 283,000 documents. What Raymond James says is that they initially used targeted keywords on the document dump, which consisted of a total of 800,000 documents, and shrunk that original set down to a set of 283,000 documents. They then hired contract attorneys to manually review those documents that hit on the search terms.

In support of its brief, Raymond James filed three declarations, one from in-house counsel at Raymond James, one from trial counsel, and one from an attorney at the service provider who handled the review. This is all going to come into play later as we talk about the reasonableness of each of the categories of costs and expenses that Raymond James seeks, as well as what the Court requires for supporting documentation to determine reasonableness.

Now, in response to Raymond James’ brief, 50 North asserted four separate arguments in response. First, it argued that it was unnecessary for Raymond James to manually review the documents because they were produced in a searchable format, and there were cheaper methods of reviewing the documents. Second, that it was unnecessary for Raymond James to store the nonresponsive documents, and there were cheaper alternatives for them to be able to do that other than the costs that were submitted. Third, that Raymond James’ memorandum was deficient because it did not include an itemized billing statement for either TrustPoint or trial counsel, two of the three entities for which it sought to recover costs. Fourth, that it was unreasonable for Raymond James to request fees for attorneys who did not participate in the motion hearing.

Now we’re going to see where each one of those arguments plays out in terms of their recovery from the three specific entities. Raymond James sought cost recovery for three different categories, which totaled $241,334, broken out between trial counsel, services for TrustPoint, and services for service provider Legality.

In reply to 50 North’s response, Raymond James amended its total cost recovery to slightly up it to $242,317 and included the requested itemized billing statements from TrustPoint and trial counsel. 50 North then also argued that there was a lease between the parties that essentially is the subject of the underlying litigation, and that lease contained a fee-shifting provision that barred sanctions as well as arguing that the requested fees were unnecessary and unreasonable.

That sets the stage for us.

Analysis

Let’s talk about what the Court’s analysis is on this cost issue. The Court first looks to Rule 37(b)(2)(c), which provides that, “The Court must order the disobedient party, the attorney advising that party, or both, to pay the reasonable expenses, including attorney’s fees caused by the failure unless the failure was substantially justified or other circumstances make an award of expenses unjust.”

The Court notes here that it has already granted the request for fees and the expenses incurred as part of the review in its August 2020 ruling, and the sole issue before this court is whether or not the requested fees are reasonable. Then the Court addresses the standard for awarding attorneys’ fees, and the Court notes that the requesting party must provide detailed time records that allow the Court to review that reasonableness of the time spent. The burden is on the party seeking to recover costs, and that burden is satisfied by providing itemized statements that describe the subject matter, attorney, time spent, and the charges for all the work done on the case that are sought to be recovered.

Once those itemized expenses are provided to the Court, the Court then reviews them for any charges that are “excessive, redundant or otherwise unnecessary” and removes those from the total. The Court also notes here something we mentioned at the start of the case, which is that any conclusory allegations that fees are unreasonable are not going to be sufficient to establish error, and what we’ll see here is that conclusory allegations is really all that 50 North offers in response to Raymond James request for fees.

The Court then addresses an argument by 50 North about the lease provision that it bars the cost fee-shifting for the review of the documents. The lease in question between the parties contains a provision that says, the costs of attorneys’ fees are shifted to the tenant in the event that the tenant fails to pay, and the landlord has to hire counsel to enforce the lease obligations. It’s a pretty standard clause in a commercial lease agreement.

The Court looks at the lease provision and says that the fee-shifting purports to cover the successful party’s costs and expenses but does not apply to discovery sanctions imposed by the Court for that party’s litigation misconduct. According to the Court, “To hold otherwise would effectively immunize a party who ultimately prevails from monetary sanctions due to their own litigation misconduct.”

Essentially here, the Court refuses to allow 50 North to use a lease provision to get out of its failure to abide by court orders in the litigation. With that argument to the side, the Court then addresses the reasonableness of the fees from the three different places that Raymond James sought legality, its service provider who actually did the manual review, trial counsel, as well as TrustPoint who was responsible for managing the data.

