Oy Vey! Court attempts to define degrees of unacceptable ediscovery conduct and fashions a problematic adverse jury instruction in the process

Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010)

Pension Committee is an ediscovery opinion that is sure to garner a lot of attention. The opinion was written by Judge Shira Sheindlin, who authored the Zubulake decisions. Judge Scheindlin includes a subheading in Pension Committee that her decision is: “Zubulake Revisted: Six Years Later.” While noting that “[c]ourts cannot and do not expect that any party can meet a standard of perfection,” she nonetheless concludes “courts have a right to expect that litigants will take the necessary steps to ensure that relevant records are preserved when litigation is reasonably anticipated.”

In Pension Committee, ninety-six investors brought suit claiming the violation of federal securities law seeking to recover $550 million dollars in losses stemming from the liquidation of two British Virgin Island based hedge funds. Shortly after being retained, counsel telephoned and emailed the plaintiffs to begin document collection and preservation. Besides calling and emailing the clients, counsel also distributed memoranda instructing the plaintiffs to be over-inclusive, rather than under-inclusive in their efforts and noting that emails and electronic documents should be included in the production. After suit was filed, a stay of discovery was issued pursuant to the Private Securities Litigation Reform Act. However, a formal written litigation hold was not issued until after the discovery stay was lifted several years later. After discovery commenced, gaps were found in plaintiffs’ document productions, which prompted a motion for sanctions asserting plaintiffs failed to properly preserve and produce documents and electronically stored information.
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Identifying inaccessible sources of ESI just got a little easier

Fed.R.Civ.P. 26(b)(2)(B) explains that a party need not produce electronically stored information (“ESI”) from sources that are not reasonably accessible because of undue burden or cost. Parties are expected to produce relevant, non-privileged information from sources that are “reasonably accessible” subject to Rule 26(b)(2)(C)’s limitations that apply to all discovery under the federal rules. This “two-tier” approach to ediscovery is easy to recite but can be very difficult to apply in practice. At what point does a source of ESI cross the threshold from reasonable accessibility to inaccessibility under the Rule? Are there sources of information that parties can readily agree are not reasonably accessible? Alas, neither Rule 26(b)(2)(B) nor its accompanying committee note provide any helpful insight. Indeed, the 2006 Advisory Committee Note states “[i]t is not possible to define in a rule the different types of technological features that may affect the burdens and costs of accessing electronically stored information.”

The Report of the Judicial Conference Committee on Rules of Practice and Procedure (“Standing Committee Report”) which predated the enactment of the 2006 ediscovery amendments to the federal rules provided some insight. The Standing Committee Report did note that the features of an information system that make it burdensome or costly to access ESI can vary from system to system and will change over time. However, it provided several examples of “current technology” that do not generally fit under the rubric of reasonable accessibility. Those examples included “deleted information, information kept on some backup-tape systems for disaster recovery purposes, and legacy data remaining from systems no longer in use.” See THE NEW E-DISCOVERY RULES, Dahlstrom Legal Publishing, Inc. (2006) at p. 15. Unfortunately, that guidance was not carried over into the 2006 Advisory Committee Note to Rule 26(b)(2)(B).

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Sanctions rejected where evidence was destroyed pursuant to routine, good-faith records management practice before receipt of any notice of a likelihood of litigation

Today’s post demonstrates the importance of a document retention/destruction policy applicable to a company’s paper and electronic records that is consistently applied and routinely followed.

In Mohrmeyer, plaintiff sought discovery sanctions in the form of an adverse inference instruction because Wal-Mart failed to preserve certain records relevant to his accident. The particular record, a maintenance log, was not typically preserved in the ordinary course of the company’s business. It was routinely discarded on a weekly basis. Plaintiff noted that Wal-Mart employees attended to him immediately after his fall, called 911 and summoned an ambulance to take him to the hospital. As a result, the plaintiff in Mohrmeyer claimed that Wal-Mart’s duty to preserve all relevant documents was triggered immediately following his fall because Wal-Mart “should have known” that his accident would result in litigation.

