February 22, 2010

Failure to Properly Preserve and Search for ESI Results in Monetary Sanctions and Spoliation Jury Instructions

District Court Judge who issued Zubulake decision again orders sanctions for failure to properly handle electronically stored information (ESI) in discovery.

Pension Committee of the Univ. of Montreal Pension Plan et al. v. Banc of America Securities, LLC, et al., — F.R.D. —–, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010)

The Southern District of New York’s Judge Scheindlin, who issued the influential Zubulake series of opinions in 2003, has again issued an opinion and order addressing litigants’ duty to collect and preserve electronic documents such as emails and word processing documents (“ESI”).  In this recent decision, Judge Scheindlin found that litigation hold letters issued by counsel, which direct clients to preserve and collect ESI that is relevant to the case, are now the accepted standard of conduct such that “the failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.” (first emphasis supplied by the Court).  The Court also stated that such a litigation hold letter must do more than direct employees to preserve information; it must also provide instructions as to how to effect both this preservation and the collection of potentially relevant ESI.

In addition to addressing the sanctions related to the duty to preserve evidence, Judge Scheindlin’s opinion discusses levels of culpability—from negligence, to gross negligence, to willfulness—in the discovery context, and also the appropriate burden-shifting parameters in determining whether an adverse inference jury instruction is appropriate.  The Court also stated that the mere fact that a destroyed document was “relevant” under the Federal Rules of Evidence is not sufficient to support an adverse inference sanction; rather, the “innocent party” must show prejudice due to the destruction.  Moreover, the spoliating party is then given the opportunity to rebut this showing of prejudice.

Based on the facts of this case, Judge Sheindlin found that some of the plaintiffs in this securities action had been either negligent or grossly negligent in failing to properly preserve ESI, such that monetary sanctions and jury instructions permitting adverse inferences based on the absence of certain evidence were appropriate.