Welcome to Module 5-B.

Landmark Cases on Sanctions: Reasonable Efforts, Perfection, and Res Ipsa Loquitur.

This will be a challenging module, but it will provide you with an advanced perspective on sanctions that should serve you well in later legal practice. Here we consider two important 2010 opinions on sanctions by the then current chair of the Federal Rules Committee, District Court Judge Lee Rosenthal and another Rule Committee member, the by now familiar Judge Shira Scheindlin. Rimkus v Cammarata, 2010 WL 645253 (S.D. Tex. Feb. 19, 2010) (Judge Rosenthal); The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, et al., 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010) (Amended Order) (SDNY Jan. 15, 2010) (Judge Scheindlin).

Rosenthal.JudgeSome have called these “dueling opinions,” but, as you will see, I do not agree, although I do have serious concerns about misinterpretation of Pension Committee. Further, I appreciate the emphasis by Judge Rosenthal in her opinion on reasonability and proportionality. These statements in Rimkus serve as a good counter-balance to the unfortunate statement in the earlier Pension Committee decision that “A failure to preserve evidence resulting in the loss or destruction of relevant information is surely negligent . . .” I happen to disagree with that statement, taken on its own, and think it is contra to other statements in the lengthy Pension Committee opinion. I am concerned that attorneys and judges will take this statement out of context and apply too strict a standard in evaluating possible sanctions. In my view, the issue of negligence, or not, is not so automatic or simply determined by just the failure to preserve a piece of ESI. It all depends on the circumstances.

The pole-star should not be whether ESI is missing, it should be the reasonability of efforts to preserve. Evaluating reasonability in turn depends on proportionality. Generally, what is reasonable for a hundred thousand dollar case is far less than what is reasonable for a hundred million dollar case like Pension Committee. That is why I find the following statement in Rimkus so important:

Whether preservation or discovery conduct is acceptable in a case depends on what is reasonable, and that in turn depends on whether what was done – or not done– was proportional to that case and consistent with clearly established applicable standards.

First this module begins with my article on Pension Committee. It concludes with my second article on Rimkus.

Raising the Bar – Judge Scheindlin Defines Gross Negligence in Spoliation”

Judge Shira A. Scheindlin opinion, which she herself sub-titles “Zubulake Revisited: Six Years Later,” is the most talked about case of 2010. The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, et al., 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010) (Amended Order) (SDNY Jan. 15, 2010). It provides the “criteria a court should review in evaluating discovery conduct” and concludes by sanctioning multiple plaintiffs who failed to meet these criteria.

Shira Scheindlin

Although Judge Scheindlin notes that a court’s decision to award sanctions is inherently fact intensive and based on a judge’s “‘gut reaction’ based on years of experience as to whether a litigant has complied with its discovery obligations and how hard it worked to comply,” she goes on to specify what failures she generally considers to be gross negligence, and not just simple negligence:

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 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.

Id. at pg. 24 of Amended Order (all cites here are to pgs. in the Amended Order, not WL). Also see new footnote 99 added to the Amended Order clarifying that backup tapes need only be preserved where they are the sole source of relevant tapes (e.g., the active files of key players are no longer available). (The Order withdrawing the first opinion and replacing it with the Amended Order is attached to the online version of this article for clarification purposes.)

Pension Committee raises the bar for the Bar. It provides a list of specific preservation activities that must be followed to avoid the charge of gross negligence and the sanctions that usually follow such a holding. It thus ups the ante for corporations and large organizations everywhere to take the preservation of ESI very seriously. They and their counsel will now all have to become expert guinea pigs in the pole-vaulting department, which is how most of us who specialize in e-discovery already felt anyway when it comes to ESI preservation.

