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Zubulake& Electronic Data Discovery Revisited in Pension

Committee: Déjà vu all over again.

by Dean Gonsowskion March 1st, 2010

Judge ShiraScheindlin is famous for a number of things in her

electronic data discovery opinions, but one notable aspect is
her use of quotes to set the tone for her landmark decisions.
In Zubulake she quoted Cool Hand Luke (“What we’ve got
here is a failure to communicate.”) and in her latest opinion
she quotes George Santayana (“*t+hose who cannot
remember the past are condemned to repeat it.”).

Pension Committee of the Univ. of Montreal Pension Plan, et

al., v. Banc of America Securities, LLC, et al. (“Pension
Committee”) is generating a lot of buzz and reminds me of
the Yogi Berra quote: “this is like déjà vu all over again” …
particularly when thinking back to her landmark Zubulake
decisions. In this opinion, Judge Scheindlin of the Southern District of New York pens another
potential electronic discovery classic, while simultaneously paying homage to her past opus.

Before we get into the “how” and “what” of the 85 page opinion, it’s probably reasonable to
posit the “why” question, particularly when Judge Scheindlin and her team spent 300 hours on
the mammoth undertaking. Know more on Early Case Assessment.

“I, together with two of my law clerks, have spent an inordinate amount of time on this motion.
We estimate that collectively we have spent close to three hundred hours resolving this
motion. I note, in passing, that our blended hourly rate is approximately thirty dollars per hour
(!) well below that of the most inexperienced paralegal, let alone lawyer, appearing in this case.
My point is only that sanctions motions, and the behavior that caused them to be made, divert
court time from other important duties-namely deciding cases on the merits.”

So, why was this fact pattern worthy of the inordinate amount of briefing time (regardless of
the inconceivably low $9,000 fee)? A skeptic might postulate that Judge Scheindlin has been
out of the limelight lately, often being eclipsed by Judges Peck and Grimm. It’s also been a year
since her Securities and Exchange Commission v. Collins & Aikman Corp, opinion and it’s likely
that she wanted to hearken back to the good ole Zubulake days, where she had the ear of the
entire electronic discovery world. Her tribute is less than subtle, as she even subtitles Pension
Committee: “Zubulake Revisited: Six Years Later.”

Less skeptically, however, she likely sees a host of matters rife with electronic data discovery
disputes caused by the bar’s lack of e-discovery savvy. It seems plausible that Pension

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Committee is a way for her to coalesce leanings from Zubulake (and beyond) into one, clear
expression of legal duties. Know more on E-Discovery Software.

Given the length of her opus, we won’t dissect the entire opinion as Ralph Losey did
(chockablock with flying gerbils), but will instead focus in on the enduring and potentially
controversial sections. As way of background, the dispute at hand focused on claims by a group
of investors who brought an action to recover losses of 550 million dollars stemming from the
liquidation of two British Virgin Islands based hedge funds. Unlike many typical e-discovery
disputes, this instant action focused on the conduct of the plaintiffs as they attempted to deal
with the often murky landscape of ESI preservation, collection and production. Fortunately,
Judge Scheindlin provided much needed foreshadowing to both readers and bloggers alike in
her opening comments:

“Because this is a long and complicated opinion, it may be helpful to provide a brief summary
up front. I begin with a discussion of how to define negligence, gross negligence, and willfulness
in the discovery context and what conduct falls in each of these categories. I then review the
law governing the imposition of sanctions for a party’s failure to produce relevant information
during discovery. This is followed by factual summaries regarding the discovery efforts–or lack
thereof–undertaken by each of the thirteen plaintiffs against whom sanctions are sought, and
then by an application of the law to those facts. Based on my review of the evidence, I conclude
that all of these plaintiffs were either negligent or grossly negligent in meeting their discovery
obligations. As a result, sanctions are required.”

