E-Discovery: Judicial Clarity on Obligations and Consequences of Non-Compliance
The law surrounding electronic discovery ("e-discovery") and the preservation of electronically stored information ("ESI") is one of the more rapidly developing areas of law. In these technology-driven times, the massive amounts of information created and stored by companies presents new challenges to both litigants and to the courts and demands that the duties in handling e-discovery be clarified and the consequences for failing to meet such obligations be defined. In 2003 and 2004, five opinions were issued in the seminal e-discovery case of Zubulake v. UBS Barburg. From the Zubulake opinions, the basic parameters relating to the scope of a party's duty to preserve ESI during litigation took form.
In January, 2010, the legal framework relating to e-discovery was further refined by another seminal case: Pension Committee of University of Montreal Pension Plan v. Banc of American Securities. Authored by Judge Scheindlin, the author of the Zubulake opinions, the Pension Committee opinion was aptly titled Zubulake Revisited: Six Years Later. This opinion provides further guidance on the obligations of litigants and counsel in the area of preserving ESI, and the consequences of a parties' failure to meet those obligations. In Pension Committee, Judge Scheindlin sanctioned thirteen plaintiffs for failing to "timely institute written litigation holds and engag[ing] in careless and indifferent collection efforts after the duty to preserve arose." The case describes three general yet fluid categories of e-discovery misconduct – negligence, gross negligence and willfulness – and identifies the sanctions that may be appropriate for each category. The plaintiffs found to be negligent in Pension Committee had failed to obtain records from all employees and had otherwise failed to take appropriate measures to preserve ESI. In contrast, the plaintiffs found to be grossly negligent were guilty of failing to obtain documents from key employees, destroying backup data, failing to provide appropriate supervision to the custodians' ESI preservation efforts, describing their e-discovery process inaccurately in court papers, or deleting or failing to preserve certain electronically stored documents.
Judge Scheindlin imposed monetary penalties on the negligent plaintiffs, requiring them to pay the defendant's fees and costs incurred in litigating the discovery dispute. The grossly negligent plaintiffs were penalized with an adverse inference instruction, whereby, the Judge issued an instruction to the Jury that they were entitled to presume that any lost evidence caused by the grossly negligent plaintiffs' conduct was relevant and thus should be weighed in favor of the defendants. Although none of plaintiffs' conduct rose to the level of willfulness, the Judge mentioned in dicta that an appropriate sanction for willful and egregious conduct would be the termination of plaintiffs' case.
As illustrated by Pension Committee, the imposition and appropriate scope of sanctions continues to be a dominant theme among e-discovery opinions. According to Kroll Ontrak®, an e-discovery consultant that tracks all state and federal e-discovery opinions, among the e-discovery opinions issued last year, 39 percent addressed the issue of sanctions, an increase from 25 percent in 2008.
Pension Committee serves as a caution to all litigants and counsel: failure to take the proper steps to effectively manage the preservation, collection and production of ESI through litigation can result in serious consequences. Companies can avoid substantial potential penalties as well as other possible sanctions by simply understanding the legal framework and executing a well-organized e-discovery plan.