Mohrmeyer is significant because the court recognized:

The law does not and should not require businesses to preserve any and all records that may be relevant to future litigation for any accidental injury, customer dispute, employment dispute, or any number of other possible circumstances that may give rise to a claim months or years in the future, and there is absolutely no contemporaneous indication that a claim is likely to result at the time the records are destroyed pursuant to a routine records management policy.

That Wal-Mart preserved some records relating to the plaintiff’s accident pursuant to its policy involving accidental injuries did not change the result in the court’s view because the particular maintenance log was only temporarily retained and was routinely discarded. Merely because Wal-Mart summoned an ambulance for the plaintiff did not make the litigation more likely to occur. The court found no deliberate or improper conduct by Wal-Mart involving its failure to preserve what the court described as a “transient record.”

The court recognized that a duty to preserve applies only when a party has been put on notice that evidence is relevant to pending litigation or which may be relevant to future litigation that is likely to occur. It concluded that at the time the maintenance log was discarded, there only existed a speculative possibility that a lawsuit might be brought. The court observed that before the log was destroyed Wal-Mart had received no telephonic or written warning from the plaintiff or his counsel raising the possibility of a lawsuit and there was no history of litigation between the parties which made a lawsuit more likely to occur. The court was not willing “to presuppose the likelihood of litigation for every slip and fall accident that occurs.”

The court in Mohrmeyer distinguished the factual scenario presented from an airline disaster where the “trigger date” for the preservation of evidence would clearly be the date of the disaster “because of the high likelihood of litigation following such [an event].” The mere fact that an accident had occurred was insufficient to establish that litigation was likely to ensue.

The court also noted that the plaintiff testified in his deposition that he did not even consider filing a lawsuit until a couple of months after the accident occurred, which was long after the maintenance records were destroyed in the ordinary course of the company’s business. This is a good practice point to remember in discovery in any matter where discovery sanctions potentially may be sought.

Accordingly, Mohrmeyer concluded that when evidence is destroyed pursuant to a company’s “routine, good-faith records management practices” before any notice of the likelihood of litigation is received, discovery sanctions of any type are not warranted.

Vitruvian Man image courtesy Flickr user Michael Licht under this Creative Commons license.

The Good, The Bad And The Ugly (of an ediscovery decision)

Scalera v. Electrograph Systems, Inc., 2009 WL 3126637 (E.D.N.Y. Sept. 29, 2009)

Today’s blog post is named after the 1967 epic spaghetti western starring Clint Eastwood. Wikipedia explains that the movie’s plot “centers around three gunslingers competing to find a fortune in buried confederate gold.” Intended by its director to be a “tongue-in-cheek satire on run-of-the-mill westerns,” Quintin Tarentino once called it “the best-directed film of all time.”

While that might be a bit of a stretch, The Good, The Bad and The Ugly aptly summarizes the court’s holding in Scalera v. Electrograph Systems. While you won’t find any confederate gold, bounty hunters or ghost towns in the decision, there are a number of important points that can be gleaned from the opinion. However, as with many ediscovery decisions, there are several bad, and at least one downright ugly finding entered by the court. Luckily, while the court concluded the company “unquestionably breached a duty to preserve emails,” the plaintiff failed to establish that any of the destroyed emails would have been favorable to her claim and, thus, the court denied plaintiff’s request for an adverse inference instruction. As a result, on several levels, Scalera is a decision that merits your attention.

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State court practitioners beware: sanctions can be entered against your clients for failing to preserve emails, even if your state has not adopted a set of ediscovery rules

Einstein v. 357 LLC, et. al. (N.Y. Supreme Court, October 21, 2009)

In Einstein, a trial judge in the Supreme Court of the State of New York recently entered sanctions against several defendants for their failure to implement a litigation hold which resulted in the loss of emails relating to the presale condition of a condominium unit purchased by the plaintiffs in Brooklyn, New York. The trial judge recognized that even though New York had not yet enacted any rules addressing electronic discovery, and that its Civil Practice Law Rules and common law decisions were silent on the need to institute a litigation hold, New York courts have turned to the Federal Rules of Civil Procedure and case law interpreting them for guidance in other contexts.