The finding of sanctions aside, Judge Scheindlin goes out of her way to crystallize duties and
identify the type of conduct can cause an e-discovery breach. Despite significant caveats about
the fact intensive nature of each discovery dispute, she nevertheless proffers the following
synthesis, which has caused no shortage of consternation amongst electronic discovery
practitioners and commentators:

“After a discovery duty is well established, the failure to adhere to contemporary standards can
be considered gross negligence. Thus, after the final relevant Zubulake opinion in July, 2004,
the following failures support a finding of gross negligence, when the duty to preserve has
attached:

to issue a written litigation hold;

to identify all of the key players and to ensure that their electronic and paper records are
preserved;
to cease the deletion of email or to preserve the records of former employees that are in a
party’s possession, custody, or control;
and to preserve backup tapes when they are the sole source of relevant information or when
they relate to key players, if the relevant information maintained by those players is not
obtainable from readily accessible sources.

[bullets added]

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Assuming Pension Committee is followed beyond the bounds of the Southern District of New
York, which is still speculative at this stage, it certainly means sleepless nights for corporate
legal departments with litigation hold and preservation processes that are less than
“contemporary.” While it’s hard to argue with the theoretical appropriateness of the above
items, it’s questionable how practical these steps are, particularly for large enterprises that may
have dozens (or hundreds) of litigation holds in place at any one point in time. Multiply the
numbers of holds times the disparate types of ESI and the complexities of the IT infrastructures
and Judge Scheindlin’s seemly innocuous mandate can quickly become a tactical minefield, rife
with sanctions possibilities. Unfortunately, with the rapid proliferation of social media usage
and cloud computing, this already complex paradigm is only going to become more vexing in
the near term.

Given that the number of struggling enterprises is legion, it does certainly beg the question
whether more folks than not can live up to this new “reasonableness” standard. If not, this
articulation may materially raise the bar and result in a demonstrable increase in spoliation
motions, if that were possible. Already, spoliation charges are often referred to as a “case
within the case” by many, something which Judge Scheindlin reluctantly acknowledges.

“Finally, I note the risk that sanctions motions, which are very, very time consuming,
distracting, and expensive for the parties and the court, will be increasingly sought by litigants.
This, too, is not a good thing. For this reason alone, the most careful consideration should be
given before a court finds that a party has violated its duty to comply with discovery obligations
and deserves to be sanctioned. Likewise, parties need to anticipate and undertake document
preservation with the most serious and thorough care, if for no other reason than to avoid the
detour of sanctions.”

[Footnotes omitted]

Perhaps ratcheting up of the e-discovery standard of care can be rationalized as aspiration in

nature. Yet, it is hard to see how it reflects the actual business practices of many in corporate
legal departments, particularly when the actions/inactions occurred (as in this case) several
years ago when nascent notions about best practices were still evolving. Know More on Internal Investigation.

“The age of this case requires a dual analysis of culpability–plaintiffs’ conduct before and after
2005. The Citco Defendants contend that plaintiffs acted willfully or with reckless disregard,
such that the sanction of dismissal is warranted. Plaintiffs admit that they failed to institute
written litigation holds until 2007 when they returned their attention to discovery after a four
year hiatus. Plaintiffs should have done so no later than 2005, when the action was transferred
to this District. This requirement was clearly established in this District by mid2004, after the
last relevant Zubulake opinion was issued. Thus, the failure to do so as of that date was, at a
minimum, grossly negligent.”

[Footnotes omitted]

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Perhaps my biggest issue with this decision is that it (perhaps myopically) places an inordinate
level of importance and awareness of the Zubulake decisions, particularly for those outside
Judge Scheindlin’s district. This lawsuit was initially brought in Florida and “*w+hile a duty to
preserve existed in the Southern District of Florida at the time this action was filed, no court in
the Eleventh Circuit articulated a ‘litigation hold’ requirement until 2007.” In my mind, it hardly
seems fair to retroactively imbue the Plaintiffs with this type of comprehension and duty.

At the end of the day, and despite quibbling with the equities involved, Judge Scheindlin has
largely succeeded in moving the e-discovery ball forward. The opinion will likely be one of the
most widely read cases in 2010 and deservedly so since it describes with precision and clarity
the burdens and penalties in the evolving area of ESI spoliation. The main question will be to
what extent will other jurisdictions adopt the same culpability framework and extend the reach
of Pension Committee just as happened with the Zubulake line of cases.

Certainly, it could be “déjà vu all over again.”

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