Pension Committee provides a thoughtful analysis of the whole field of ESI spoliation and sanctions, especially on the issues of evaluation of levels of culpability and burden of proof. This is a scholarly opinion with citations from around the country. It is not only written in the compelling, erudite manner we have come to expect from Judge Scheindlin, but fills in several gaps in the law of spoliation. As Judge Scheindlin notes at page 6 of the opinion:

While many treatises and cases routinely define negligence, gross negligence, and willfulness in the context of tortious conduct, I have found no clear definition of these terms in the context of discovery misconduct. It is apparent to me that these terms simply describe a continuum. 9 Conduct is either acceptable or unacceptable. Once it is unacceptable the only question is how bad is the conduct. That is a judgment call that must be made by a court reviewing the conduct through the backward lens known as hindsight. It is also a call that cannot be measured with exactitude and might be called differently by a different judge. That said, it is well established that negligence involves unreasonable conduct in that it creates a risk of harm to others, but willfulness involves intentional or reckless conduct that is so unreasonable that harm is highly likely to occur.

She continues in this analysis of degree of culpability and makes the key observation that the “pure heart, empty head” argument is not a viable defense:

The standard of acceptable conduct is determined through experience. In the discovery context, the standards have been set by years of judicial decisions analyzing allegations of misconduct and reaching a determination as to what a party must do to meet its obligation to participate meaningfully and fairly in the discovery phase of a judicial proceeding. A failure to conform to this standard is negligent even if it results from a pure heart and an empty head.

Id. at pgs. 7-8.

The “pure heart, empty head” defense is still widely used by mea culpa prone counsel around the country today. It was the main song of all of the lawyers accused of intentional misconduct in the Qualcomm spoliation trial which took place in San Diego District Court the same week the Pension Committee opinion was published. In San Diego the defense worked, at least as to the outside counsel who were facing severe personal sanctions for their e-discovery negligence. Qualcomm Inc. v. Broadcom Corp., No. 05cv1958-B (BLM) (SD Cal. Apr. 2, 2010).

Judge Scheindlin takes pains in Pension Committee to point out the lack of evidence of intentional misconduct of the plaintiff and their attorneys. Pension Committee is a case with over $550 million in damages at issue where defendants accused the multiple plaintiffs of spoliation and sought sanctions, including dismissal of the case. Unlike Qualcomm, defendants here did not even accuse the plaintiffs of intentionally destroying or withholding evidence.

Pension Committee Introduction

As we have come to expect from Judge Scheindlin, she begins her opinion with well written big-picture background, complete with a memorable cultural reference, this time from Spanish philosopher George Santayana.

In an era where vast amounts of electronic information is available for review, discovery in certain cases has become increasingly complex and expensive. Courts cannot and do not expect that any party can meet a standard of perfection. Nonetheless, the courts have a right to expect that litigants and counsel will take the 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. As discussed six years ago in the Zubulake opinions, when this does not happen, the integrity of the judicial process is harmed and the courts are required to fashion a remedy. Once again, I have been compelled to closely review the discovery efforts of parties in a litigation, and once again have found that those efforts were flawed. As famously noted, “[t]hose who cannot remember the past are condemned to repeat it.” 1 By now, it should be abundantly clear that the duty to preserve means what it 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.

Id. at pgs. 1-2.

Following the effective tell, tell and tell style of presentation, Judge Scheindlin explains near the beginning (pg. 5) of her 88 page order what her opinion will cover:

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.

Analytical Framework and Applicable Law

With this clear roadmap in place, Judge Scheindlin next provides an analytical framework for her opinion with an overview of the applicable law. In this case there was no evidence of intentional destruction, as previously noted, but there was also clear evidence that documents were lost or destroyed. In this situation the court was called upon to decide whether to award sanctions, and if so, how severe. In a prior article published in my blog, William Hamilton proposed a three dimensional analytical framework called a sanctions cube, with three criteria of wilfulness, prejudice and time. Judge Scheindlin’s model in Pension Committee uses a four-dimensional approach. She includes wilfulness and prejudice, but instead of time, looks at burden of proof and then also adds a fourth dimension of remedy.

The question, then, is whether plaintiffs’ conduct requires this Court to impose a sanction for the spoliation of evidence. To answer this question, there are several concepts that must be carefully reviewed and analyzed. The first is plaintiffs’ level of culpability — that is, was their conduct of discovery acceptable or was it negligent, grossly negligent, or willful. The second is the interplay between the duty to preserve evidence and the spoliation of evidence. The third is which party should bear the burden of proving that evidence has been lost or destroyed and the consequences resulting from that loss. And the fourth is the appropriate remedy for the harm caused by the spoliation.

