In the recent federal district court decision of Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities (download here) , Judge Shira Scheindlin clearly explained and amplified the obligations to preserve and produce electronically stored evidence in litigation cases. The case was brought by a group of investors seeking to recover 550 million dollars in losses from a hedge fund liquidation.
The defendants in the case alleged that the plaintiffs failed to preserve electronically stored documents and filed misleading statements regarding discovery. In deciding against the plaintiff’s on discovery issues, Judge Scheindlin summarized discovery obligations and stated:
the courts have a right to expect that litigants and counsel will take necessary steps to ensure that relevant records are preserved when litigation is reasonably anticipated, and that such records, are collected, reviewed, and produced to the opposing party….when this does not happen, the integrity of the judicial process is harmed and the courts are required to fashion a remedy…By now, it should be abundantly clear that the duty to preserve means what is says and that a failure to preserve records – paper or electronic – and to search in the right places for those records, will inevitably result in the spoliation of evidence.
Judge Scheindlin’s decision is very lengthy and detailed. You might ask, why should a company doing business in Connecticut care about what Judge Scheindlin says in a New York federal district court case? Well, for starters, Judge Scheindlin is perhaps the most quoted and cited trial judge in the United States concerning electronic evidence following her series of decisions in the now famous case of Zubulake v. UBS Warburg. Another reason is that Connecticut state court rules on obligations to preserve and produce electronically stored information are not well established or defined. As such, a state court trial judge in Connecticut is very likely to be persuaded by anything Judge Scheindlin says on the issue of electronic discovery and, in particular, on obligations to preserve and produce electronic evidence, sanctions for failure to do so properly, and the cost and expense of producing such evidence.
Anyone facing potential litigation or reasonably anticipating litigation in Connecticut should understand the obligations to preserve and produce evidence. Although Judge Scheindlin stated that these obligations should be abundantly clear, the fact is, they either are not clear or they are often ignored. Every week, there are numerous case reports from across the country involving spoliation, destruction, and mishandling of electronic evidence. Many times, the failure to preserve critical evidence happens well in advance of the litigation because the duty to preserve is overlooked, ignored, or not understood.
The full scope and extent of discovery obligations is too in depth for a blog post. Nevertheless, Judge Scheindlin’s decision provides a framework for understanding some basic obligations and rules. Here is my summary take away from the case:
- Any individual or business that reasonably anticipates litigation must issue a "timely" litigation hold in writing. This means steps must be taken to preserve evidence and to stop its destruction. This also means that the duty to preserve evidence arises before litigation ever happens. The duty to preserve arises when litigation is "reasonably anticipated."
- Failure to initiate a written litigation hold may constitute gross negligence.
- Failure to properly collect evidence from key players in the dispute is gross negligence or willfulness. This means that evidence must be collected from the individuals that are most involved in the dispute. This type of conduct is more culpable and likely to lead to sanctions.
- Destruction of emails or backup tapes after the duty to preserve arises may also consitute gross negligence and willful misconduct.
- Failure to obtain evidence from "all" employees, as opposed to key players, is likely ordinary negligence and a lower degree of culpability.
- Failure to take all appropriate measures to preserve electronically stored information is negligence and less culpable.
Failure to follow the above framework may result in sanctions ranging from fines and cost shifting to dismissal, preclusion of evidence, or an adverse inference instruction to the jury at the time of trial. The sanction will depend on the degree of culpability ranging from negligence to gross negligence to intentional conduct. The scope of sanctions will also depend on the relevance of the missing evidence and the prejudice to the innocent party.
The obligation to preserve evidence must be taken seriously once litigation is "reasonably anticipated." The sanctions that can result from failure to abide by these obligations can dramatically impact the result of a lawsuit and can cause a party to lose an otherwise meritorious claim or defense. Improper handling of electronic discovery can also cause an expensive detour in a litigation case that can be avoided with proper care and attention to discovery obligations.