A new and important decision has been issued by one of the most influential federal judges in the area of electronic discovery, Judge Shira Scheindlin, who previously authored the seminal Zubulake decisions. Judge Scheindlin's opinion in University of Montreal Pension Plan v. Banc of Am. Secs, 2010 WL 184312 (S.D.N.Y.), will likely have a far-reaching impact on courts throughout the country and on all parties to lawsuits confronting the confounding — and increasingly costly — obligations associated with electronic discovery. This new opinion sets forth a comprehensive framework for evaluating e-discovery efforts, and makes vitally clear that even parties of “pure heart” who make “innocent” e-discovery errors may be found to be negligent, or even “grossly negligent,” and may face monetary and other sanctions. The lessons from this opinion should not be ignored. The case was filed in 2004 by 96 investors who sought to recover losses of $550 million dollars from the liquidation of two British-Virgin-Islands-based hedge funds. On motions brought by defendants, the court reviewed the discovery efforts of 13 of the investor plaintiffs and sanctioned each of them, finding that they failed to undertake sufficient paper and electronic document preservation and collection measures.
For example, although the plaintiffs' lawyers instructed them to collect relevant documents (including e-mails) four months before they filed suit, the court found that the lawyers' instructions were not sufficiently specific or mandatory. In fact, the court found that the preservation duty for some parties arose before they even decided to sue. In addition, the court found that document preservation and collection efforts conducted without the assistance or close supervision of outside or experienced in-house counsel were insufficient. For these and other reasons, the court concluded that the plaintiffs had “conducted discovery in an ignorant and indifferent fashion.” Since they conducted a sloppy job preserving documents, the court assumed that documents — which may or may not have ever existed — had been lost.
As a consequence, the judge ordered the investor plaintiffs — who went into court as the aggrieved party — to pay the defendants' attorneys' fees incurred in connection with the discovery problems, a sum that may be quite substantial given the extensive effort that was devoted to this discovery dispute. In addition, Judge Scheindlin wrote a strongly worded jury instruction that will permit the jury to make negative assumptions against the plaintiffs if this case proceeds to trial due to their failure to preserve and collect documents.
This ruling is notable in that the court explicitly stated that the “case does not present any egregious examples of litigants purposefully destroying evidence.” Rather, the court punished the plaintiffs because of their failure to institute a timely written litigation hold and because they “engaged in careless and indifferent collection efforts” once it was apparent they would file suit. The court stated that a party's failure to follow the rules concerning document preservation will be penalized “even if it results from a pure heart and an empty head.”
The decision reinforces recent case law that holds companies responsible for locating, preserving, and producing relevant information wherever it may be found. For example, a party here was faulted for not pulling e-mail from a handheld device. Another was sanctioned for not searching backup tapes when no other source for the relevant information could be located. Others were criticized for not searching for electronic documents of former employees, and several for failing to locate electronic records dating back to the late 1990s — with the court essentially concluding that it is fair to assume that such documents existed as late as 2004 when the case first began.
It remains to be seen how Judge Scheindlin's approach — with its broad sanctions and expansive reading of discovery obligations — will be received and how widely it will be adopted. This opinion may lead the way for more aggressive and costly discovery practices, or it could be relegated to the margins by some courts that are loath to impose harsh sanctions for good, but not perfect, discovery practices. Whatever the ultimate effect, Judge Scheindlin's influence in this area cannot be overstated and her decision will be widely read by judges and lawyers across the country. Although the court expressly stated that it did not want litigation to became a game of “gotcha,” it is almost assured that the opinion will be widely cited to argue for the imposition of sanctions against parties who do not pay careful attention to the preservation and collection of documents before they file suit or immediately after learning of a claim against them.
Accordingly, it is worthwhile to consider some of the fundamental practices suggested by this and other decisions on the proper preservation and production of documents in lawsuits:
- Attorneys and clients must work together as early as possible to ensure that both understand how and where electronic documents, records, and e-mails are maintained and to determine how best to locate, review, and produce responsive documents. A party contemplating a lawsuit should begin this process well before a complaint is filed.
- A well-crafted and thorough document preservation notice is critical to ensuring discovery compliance and avoiding possible sanctions.
- Efforts to save money by reducing the involvement of outside counsel in the process of collecting and producing electronically stored information may be short-sighted, and may lead to later duplication of earlier collection and preservation work. Litigation counsel have an obligation to supervise the production and share responsibility for compliance with discovery obligations.
- Similarly, relying on individual employees to determine what documents should be preserved or which documents are relevant to a lawsuit can lead to inadequate discovery efforts and result in sanctions for failure to satisfy contemporary discovery standards.
- Long-term partnerships with outside counsel can help maintain “institutional knowledge” of data sites.
- IT personnel need to understand all of the forms in which data is maintained. Maintaining up-to-date documentation, including detailed system and data schematics, for data storage locations is recommended.
- It is important to determine and document which sources of information are reasonably accessible and which ones are not before any litigation commences.
- Implementation of a comprehensive records-retention policy can help to manage the overall volume of electronically stored information.