Id. at pgs. 5-6.

The Culpability Continuum

All commentators agree that the level of culpability or wilfulness is a continuum, with evil intent on one side, innocent mistake on the other, and lots of gray area in between. These in-between-areas are key to discovery sanctions analysis. Their jurisprudence is explained by Judge Scheindlin in the following paragraphs:

“Gross negligence has been described as a failure to exercise even that care which a careless person would use.” 11 According to a leading treatise – Prosser & Keeton on Torts – most courts find that gross negligence is something more than negligence “and differs from ordinary negligence only in degree, and not in kind.” 12

The same treatise groups willful, wanton, and reckless into one category that requires “that the actor has intentionally done an act of an unreasonable character in disregard of a known or obvious risk that was so great as to make it highly probable that harm would follow, and which thus is usually accompanied by a conscious indifference to the consequences.” 13

Applying these terms in the discovery context is the next task. Proceeding chronologically, the first step in any discovery effort is the preservation of relevant information. A failure to preserve evidence resulting in the loss or destruction of relevant information is surely negligent, and, depending on the circumstances, may be grossly negligent or willful. 14 For example, the intentional destruction of relevant records, either paper or electronic, after the duty to preserve has attached, is willful. 15 Possibly after October, 2003, when Zubulake IV was issued, 16 and definitely after July, 2004, when the final relevant Zubulake opinion was issued, 17 the failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information. 18

Id. at pgs. 8-9.

This sends a clear message to litigants and the Bar that they must, at the very least, send out written hold notices. If you do not, then, in Judge Scheindlin’s court at least, you have failed to “exercise the care that even a careless person would use.” That is not good. It puts you well on the path to sanctions.

BAD LAWYERAlthough I suspect that Pension Committee will be unwelcome news to most of the Bar, and I have already heard plenty of grumbling, it does confirm and justify my own prior behavior with lit-holds. Many have thought that I was an extremist to insist, sometimes to the point of rudeness, that hold notices be made the highest priority, that they go out by email, be well written, and go out right away. Some of my co-counsel in other firms have suggested that I am way too hyper on this point, that I tend to get a bit paranoid and obsessive (and I confess there is some truth to all of that!), and I certainly can be an annoying nag. But now this opinion by Judge Scheindlin justifies my paranoia. There may be no forgiveness for errors on this duty. My level of concern and intensity when it comes to preservation, especially the threshold act of notification, is by Pension Committee made into the actions expected, no demanded, from a reasonable man. This reminds me of another famous quote of George Santayana: Sanity is a madness put to good use.

Judge Scheindlin does not stop there, she also goes on to consider negligence and gross negligence in the collection and review stages of e-discovery. These are stages in which I am slightly less paranoid and so less comforted by her raising the bar. Here are her words at page 10:

The next step in the discovery process is collection and review. Once again, depending on the extent of the failure to collect evidence, or the sloppiness of the review, the resulting loss or destruction of evidence is surely negligent, and, depending on the circumstances may be grossly negligent or willful. For example, the failure to collect records – either paper or electronic – from key players constitutes gross negligence or willfulness as does the destruction of email or backup tapes after the duty to preserve has attached. By contrast, the failure to obtain records from all employees (some of whom may have had only a passing encounter with the issues in the litigation), as opposed to key players, likely constitutes negligence as opposed to a higher degree of culpability. Similarly, the failure to take all appropriate measures to preserve ESI likely falls in the negligence category. 19 These examples are not meant as a definitive list. Each case will turn on its own facts and the varieties of efforts and failures is infinite. I have drawn the examples above from this case and others. Recent cases have also addressed the failure to collect information from the files of former employees that remain in a party’s possession, custody, or control after the duty to preserve has attached (gross negligence) 20 or the failure to assess the accuracy and validity of selected search terms (negligence). 21

The caveat concerning each case turning on its own facts and infinite variety of circumstances is wise, but will, I suspect, tend to get lost in the shuffle by lawyers and courts looking for clear cut black letter rules. Many will try to turn this list of possible examples into a definitive list, free of disclaimers. They will, for instance, argue that the failure to collect ESI from key players is always gross negligence or at least per se negligence. But as Judge Scheindlin realizes, in the legal universe of infinite facts, there will be many circumstances when that is not even simple negligence, much less gross. Also, lest we forget, it is never possible to collect all-and-everything. All we can ask is a reasonable effort. Judge Scheindlin’s opinion is, I believe, based on the premise that “any and all” and “perfection” make no sense and have no business in the world of e-discovery. After all, her second sentence in the opinion states that: “Courts cannot and do not expect that any party can meet a standard of perfection.” The attempt to oversimplify her ruling by reducing it to black letter rules will, if allowed, raise the bar higher than Judge Scheindlin intended.

