Court Affirmed Magistrate Judge’s Orders Imposing Costs for Expenses Incurred in Connection with TAR Process

10 Oct 2022

In LAWSON v. SPIRIT AEROSYSTEMS, INC., Case No. 18-1100-EFM (D. Kansas, Oct. 18, 2021), before the Court was Plaintiff’s Appeal from the Magistrate Judge’s orders that shifted and fixed the amount of e-discovery expenses against Plaintiff.

On June 18, 2020, the Magistrate Judge previously granted Defendant’s motion to shift TAR costs to Plaintiff after she found that Plaintiff’s electronic discovery tactics were particularly burdensome and disproportionate, that Spirit had already shouldered more than its share of discovery expenses, and that Plaintiff pursued TAR despite repeated warnings that the Magistrate Judge would eventually shift costs. By a separate Order, on Oct. 29, 2020, the Magistrate Judge awarded Defendant $754,029.49 in expenses.

Plaintiff appealed both the order shifting costs and the Oct. 29 Order fixing costs. In the first appeal, Plaintiff argued that the Magistrate Judge should have not shifted costs because the evidence was relevant to prove some affirmative defense of Defendant, and because TAR ultimately produced some useful evidence.

The Court rejected Lawson’s first argument and found that the issue of business overlap was not solely an affirmative defense of Defendant. Rather, the business overlap issue was a central element of the case which both parties had an interest in resolving. The Court noted that shifting the costs was appropriate because “up until the Magistrate Judge’s Order, Defendant disproportionally carried the financial burden.”

The Court also rejected Plaintiff’s argument that the costs should not be shifted because the TAR process did yield some relevant evidence. The Court found that the meager results of TAR, however, did not warrant overturning the Magistrate Judge’s decision to fairly allocate costs:

“The Court is not persuaded by this ‘ends justify the means’ argument. Even though a costly and overly thorough electronic discovery process produces some fruit does not prove that the discovery was proportionate to the case. The Magistrate Judge did not order costs shifted based on the forecast of an entirely fruitless TAR search. Rather, the Judge simply decided—within her sound discretion—that what little fruit would come from the search did not justify Spirit solely bearing its financial burden.”

The Court concluded that Plaintiff presented nothing to challenge the Magistrate Judge’s decision to shift costs because “Plaintiff’s persistence in pursuing the costly, ineffective TAR was disproportional to the needs to the case.”

In his appeal on the amount fixed, Plaintiff argued that the award was clearly erroneous because Defendants e-discovery vendor charged excessive fees. Specifically, he argued the vendor (1) “charged an excessive hourly rate, (2) reviewed documents too slowly, (3) charged for unnecessary confidentiality reviews, (4) included unnecessary management fees, and (5) presented expenses which were controverted by evidence [Plaintiff’s] e-discovery vendor.” Plaintiff argued that the Magistrate Judge also erred in calculating the amount of attorney fees to compensate Defendant’s outside counsel, and that the award included amounts outside the scope of the June 18 order and for time entries which were not clearly tied to the TAR process.

The Magistrate Judge found that Defendant reasonably incurred $499,999.21 in expenses through its e-discovery vendor. This amount included $215,428.50 for its document team’s TAR expenses, $62,571.56 for project management fees, and $171,999.15 for data hosting and processing fees.

Seventeen contract attorneys performed the first-level review for the vendor on the TAR data between Sept. 2019 and Jan. 2020, billing at a rate of $55 per hour. This assessment included reviewing documents for responsiveness, privilege, and confidentiality. One attorney billed at $75 per hour, the vendor team lead billed at $85 per hour.

The Court found substantial evidence supported the Magistrate Judge’s conclusion that the rates were reasonable. The Magistrate Judge also noted that the $55 per hour for document review was well within range approved in recent cases. Additionally, the Magistrate Judge accurately noted that this $55 per hour was well below the $80 per hour recognized as the median rate for privilege review by the vendor.

The Court found that the Magistrate Judge’s conclusion that the vendor reviewed the documents at a reasonable pace was neither error nor contrary to law. The review addressed issues of responsiveness, privilege, and confidentiality. Further, many of the documents were complex in nature. The Magistrate Judge found that the approximately 26 documents per hour was not unreasonable. Further, the Magistrate Judge did not accept Defendant’s review rate estimates at face value but performed her own independent calculation to determine a rate which, as she noted, was not far from the 30 document per hour rate that the vendor stated was “typical” for complex commercial litigation.

Plaintiff also argued that the vendor’s costs were inflated because it did not need to code the documents for confidentiality in light of the agreed Protective Order. However, the Court noted that the protective Order did not offer blanket restrictions on the use of all discovery materials; protection only existed for materiel explicitly designated as “CONFIDENTIAL.”

