By Michael Hoenig - New York Law Journal -
February 17, 2010
In a bombshell opinion and
order issued just weeks ago by U.S. Southern District of New York Judge
Shira A. Scheindlin, litigants and lawyers have been admonished (again)
about their discovery obligations, particularly, to preserve, collect
and produce electronic documents, records and data in their possession,
custody or control. Judge Scheindlin, one of the foremost experts on the
law of electronic discovery, was the author of the
Zubulake line of
decisions that many say ushered in a new era of robust electronic
discovery. Now, her new blockbuster is the
Pension Committee decision,1 which carries
the picturesque title, "'Zubulake' Revisited: Six Years Later."
promises to be a guide and oft-cited framework for complying with
electronic discovery requirements.
Since the new decision copiously analyzes a series of discovery failures
that led to sanctions against numerous plaintiff-companies, it is a
practical roadmap on how real people and real attorneys may be confronted by
real challenges regarding compliance only to wind up making judgments that
come back to haunt them.
Pension Committee also is a kind of "how-to" manual setting forth key principles
relating to issuing, monitoring and enforcing "litigation holds,"
discharging preservation and search techniques, and documenting appropriate
behind-the-scenes conduct so that the responding party can withstand
accusations of insufficient disclosure by the adversary. Then, too, there is
advice regarding sanctions, what needs to be proved and by whom, the
criteria of "relevance" and "prejudice," the legal behavior standards of
negligence, gross negligence and willfulness, available remedies and, even,
the text of an actual spoliation instruction.
Don't be fooled by the fact that Pension Committee is not a products liability case. The
principles and lessons to be learned cut across the spectrum of major
litigation. Lawyers, particularly, should become avid readers and keen
students of the opinion for they are sucked into the eye of the discovery
hurricane once they work on significant cases. The burdens being thrust upon
lawyers' shoulders are heavy indeed. They present formidable challenges.
Corporate or in-house counsels are not exempt. Electronic discovery has made
complex litigation more onerous, more expensive and more time-consuming.
Pension Committee, initially, will likely be viewed by many as a burden-imposing
treatise, intrusive in the breadth and scope of the obligations spelled out
by the court. Yet, because of its declarative clarity, the decision can be
used by responsible lawyers to help fashion a reasonable template for
proceeding to litigate in the electronic records era. Clear rules, though
deemed burdensome, help to minimize uncertainties and guesswork. Crisp
admonitions against misbehavior can help mold vigilant practices by the
well-intentioned. But, inevitably, life and survival in a post-Pension
Committee world will come with a significant price tag. And,
"gray area" questions will spring up nonetheless, catalyzing new guesswork
Since the facts in Pension
Committee, a suit by investors to recover losses stemming from
liquidation of certain offshore hedge funds, need not detain us, we proceed
to elaborate certain key principles, lessons and highlights, presenting a
succinct survey distilled from the opinion. In order to heighten the
reader's focus, our discussion takes the form of questions and answers.
Question: Are litigants expected to meet a standard of perfection in
discharging disclosure obligations?
No! Courts cannot and do not expect perfection. They do expect, however,
that litigants and counsel take 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 counsel.2
Comment: Note, however, that key words above like "necessary steps" to
"ensure" "relevant records" and "when litigation is reasonably anticipated"
likely will call for acute, potentially dangerous judgments in compliance.
Question: What is the first step in a discovery effort?
Answer: The preservation of relevant information. When the duty attaches,
a failure to preserve evidence resulting in the loss or destruction of
relevant information is "surely negligent" and depending on the
circumstances, may be "grossly negligent" or "willful." As an example, the
intentional destruction of relevant records (paper or electronic) after the
duty to preserve has attached is "willful."3
Question: Does a "litigation hold" have to be in writing or can it simply be
an oral command to "hold" documents and prevent non-retention?
Answer: "Possibly" after October 2003 (when
Zubulake IV was issued) and
"definitely" after July 2004 (when the final relevant
Zubulake opinion was
issued), the failure to issue a written litigation hold constitutes "gross
negligence" because that failure is likely to result in the destruction of
Question: What is the next step in the discovery process after preservation?
Collection and review. Here, too, conduct can be negligent, grossly
negligent or willful. The loss or destruction of evidence due to failure to
collect it or sloppiness in the review would be "surely negligent" or,
perhaps, grossly negligent or willful. For example, a failure to collect
records from "key players" constitutes gross negligence or willfulness. So
does the destruction of e-mail or backup tapes "after the duty to preserve
has attached."5 In footnote 99 the court clarifies that
preservation of backup tapes may depend on whether they are the sole source
of relevant information or whether accessible data satisfies the
requirements of search and production so that saving backup tapes is
Question: What would be an example of negligence in the collection and
Answer: One form might be a failure to obtain records from all employees
(some of whom may have had only a passing encounter with the issues in the
litigation), as opposed to "key players" (a must). Another might be the
failure to take "all appropriate measures" to preserve electronically stored
information. "The varieties of efforts and failures are infinite" and each
case will turn on its own facts. Recent case law, for example, has addressed
problems in the failure to collect information from the files of former
employees that remain in a party's possession, custody or control after the
preservation duty has attached (gross negligence) as well as the failure to
assess the accuracy or validity of selected search terms (deemed
Question: Is there a common law duty to preserve relevant evidence?