Prejudice Caused by Spoliation Burden of Proof

Judge Scheindlin then goes on to explore the second of her four criteria, which Hamilton calls “prejudice” and she calls: “the interplay between the duty to preserve evidence and the spoliation of evidence,” and her third factor, which she calls “burden of proof.” Judge Scheindlin makes another important contribution here by recognizing that the degree of prejudice suffered by the requesting party cannot be determined without also exploring the question of burden of proof. As I have often noted before, this is the classic pig in a poke situation. The evidence is gone, so how do you know whether it was harmful or not? Here is how Judge Scheindlin frames the problem at page 13:

It is often impossible to know what lost documents would have contained. At best, their content can be inferred from existing documents or recalled during depositions. 28 But this is not always possible. Who then should bear the burden of establishing the relevance of evidence that can no longer be found? And, an even more difficult question is who should be required to prove that the absence of the missing material has caused prejudice to the innocent party.

She begins to provide the answer by noting that it depends on the severity of the sanction considered.

The burden of proof question differs depending on the severity of the sanction. For less severe sanctions – such as fines and cost-shifting – the inquiry focuses more on the conduct of the spoliating party than on whether documents were lost, and, if so, whether those documents were relevant and resulted in prejudice to the innocent party. As explained more thoroughly below, for more severe sanctions – such as dismissal, preclusion, or the imposition of an adverse inference – the court must consider, in addition to the conduct of the spoliating party, whether any missing evidence was relevant and whether the innocent party has suffered prejudice as a result of the loss of evidence. …

It is not enough for the innocent party to show that the destroyed evidence would have been responsive to a document request. The innocent party must also show that the evidence would have been helpful in proving its claims or defenses – i.e., that the innocent party is prejudiced without that evidence. Proof of relevance does not necessarily equal proof of prejudice.

In short, the innocent party must prove the following three elements: that the spoliating party (1) had control over the evidence and an obligation to preserve it at the time of destruction or loss; (2) acted with a culpable state of mind upon destroying or losing the evidence; and that (3) the missing evidence is relevant to the innocent party’s claim or defense. 30

Relevance and prejudice may be presumed when the spoliating party acted in bad faith or in a grossly negligent manner. “Where a party destroys evidence in bad faith, that bad faith alone is sufficient circumstantial evidence from which a reasonable fact finder could conclude that the missing evidence was unfavorable to that party.” 31 Although many courts in this district presume relevance where there is a finding of gross negligence, application of the presumption is not required. 32 However, when the spoliating party was merely negligent, the innocent party must prove both relevance and prejudice in order to justify the imposition of a severe sanction. 33 The innocent party may do so by “adduc[ing] sufficient evidence from which a reasonable trier of fact could infer that ‘the destroyed [or unavailable] evidence would have been of the nature alleged by the party affected by its destruction.’” 34 “In other words, the [innocent party] must present extrinsic evidence tending to show that the destroyed e-mails would have been favorable to [its] case.” 35 “Courts must take care not to ‘hold[ ] the prejudiced party to too strict a standard of proof regarding the likely contents of the destroyed [or unavailable] evidence,’ because doing so ‘would . . . allow parties who have . . . destroyed evidence to profit from that destruction.’” 36

Id. at pgs. 13-17.

