In Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC (PDF), Case No. 05 Civ. 9016 (SAS) (S.D.N.Y. Jan. 11, 2010), Judge Shira A. Scheindlin, the author of the influential Zubulake opinions, has again weighed in on the scope of litigants’ e-discovery obligations.

Judge Scheindlin’s 87-page opinion, which, in an unusual flourish, is actually subtitled “Zubulake Revisited: Six Years Later,” sanctions a group of plaintiffs for relatively egregious ediscovery misconduct.  Along the way, Judge Scheindlin lays out a detailed roadmap for litigants and courts to follow in assessing discovery obligations and the imposition of sanctions for their violation.  While the result in this case is unlikely to be overly controversial given the facts at issue, the decision itself already has generated, and is likely to continue to generate, a great deal of discussion.  The decision has garnered attention both because it establishes a useful analytical framework for the imposition of discovery sanctions and because – especially in its original form – it contained some sweeping pronouncements that could be lifted out of the factual context of the case to suggest a more “absolutist,” as opposed to “proportionate,” approach to defining discovery obligations, running somewhat contrary to many of the more recent opinions in this area.

On January 15, Judge Scheindlin issued an amendment to her opinion (PDF) in which she clarified several important points.  The amendment clarifies, among other things, that a party is not required to keep back-up tapes if the relevant information is obtainable from other, readily accessible sources; that not every employee asked to preserve or collect documents requires “hands-on” supervision from an attorney, though attorney oversight of the collection process is important; and that the adequacy of a search for documents “must be evaluated on a case by case basis.”

The case involves claims by investors under federal and state securities laws to recover approximately half a billion dollars in connection with the liquidation of two hedge funds. During discovery, defendants uncovered substantial gaps in the document productions made by plaintiffs, and filed a motion for spoliation sanctions.

In addressing the sanctions motion, Judge Scheindlin establishes a four-part analytical framework for assessing whether culpable conduct has occurred and, if so, the extent to which the imposition of sanctions is warranted.

• Level of culpability. The decision notes that spoliation may occur due to negligent conduct, grossly negligent conduct or willful conduct. It analyzes each of these standards in the context of discovery, providing guidance on the extent to which particular approaches to preservation and collection may satisfy these standards.  In particular, the decision addresses issues such as the appropriate scope for collecting records, the need to issue a written litigation hold, and the preservation of backup tapes for key players.  In discussing these issues, the court makes some sweeping, categorical statements that, if divorced from the qualifier that “each case will turn on its own facts and the variety of efforts and failures is infinite,” some may view as inconsistent with the recent judicial trend that has emphasized a proportionate and cost-based approach to the preservation, collection, and production of ESI, and as ignoring that other “efforts” deployed by other litigants may ameliorate what were “failures” for the litigants in this particular case.
• Timing of duty to preserve. The decision notes that a party has an obligation to preserve relevant documents once the party reasonably anticipates litigation, and that because a plaintiff controls the timing of litigation, the plaintiff’s duty to preserve is often triggered before litigation commences.  Notably, Judge Scheindlin concludes that all plaintiffs were under a duty to preserve as soon as the underlying events had transpired and some – but not yet all – plaintiffs had filed suit and retained counsel.
• Burden of proof. The decision examines the interaction among the burden of proof, the level of culpability found, and the severity of the sanctions being sought. The court also examines the role of rebuttable presumptions with respect to the relevance of destroyed documents and the prejudice to the moving party.
• Remedy. Noting that a sanction terminating the case is appropriate only in the face of the most egregious conduct, the decision instead focuses on adverse inference instructions and monetary penalties.  With respect to those plaintiffs that had negligently committed spoliation, the court held that defendants were entitled to monetary penalties and some additional discovery.  In addition, with respect to those plaintiffs who had acted with gross negligence, defendants were entitled to an adverse inference instruction.

Although at first blush Pension Committee might be viewed – even in its amended form – as providing ammunition to parties seeking to have discovery sanctions imposed, Judge Scheindlin acknowledges that discovery-related inquiries are highly fact-specific, noting 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.”  She also cautions that “the most careful consideration should be given before a court finds that a party has violated its duty to comply with discovery obligations and deserved to be sanctioned.”

Pension Committee provides a framework for analyzing spoliation claims that other courts may follow.  It remains to be seen, however, whether other courts will also choose to adopt some of the more sweeping statements that remain in the opinion regarding whether particular behaviors constitute culpable conduct, particularly in light of the need for a proportionate and cost-based approach to discovery obligations, and in light of Judge Scheindlin’s own acknowledgement that this is a highly fact-specific area of the law.  Nevertheless, this opinion will certainly serve as an important new benchmark for litigants as they seek to meet their obligations to preserve relevant documents and ESI.

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