Author of Zubulake Opinions Pens Another Seminal E-Discovery Decision

Like E.F. Hutton, when Judge Shira Scheindlin talks, people listen. Six years ago, Judge Scheindlin of the Southern District of New York helped shape the law of e-discovery through a ground-breaking series of opinions detailing the requirements to preserve electronically stored information (ESI). See, e.g., Zubulake v. UBS Warburg, LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) ("Zubulake V").

She is now doing it again. Her latest e-discovery decision is an 85-page treatise-like opinion aptly subtitled "Zubulake Revisited: Six Years Later."

In Pension Committee of the Univ. of Montreal Pension Plan v. Banc of America Securities, LLC, the court sanctioned 13 plaintiffs for failing to ensure that relevant ESI was properly preserved. F.Supp.2d__, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010). While conceding that courts cannot expect perfection from any party, Judge Scheindlin cautioned 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." Judge Scheindlin proposes a set of principles for judging run-of-the-mill discovery preservation violations, a road map that federal courts across the country may follow.

Case Background

A group of investors brought suit under state and federal securities law to recover losses of $550 million from the liquidation of hedge funds. During discovery, defendants noticed substantial gaps in plaintiffs' document productions. Following the close of discovery, defendants brought a motion for sanctions, alleging that 13 of the 96 plaintiffs had failed to properly preserve evidence and had filed false and misleading declarations regarding their compliance with discovery obligations.

The court considered (1) whether plaintiffs' failure to timely institute a legal hold and their careless and indifferent collection efforts warranted any sanctions, and (2) if so, what were the appropriate sanctions. Judge Scheindlin outlined a four-part analysis for answering these questions. First, a court must consider the culpability of the alleged bad actor. Second, a court must analyze the relationship between the duty to preserve information and the spoliation of evidence. Third, a court must determine who bears the burden of proving that relevant evidence was destroyed, a burden that shifts depending on the facts. Finally, a court must establish the appropriate remedy for the harm.

The Culpability Standard—A Continuum

Judge Scheindlin borrowed from general tort principles to define three stages of culpability along a continuum: negligence, gross negligence, and willfulness. On one end of the culpability spectrum, negligence is unreasonable conduct that creates a risk of harm. On the other end, willfulness involves actual intent of reckless conduct so unreasonable that harm is likely. Gross negligence is conduct that falls somewhere in between.

Judge Scheindlin surveyed prior decisions, including her Zubulake opinions, to describe what should constitute "reasonable" e-discovery conduct. The court highlighted five examples of failing contemporary standards and considered where such failures fit on the culpability spectrum.

• Failure to issue a written litigation hold. Foregoing steps to effectively preserve ESI is likely to result in the destruction of relevant information and constitutes gross negligence.
• Failure to collect records from key players. The failure to collect relevant evidence from key players constitutes gross negligence or willfulness, but the failure to obtain records from all other employees is merely negligent.
• Failure to preserve e-mail or certain backup tapes. Not taking measures to halt the routine destruction of evidence may constitute gross negligence, but the failure to take all reasonable measures may constitute regular negligence. Judge Scheindlin provided this example with a cautionary note that there is no requirement to preserve all backup tapes—only those that are the sole source of relevant information.
• Failure to collect records from former employees. The failure to collect records from former employees that remain in a party's possession, custody, or control may amount to gross negligence.
• Failure to assess the validity of search terms. It may be merely negligent to not assess the validity of search terms.

Not a Bright Line

It is tempting to view the standards articulated in Pension Committee as a bright-line rule for every e-discovery case. However, the opinion itself acknowledges that the identified examples are neither definitive nor exhaustive. Rather, "[e]ach case will turn on its own facts and the varieties of efforts and failures is infinite." The examples nonetheless provide litigants with a baseline by which to gauge acceptable conduct.

Duty to Preserve and Spoliation

Once a court gauges the level of culpability, the next step is to determine when the duty to preserve was triggered and whether evidence was lost or destroyed after the duty attached. The law is clear: the duty to preserve evidence is triggered once a party reasonably anticipates litigation.