Judge Scheindlin than goes on to establish a new burden shifting procedure to counter the pig in a poke problem in a way that is fair to both the requesting and producing parties:

No matter what level of culpability is found, any presumption is rebuttable and the spoliating party should have the opportunity to demonstrate that the innocent party has not been prejudiced by the absence of the missing information. 37 If the spoliating party offers proof that there has been no prejudice, the innocent party, of course, may offer evidence to counter that proof. While requiring the innocent party to demonstrate the relevance of information that it can never review may seem unfair, the party seeking relief has some obligation to make a showing of relevance and eventually prejudice, lest litigation become a “gotcha” game rather than a full and fair opportunity to air the merits of a dispute. If a presumption of relevance and prejudice were awarded to every party who can show that an adversary failed to produce any document, even if such failure is completely inadvertent, the incentive to find such error and capitalize on it would be overwhelming. This would not be a good thing.

To ensure that no party’s task is too onerous or too lenient, I am employing the following burden shifting test: When the spoliating party’s conduct is sufficiently egregious to justify a court’s imposition of a presumption of relevance and prejudice, or when the spoliating party’s conduct warrants permitting the jury to make such a presumption, the burden then shifts to the spoliating party to rebut that presumption. The spoliating party can do so, for example, by demonstrating that the innocent party had access to the evidence alleged to have been destroyed or that the evidence would not support the innocent party’s claims or defenses. If the spoliating party demonstrates to a court’s satisfaction that there could not have been any prejudice to the innocent party, then no jury instruction will be warranted, although a lesser sanction might still be required.

Id. at pgs. 17-18.

Remedies

Judge Scheindlin adds a fourth dimension of remedies to her analytic framework, which I suppose makes it into a hypercube, and not just a cube as Hamilton posits.

Judges have broad discretion to impose a remedy they deem appropriate under the circumstances. In cases of non-production of evidence appropriate sanctions should:

(1) deter the parties from engaging in spoliation;

(2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and

(3) restore ‘the prejudiced party to the same position [it] would have been in absent the wrongful destruction of evidence by the opposing party.’” 40

Id. at pg. 19, citing West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2nd Cir. 1999) (quoting Kronisch, 150 F.3d at 126).

In choosing a sanction courts should be cautious and:

always impose the least harsh sanction that can provide an adequate remedy. The choices include – from least harsh to most harsh – further discovery, 41 cost-shifting, 42 fines, 43 special jury instructions, 44 preclusion, 45 and the entry of default judgment or dismissal (terminating sanctions). 46 The selection of the appropriate remedy is a delicate matter requiring a great deal of time and attention by a court.

Id. at 19-20.

In Pension Committee the defendants asked for the most extreme sanction of all, dismissal of the case. Judge Scheindlin denied this remedy as inappropriate to the facts. She suggested this ultimate remedy is only appropriate in cases of intentional bad faith conduct, such as when there is perjury, evidence tampering, or intentional destruction of ESI by wiping out a computer hard drive. Id. at pg. 20. Judge Scheindlin instead thought that some form of adverse inference instruction was appropriate against the various plaintiffs in Pension Committee. She then has an interesting discussion on the many forms or types of instructions:

Like many other sanctions, an adverse inference instruction can take many forms, again ranging in degrees of harshness. The harshness of the instruction should be determined based on the nature of the spoliating party’s conduct — the more egregious the conduct, the more harsh the instruction.

In its most harsh form, when a spoliating party has acted willfully or in bad faith, a jury can be instructed that certain facts are deemed admitted and must be accepted as true. 49 At the next level, when a spoliating party has acted willfully or recklessly, a court may impose a mandatory presumption. 50 Even a mandatory presumption, however, is considered to be rebuttable. 51

The least harsh instruction permit (but does not require) a jury to presume that the lost evidence is both relevant and favorable to the innocent party. If it makes this presumption, the spoliating party’s rebuttal evidence must then be considered by the jury, which must then decide whether to draw an adverse inference against the spoliating party. 52 This sanction still benefits the innocent party in that it allows the jury to consider both the misconduct of the spoliating party as well as proof of prejudice to the innocent party. 53 Such a charge should be termed a “spoliation charge” to distinguish it from a charge where the a jury is directed to presume, albeit still subject to rebuttal, that the missing evidence would have been favorable to the innocent party, and from a charge where the jury is directed to deem certain facts admitted.

Id. at Pgs. 21-23.

