In what will likely be an often-cited opinion, Judge Shira Scheindlin, author of the Zubulake decisions—some of the leading cases in e-discovery—issued an 87-page, wide-ranging opinion (officially titled “Zubulake Revisited: Six Years Later”) sanctioning 13 plaintiffs for failing to meet their discovery obligations. Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, No. 05 Civ. 9016 (S.D.N.Y. Jan. 15, 2010).
In this case, a group of investors brought suit to recover losses resulting from the liquidation of two British Virgin Islands based hedge funds. Although the plaintiffs commenced the lawsuit in February 2004, 13 of these plaintiffs neglected to issue written preservation notices until 2007. By the time that these plaintiffs attempted to comply with their preservation obligations, relevant documents had either been lost or destroyed. Additionally, the plaintiffs failed to conduct a diligent document collection and review. Rather, many of the plaintiffs did not provide supervision over the collection process, sometimes allowing inexperienced employees to search their own documents without any instructions. Other plaintiffs failed to collect any documents at all from key employees or search locations in which the documents would likely be found.
Sanctions Imposed Even Absent "Egregious Conduct"
While Judge Scheindlin did not find any “egregious examples of litigants purposefully destroying evidence,” she found that the plaintiffs had conducted discovery in an “ignorant and indifferent fashion,” and that their failure to timely institute written preservation notices or to conduct a careful collection of documents constituted either negligent or grossly negligent conduct. As a sanction for those parties that were grossly negligent, Judge Scheindlin ruled that she would provide the jury with an adverse inference instruction, which would permit the jury to presume that the lost evidence was relevant and would have been favorable to the defendants. She also ordered that all plaintiffs pay defendants’ costs and attorney’s fees in bringing the motion at issue, as well as the expenses relating to the reviewing of declarations and the taking of depositions that the defendants conducted to develop the facts surrounding the discovery misconduct.
Judge Scheindlin remarked that “[b]y now, it should be abundantly clear that the duty to preserve means what it says and that a failure to preserve records – paper or electronic – and to search in the right places for those records, will inevitably result in the spoliation of evidence.” While Judge Scheindlin explained that the evaluation of discovery misconduct is fact-specific, she confirmed that certain minimum standards are expected to be met. She emphasized that a party must issue a written litigation hold—one of the takeaways of Zubulake—and explained that the failure to do so constitutes gross negligence. She further noted that “the failure to collect records – either paper or electronic – from key players constitutes gross negligence or willfulness as does the destruction of email or certain backup tapes after the duty to preserve has attached.”
Special Burden on Plaintiffs
Judge Scheindlin’s opinion sheds light on discovery obligations unique to plaintiffs. Judge Scheindlin explains that “[a] plaintiff’s duty is more often triggered before litigation commences, in large part because plaintiffs control the timing of litigation.” Thus, it may not be enough for a plaintiff to distribute a litigation hold after it has filed its complaint. Rather, a plaintiff must be cautious and err on the side of commencing its preservation obligations when it is confident that litigation is on the horizon. The failure to do so may result in the spoliation of relevant evidence, thus opening the party up to severe sanctions, such as an adverse inference instruction.
According to Judge Scheindlin, “[w]hile litigants are not required to execute document productions with absolute precision, at a minimum they must act diligently and search thoroughly at the time they reasonably anticipate litigation.” While this case confirms the obligations that a litigant has in the Southern District of New York, parties litigating in other federal courts should take note as well. Through opinions such as this one, courts are indicating that they take discovery seriously and will sanction parties that fail to abide by the standards set forth by the courts. Additionally, it is likely that other federal courts will adopt the holding of Pension Committee, as they did with the Zubulake decisions. One thing is certainly clear: while discovery obligations are expensive, the costs a party faces if it does not take the time and effort to ensure preservation and conduct a thorough document collection are much worse.
Practitioners should note Judge Scheindlin’s observation that in spoliation cases, courts may “presume” relevance and prejudice with regard to missing evidence (an element of the prima facie spoliation motion) since it would ordinarily be difficult for the moving party to prove that element. This burden shifting will likely result in adverse jury instructions unless this new presumption is rebutted.
Attention to several basic measures identified in Pension Committee and Zubulake will help avoid findings of negligence or gross negligence (and imposition of evidentiary and/or monetary sanctions):
Issue written litigation hold letter as early as possible to avoid destruction of relevant evidence.
Identify holders of relevant materials (both past and present employees) and take effective measures to collect and preserve their documents.
Cease routine destruction of business records and preserve back-up tapes (or other storage media).
Provide supervision and instructions in the event that employees are charged with identifying their own responsive documents.