January 14, 2010
Plaintiffs Sanctioned for Failure to Implement Proper Litigation Hold and for Conducting Discovery in an "Ignorant and Indifferent Fashion"
Although 2010 has just begun, there has already been a significant development in the area of electronic discovery. Judge Shira Scheindlin of the U.S. District Court for the Southern District of New York–well known for authoring the Zubulake decisions that developed key e-discovery principles–has issued a new decision regarding document preservation, spoliation and sanctions that should be of interest to all potential litigants and their counsel. See Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., No. 05 Civ. 9016 (SAS), 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010). (The court first issued an opinion and order on January 11, 2010, which was replaced with an amended version filed on January 15, 2010 and a second amended version filed on May 28, 2010.)
Referring back to her Zubulake opinions, Judge Scheindlin writes in Pension Committee that "Once again, I have been compelled to closely review the discovery efforts of parties in a litigation, and once again have found that those efforts were flawed. As famously noted, ‘those who cannot remember the past are condemned to repeat it.’"
Judge Scheindlin ruled that 13 plaintiffs in the Pension Committee case were either negligent or grossly negligent for failing to preserve and produce documents and for submitting false and misleading declarations regarding their document collection and preservation efforts. Among other things, Judge Scheindlin found that the sanctioned plaintiffs failed to issue timely written litigation holds and were "careless" and "indifferent" in their document collection efforts, and that consequently "there can be little doubt that some documents were lost or destroyed." Judge Scheindlin imposed adverse inference sanctions, monetary sanctions for reasonable costs including attorneys’ fees (in an amount not specified) and left open the possibility of further discovery of backup tapes that had not been searched.
The opinion includes detailed discussion of the factors that courts should consider in determining whether to impose sanctions for litigants’ failure to comply with e-discovery obligations and what sanctions are appropriate for differing levels of culpability.
Highlights
Highlights from the opinion include the following statements:
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"Courts cannot and do not expect that any party can meet a standard of perfection. Nonetheless, the courts have a right to expect that litigants and counsel will take the necessary steps to ensure that relevant records are preserved when litigation is reasonably anticipated, and that such records are collected, reviewed, and produced to the opposing party."
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"The common law duty to preserve evidence relevant to litigation is well recognized."
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"By 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."
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"While 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. All of the plaintiffs in this motion failed to do so and have been sanctioned accordingly."
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"A plaintiff’s duty is more often triggered before litigation commences, in large part because plaintiffs control the timing of litigation."
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Failure "to issue a written litigation hold, to identify the key players and to ensure that their electronic and paper records are preserved, to cease the deletion of email or to preserve the records of former employees that are in a party’s possession, custody, or control, and to preserve backup tapes when they are the sole source of relevant information or relate to key players, if the relevant information maintained by those players is not obtaining from readily accessible sources" supports a finding of gross negligence in the discovery context.
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"The paucity of records produced by some plaintiffs and the admitted failure to preserve some records or search at all for others by all plaintiffs leads inexorably to the conclusion that relevant records have been lost or destroyed."
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Sanctions motions are "very, very time consuming, distracting and expensive for the parties and the court" and that litigants are increasingly seeking them is "not a good thing."
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"Conduct is either acceptable or unacceptable. Once it is unacceptable the only question is how bad is the conduct."
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"It is well accepted that a court should always impose the least harsh sanction that can provide an adequate remedy. The choices include–from least harsh to most harsh–further discovery, cost-shifting, fines, special jury instructions, preclusion, and the entry of default judgment or dismissal (terminating sanctions). The selection of the appropriate remedy is a delicate matter requiring a great deal of time and attention by a court."
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Dismissal is "the most extreme sanction" that is only justified in "the most egregious cases, such as where a party has engaged in perjury, tampering with evidence, or intentionally destroying evidence by burning, shredding, or wiping out computer hard drives."
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Nevertheless, adverse inference and monetary sanctions are appropriate where a party has conducted discovery in an "ignorant and indifferent fashion" constituting "gross negligence."
Analysis
Judge Scheindlin’s self-described "long and complicated" opinion is full of points of interest, as indicated in the highlights section above. This alert focuses on Judge Scheindlin’s criticism of the plaintiffs’ preservation and collection efforts and her definitions and examples of culpability.
Criticism of the Litigation Hold Notice and Collection Methodology
Judge Scheindlin’s analysis of the flaws in plaintiffs’ litigation hold notice and preservation efforts is one of the more notable aspects of the opinion.