Let’s start with the reasonableness of Legality fees, which totaled $146,273. According to the Court, those fees for legality included charges for 17 contract attorneys, ranging in an hourly cost from $55 to $75 an hour, and Raymond James submitted invoices for each of those that reflected the number of hours worked by each attorney, the rate, and a description of each time entry. Based on that information, the Court found that those invoices sufficiently described the subject matter, the attorney, the time allotment and the charge for all work done by Legality, and that they were reasonable.

Now, 50 North tried to argue here that Raymond James should have used TAR to conduct the review versus manual review and cited to some precedent. The Court then distinguished the case law that 50 North cited and found that, in fact, the more efficient means of sorting through documents is not dispositive of the issue of what fees are reasonable following the motion for sanctions. The Court noted that had 50 North raised this issue prior to the production of documents, that analysis might have been different, but essentially 50 North’s argument here is too little too late.

According to the Court, the issue is not whether Raymond James could have been more efficient in reviewing the documents, but whether the expenses that were actually incurred are reasonable. The Court also notes that while the case law has developed to the point that it is now black letter law, that “where a producing party wants to utilize TAR for document review, courts will permit it. No court has ordered a party to engage in TAR over the objection of that party.”

And that’s consistent with what we’ve discussed here on Case of The Week. If a party producing documents chooses to engage in TAR, they have the right to do that under Rule 34, but the court cannot order them to do so. The Court also notes that 50 North was in a far better place to use TAR than Raymond James was when it instead decided to dump documents on Raymond James, and that because it neglected to do so, it could not move forward with this argument regarding TAR. The Court also notes that Raymond James did use search terms to call the set to one-third of the documents that were produced prior to manual review, and that goes to the reasonableness of the fees extended.

So reasonable for the Legality fees and a total of $146,273 to be provided to Raymond James.

Then the Court next turns to the reasonableness of the fees incurred by TrustPoint. A total of $46,161. The fees for TrustPoint are comprised of three parts, $9,000 in technical support, roughly $35,000 in data storage costs, and $2,300 in user fees to access the stored documents. Clearly, the biggest cost here is the data storage, that’s pretty normal in terms of litigation. Now, Raymond James supported its proposal for recovery of fees for TrustPoint with invoices from TrustPoint, as well as a declaration from Raymond James’ eDiscovery supervisor. That support included a breakdown of every hour spent, as well as a breakdown of the storage charges that showed discounted rates as the volume increased for storage, as well as a list of the user fees charged monthly.

Now, the data storage charges are the biggest part that 50 North attacks because it’s the biggest part of the bill here from TrustPoint. 50 North argues that it should not pay for storage of documents that are non-responsive and asserts that Raymond James should not be compensated for work it shouldn’t have had to do if 50 North had complied with the Court’s orders and its discovery obligations.

The Court says, of course, no, it’s not reasonable for you to make this argument at this point because you decided to dump the documents on Raymond James instead of reviewing them yourself; and instead, states that it is reasonable for a party to store documents produced in discovery that it considers to be irrelevant while a responsive review is ongoing, and it’s also reasonable for a party to continue storing non-responsive documents, while litigation remains pending regarding the very issue of whether those production of documents was reasonable.

This is a really important point when you are thinking about what you’re going to recover as far as litigation costs go. We always have a subset of documents following a review that is non-responsive information. Do we take those down? How do we manage those data storage costs effectively? Well, here the Court is saying, it’s completely reasonable for those data storage costs to remain in active storage while litigation is pending, number one, and number two, especially when there is an issue about whether the review of those documents was reasonable on a cost recovery motion or on a motion for sanctions.

The Court rejects any analysis from 50 North and finds that the storage costs, the total of $34,000 in storage costs, for Raymond James is reasonable. The Court then looks at the technical support and other user login fees by TrustPoint and finds that those are also reasonable based on the submission of invoices that broke down the specifics needed for the Court to make that determination.

Third subset of charges sought by Raymond James was the attorney’s fees itself from trial counsel, which totaled $49,828. The majority of those costs were for overseeing a manual review, as well as litigating the two motions for sanctions. The Court finds that those costs are reasonable.