The crux of the problem in Einstein was the limited storage capacity of the company’s email server. Each of the company’s brokers were allocated 200 megabytes of space, and once that limit was reached, a broker could not send or receive emails until that space was cleared for more email traffic. As a result, brokers had to clear old emails from the system in the ordinary course of their business. Unfortunately, a litigation hold was never instituted, and as a result, emails (several of which the plaintiff’s produced to the defendants) were not preserved. While emails were forwarded through a central server, the company’s email system was configured in such a way that once an email was deleted by an individual user from the user’s inbox, it was also deleted on the central server. While daily, weekly and monthly backup tapes were made of the email server, the daily and weekly backups were periodically reused. Thus, if emails sent or received during a particular month were also deleted during that month, the monthly backup would not capture those deleted emails.

The court concluded the defendants’ counsel and the company’s IT director failed to investigate the basic mechanics of the company’s email system and its retention practices until 11 months after plaintiffs first served their document demands upon the defendants. The court further concluded that defendants were aware of the fact that the contents of their emails would be relevant to the litigation and recalled that it had repeatedly warned defendants about the need to make a complete production of those emails. Accordingly, the court ruled that the defendants’ failure to take any steps “to implement a litigation hold, relying instead on backup tapes that a reasonable investigation would have revealed failed to capture relevant emails deleted manually by individual users,” constituted gross negligence, and warranted a finding of spoliation.

Therefore, the court imposed sanctions in the form of an adverse inference instruction relating to the missing emails, and awarded attorneys’ fees as well as expert costs associated with the review of the defendants’ hard drives.

While admittedly, a trial court decision lacks any precedential value, Einstein amply demonstrates that parties who are sued in state court, even in those states which have not enacted their own set of ediscovery rules, are not immune from ediscovery sanctions. One of our recent posts identified those states which had adopted their own set of ediscovery rules. Outside counsel would be wise to advise their clients of the need to impose a litigation hold in every case in which they are retained, even state-court proceedings, and seek to preserve ESI in state-court litigation. Counsel also would be wise to investigate the client’s email and information systems as well as its paper and electronic retention/destruction policies. Companies and their counsel can no longer safely assume that because a particular state has not enacted its own set of ediscovery rules that the client has no obligation to preserve and produce relevant electronically stored information.

Photo courtesy Flickr user Mike Licht under this Creative Commons license.

View the opinion below or by clicking here.

Einstein_v_357

How the privilege applicable to a lawyer’s litigation hold letter may be forfeited, and the ethical dilemma it potentially triggers – the Morton’s Fork created by Major Tours v. Colorel.

Major Tours, Inc. v. Colorel, 2009 WL 2413631 (D.N.J. Aug. 4, 2009)

Wikipedia defines Morton’s Fork as “a choice between two equally unpleasant alternatives (in other words, a dilemma), or two lines of reasoning that lead to the same unpleasant conclusion. It is analogous to the expressions ‘between the devil and the deep blue sea’ or ‘between a rock and a hard place.’” Wikipedia explains that Morton’s Fork is “the opposite of the Buridan’s Ass.” It is similar to a “Catch 22” in that it involves a “no win situation,” but does not involve the use of circular logic.

What is the only area of law where a lawyer is required, under the pain of sanctions, to write a letter and provide advice to a client that potentially can be used as evidence against that client? Where else is “discovery about discovery” becoming the norm, rather than the exception? The answer is the post-Zubulake world of electronic discovery in which we now find ourselves.

Today, if a lawyer fails to issue written litigation-hold instructions, and/or then fails to take appropriate follow-up steps, the lawyer can be sanctioned if electronically stored information (“ESI”) is not properly preserved by the client. While a lawyer’s litigation-hold letters are generally considered privileged, e.g., Muro v. Target Corp. 250 F.R.D. 350, 360 (N.D.Ill. 2007), the court in Major Tours held that they must be produced when a preliminary showing of spoliation has been made. And, when that occurs, a lawyer’s litigation hold letter will invariably be used against the client as evidence that the client failed to heed the lawyers advice.