The judge asserted that the failure to issue a written litigation hold notice in a timely manner can be presumed to have resulted in the destruction of relevant documents. The judge found that counsel’s initial instructions to their clients–via telephone and e-mail–did not meet the requirements of a proper litigation hold notice. Counsel failed to instruct employees to preserve all relevant records and did not create a mechanism for collecting the documents. Rather, "the directive places total reliance on the employee to search and select what that employee believed to be responsive records without any supervision from Counsel. "Although plaintiffs later issued a proper litigation hold notice, they did so years after the preservation obligation was triggered, and the court concluded that documents were lost or destroyed before its implementation.
Culpability: Defining Negligence, Gross Negligence and Willfulness in Discovery
The severity of sanctions to be applied for discovery failures hinges on the culpability of the party accused of the misconduct. Judge Scheindlin described a "continuum" of culpability in discovery conduct, ranging from innocence, at one end, and progressing through negligence, gross negligence and willfulness. While these levels of culpability are routinely defined in treatises and case law in the context of tortious conduct, Judge Scheindlin found no such clear definitions in the context of discovery misconduct. She therefore posited the following definitions and examples, while noting that "[e]ach case will turn on its own facts and the varieties of efforts and failures is infinite." These definitions and examples, however, provide informative benchmarks for parties and their counsel to bear in mind.
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Negligence: Judge Scheindlin posited that negligence in the discovery context is a failure to conform to standards of "what a party must do to meet its obligation to participate meaningfully and fairly in the discovery phase of a judicial proceeding," without an intent to violate the standard.
Examples of negligent conduct in discovery, according to Judge Scheindlin, may include failure to preserve evidence resulting in the loss or destruction of relevant information (although that may also be grossly negligent or willful under the circumstances); failure to obtain records from all those employees who had any involvement with the issues raised in the litigation or anticipated litigation, as opposed to the key players; failure to take all appropriate measures to preserve electronically stored information; and failure to assess the accuracy and validity of selected search terms.
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Gross Negligence: Judge Scheindlin described the standard definition of gross negligence as a "failure to exercise even that care which a careless person would use." It is "something more than negligence and differs from ordinary negligence only in degree and not in kind."
Examples of gross negligence in discovery, according to Judge Scheindlin, may include failure to issue a written litigation hold; failure to collect records–either paper or electronic–from key players (although that may also be willful under certain circumstances); failure to collect information from the files of former employees that remain in a party’s possession, custody or control after the duty to preserve has attached; failure to identify the key players and to ensure that their electronic and paper records are preserved; failure to cease the deletion of email or to preserve the records of former employees that are in a party’s possession, custody, or control; and failure to preserve backup tapes when they are the sole source of relevant information or relate to key players, if the relevant information obtained by those players is not obtainable from readily accessible sources.
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Willfulness: Judge Scheindlin described the standard definition of willfulness as involving "intentional or reckless conduct that is so unreasonable that harm is highly likely to occur." A willful party acts intentionally, "in disregard of a known or obvious risk that was so great as to make it highly probable that harm would follow, and which thus is usually accompanied by a conscious indifference to the consequences."
Examples of willfulness in discovery, according to Judge Scheindlin, may include the intentional destruction of relevant records, either paper or electronic, after the duty to preserve has attached; and failure to collect records – either paper or electronic – from key players (although that may also be grossly negligent under certain circumstances)
Conclusion
The Pension Committee case provides a thoughtful analysis of key e-discovery concepts and principles that should be of interest to both inside and outside counsel. As the case involved claims for approximately $550 million, the sanctions applied are a stark reminder to parties and their counsel of how imperative proper preservation and collection efforts are in the discovery process.
Gibson Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this article. The Electronic Discovery and Information Law Practice Group brings together lawyers with extensive knowledge of electronic discovery and information law. The group is comprised of seasoned litigators with a breadth of experience who have assisted clients in various industries and in jurisdictions around the world. The group’s lawyers work closely with the firm’s technical specialists to provide cutting-edge legal advice and guidance in this complex and evolving area of law. For further information, please contact the Gibson Dunn lawyer with whom you work or any of the following members of the Electronic Discovery and Information Law Group Steering Committee:
Los Angeles/Orange County
Gareth T. Evans – Practice Co-Chair (213-229-7734, [email protected])
New York
Jennifer H. Rearden – Practice Co-Chair (212-351-4057, [email protected])
Farrah Pepper – Practice Vice-Chair (212-351-2426, [email protected])
Washington, D.C.
Michael F. Flanagan (202-887-3599, [email protected])
San Francisco
G. Charles Nierlich – Practice Co-Chair (415-393-8239, [email protected])
George A. Nicoud III ("Trey") (415-393-8308, [email protected])
Palo Alto
Paul J. Collins (650-849-5309, [email protected])
Dallas
M. Sean Royall – Practice Co-Chair (214-698-3256; [email protected])
Sarah Toraason (214-698-3226, [email protected])
Denver
Robert C. Blume (303-298-5758, [email protected])
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