Eight months ago, Judge Shira A. Scheindlin of the Southern District of New York issued a notable opinion in Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, LLC, et al. , 685 F. Supp. 2d 456 (S.D.N.Y. Jan. 15, 2010 as amended May 28, 2010) (hereinafter, " Pension Committee "). Pension Committee may potentially reshape the electronic discovery landscape that Judge Scheindlin helped to create in the landmark Zubulake v. UBS Warburg line of cases. Six New York federal judges, in both the Southern and Eastern District trial courts and in the bankruptcy court, have already looked to Pension Committee , relying on the case to varying degrees when confronted with electronic discovery disputes. Thus far, there has been little or almost no consistency in the ways courts have applied Pension Committee , or in the sanctions assessed, even for the same or similar levels of conduct. While Courts have differed in their application of Pension Committee , it is undeniable that this decision is having a major impact in shaping the development of e-discovery law.
Recapping Pension Committee And Its Updates
Pension Committee was a hedge fund bankruptcy case most notable for its electronic discovery lessons. The case provides essential guidance to litigants about their electronic discovery obligations, including the correct procedures for issuing holds to preserve evidence in litigation, and the proper methods of collecting electronically stored information. Pension Committee , 685 F. Supp. 2d at 463-67. Pension Committee also provides courts with a framework to evaluate a party's culpability in violating discovery obligations, to determine which party carries the burden of proof on spoliation claims, and the appropriate sanctions when a party fails to meet its obligations. Id. In Pension Committee , Judge Scheindlin found that many of the plaintiffs had failed to issue timely litigation holds and had carelessly collected information, amounting to "gross negligence." Consequently, Judge Scheindlin held that the plaintiffs' gross negligence justified monetary fines and an adverse inference instruction to the jury that the spoliated evidence was relevant and prejudicial to the plaintiffs' case. Id. at 496-98. Since issuing the Pension Committee opinion, Judge Scheindlin has amended the opinion twice. These revisions clarified and narrowed the scope of the custodians and back-up tapes subject to search, preservation and collection. Compare Pension Comm. of the Univ. of Pension Committee Plan v. Banc of Am. Secs., LLC , 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010), with Pension Committee , 685 F. Supp. 2d at 465 (S.D.N.Y. as amended May 28, 2010) (changing "all backup tapes" to "certain backup tapes," and amending "all employees" to "all those employees who had any involvement with the issues raised in litigation").
Pension Committee 's Progeny
Attorneys and clients transacting business in New York State should be aware of the line of recent New York federal court cases citing Pension Committee . The Pension Committee case informs varying amounts of the discussion in these precedents. However, while New York courts may utilize Pension Committee 's framework and analysis, judges have not always followed its bright line rules and in some cases have imposed lesser sanctions than those issued in this case. New York court cases citing Pension Committee to date are discussed below, organized by the severity of sanctions assessed.
Adverse Inference Instructions, Evidence Bars Or Burden-Shifting Imposed
Judge Scheindlin has herself imposed tough sanctions for e-discovery violations since Pension Committee was released, holding parties strictly accountable for spoliation, even when evidence was lost merely due to negligence. In her first opinion to cite Pension Committee , Casale v. Kelly , 2010 WL 1685582 (S.D.N.Y. Apr. 26, 2010), Judge Scheindlin applied Pension Committee 's standards on evidence preservation duties and elements of proof to the plaintiffs' claims that the defendants had failed to preserve several original hard copy documents vital to plaintiffs' case. In Casale , Judge Scheindlin opined on the "range of sanctions" that a "spoliator may be subject to," id. at *10, and the dual purposes of ensuring future compliance with discovery obligations and compensating an aggrieved party for injuries caused by past non-compliance. Id . at *9. Judge Scheindlin assessed the same severe penalty against the spoliating party in Casale as she did in Pension Committee : an adverse inference instruction and monetary penalties. However, in Pension Committee these sanctions were punishment for grossly negligent conduct, whereas in Casale, Judge Scheindlin leveled the same penalties for merely negligent conduct.
In Wilson v. Thorn Energy, LLC , 2010 WL 1712236 (S.D.N.Y. Mar. 15, 2010), a case involving a dispute over the payment of a promissory note, Judge Maas found that defendants' failure to collect evidence in a timely manner and failure to preserve records constituted gross negligence or willful behavior. Id. at *3-4. Relying on the language of Pension Committee and its evidence-spoliation standard, id. at *3, Judge Maas found that it "was at least grossly negligent for the Defendants not to have made a copy of the flash drive before it allegedly failed." Id. Accordingly, Judge Maas sanctioned defendants so that they could not offer any evidence concerning the data allegedly contained on the discarded flash drive. Id. Thus, Judge Maas handed down a penalty for grossly negligent or willful spoliation in Wilson that was less severe on its face than the penalty Judge Scheindlin assessed for mere negligent spoliation in Casale .
Attorneys Fees, Costs Or Fines Imposed
The remaining New York federal judges adjudicating spoliation claims in the post- Pension Committee world have levied monetary fines, but have not barred evidence even for grossly negligent conduct or, in one case, "intentional bad faith spoliation of evidence." See Passlogix, Inc. v. 2FA Technology, LLC , 2010 WL 1702216, at *34 (S.D.N.Y. Apr. 27, 2010) (penalizing party only $10,000 for bad faith conduct, intentional and willful spoliation of evidence).