The court in Major Tours concluded that a duty to preserve was triggered by a letter sent to the New Jersey Attorney General and the Commisioner of the New Jersey Department of Transportation approximately twenty-two (22) months prior to suit being filed. A litigation hold was not issued until after suit was brought, and the court found it was “probable that relevant evidence was lost before the defendants issued their litgation hold.” Thus, in the court’s view, because a preliminary showing of spoliation had been made, the attorney’s litigation-hold letter had to be produced. In other words, the client forfeited the right to assert attorney-client privilege by failing to issue a litigation hold before the attorney’s privleged litgation hold letter was ever sent to the client.

The rationale applied in Major Tours could trigger an ethical dillemma, and the potential for a conflict for outside counsel in future cases when a duty to preserve ESI was arguably triggered before suit was filed, and the client failed to institute a litgation hold at that time. If the lawyer failed to send a litigation hold letter, the lawyer could be sanctioned. However, if the lawyer sends a hold letter and the court follows the approach taken in Major Tours, the attorney’s privileged communication potentially may become discoverable, and be used as evidence against the client. While a party may be entitled to learn what steps an opponent took to preserve ESI once a preliminary showing of spolilation occurs, finding the attorney-client privilege was forfeited in this scenario would appear to be an ill-concieved approach. It triggers for the lawyer a Morton’s Fork – a choice of protecting himself from sanctions knowing that his advice may potentially be used against the client. Thus, does Zubulake’s requirement that a lawyer issue written litgation-hold instructions inevitably create a conflict between the lawyer and his client?

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An opinion sure to make everyone’s “Top Ten” list of ediscovery decisions for the year

Goodman v. Praxair Servs. Inc., 632 F.Supp.2d 494 (D.Md. 2009)

Near the end of the year, various commentators and bloggers will typically post their list of top ediscovery decisions for the year. While it may be a bit early for predictions, one decision that should make everyone’s top ten list this year is Goodman v. Praxair Services. The decision was written by Judge Paul Grimm who also was the author of the Hopson, Victor Stanley and Mancia decisions. Judge Grimm always seems to be on the leading edge of ediscovery issues.

Praxair is notable for its comprehensive treatment of issues that frequently arise involving the preservation of electronically stored information (“ESI”) and sanctions that can result for the failure to do so. The decision contains more ediscovery law than many book chapters on the topic. Even the most experienced ediscovery practitioner will find some helpful insights in the decision. If there is one ediscovery decision you read this year, Praxair should be the one. The issues addressed by Judge Grimm in Praxair include:

• The trigger date for a duty to preserve
• The timeliness of a spoliation motion.
• Identifying the “key players” to whom the litigation hold should be directed.
• Determining what ESI is under a party’s control.
• Distinguishing the duty to preserve from the duty to produce.
• Ediscovery and small “mom and pop” companies.
• Whether sanctions can be imposed for the spoliation of evidence by an agent.
• State of mind required for spoliation sanctions.
• Four scenarios when costs and attorney fees are allowed.
• Sanctions for unilaterally preserving only the ESI that a party deems relevant.

Judge Grimm even traces the “historic roots” of spoliation to Armory v. Delamirie, 93 Eng. Rep. 664 (K.B. 1722), which he describes as a Dickensian tale of avarice and greed involving a chimney sweep’s discovery of a jewel and a goldsmith’s subsequent attempt to keep it for himself. Because of Judge Grimm’s comprehensive treatment of the issues noted above, we have divided our review and commentary on Praxair into multiple parts that will appear over the next few days on Practical Ediscovery. This first part outlines Praxair’s factual background and addresses when a duty to preserve is triggered.

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Seventh Circuit’s Electronic Discovery Pilot Program

Recently, the Seventh Circuit announced its Electronic Discovery Pilot Program. The program was developed in response to continuing comments by the business community and practicing attorneys about the need to reform the civil pretrial discovery process. It is an attempt to reduce the cost and burden of ediscovery in litigation. What makes the Seventh Circuit’s pilot program unique is that its results will be reviewed and analyzed during the program’s phases.

A series of Principles Relating to the Discovery of Electronically Stored Information (“ESI”) were developed and codified in a standing order. These principles are intended to serve as supplemental procedural ediscovery guidelines for the parties in selected cases. Individual district court, magistrate, and bankruptcy judges in the Seventh Circuit have agreed to adopt the principles and implement them in selected cases during Phase I of the program, which runs through May 1, 2010.