Determining when litigation should have been reasonably anticipated involves a fact-intensive inquiry. Often, a plaintiff's duty is triggered before litigation commences because that party controls the timing of litigation. That was the case in Pension Committee, where the plaintiffs' duty to preserve began when the defendant's financial demise should have been apparent and other investors were filing suit and retaining counsel.

In Judge Scheindlin's eyes, the duty to preserve is so interrelated to the spoliation of evidence that once the duty to preserve is triggered, it should be "crystal clear" that the failure to take necessary actions to preserve evidence will likely result in spoliation. The Pension Committee opinion highlights the probability—even the presumption—by some courts of spoliation of evidence if preservation measures are not taken. Once spoliation occurs, the court has the right, if not the obligation, to protect the integrity of the judicial process by considering the appropriateness of sanctions.

Analyzing the Burden of Proof

One of the most noteworthy aspects of Pension Committee is Judge Scheindlin's foray into articulating a burden-shifting test where the level and burden of proof directly relate to the culpability of the alleged spoliator's conduct. The court found that relevance and prejudice may be presumed when a party acted in bad faith or with gross negligence. However, if a party's conduct in failing to preserve evidence was merely negligent, then the innocent (opposing) party bears the burden of proving that the lost evidence was "relevant" to the action such that its loss is prejudicial. Information that is simply "responsive" to discovery requests will not suffice—to establish prejudice, the lost information would have to have been helpful.

Regardless of the level of culpability, any presumption is rebuttable. Judge Scheindlin reasoned that the spoliating party must have the opportunity to demonstrate that the innocent party was not harmed by the loss of evidence "lest litigation become a game of ‘gotcha.'" However, the innocent party is given the last opportunity to demonstrate there was harm.

Who bears the burden of proof may be critical to the success or failure of a spoilation claim due to the inherent difficulty of proving that the missing ESI was relevant and that its loss prejudiced the other party. After all, it could be extremely difficult to demonstrate the substance and effect of evidence that no longer exists. Parties acting recklessly or willfully may be hard-pressed to avoid sanctions in jurisdictions adopting this test.

Remedies for Preservation Violations

Finally, Judge Scheindlin recognized that courts have discretion to determine what remedy is appropriate if any, under the particular circumstances. The sanction should "(1) deter the parties from engaging in spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore the prejudiced party to the same position [it] would have been in absent the wrongful destruction of evidence by the opposing party." Generally, this means the more egregious the conduct, the harsher the sanction.

Conclusion

Taxed by hours spent on e-discovery issues, courts are frustrated with litigants who fail to take seriously e-discovery obligations. This decision can be seen as a culmination of calls by the judiciary for litigants to take their e-discovery obligations seriously. Judge Scheindlin warns parties that "[a] failure to conform to this standard is negligent even if it results from a pure heart and an empty head."

What else does Pension Committee mean for litigants? A careful reading reveals that the decision does not create new duties but rather articulates a framework for analyzing the duties already imposed by the Zubulake opinions and their progeny. This framework is a merely guide rather than a set of mandates for imposing sanctions. To use it otherwise would violate Judge Scheindlin's cautionary note that "[e]ach case will turn on its own facts and the varieties of efforts and failures is infinite." It is nonetheless imperative to know the contemporary standards for discovery conduct, and abide by them unless you have defensible reasons to deviate.

Pension Committee is also a reminder that "[t]hose who cannot remember the past are condemned to repeat it." After all, the plaintiffs were sanctioned for failing to adhere to contemporary standards for ESI discovery articulated in a bevy of prior cases. While failure to follow contemporary standards does not automatically result in sanctions, a party's ability to rebut negative presumptions and shift the burden of proof for demonstrating harm are directly linked to the culpability of the conduct.

Straying far from best practices invites serious trouble. Recognized best practices standards currently include: (1) the timely issuance of a legal hold with special attention paid to key players; (2) suspension of all routine processes that may result in the destruction of potentially relevant ESI; (3) collection and preservation of potentially relevant ESI within your custody or control, including any available information from former employees; (4) early assessment of the validity of keywords used in searches; and (5) development of a litigation readiness plan.

As the court noted, "parties need to anticipate and undertake document preservation with the most serious and thorough care, if for no other reason than to avoid the detour of sanctions." Judge Scheindlin's decision is a fresh reminder that an ignorance defense is no defense when it comes to ESI preservation obligations.