In support of its motion for costs on this issue, Raymond James submitted a comprehensive billing statement as an exhibit to the declaration from its lead trial counsel. The Court reviewed only two specific challenges from 50 North that they made against time entries submitted by Raymond James, and on those two particular time entries, Raymond James attorneys had listed multiple tasks that took up a certain number of hours.

The Court found in reviewing those individual tasks that Raymond James had limited its request for recovery to only the small amount of time on those two time entries that was specifically related to the manual review. So even though there were multiple task entries for a block of hours on a time entry, Raymond James only sought the amount that was required for that manual review.

That’s a very important point for you to consider when you’re seeking costs and providing these itemized entries. You need to make sure that you’re reviewing those bills specifically and looking at where there are multiple time entries and only seeking the amount of costs that are actually incurred with regard to the motion.

Based on that review, the Court permitted the costs for those two-time entries recoverable. That’s the only specific challenge that 50 North made to Raymond James petition for costs overall. The Court also permitted recovery for fees for multiple counsel who did not participate in the hearings, stating that it’s not inherently reasonable to have multiple attorneys on a case, that there was no indication that Raymond James overstaffed the case as to the review of these documents and the motion for sanctions.

The Court found that trial counsel was tasked with arguing the motions to compel and for sanctions, all while supervising a manual review of nearly 300,000 documents. Based on that analysis, the Court found that the attorney’s fees and costs, sought in an amount of $49,828, were reasonable and granted the entirety of Raymond James request for fees totaling $242,262 to be paid by 50 North.

Takeaways

What are our takeaways from this case? Well, the reason I wanted to bring this case to your attention and why we covered the motion for sanctions to set up this motion for costs, is that this case really lays out a roadmap for attorneys on what you need to provide in order to recover costs on a motion for sanctions under Federal Rule of Civil Procedure 37(b). It also really demonstrates to you the level of specificity that’s required and the arguments that will be dismissed from the other side.

If you are considering engaging in a document dump on the other side because it will save costs and you’d rather fight any potential motions, this case is illustrative as to what that may mean in the end. Now, if we look strictly at costs here, 50 North had 800,000 documents that it did not conduct a responsiveness review on, and instead decided to dump on Raymond James.

Had 50 North done that responsiveness review, based on the search terms that we see that Raymond James applied to the document set of 800,000 documents, they likely would have spent about the equivalent that they’re required to reimburse Raymond James for.

In addition to having to reimburse Raymond James, 50 North has gone through two motions for sanctions, and paid the attorney’s fees to respond to and argue those motions, as well as the motion for cost recovery. Three separate motions, essentially to end up paying Raymond James the same amount of money that it likely would have incurred had it done a responsiveness review initially as ordered by the Court.

This case also lays out for us what you need to do to provide a legitimate challenge to cost recovery, and how 50 North was really not able to do that here. In essence, you’d need to provide specific challenges to entries of time, and you’d have to have expert testimony or other declarations of testimony as to why those costs should not be recoverable.

So, for example, on the data storage costs, 50 North wanted to argue, or tried to argue, that tiered storage or offline storage could have been less expensive than active storage should have been utilized for non-responsive data. But it didn’t provide any information to the Court on how that could have been achieved — what the difference in cost could have been or how that practice would have actually been carried out.

Likely they would have needed to provide a declaration from a service provider that would have laid out for them what the potential costs could have been for inactive storage or tiered storage, the timing for taking that data down and putting it back up, and the actual cost savings that could have been achieved, in order for the Court to even consider that argument. 50 North didn’t provide that here, and if you want to have success on a challenge to cost recovery for data storage costs, you’re going to need to provide a level of specificity that allows the Court to consider the argument seriously.

Another takeaway here, 50 North really gave up its ability to challenge the reasonableness of the cost by failing to review those documents prior to dumping them on Raymond James. They may have been able to challenge costs had they provided those specific facts to rebut them, but they really only made what the Court referred to as conclusory statements with no specific challenges, and that was not sufficient to rebut the reasonableness found by the Court.

All right. That’s our Case of The Week for this week. Thank you so much for joining me. We’ll be back again next week with another decision from our eDiscovery Assistant database. If you’re interested in doing a free trial of our case law and resource database, sign up to get started.

Thanks so much. Stay safe and healthy out there and I’ll see you next week.


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