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Pension Committee and the New Standards for E-Discovery Shortfalls

By Lindsay M. Sestile, Litigation News Associate Editor – March 3, 2010

In an 85-page opinion in Pension Committee of the Univ. of Montreal Pension Plan v. Banc of America Securities, LLC [PDF], Judge Shira Scheindlin sanctioned 13 plaintiffs for negligence or gross negligence in their identification, preservation, and collection of electronically stored information. Captioning her decision “Zubulake Revisited: Six Years Later,” Judge Scheindlin changed the landscape of e-discovery practices again. Like her monumental Zubulake rulings, the Pension Committee decision promises to be a landmark.

The Discovery Process
The Pension Committee plaintiffs were 96 investors whose offshore hedge funds failed. The plaintiffs sued several hedge fund administrators under federal securities law.

The plaintiffs collected and produced e-discovery twice—in 2004 and again after a discovery stay was lifted in 2007. After the defendants claimed an incomplete disclosure, the court ordered each plaintiff to provide a sworn account of its efforts to identify, preserve, and produce documents.

The plaintiffs’ declarations described their process for identifying and preserving documents and averred that they produced all relevant documents in their possession. After deposing some of the plaintiffs, however, the defendants concluded that almost all of the declarations were false or were made without the declarants’ personal knowledge.

Concluding that some plaintiffs had conducted e-discovery in an “ignorant and indifferent fashion,” Judge Scheindlin granted monetary sanctions against 13 plaintiffs.

Overview of the Holding
Judge Scheindlin’s opinion states that “it is important to recognize what this case involves and what it does not. This case does not present any egregious examples of litigants purposely destroying evidence. This is a case where plaintiffs failed to timely institute written litigation holds and engaged in careless and indifferent collection efforts after the duty to preserve arose.”

Judge Scheindlin found particular fault with the sanctioned plaintiffs’ failure to issue litigation holds until after the stay was lifted in 2007. She also found the sanctioned plaintiffs had failed to identify, collect, and preserve sources of potentially relevant and responsive electronic evidence, such as back-up tapes.

Judge Scheindlin found that 6 of the 13 plaintiffs had been grossly negligent and ordered a burden-shifting jury instruction as to them.

Shifting Burdens
The Pension Committee decision’s sharpest break with precedent is the creation of a burden-shifting test for spoliation. Traditionally, a party is entitled to an adverse inference instruction as to spoliated evidence only if it can show, among other prerequisites, that the evidence was relevant to the party’s claim or defense and that the party suffered real prejudice as a result of the spoliation.

Noting that it is almost impossible for a party to make such a showing when it cannot know the substance of the spoliated evidence, Judge Scheindlin created a new burden-shifting test. If a party can show that spoliation was the result of bad faith or gross negligence, prejudice may be presumed. The burden then shifts to the spoliating party to rebut that presumption.

“Judge Scheindlin is equating gross negligence with intentional destruction,” worries Mark Neubauer, Los Angeles, member of the Section of Litigation’s CLE Summit cochair. “In terms of the burden of proof, she does not discern a difference, but in terms of culpability, there is a huge difference.”

Negligence vs. Gross Negligence
While gross negligence will trigger the burden-shifting test for spoliated evidence, mere negligence will not. Negligence will, however, continue to carry the potential for sanctions.

Judge Scheindlin notes that given the vast jurisprudence on e-discovery preservation, failure to take appropriate steps to preserve and collect such documents is “negligent even if it results from a pure heart and an empty head.”

“This is a decision that worries clients,” says Ronni Solomon, Atlanta, cochair of the Section’s Pretrial Practice and Discovery Committee‘s Electronic Discovery subcommittee. “You like to think that sanctions deal with intentional conduct and not people trying to do the right thing but falling short. Under this decision, you can try your best but still get sanctioned.”

Neubauer also worries about the effect a finding of negligence could have on counsel: “if there is a finding of negligence or gross negligence—and if that extends to the inside or outside counsel—think of what it will do to malpractice rates. . . . If a lawyer is deemed negligent, he or his malpractice carrier is writing a check.”

Practical Advice
“A couple letters to your client reminding him of his discovery responsibilities probably will not be sufficient anymore,” advises Kent A. Lambert, New Orleans, cochair of the Section’s Pretrial Practice and Discovery Committee. “Let [clients] know they will be second-guessed and will be potentially held to a gross negligence standard, which presupposes prejudice and therefore sanctions.”

Remind clients that working at home or using thumb drives to transfer documents to a home computer, may subject their personal computers to the discovery process.

Identify the key players, and revisit that list periodically. Pension Committee says that “the failure to identify key players early on could constitute gross negligence,” reminds Solomon. Because lawyers and clients might need to show a judge how and why they selected key players, Solomon recommends that you “make sure you keep contemporaneous records on those decisions.”

“There needs to be a resolution system geared toward a small case,” asserts Neubauer. “Under Judge Scheindlin’s decision, small cases would require the same discovery efforts as thermo-nuclear warfare between two large corporations.” So for smaller cases, to lower costs, or simply to avoid second-guessing, one solution “might be to meet with the other side and get an agreement about who the key custodians are,” Solomon suggests.

“You cannot achieve the consistency required by Pension Committee by making it up as you go along. You need to think about it on the front end and then take collaborative steps between outside counsel, in-house counsel, and IT,” advises Lambert.

This decision “might put an end to relying on individual custodians to actually collect documents. Judge Scheindlin clearly believed in this case that the custodians should have had more supervision from counsel,” Solomon says. “You probably can no longer take senior level management’s word for it but must verify for yourself at least to the level of a responsible audit,” cautions Lambert.

Do not withhold documents based on an anticipation of litigation theory if your client failed to retain documents from that same time period. “Make sure the appropriate steps were being taken at that time to preserve all potentially responsive documents and that the normal retention protocols were suspended and litigation holds were in place” for a period consistent with your privilege log, advises Lambert.

“Best practice has always been to issue a written litigation hold as soon as litigation looks like a possibility, identify the key players early on, cease deletion of email, and preserve documents of former employees,” according to Solomon.

“Now, attorneys and their clients should—and probably will—document that process better and supervise it more. Always in the back of your mind will be the thought that you might someday have to justify to a judge the steps you took to preserve the electronic evidence,” she adds.

Editor’s Note: For further analysis of Judge Scheindlin’s recent e-discovery opinion, please see John M. Barkett, “Zubulake Revisited: Pension Committee and the Duty to Preserve

Judge Scheindlin will be a panelist at the upcoming 4th Annual National Institute on E-Discovery, May 27, 2010.

Keywords: Litigation, pretrial practice, discovery, e-discovery, Zubulake

Related Resources

The Progression of Zubulake

  • » Zubulake v. UBS Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003) (general application of discovery rules to e-discovery).
  • » Zubulake v. UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2003) (criteria for cost-shifting).
  • » Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D. N.Y. 2003) (implementation of litigation holds).
  • » Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) (counsel’s “affirmative steps to monitor compliance”).
  • » Pension Committee of the Univ. of Montreal Pension Plan v. Banc of America Securities, LLC, No. 05-civ-9016 SOS slip op. (S.D.N.Y. Jan. 11, 2010) (burden shifting for spoliation).

  • March 4, 2010 – Just when I thought I knew everything about E-discovery, an article like this comes along! Bravo, Ms. Sestile! Bravo, I say!


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