Additionally, this designation could only be applied to information which a party “in good faith” believed actually “contains or reflects confidential, proprietary, and/or commercially sensitive information.” Thus the Protective Order forced Defendant to conduct a good faith review of the TAR materials for confidentiality and compensating Defendant for the costs of confidentiality coding was found to be appropriate.

The Court found that the Magistrate Judge did not err in providing compensation for the vendors project management fees. Managing and processing this large amount of complex data required the vendor to manage a large amount of electronic data, train the reviewers and coordinate their work, and evaluate and process the results.

Finally, the Court found no error in the Magistrate Judge’s treatment of the Declaration by Plaintiff’s vendor’s Associate Director, who stated his firm could have performed the TAR review for $209,000. The Court found this number to be a pure conclusion, and the Associate Director even acknowledged it did not include time for conducting privilege review.

The Magistrate Judge expressly considered the Associate Director’s opinion and found it unpersuasive for multiple reasons. She also noted that the vendor’s review rate was close to the 30 documents per hour cited as “typical” by the Associate Director, and that the $55 per hour rate used by the vendor for the great share of reviews was not unreasonable given the $80 per hour cited by the Associate Director as the median for privilege reviews. Plaintiff failed to show that the Magistrate Judge’s assessment of the Associate Directors opinions as unpersuasive was clear error.

Plaintiff also argued that the Magistrate Judge erred in shifting these fees because it is contrary to law allocating the burdens of discovery and because the outside counsel unnecessarily employed senior counsel for these activities. The Court found no error of law. The primary authority cited by Plaintiff stated only the general rule of discovery that subpoenaed party must bear its own cost for conducting privilege reviews and did not address shifting of costs under Rule 26(c).

The Court also noted that it was not clearly erroneous or contrary to law because it included some work by senior attorneys. Second level of review was required because the electronic analysis and the vendor’s first level reviewers had coded a document as responsive. Second level review confirmed whether the document was responsive and reviewed the document for confidentiality, privilege, and compliance with International Traffic in Arms Regulations (“ITAR”).

The Magistrate Judge did not uncritically accept the use of senior attorneys for second level review. Further, whether the attorneys conducting document reviews were characterized as “senior,” Plaintiff failed to show that the actual rate charged for the second level review was unreasonable. The Court affirmed the award related to Defendant’s outside counsel.

Plaintiff argued that the Magistrate Judge erroneously granted fees for data hosting and processing and for the creation of a privilege log because these were outside of the scope of the June 18 Order. The present Court found no error. Substantial evidence supported the conclusion that the fees for hosting and processing were required for the demand for TAR data. The Magistrate Judge’s analysis, coupled with the evidence submitted by Defendant, adequately supported the decision to shift costs for hosting and processing TAR data.

With respect to the privilege log, the Magistrate Judge appropriately observed that “[o]nce Spirit was obliged to produce responsive documents from the TAR, it was equally obliged to create and produce a privilege log for any documents it withheld as privileged from its TAR production.” Plaintiff argued that Defendant would have had to develop a privilege log regardless but pointed to no evidence that this would have been necessary for the documents produced through TAR. Plaintiff failed to show any clear error in awarding these costs.

Next, Plaintiff contended that some of the fees awarded to Defendant were “impermissibly block billed and vague.” After Plaintiff objected to Defendant’s application for fees, the Magistrate Judge required Plaintiff to offer specific objections for each entry. The Magistrate Judge reviewed Plaintiff’s objections, and ultimately found them to be without merit.

The present Court found little support for finding clear error in the Magistrate Judge’s review of time entries. Although Plaintiff claimed that Defendant’s bills were “replete” with vague entries, he cited with particularity only two-time entries as impermissibly vague. The Court found that Plaintiff failed to demonstrate how the Magistrate Judge’s resolution of those objections was clearly erroneous or contrary to law. 

Finally, Defendant sought attorney fees for responding to Plaintiff’s appeal. The Magistrate Judge determined that Plaintiff’s position on electronic discovery was not substantially justified and awarded Defendant attorney fees for opposing Plaintiff’s motion to compel under Fed. R. Civ. Pr. 37. Defendant cited decisions that held that “reasonable fees incurred in responding to Rule 72(a) objections are recoverable under Rule 37(a)(5)(A).”

In his reply, Plaintiff continued to argue that TAR was reasonably useful, that document review fees by the vendor and outside counsel were unreasonable, the award included matters outside of the June 18 Order, and that the attorney fee invoices were vague and block-billed, and that as a result the award should be set aside.  But Plaintiff offered no direct response to Defendant’s request for fees or why the fees should not be awarded.

Accordingly, Plaintiff’s appeals of Magistrate Judge’s Orders were denied.