Revisiting Zubulake: "Discovery Sanctions In The eDiscovery Context"

On January 11, 2010, Judge Scheindlin, who authored the groundbreaking Zubulake opinions, issued a new opinion regarding sanctions in eDiscovery.¹ Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Scs., 2010 U.S. Dist. Lexis 1839 (S.D.N.Y. Jan. 11, 2010), involved an action against defendants who were connected to a hedge fund that lost money. These defendants sought sanctions against the plaintiffs for their alleged failure to properly preserve and produce documents, including electronically stored information and for submitting false declarations relating to their collection and production efforts.

In an 87-page opinion, Judge Scheindlin extensively reviewed the law governing the imposition of sanctions for failure to produce electronically stored information. She focused on the connection between sanctions and culpability – what sanctions should be imposed for negligent vs. grossly negligent and willful conduct and what does a party need to prove to get sanctions for negligent as opposed to grossly negligent and willful conduct? In the end, Judge Scheindlin held that all of the plaintiffs were either grossly negligent or just negligent in complying with and satisfying their discovery obligations. She issued a permissive spoliation/adverse inference instruction against the plaintiffs. In reaching this decision, Judge Scheindlin touched on four key points.

First, Judge Scheindlin analyzed the plaintiffs' level of culpability in determining whether their conduct was negligent, grossly negligent or willful. She found that the failure to issue a written litigation hold constitutes gross negligence because it is likely to result in the destruction of relevant information. She also found that "the failure to collect records – either paper or electronic – from key players constitutes gross negligence or willfulness as the destruction of email or backup tapes after the duty to preserve has attached." By contrast, the failure to obtain all records from employees -- as opposed to key players -- will likely constitute just mere negligence. In addition, the failure to employ all appropriate measure to preserve ESI, also in most cases, will constitute negligence.

Second, Judge Scheindlin focused on the interplay between the duty to preserve evidence and spoliation. She stressed that the duty to preserve is well developed and should be well known to litigants and their counsel alike.

Third, Judge Scheindlin looked at which party should bear the burden of proving that evidence has been lost or destroyed and if the "innocent" party was somehow prejudiced by the loss of the data. She explained that relevance and prejudice can be presumed when the spoliating party has acted in bad faith or in a grossly negligent manner. However, when the spoliating party is merely negligent, "the innocent party must prove both relevance and prejudice in order to justify the imposition of a severe sanction."

Judge Scheindlin also held that regardless of the level of culpability, any presumption relating to spoliation is rebuttable. As such, the spoliating party should always have the opportunity to show that there is no prejudice caused by the absence of missing information. She then adopted a burden-shifting test, where the burden of proving non-relevance or lack of prejudice shifts to the alleged spoliator if the alleged spoliator engaged in grossly negligent or willful conduct in failing to preserve potentially relevant information.

Fourth, the opinion is also instructive on the appropriate level of sanctions that should be imposed by the court. An appropriate sanction must be the least harsh sanction that is available and should be molded by the three-factor test previously adopted by the Third Circuit. So what does all of this mean for employers?

1. Issue A Written Litigation Hold: In the Second Circuit, at least, a failure to issue a written litigation hold is gross negligence. Once you are on notice of a potential lawsuit (i.e., litigation is reasonably anticipated), then employers should issue a written litigation hold to avoid the destruction of potentially relevant evidence. At a minimum, a written litigation hold must be issued once an employee files a claim with an administrative agency like the PHRC and EEOC. The duty to preserve could trigger even earlier base don an employee's "informal" claims of discrimination or retaliation.
2. Monitor The Collection Of Potentially Relevant Data: The failure to collect all relevant data from key players may be gross negligence. Gone are the days where we can blindly rely on individual custodians of evidence to comply with the company's discovery obligations. Employers must actively monitor their employees' efforts to gather potentially responsive information.
3. Preserve Early; Preserve Broad: By now, all employers must know that their duty to preserve evidence is triggered when a lawsuit is reasonably anticipated. This is a fact-sensitive analysis. Understand what factors in your business affect your reasonable notice of a lawsuit. And always keep in mind that courts review your preservation efforts with 20/20 hindsight. So preserve early and preserve broad.
4. Prejudice Is A Key Consideration: Whether you are defending or asserting a spoliation claim, prejudice (or lack of it) is a key consideration. Spoliation sanctions are, right now, the "vogue" litigation tactic. However, if the loss of evidence does not cause actual prejudice, sanctions should not be granted. Alternative sources of information undermine a showing of prejudice. So, if you are accused of spoliation, focus on alternative sources that provide the same information. If you are seeking spoliation, make sure the evidence is actually "missing" and the other side cannot point to alternative sources of information that remedy any technical failure to preserve.
5. Not Every Failure To Preserve Should Result In A Termination Sanction: Even though she issued sanctions, Judge Scheindlin stressed that any sanction imposed should be the least harsh for deterring spoliation, placing risk of erroneous judgment on the spoliator, and make up for any prejudice suffered by the non-spoliator. This focus on the "least harsh" sanction is important. As spoliation motions become more prevalent and discovery becomes more about the process of discovery rather than substantive merits, it is important to remember that termination sanctions and adverse inferences are not appropriate to remedy most forms of spoliation.

Footnote

1. The opinion was amended with minor changes on January 15, 2010.

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