Costs, Employment: Third Circuit Court Of Appeals Affirms $319,655.80 Costs Award Against Named FLSA Plaintiffs For ESI Vendor TIFF Conversion And Platform Loading Production Activities

Federal Appellate Court Dismisses Arguments That Costs Recovery Not Allowable Under FRCP Or FLSA, Or Was An Abuse of Discretion Under The Circumstances.

           This next case is a harbinger for risk advice which plaintiff litigators should provide to putative Fair Labor Standards Act (FLSA) plaintiff clients, because these clients could be liable for certain e-discovery vendor expenses of a substantial amount if the defense prevails, as the defense did in Camesi v. University of Pittsburgh Medical Center, Case Nos. 17-3476/18-1112 (3d Cir. Jan. 15, 2019) (nonprecedential).

            What happened here is that four named plaintiffs filed an FLSA collective action on behalf of another 2,800 unnamed plaintiffs for meal break violations, a case which was conditionally certified by the district court. Named plaintiffs then sought broad ESI production, with the district court entering an order to that effect. Later, after the defense complied through an ESI vendor who converted documents to TIFF and loaded the converted files onto the vendor’s platform for eventual production, the district court decertified the action, dismissing the unnamed plaintiffs’ claims without prejudice. Named plaintiffs then dismissed their claims in order to appeal the decertification order, an appeal the Third Circuit earlier dismissed due to lack of jurisdiction. Then, the defense sought to recover $319,655.80 in ESI vendor expenses as costs against the named plaintiffs, smartly requesting only a third of the ESI vendor expenses (with $300,000 encompassing copying charges and the remainder the ESI vendor direct expenses). The district court clerk taxed costs (in federal parlance, that means costs were allowed), with the district judge confirming this allowance. Named plaintiffs appealed to the Third Circuit with numerous challenges, all of which were rejected in the 2019 nonprecedential opinion. (In doing so, the federal appeals court relied on the reasoning in Kuznyetsov v. West Penn Allegheny Health System, Inc., 2014 WL 5393182 (W.D. Pa. Oct. 23, 2014).)

            First, named plaintiffs claimed that the costs were not recoverable under 28 U.S.C. §1920, which allows taxing of costs “where the copies are necessarily obtained for use in the case.” No, because the Third Circuit’s prior opinion in Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012) does allow for recovery of these expenses, which the district judge awarded after a prior appeal remand to obtain more evidence to see if Race Tires allowed them. (Both Race Tires and the prior Camesi appeal decision were discussed in our March 28, 2016 post.) The costs were necessary to the case, since plaintiffs were the ones demanding the documents!

            Second, plaintiffs contended that defendants were not prevailing parties under FLSA. This argument did not itself prevail because FLSA does not address a prevailing defendant situation such that FRCP 54(d)(1) did allow for costs recovery of the subject expenses. The appeals court found the award was not violative of FLSA, because plaintiffs should be incentivized to carefully assess and not file meritless/marginal claims. Also, the Third Circuit followed the majority approach that the defense can prevail based upon a voluntary dismissal by unnamed plaintiffs. It further determined that there was nothing unfair about only assessing costs against the four named plaintiffs rather than unnamed plaintiffs too, because this would encourage named plaintiffs’ counsel to advise them, prefiling, of the risks associated should the defense later prevail (which would include a costs award against them).

            Third, the award was not an abuse of discretion. The evidence showed that the four named plaintiffs were not indigent and could bear the costs award (although we presume this will hurt). Beyond that, a district judge only permissively can deny costs based on the indigency/pocketbook factor—it is not mandatory to deny costs in this situation. No bad faith was shown by the defense, given that this side was only responding to the broad document production wanted by plaintiffs anyway.

            BLOG OBSERVATION—An interesting question is whether the result would be the same in a California state case alleging a FLSA collective action. We believe the answer may well be “yes.” Number 6 of our Top 25 decisions for 2018 was the 4/3 DCA’s published opinion in Quiles v. Parent, 28 Cal.App.5^th 100 (2018) (now final), which allowed recovery of costs to FLSA prevailing plaintiffs under FLSA even though California routine costs statutes would not permit costs recovery. In this area, Toshiba America Electronic Components, Inc. v. Superior Court, 124 Cal.App.4^th 762 (2004) held that CCP § 2031.280(b) (formerly § 2031(g)(1)) requires that the reasonable costs of ESI data translation into usable form must be borne by the demanding party. Given that California courts look to federal cases on e-discovery issues (see id. at 770; Vasquez v. Calif. School of Culinary Arts, Inc., 230 Cal.App.4^th 35, 42-43 (2014)), a good case can be made that the result in Camesi would allow recovery of ESI costs in certain respects by prevailing defendants.