In Passlogix, Inc. v. 2FA Technology, Inc. , which involved a dispute over a breach of a computer licensing agreement, plaintiffs leveled spoliation allegations regarding unpreserved written communications and defendants' failure to institute a litigation hold. Judge Leisure found that plaintiffs did not establish that defendants' actions were prejudicial to their case. Id. at *29. Nevertheless, Judge Leisure did find that the defendants had acted in bad faith, and presumed the relevance of the intentionally spoliated documents. Id. at *34. Judge Leisure relied on Pension Committee for its burden of proof standards and its policy rationales regarding deterrence and punishment, id. at *35, specifically citing the statement from Pension Committee that "a court should always impose the least harsh sanction that can provide an adequate remedy." Id. at *37 (citing Pension Committee , 2010 WL 184312, at *6). In the end, Judge Leisure found a simple $10,000 fine to be a sufficient punishment for the defendants' intentionally wrongful conduct, taking into account the defendants' "status as a small corporation." Id. at *35 (citing Shangold v. Walt Disney Co. , 275 Fed. Appx. 72, 74 2d Cir. 2008) (stating that district courts "should not hesitate to take the relative wealth of the parties into account" when setting monetary sanctions).
A case before Southern District Judge Richard J. Sullivan, Merck Eprova AG v. Gnosis S.P.A. (hereinafter " Gnosis "), dealt with another instance of defendants failing to institute a litigation hold, and failing to properly search for or produce all relevant documents - this time in the context of a suit involving nutritional labeling claims. 2010 WL 1631519 (S.D.N.Y. Apr. 20, 2010). Judge Sullivan found that the defendants' grossly negligent failures warranted a fine of $25,000 to be paid by the defendants and counsel. In reaching this conclusion, Judge Sullivan expressly stated his agreement "with the analytical framework" of Pension Committee and relied heavily on its culpability classifications, sanctions recommendations and policy rationales. Id. at *4-5. While the Gnosis opinion evidenced a willingness to consider sanctions as harsh as those in Pension Committee , Judge Sullivan ultimately tempered that willingness with fact-based concerns about the lack of information on the nature or value of the spoliated evidence. Id.
Last among the New York cases citing Pension Committee in the spoliation context, the case Field Day, LLC v. County of Suffolk , 2010 WL 1286622 (E.D.N.Y. Mar. 25, 2010) provides yet another example of egregious spoliation receiving a lenient sanction. In Field Day , the defendants failed to implement a litigation hold, failed to adequately search for relevant documents and destroyed internal email communications and hard files. Still, Judge Hurley, of the Eastern District, found the defendants' conduct to be merely negligent. Id. at *3. Judge Hurley analyzed plaintiffs' spoliation claims in the context of their occurrence - prior to the Zubulake decisions announcing the necessity of litigation holds. Id. at *13. Judge Hurley also focused on the defendants' state of mind, citing Pension Committee for its culpability and burden of proof standards. Id. at *13-14. Although Judge Hurley found that the plaintiffs met their burden of proof, he found that given the behaviors' occurrence before the benefit of Zubulake 's guidance, defendants were only negligent and deserved leniency. Id. at *13. Although the defendants' actions in a post- Zubulake world might have been deemed willful and penalized with an adverse inference instruction, heavy fines or worse, under a pre- Zubulake paradigm, the defendants' actions were merely negligent, resulting in an award only of costs and fees associated with the sanctions motion. Id. at *15.
Pension Committee Consulted By Bankruptcy Court
In the case In re A&M Florida Properties II, LLC , 2010 WL 1418861 (Bankr. S.D.N.Y. Apr. 7, 2010), Chief Bankruptcy Judge Arthur Gonzalez adjudicated a contract dispute, in which discovery issues arose. Initially, defendants alleged email spoliation after plaintiffs failed to make a meaningful production. As a result, the parties jointly retained a third-party vendor specializing in document searches and recovery. Id. at *1-4. It was subsequently discovered that plaintiffs' discovery searches had been ineffective, primarily because individuals organizing the document collection were unaware that emails culled from custodians' "'live' email" boxes did not include archived or deleted emails. Id. at *2. With the vendor's recovery of over 9,500 relevant emails, the motion for spoliation of evidence was thus mooted, and the court was asked to sanction the plaintiffs for "intentionally obstructing the discovery process." Id. at *5. The obstructions alleged were plaintiffs' failures to meet electronic discovery deadlines and to properly search for or produce requested documents. Id. Defendants argued that the costs of the vendor and the discovery dispute were "needless" and the result of plaintiffs' and their attorneys' misunderstandings and delays. Id.
Plaintiffs maintained that the alleged conduct was not the product of willfulness, but rather of ignorance. Id. at *6. Judge Gonzalez credited that explanation, attributing plaintiffs' conduct to a lack of understanding of the "technical depths to which electronic discovery can sometimes go," and denied defendants' motion for dismissal or, in the alternative, for an adverse inference instruction. Id. at *5-6. Judge Gonzalez rejected the application of Pension Committee , finding that dismissal or an adverse inference instruction "would be overly harsh for what has occurred here" - i.e. no evidence of spoliation. Id. at *5. The sanctions levied for these failures were half the cost of the forensic searches, to be borne in some measure by plaintiffs and their counsel, and the costs associated with defendants' motion for sanctions and to compel.
In the few months since Pension Committee was decided, several courts in New York have already considered, and applied to varying degrees, the tenets of Judge Scheindlin's Pension Committee decision. While these opinions provide clues as to the level of influence Pension Committee will exert over electronic discovery law in the future, it remains to be seen whether Judge Scheindlin's Pension Committee decision will be as influential as her Zubulake line of cases has been on federal and state court decisions in New York.
Norman C. Simon, a Partner, works on all aspects of commercial litigation at both the trial and appellate levels as well as in the arbitration context. Samantha V. Ettari, an Associate, focuses her practice primarily upon white-collar criminal defense and complex civil litigation. Summer Associate Anastasia Niedrich assisted in the preparation of this article.