Kenneth J. Winters, the Managing Director of the Sedona Conference®, and former Colorado Supreme Court Judge Rebecca Kourlis, the Executive Director of the Institute for Advancement of the American Legal System (“IAALS”) at the University of Denver, assisted in the development and review of these principles.

IAALS is developing questionnaires to assess the efficacy of the principles. The questionnaires will be completed by the judges and lawyers participating in Phase I of the program. The results of the IAALS’ questionnaires will be presented to the Seventh Circuit at its annual meeting in May, 2010. At that time, the program’s ediscovery principles will be reviewed and refined as needed. Phase II of the program is scheduled to proceed from June, 2010 through May, 2011. It is contemplated that in May, 2011, Phase II findings will be presented and the Seventh Circuit’s final ediscovery principles announced.

Among other things, the principles require in the event of a dispute during the meet and confer process, the appointment of an ediscovery liaison who should be prepared to participate in ediscovery dispute resolution. These principles also recognize that that Rule 26(b)(2)(C)’s proportionality principles should be applied when formulating a discovery plan; provide that sanctions can be imposed for the failure to cooperate and participate in good faith in the meet and confer process; identify categories of ESI, which are generally not discoverable in most cases; and provides that if a party intends to request the preservation or production of these categories of ESI, that such a request be discussed at the parties’ initial meet and confer session or as soon thereafter as practicable.

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Blackberries ‘N SYNC’d with company servers did not prevent the imposition of sanctions for failing to preserve ESI on the Blackberries

Southeastern Mechanical Servs., Inc. v. Brody, 2009 WL 2883057 (M.D.Fla. Aug 31, 2009)

Blackberries, iPhones and similar devices used by a company’s employees contain electronically stored information (“ESI”), that must be preserved when a litigation hold is imposed. Many companies today have hundreds, if not thousands, of employees who use PDAs for company business, complicating the litigation hold process.

If you are a general counsel who believes the use of PDAs shouldn’t pose much of a litigation concern because they are synchronized to your company’s email servers so that any emails sent or received by your employees from those devices reside on your company’s servers, think again, and then read Brody. The fact that employee Blackberries were synced to the company’s email server did not preclude sanctions from being entered. Brody appears to be the first reported ediscovery decision where sanctions were imposed for failing to preserve data on individual Blackberries. Electronic information on individual PDAs must be preserved with no strings attached.

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The failure to timely issue a litigation hold did not itself create a question of material fact warranting the denial of summary judgment

Kotakis v. Wesco Distrib., Inc., 2009 WL 1850827 (W.D.Pa. June 26, 2009)

In Kotakis, plaintiff filed a Title VII claim asserting she was subjected to discrimination and retaliation because of her gender. The defendant moved for summary judgment, and plaintiff argued that a genuine issue of material fact was triggered because the defendant failed to take steps to preserve its electronically stored information (“ESI”) until nearly eleven (11) months after receiving notice of the litigation.

The district court quickly disposed of plaintiff’s argument. It observed that following Lujan v. National Wildlife Fed’n., 497 U.S. 871, 888 (1990), the party opposing summary judgment must proffer specific evidence found in the record which demonstrates the existence of a genuine factual dispute on a material issue which requires resolution by a jury. The district court in Kotakis held no question of material fact was presented by the plaintiff, and entered summary judgment in defendant’s favor.

In a footnote, the district court acknowledged plaintiff’s argument that the defendant failed to timely issue a litigation hold, but noted a recent decision, Phillips v. Potter, 2009 WL 1362049, *4-6 (W.D.Pa. May 14, 2009), which ruled that sanctions were inappropriate even though the defendant failed to timely issue a litigation hold when “there was no evidence that relevant documents were destroyed.” The district court in Kotakis found the logic of Potter persuasive, and applied its rationale in rejecting plaintiff’s summary judgment argument. Kotakis, 2009 WL 185027 at *4, n.2.

Thus, when a party opposing summary judgment fails to establish that potentially relevant ESI was lost due to a failure to timely institute a litigation hold, the mere fact that the moving party failed to timely take the necessary procedures to preserve ESI does not, in and of itself, provide a basis to deny the entry of summary judgment.