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The Country Vintner of North Carolina, LLC v. E. & J. Gallo Winery, Inc., No. 12-2074

Decided:  April 29, 2013

Affirming the United States District Court for the Eastern District of North Carolina, the Fourth Circuit held that the federal taxation-of-costs statute, 28 U.S.C. § 1920, allowed E. & J. Gallo Winery (“Gallo”) to recover discovery expenses for the limited purposes of converting electronically stored information (“ESI”) to non-editable formats and burning the ESI onto discs, thus prohibiting a more extensive recovery for ESI processing expenses.  The Fourth Circuit also ruled that these processing charges did not constitute taxable “fees for exemplification” under this statute.

In 2005, the winery Bodegas Esmeralda designated The Country Vintner of North Carolina, LLC (“Country Vintner”) the exclusive North Carolina wholesaler of a certain Argentinian wine.  In 2009, however, Gallo began supplying this wine to North Carolina wholesalers, not including Country Vintner.  Country Vintner sued Gallo under the North Carolina Wine Distribution Agreements Act and the North Carolina Unfair and Deceptive Trade Practices Act.  Gallo prevailed on these claims and subsequently filed a bill of costs in the district court, aiming to recover $111,047.75 from Country Vintner for expenses involving the processing and production of ESI.  Gallo’s expenses included the cost of decompressing container files, extracting metadata, converting documents to a TIFF or PDF format, burning images onto a CD or DVD, and various other ESI-related expenses.  The district court determined that § 1920(4), under which a prevailing party may recover “[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case[,]” allowed Gallo to recover expenses for copying or duplicating the ESI, but not for the underlying ESI processing.  Gallo appealed, arguing that some of its ESI processing expenses could be considered “costs of making copies” and “fees for exemplification” under § 1920(4).

The Fourth Circuit first discussed the history of § 1920, noting that, in 2002, a committee of the Judicial Conference of the United States rejected a proposal to extend this statute’s reach to ESI processing expenses.  After rejecting Country Vintner’s assertion that § 1920(4) only covers the costs of materials in dispositive motions or materials produced at trial, the Fourth Circuit considered Gallo’s contention that its ESI processing constitutes “making copies” under this provision.  The court construed “making copies” to mean “producing imitations or reproductions of original works.”  The court also noted that, according to the Supreme Court, the provisions of § 1920 are “modest in scope” and “limited to relatively minor, incidental expenses.”  The court then adopted the Third Circuit’s reasoning in Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158, concluding that while the act of actually copying ESI is taxable, the underlying process leading up to such copying is not.  Thus, Gallo could recover the costs of converting files to TIFF and PDF formats, and for burning these files onto CDs—but not the costs of the underlying ESI processing.  The Fourth Circuit also found that Gallo’s ESI processing expenses were not “[f]ees for exemplification” under § 1920(4), as these expenses did not involve authentication of public records or demonstrative aids.

Full Opinion

– Stephen Sutherland