In an 87-page opinion that could be subtitled “Zubulake Revisited: Six Years Later,” Judge Shira Scheindlin of the Southern District of New York — author of the influential Zubulake opinions concerning preservation and spoliation of electronically stored information — has issued a comprehensive analysis of the current state of the law surrounding those issues. The opinion, which came in Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, LLC, et al., Case No. 05 Civ. 9016 (SAS), raises important issues about the proper steps to be taken to effectively manage the preservation and collection of electronically stored information in connection with litigation, and discusses the possible consequences when such steps are not taken.

The decision may have a practical impact on how organizations respond when litigation is reasonably anticipated. Among other things, the opinion stresses the need to issue a written legal hold in a timely manner; addresses the limits of relying on key players to identify, preserve and collect relevant documents; discusses how to handle former employee records that remain in an organization’s possession, custody or control; and considers the thorny issue of back-up tapes. In some ways, this decision appears to go against the current trend, in which courts have been emphasizing a more proportionate and cost-based approach to the preservation, collection, and production of electronically stored information.

The court’s opinion is highly fact-specific — indeed, the court expressly notes that “while it would be helpful to develop a list of relevant criteria a court should review in evaluating discovery conduct, these inquiries are inherently fact intensive and must be reviewed case by case.” The case involved an action under federal securities laws and New York state laws by a group of investors to recover approximately half a billion dollars stemming from the liquidation of two hedge funds in which they held shares. During the discovery process, certain defendants claimed that substantial gaps existed in many of the document productions made by plaintiffs. These defendants filed a motion for spoliation sanctions.

In addressing this motion, the court articulated an analytical framework for assessing whether culpable conduct has occurred and, if so, the extent to which the imposition of sanctions is warranted. The court explained that in order to conduct that assessment, four distinct concepts must be analyzed.

First, the alleged spoliators’ level of culpability. The court noted that spoliation may occur due to negligent conduct, grossly negligent conduct and willful conduct. It analyzed each of these standards in the context of discovery, providing guidance on whether particular approaches to preservation and collection constitute a culpable state of mind by the party committing spoliation.

Second, the interplay between the duty to preserve evidence and the spoliation of evidence. The court noted that a party has an obligation to preserve relevant documents and electronically stored information once the party reasonably anticipates litigation. The court also noted that, because a plaintiff controls the timing of litigation, the plaintiff’s duty to preserve is often triggered before litigation commences.

Third, the question of which party should bear the burden of proving that evidence has been lost or destroyed, as well as the burden of demonstrating the consequences from that loss. The court examined the interaction between the burden of proof and the level of culpability by the party that engaged in the spoliation as well as the severity of the sanctions being sought. The court also examined the role of rebuttable presumptions with respect to the relevance of destroyed documents and the prejudice to the moving party.

Fourth, the appropriate remedy for spoliation in light of the level of culpability. Noting that a sanction terminating the case is only appropriate in the face of the most egregious conduct, the court instead focused on adverse inference instructions and monetary penalties.

After setting forth this four-part analysis, the court proceeded to apply it to the conduct of each of the plaintiffs. The court considered the particular facts and circumstances surrounding each plaintiff’s failure to produce documents, including the nature of the steps each plaintiff took to preserve and collect evidence, as well as the nature of the documents and information destroyed. With respect to those plaintiffs that had negligently committed spoliation, the court held that defendants were entitled to monetary penalties. In addition, with respect to those plaintiffs who had acted with gross negligence, defendants were entitled to an adverse inference instruction. According to the instruction issued by the court, the jury will be entitled to presume that lost evidence was relevant and would have been favorable to the moving defendants.

The court’s analysis in University of Montreal Pension Plan provides a framework for analyzing spoliation claims that other courts may follow. Moreover, the court’s conclusions regarding whether different behaviors constitute culpable conduct can provide a useful blueprint for litigants in formulating their own procedures for meeting their obligation to preserve relevant documents and electronically stored information.