Answer: Yes. It is "well recognized." The advisory committee note to FRCP
Rule 37(f) observes that: "A preservation obligation may arise from many
sources, including common law, statutes, regulations, or a court order in
Question: When does the duty to preserve evidence arise? Is there a
difference for plaintiffs and defendants?
Answer: It is "well established" that the evidence-preservation duty
arises when a party "reasonably anticipates litigation." That is when the
party must suspend its routine document retention/destruction policy and put
in place a written "litigation hold" to "ensure" preservation of relevant
documents. A plaintiff's duty is more often triggered before litigation
commences, in large part because plaintiffs control the timing of
Question: What kind of discovery conduct could potentially, in a given case,
constitute "gross negligence"?
Answer: Certain acts or omissions after the duty to preserve evidence has
attached could support a finding of gross negligence. For example, failure:
(a) to issue a written litigation hold; (b) to identify the key players; (c)
to ensure that their electronic and paper records are preserved; (d) to
cease the deletion of e-mail or to preserve the records of former employees
that are in a party's possession, custody or control; and (e) to preserve
backup tapes when they are the sole source of relevant information or relate
to key players whose data is not accessible.9 The court deemed
such failures non-adherence to "contemporary standards."
Question: Is it sufficient if counsel just contacts the party litigant to
begin document collection and preservation; and, by telephone, e-mail and
distributed memoranda, instructs the party to be over-inclusive rather than
Answer: This instruction does not meet the standard for a litigation hold.
It does not direct employees to preserve all relevant records, both paper
and electronic. It does not create a mechanism for collecting the preserved
records by someone other than the employee. Rather, it places total reliance
on the employee to search and select what the employee believes to be
responsive records without any supervision by counsel. Such memoranda by
counsel to employees do not specifically instruct the litigant party not to
destroy records so that counsel can monitor the collection and production of
Question: Does a comprehensive search for documents require supervision and
monitoring of the employees tasked with document collection?
Answer: Yes. There must be guidance so that employees are charged with
preservation and collection properly. It is helpful to document or record
the steps taken to comply with discovery requirements so that, in the event
the sufficiency of the effort is questioned by the court, the party and its
counsel can show reasonable discovery conduct. Indeed, the court said that,
if proceedings for sanctions are in play, the accused party has "a duty to
adequately prepare knowledgeable witnesses with respect to these topics."
The inquiry may include topics such as, "which files were searched, how the
search was conducted, who was asked to search, what they were told, and the
extent of any supervision…."11
Question: Why is supervision and monitoring by management and/or counsel so
Answer: A general instruction to an employee, say a secretary or legal
assistant, without detailed instructions on what to do and without
monitoring the efforts can lead to the not-adequately-instructed employee
impeding adequate preservation, collection, review and production. However
well-intentioned the employee may be, he or she will only discharge what
they think is best. But that does not necessarily match the standard
required by law. As to one of the parties sanctioned by the court for gross
negligence, for example, the discovery search had been delegated to H, an
employee in the litigant's "due diligence area." But she had no experience
in conducting searches, received no instruction on how to do so, had no
supervision during the collection, and had no contact with counsel during
her search. She only did searches on selected drives though aware that not
all e-mails or electronic documents of key players would be on that drive.
She never searched backup tapes. She asked only three employees out of a
number of others to search their computers for e-mails and electronic
documents. The court concluded that H "was ill-equipped to handle [the
party's] discovery obligations without supervision. Given her inexperience,
[H] should have been taught proper search methods, remained in constant
contact with Counsel, and should have been monitored by management."12
Having management in charge is not an automatic solution, however. Even an
executive can fall below the mark if he or she does the wrong thing.13
Question: Does a party's hiring of an outside vendor to retrieve electronic
data and e-mail from backup tapes help stave off culpability and sanctions?
Answer: Not necessarily. The question is not only who does the search but
whether reasonable compliance with preservation, collection, review and
production duties was achieved. For example, one of the parties sanctioned
hired a vendor in 2007 to retrieve electronic records from backup tapes when
the adversary complained about gaps in production. The vendor's activity did
not absolve the party litigant from earlier failures. Thus, prior to 2007
the party failed to search for or take steps to preserve pre-2007 electronic
documents; it collected only paper documents. Further, the vendor's
retrieval efforts as of 2007 from backup tapes fell short because the
recycling of backup tapes was never suspended. Moreover, some key players
were not asked for any documents and a number of e-mails were never
produced. The court concluded that the "combination of these actions and
inactions…amounts to gross negligence."14
Question: What can happen if the duty to preserve evidence relevant to the
litigation is breached?
