Electronic Discovery: New York's Southern District Continues to Pave the Way

On January 11, 2010, in The Pension Committee of the University of Montreal Pension Plan et al. v. Banc of America Securities, LLC, et al., 05 Civ. 9016, Judge Shira A. Schiendlin of the United States District Court for the Southern District of New York issued an 87-page opinion imposing sanctions — including an adverse jury instruction and monetary penalties — against a group of plaintiffs whose discovery failures amounted to either "negligence" or "gross negligence." Judge Schiendlin, who authored the standard-setting Zubulake decisions several years ago, is widely regarded as a pioneer in the area of electronic discovery, especially in federal court litigation. Her most recent opinion, which raises important issues concerning the preservation and collection of electronically stored information, is aptly subtitled "Zubulake Revisited: Six Years Later." This opinion undoubtedly will serve as a not so gentle reminder to companies of the importance of e-discovery in litigation. Given her reputation in this field, it is likely that other judges will follow Judge Schiendlin's lead.    

In The Pension Committee of the University of Montreal Pension Plan, the defendants moved for spoliation sanctions after they discovered substantial gaps in the plaintiffs' document productions. The decision seeks to answer the basic question of what should a court do when a party "fail[s] to timely institute written litigation holds and engage[s] in careless and indifferent collection efforts after the duty to preserve [arises]?" Even though the court observed at the outset of the decision that "[t]his case does not present any egregious examples of litigants purposefully destroying evidence," harsh sanctions were nonetheless imposed. Clearly, even merely negligent parties may be sanctioned for failure to preserve documents.  

In reaching the conclusion that all plaintiffs were either negligent or grossly negligent in meeting their discovery obligations, Judge Schiendlin exhibited little sympathy for the practicalities of electronic discovery. Nowhere in her opinion can one find any recognition of the concept of reasonableness, the costs and burdens associated with preserving and collecting electronic evidence, or the propriety of agreements reached among counsel concerning electronically stored information. Rather, Judge Schiendlin effectively adopts a bright-line test requiring parties to adhere strictly to the standard of care set forth in her series of Zubulake decisions; failure to do so results, at minimum, in a finding of negligence. She held that "[a]fter a discovery duty is well established, the failure to adhere to contemporary standards can be considered gross negligence." Thus, after the final relevant Zubulake opinion in 2004, the following would support a finding of gross negligence if the duty to preserve has attached: (1) failure to issue a written litigation hold; (2) failure to identify the key players and to ensure that their electronic and paper records are preserved; (3) 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, (4) failure to preserve backup tapes when they are the sole source of relevant information or relate to key players. The court also criticized the plaintiffs in the case for placing the burden of preserving or collecting documents on non-managerial employees, particularly when management failed to provide adequate direction and oversight.

Depending on a party's level of culpability — whether negligent, grossly negligent or willful conduct — the court must then consider assessing appropriate sanctions. This ranges from less severe sanctions such as fines and cost-shifting to more severe sanctions such as dismissal, preclusion or the imposition of an adverse inference instruction. In The Pension Committee of the University of Montreal Pension Plan, the court examined each plaintiff's actions (or inactions) separately and ultimately imposed monetary sanctions on those plaintiffs who had negligently committed spoliation. With respect to the plaintiffs who had acted with gross negligence, the court imposed a jury instruction that permitted the jury to presume that the lost evidence was relevant to the case and would have been favorable to the moving defendants.

In sum, Judge Schiendlin's opinion underscores the need not just to search for, collect and produce responsive documents, but also to adequately ensure that potentially relevant documents from all key players are preserved timely at the outset of a dispute and also throughout the life of the litigation. While this decision serves as a stark "reality check" for companies facing litigation, litigants can take at least some comfort in Judge Schiendlin's final observations. First, "at the end of the day the judgment call of whether to award sanctions is inherently subjective. A court has a 'gut reaction' based on years of experience as to whether a litigant has complied with its discovery obligations and how hard it worked to comply." Second, each case must be considered on its own facts, and courts should resist adopting a "one-size-fits-all" approach based upon a set list of relevant criteria. Third, discovery sanctions should be awarded only after the most careful consideration.  

Without question, the court's analysis in The Pension Committee of the University of Montreal Pension Plan will be instructive for other courts analyzing spoliation claims. The decision can also be helpful for companies seeking to formulate their own policies and procedures designed to satisfy their obligation to preserve electronically stored information.