In Pension Committee of the University of Montreal Pension Plan et al. v. Banc of America Securities, LLC et al., No. 05 Civ. 9016, 2010 WL 184312 (S.D.N.Y., Jan. 15, 2010), Judge Shira A. Scheindlin revisits her highly influential and often-cited Zubulake decisions.^₁   Although the case did not involve “any examples of litigants purposefully destroying evidence,” the failure to timely institute written litigation holds constituted gross negligence. That failure, coupled with plaintiffs’ “careless and indifferent” preservation and collections efforts, warranted the imposition of severe sanctions. The Pension Committee decision reinforces the essential need for organizations to have a well-planned, robust records management program and corresponding eDiscovery response plan.

    The case involved a group of investors who had sued to recover $550 million lost as a result of the liquidation of two British Virgin Islands hedge funds. During discovery, defendants found gaps in plaintiffs’ document production and moved for sanctions, alleging that plaintiffs had failed to preserve and produce documents and submitted false declarations regarding their document collection and preservation efforts. 

    Judge Scheindlin agreed, finding that plaintiffs were either negligent or grossly negligent in failing to comply with their discovery obligations. The court’s lengthy (88-page) decision addresses: (1) the standard of plaintiffs’ culpability in the context of discovery misconduct (negligence, gross negligence or willful misconduct); (2) the interplay between the duty to preserve evidence and the spoliation of evidence; (3) the extent to which a party should bear the burden of proving that evidence has been lost or destroyed and the consequences; and (4) the appropriate remedy for the harm caused by the spoliation.

    Significantly, the court held that the failure to adhere to contemporary standards can be considered gross negligence. Judge Scheindlin ruled that to avoid a finding of gross negligence, a litigant must, at a minimum, “issue a written litigation hold,” “identify the key players and ensure that their electronic and paper records are preserved,” “cease the deletion of email or to preserve the records of former employees that are in a party’s possession, custody, or control” and “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.

    As a sanction for those parties that were grossly negligent, Judge Scheindlin ruled that the jury would be provided an adverse inference instruction that they could presume that the lost evidence was relevant and would have been favorable to the defendants. She also awarded monetary sanctions, ordering that all plaintiffs pay defendants’ attorneys’ fees and costs.

    In discussing the scope of a litigant’s eDiscovery obligations, Judge Scheindlin referred to another recent federal court opinion, Phillip M. Adams & Assoc., LLC v. Dell, 621 F. Supp. 2d 1173 (D. Utah 2009). Emphasizing the criticality of a records retention program and technology to manage an organization’s records, the Adams court sanctioned a party for its “questionable information management practice.” The court held:

An organization should have reasonable policies and procedures for managing its information and records. The absence of a coherent document retention policy is a pertinent factor to consider when evaluating sanctions. Information management policies are not a dark or novel art. Numerous authoritative organizations have long promulgated policy guidelines for document retention and destruction.

    eDiscovery is a burden that nearly every organization will eventually bear. The recent Pension Committee and Adams decisions provide guidance to assist litigants in complying with their eDiscovery obligations and avoiding the imposition of sanctions. Accordingly, organizations should:

• Develop and implement a legally compliant, proactive records management program as part of their general business practices;
• Institute and enforce eDiscovery response procedures that, among other things, provide for the issuance of written litigation holds and the suspension of routine records disposal when the duty to preserve arises, monitors compliance with such holds, identifies all potential custodians of relevant materials and identifies steps to preserve, collect and produce relevant information; and
• Leverage existing technology solutions used to create and manage their electronic records to prepare for, and respond to, eDiscovery, thereby maximizing the original investment and reducing additional eDiscovery costs. 

    In sum, the Pension Committee decision offers a stark reminder that the lack of a well-designed records management program and effective legal hold practices will put any organization at risk. The process of creating, managing and discovering electronically stored information can be a well-defined and controlled activity through the use of policies and procedures, coupled with the necessary technology. 

_{1. Judge Scheindlin issued her original opinion on January 11, 2010, which was later withdrawn and replaced with an amended order, dated January 15, 2010. The amended opinion clarified the prior ruling in two respects. First, the latter opinion clarified when backup tapes are to be preserved, as discussed more fully above. Second, the prior decision criticized the plaintiffs for placing “total reliance on the employee to search and select what that employee believes to be responsive records without any supervision from Counsel.” The amended opinion states in a footnote “that not every employee will require hands-on supervision from an attorney. However, attorney oversight of the process, including the ability to review, sample or spot-check the collection efforts is important. The adequacy of each search must be evaluated on a case by case basis.”}