Avoiding Sanctions In Electronic Discovery

Friday, October 1, 2004 - 01:00
William R. Horwitz

Judge Shira A. Scheindlin of the United States District Court for the Southern District of New York, a recognized authority on electronic discovery, has issued another significant decision in Zubulake v. UBS Warburg LLC, et al. In an earlier decision, Judge Scheindlin addressed the legal standard for allocating costs involved in retrieving e-mails from backup tapes. In the latest decision, on the plaintiff's motion for sanctions for spoliation of evidence, the court delineated the responsibilities of attorneys and their clients in preserving and producing electronic discovery, and sanctioned the employer for failing to fulfill these responsibilities.

The latest decision, Zubulake V, includes practical guidance for companies and attorneys, including in-house counsel, to avoid the pitfalls that the new era of electronic discovery presents. For companies and attorneys failing to adopt and follow new protocols, however, the decision poses a genuine threat of sanctions.

Factual Background

Plaintiff Laura Zubulake, an equities trader, filed a charge of discrimination against her former employer, defendant UBS Warburg LLC ("UBS"), in August 2001 with the Equal Employment Opportunity Commission ("EEOC"). Following the termination of the EEOC proceedings, she filed a lawsuit in February 2002 in federal court, in which she asserted claims under federal, state, and municipal laws for gender discrimination, failure to promote, and retaliation.

Immediately after Zubulake filed the EEOC charge, UBS's in-house counsel orally instructed UBS employees not to delete or destroy material potentially relevant to Zubulake's claims and to separate such material for counsel's review. This instruction applied both to hard copies and electronic files. UBS's outside counsel then met with employees involved in the litigation and repeated these instructions. In-house counsel again reiterated the instructions in writing in February 2002, shortly after Zubulake initiated her lawsuit, and yet again in September 2002, while it was pending. When Zubulake requested in discovery e-mails stored on backup tapes, UBS's outside counsel instructed the company's information technology personnel to stop recycling backup tapes.

Zubulake presented evidence that, notwithstanding these instructions, UBS employees deleted e-mails that were relevant to her case. Some of the e-mails were recovered from backup tapes and produced long after she had requested them, and some were never recovered. Zubulake also presented evidence that certain UBS employees possessed e-mails on their computers relevant to the lawsuit but never provided them to counsel and, therefore, they were not produced to Zubulake until her attorney learned of their existence during depositions.

Application For Sanctions

On Zubulake's motion for sanctions, the court stated that a party seeking sanctions for spoliation of evidence must establish: (1) that the party with control over the evidence was obligated to preserve it at the time that it was destroyed; (2) that the evidence was destroyed with a "'culpable state of mind'"; and (3) that the evidence was relevant such that a reasonable trier of fact could find that it would have supported the moving party's claim or defense. The court explained that "culpable state of mind" includes negligence, and that when evidence is destroyed in bad faith (i.e., willfully or intentionally), the relevance requirement is presumed to be satisfied.

The court found that Zubulake established the first element, and next considered the culpability of UBS's state of mind by evaluating whether UBS had taken all necessary steps or precautions to guarantee that relevant evidence was preserved and produced. Toward this end, Judge Scheindlin set forth the necessary steps that counsel must follow with regard to preserving and producing evidence in the "typical" case. Although the court noted that certain cases may require more or fewer steps, cautious companies and their counsel should consider these to be the absolute minimum.

Necessary Steps For The Typical Case

First, counsel must issue a "'litigation hold'" to the client as soon as litigation can be reasonably anticipated, notifying the client to suspend routine document retention/destruction policies. Counsel must then periodically remind the client's employees of the hold. As the court explained, "a party cannot reasonably be trusted to receive the 'litigation hold' instruction once and to fully comply with it without the active supervision of counsel."

Second, counsel must directly communicate the preservation duty to the client's employees who are "'key players'" in the litigation, because they are most likely to have relevant information. This category of employees includes people identified in discovery as having knowledge of facts relevant to the case. Counsel should also periodically remind them of the preservation duty.

Third, counsel should instruct all employees to provide him or her with electronic copies of their relevant active files.

Fourth, counsel should ensure that backup media are identified, segregated, and placed in storage. The court suggested that attorneys may even wish to take possession of such backup media in order to reduce the possibility of inadvertent recycling.

Judge Scheindlin explained that counsel must affirmatively monitor compliance with discovery obligations in order to identify and search all sources of discoverable information. The court noted that while counsel is not required to supervise every step of the document production process and may to a certain extent rely upon the client, "counsel is responsible for coordinating her client's discovery efforts." Nonetheless, the court explained, "[a]t the end of the day, É the duty to preserve and produce documents rests on the party."

