Court Sanctions Parties for Lax Electronic Preservation Efforts

Posted: February 3, 2010

Litigation and e-Discovery

For years, we have emphasized the need to preserve electronic evidence, warning of the consequences if electronic evidence was deleted or destroyed. Now, a new decision highlights the potential sanctions against litigants even where the failure to preserve was not the result of an intentional act, but merely negligence in preservation efforts. Pension Committee of the Univ. of Montreal Pension Plan v. Banc of America Securities, LLC, No. 05 Civ. 9016 (S.D.N.Y. Jan. 15, 2010).

That the Hon. Shira Scheindlin is the author of this decision underscores its significance. Judge Scheindlin’s decisions in the Zubulake cases had served as a catalyst for the expansion of e-discovery law. (See Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) (“Zubulake IV”); Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) (“Zubulake V”).)

In Pension Committee, 13 plaintiffs were sanctioned for failing to meet their respective e-discovery responsibilities. In particular, although the lawsuit commenced in February 2004, they did not issue litigation hold notices until 2007. The sanctions imposed by the court included attorney’s fees and costs incurred by the defendants in bringing their motion, costs of discovery relating to uncovering the facts of the wrongdoing, and, significantly, a jury instruction highlighting certain plaintiffs’ gross negligence in complying with discovery and explaining how the jury can conclude that an adverse inference should be drawn against those plaintiffs.

This case involves several important points in the realm of e-discovery, including:

The court held the duty to preserve evidence arises not when a litigation begins, but when a party “reasonably anticipates litigation.” Judge Scheindlin also noted that, in most cases, a plaintiff’s duty to preserve will be triggered before the litigation commences because “plaintiffs control the timing of litigation,” and thus, anticipate litigation well before the case is filed. (In the Zubulake line of cases, however, this same court held that the defendant/employer’s duty to preserve arose several months before the employee filed her charge of discrimination with the EEOC based, in part, on testimony from her manager that he had a “feeling” she would sue.)
Second, the court held the “failure to issue a written litigation hold constitutes gross negligence because it is likely to result in destruction of relevant information.” The finding of “gross negligence” is significant in this case because it permits the jury to presume the information the plaintiffs failed to produce was relevant to the case. Where the court finds the failure to preserve was merely negligent, the party seeking sanctions has an additional burden of proving the spoliated evidence was relevant to the claims in the matter and the loss of the information was prejudicial.
The court held “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.” Similarly, it held the failure to collect records from all employees (even those with only a passing encounter with the issues in the litigation) constituted negligence and deserved sanctions.
The court found the failure to collect information from the files of former employees that remain in the party’s possession, custody or control constituted gross negligence.
Although the court did not require preservation of all backup tapes, it held that backup tapes must be preserved when “they are the sole source of relevant information or when they relate to key players, if the relevant information maintained by those players is not obtainable from readily accessible sources.” Conversely, “[w]hen accessible data satisfies the requirement to search for and produce relevant information, there is no need to save or search backup tapes.”
The court also was highly critical of the manner in which several parties approached their preservation and collection obligations. For example, it found one party grossly negligent because it delegated the preservation responsibility to a person who: (i) had no experience conducting searches; (ii) received no instruction on how to do so; (iii) had no supervision during the collection; and (iv) had no contact with counsel during the search. It also was critical of the fact that the company permitted employees to conduct their own searches for relevant information with little or no supervision.
The court found one party’s failure to search the PDA (i.e., palm pilot) of a key player was negligent.

What is striking here is that even the court noted that the case does not present any egregious examples of misconduct (i.e., litigant’s purposefully destroying evidence). Rather, this is a case where the court found the parties engaged in a “careless and indifferent” approach to preservation and collection. In short, this is an important reminder of the extreme penalties a party may face for noncompliance in their discovery obligations, even in the absence of willful or intentional misconduct.

It is important for all employers to have policies and procedures for implementing a litigation hold. Planning ahead enables companies to more efficiently meet their preservation obligations when faced with potential litigation, as well as afford companies a potential defense if they are unable to produce electronically stored information that is no longer available.

Jackson Lewis attorneys stand ready to help you design an effective litigation hold policy and protocol to best position you in the event of litigation. We are available to answer any questions about your preservation obligations.