Answer: If the failure to preserve evidence amounts to "spoliation of
evidence"—the destruction or material alteration or failure to preserve
relevant evidence—then the court has inherent power to impose sanctions. In
the new decision, Judge Scheindlin applied a variety of sanctions
proportional to the misconduct and degree of egregiousness of the discovery
failures. These included a so-called "spoliation" or "adverse inference"
instruction to be read to the jury as well as money sanctions. Choosing the
appropriate sanctions involves a court's weighing of the circumstances and
facts, the magnitude of the misconduct and achieving the policy purposes
behind sanctions: (1) to deter the parties from spoliating evidence; (2) to
place the risk of the party's error in judgment upon the wrongful creator of
the risk; and (3) to restore the prejudiced party to the same position it
would have been in absent the wrongful destruction of evidence.
The court "should always impose the least harsh sanction that can provide an
adequate remedy." The array of choices a court has include, from the least
harsh to the most, further discovery, cost-shifting, fines, special jury
instructions, preclusion, and the entry of default judgment or dismissal
(terminating sanctions). The ultimate sanction is justified only 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. Judge Scheindlin did not find misconduct
justifying terminating sanctions but did award a variety of lesser
Question: Who has the burden of proof in the court's inquiry following a
party's request for sanctions?
Answer: This is a rather complex issue and it is best to review the
court's discussion on it.16 As the court said, "what can be done
when documents are no longer available…is not an easy question. It is
impossible to know what lost documents would have contained." Briefly, the
burden of proof question depends on the severity of the sanction. Less
severe sanctions, e.g., fines and cost-shifting, focus more on the
spoliator's conduct than on the relevance and prejudice factors. In the case
of more severe sanctions, dismissal, preclusion, an adverse inference
instruction, the court considers not only the spoliator's conduct but also
the relevance of the missing documents and the prejudice caused by the loss.
Here the innocent party must show "relevance" (the destroyed evidence would
have been responsive to a document request) and "prejudice" (the evidence
would have been helpful in proving its claims or defenses). "Proof of
relevance does not necessarily equal proof of prejudice."
The innocent party proves three elements: (1) the spoliator had control over
the missing evidence and an obligation to preserve it at the time it was
lost or destroyed; (2) the spoliator acted with a culpable state of mind;
and (3) the missing evidence is relevant to the innocent party's claim or
When the spoliator acts in bad faith or in a grossly negligent manner,
relevance and prejudice may be presumed. A spoliator's mere negligence,
however, will require the innocent party to prove both relevance and
prejudice to justify imposition of a severe sanction. Any presumption is
rebuttable by the alleged spoliator. Thus, whenever the spoliator undertakes
to rebut the presumption of relevance and prejudice (in egregious cases),
the burden of proof shifts to the spoliator.17
There is much more substance
to Pension Committee
than the foregoing survey. Thus, intensive study of the opinion is
recommended. Depending on their points of view, readers pondering the heavy
load thrust upon them will no doubt see the good, the bad and the ugly in
this carefully constructed decision. Nevertheless, it is the law. Its
message will spread rapidly to other judges and U.S. magistrate judges.
Lawyers and litigants will need to not only read but heed the message too.
But, in fairness, courts also will need to squelch the epidemic of sanctions
motions sure to come in the wake of Pension Committee, a likely surge of applications by
practitioners playing "Gotcha" discovery or what has come to be known as
setting up the "discovery tort."18 That also is a form of
discovery abuse courts should police.
Michael Hoenig is a
member of Herzfeld & Rubin.
1. The Pension Committee of
the University of Montreal Pension Plan v. Banc of America Securities, LLC,
2010 U.S. Dist. LEXIS 4546 (SDNY Jan. 15, 2010), No. 05 Civ. 9016 (SAS) (SDNY
Jan. 15, 2010) (Slip Opinion and Order).
2. Slip Opinion at 2.
3. Slip Opinion at 9.
4. Slip Opinion at 9.
5. Slip Opinion at 10.
6. Slip Opinion at 10-11.
7. Slip Opinion at 11.
8. Slip Opinion at 12. Case examples of when plaintiffs must
preserve evidence pre-filing of the suit are found in footnote 27 of the
9. Slip Opinion at 24.
10. Slip Opinion at 28.
11. Slip Opinion at 37.
12. Slip Opinion at 49-53. In its footnote 68 the court clarifies
that not every employee needs hands-on supervision from an attorney.
However, attorney oversight of the process including the ability to review,
sample or spot-check the collection process is important. Search adequacy is
evaluated on a case by case basis.
13. Slip Opinion at 47-49. For example, as to one of the other
parties sanctioned, the company's president took no steps to request
documents from, or search the files of one current and one former employee
to whom the president had assigned relevant work. Finding gross negligence,
the court said the president's "continued deletion of e-mails…is
inexcusable" as is his "failure to seek any [relevant] documents or e-mails"
from a current and a former employee.
14. Slip Opinion at 56-59.
15. Slip Opinion at 18-24.
16. Slip Opinion at 13-18, 81-84.
17. Slip Opinion at 13-18.
18. See Slip Op. at 17, where the court refers to litigation
becoming a "gotcha" game.
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