Sanctions Imposed

The court reasoned that in this case, UBS and its counsel had not taken all necessary steps to guarantee that relevant evidence was preserved and produced. Judge Scheindlin noted that although "more diligent action on the part of counsel would have mitigated some of the damage caused by UBS's deletion of e-mails, UBS deleted the e-mails in defiance of [its counsel's] explicit instructions not to."

Judge Scheindlin concluded that UBS had engaged in willful spoliation of evidence and, therefore, Zubulake was not required to demonstrate that the evidence was relevant. As a result, the court imposed the following sanctions: (1) the jury would receive an adverse inference charge with respect to e-mails that UBS deleted after August 2001; (2) UBS was required to pay for any additional depositions or re-depositions required by the late production of evidence; and (3) UBS was required to pay the reasonable costs and attorneys' fees of this motion.

Why Zubulake V Is Significant

Perhaps most significant about Zubulake V is that, as Judge Scheindlin characterized the case, it is a "relatively routine employment discrimination dispute." As a result, companies and their attorneys should expect the issues in Zubulake to arise increasingly in other employment cases, particularly now that electronic communications are so prevalent in the workplace.

This case is also significant because the court imposed sanctions despite the company's seemingly genuine efforts to honor its discovery obligations. Both outside and in-house attorneys at UBS repeatedly instructed employees to preserve information. Moreover, at the time, UBS and its attorneys had little guidance as to the appropriate manner in which to preserve and collect electronic discovery.

Nonetheless, e-mails were lost or produced late, and the court sanctioned UBS. Accordingly, Zubulake signals that even well-intentioned efforts to preserve and collect electronic discovery may not be adequate. Companies and their attorneys must develop protocols for reliably preserving and collecting electronic information and must rigorously follow them.

Zubulake V As A Defense To Sanctions

Zubulake V may cause corporations and their counsel concern because it raises a real threat of sanctions in electronic discovery, but the decision also sets forth fairly straightforward steps or precautions to follow in order to avoid the imposition of sanctions. A company should adopt these steps as part of standard protocols that it follows in every case. In cases that are more complex, such as those involving an unusually large volume of electronic information, the protocols should be adapted to ensure that electronic information is being reliably preserved and collected. Although no guarantee, adopting and following such protocols should help a company defeat an application for sanctions.

As detailed above, the steps that Zubulake V identified as necessary in the typical case are:

1.Issue a litigation hold as soon as litigation can be "reasonably anticipated," and regularly re-issue the hold.

2.Notify and regularly remind key players of their duty to preserve and provide counsel with relevant electronic information.

3.Collect relevant employee active e-mail files.

4.Identify, segregate, and store backup media. Better Communication

Central to each of the Zubulake V steps - and, indeed, the recurring theme of Judge Scheindlin's decision - is the importance of effective communication between corporate clients and their attorneys (both in-house and outside). Judge Scheindlin emphasized this point in the opening sentences of her decision, noting that "[l]awyers and their clients need to communicate clearly and effectively with one another to ensure that litigation proceeds efficiently." As she cautioned, when attorney-client communication breaks down, "there are usually casualties."

For example, in Zubulake V, the court noted that both in-house and outside counsel instructed UBS personnel to retain relevant electronic information, but certain employees nonetheless deleted relevant e-mails and other employees failed to provide all of their relevant e-mails to counsel. In addition, counsel failed to ask a key employee for electronic information and failed to inform another of the litigation hold.

As Zubulake V makes clear, miscommunication between UBS and its counsel resulted in lost or delayed production of e-mails.

The Court's Warning

In her decision, Judge Scheindlin recognized that when the Zubulake case began, "there was little guidance É as to the governing standards" regarding the discovery of electronically stored information. Now, as a result of Zubulake and other cases addressing electronic discovery issues for the first time, companies and their counsel have the guidance that UBS lacked. Thus, as Judge Scheindlin warned, "parties and their counsel are [now] fully on notice of their responsibility to preserve and produce electronically stored information."

Companies and their counsel should adopt protocols consistent with the steps advocated by Judge Scheindlin. The protocols should be rigorously followed, with close attention to effective communication between client and counsel. In this way, corporate litigants may use the Zubulake V decision as a shield to protect themselves from sanctions, rather than allowing plaintiffs to use it against them.

David W. Garland is Co-Chair of the Employment and Labor Department of Sills Cummis Epstein & Gross P.C., with offices in Newark and New York City. William R. Horwitz is a Senior Associate in the department.

Please email the authors at dgarland@sillscummis.com or whorwitz@sillscummis.com with questions about this article.