Judge Scheindlin then goes on to consider another remedy near and dear to any litigants’ heart – money. She decides that monetary sanctions are also an appropriate remedy against the plaintiffs in this case. Here is her reasoning:

“Monetary sanctions are appropriate ‘to punish the offending party for its actions [and] to deter the litigant’s conduct, sending the message that egregious conduct will not be tolerated.’” 54 Awarding monetary sanctions “serves the remedial purpose of compensating [the movant] for the reasonable costs it incurred in bringing [a motion for sanctions].” 55 This sanction is imposed in order to compensate the Citco Defendants for reviewing the declarations, conducting the additional depositions, and bringing this motion.

Id. at pgs. 23-24.

Conclusion

Judge Scheindlin is conscious of the fact that her articulation of gross negligence standards raises the bar and this will likely engender more spoliation practice, some of which may be of the “gotcha” type that she would like to avoid:

Finally, I note the risk that sanctions motions, which are very, very time consuming, distracting, and expensive for the parties and the court, 56 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.

Id. at pg. 25.

Judge Scheindlin then goes on to observe that the Pension Committee case has required over three hundred hours of work by her and her staff. Their blended rate was only $30 per hour. Id. at FN 56. That is shocking on a number of levels and again shows the need for salary increases in the federal system. They have been frozen for too long and now need to be substantially increased.

One last piece of advice in Pension Committee should help the Bar to rise to the new heights of conscientiousness required in modern discovery practice. Judge Scheindlin points out five topics that are appropriate for questioning a witness in a spoliation dispute:

Which files were searched, how the search was conducted, who was asked to search, what they were told, and the extent of any supervision are all topics reasonably within the scope of the inquiry.

Id. at pg. 38.

A practice pointer naturally flows from this observation. The documentation of a company’s e-discovery efforts should, at a minimum, address all of these points. A careful record should be kept as to exactly what was searched, who did the work, who supervised it (hint – it should be an expert), what the instructions were, and how the search was performed. If you can document the search efforts, the decisions you made and why, then you will be in a position to defend your search as reasonable. You can prove that you were not negligent, even though evidence was missed, maybe even important evidence.

Evidence will always be missed. The volumes of ESI are too high and the methods of search are too imprecise for total recall to be even remotely possible. In fact, 50% recall, or even far less, could be acceptable, even very good, in certain document collections for certain issues. We need to understand the bar we are measuring is reasonability of effort, not results.

It also depends upon the all-important budget, which is why I always employ what I call bottom line driven search. I customize the scope of the search to match the budget of the case under the proportionality Rule 26(b)(2)(C). How many key players are appropriate to search in a case depends not only upon the complexity of a dispute, but upon the amount at issue. My patent of search methods that is now pending is based on this principle.

Pension Committee was supposedly a $550 Million case, so extensive efforts to find relevant ESI might be appropriate; a number of custodians should have been searched. But obviously far less efforts are appropriate in a $1 Million case and the search should be designed accordingly. There is no such thing as an effective one size fits all search method. Expert customization is always required. Moreover, despite some vendor claims to the contrary, good software is just the beginning of the solution, not the entire solution itself. That is why I focus on the overall method and not on any particular tools.

It all comes back to how much truth you can afford. No one can afford “the truth, the whole truth, and nothing but the truth” in the field of ESI. There is not enough time and money in the world in a complex case like Pension Committee for that to happen. It is just not possible. Imperfection and mistakes must be tolerated in e-discovery. Sanctions should not be over-played. That is one reason Judge Scheindlin concludes her opinion with these words:

While litigants are not required to execute document productions with absolute precision, at a minimum they must act diligently and search thoroughly at the time they reasonably anticipate litigation. All of the plaintiffs in this motion failed to do so and have been sanctioned accordingly.

Id. at pg. 85.

I know that Judge Scheindlin understands the impossibility of perfection and need for proportionality in e-discovery, but will all of the lawyers and judges who read Pension Committee and its gross negligence lists? Time will tell. I hope so, for as George Santayana said: Intolerance itself is a form of egoism, and to condemn egoism intolerantly is to share it.

Postscript

Shira Scheindlin

Judge Scheindlin (now retired) was widely criticized for raising the bar too high in Pension Committee. It even led to a small addendum to her decision, that we will touch on in the exercises. For instance her opinion was debated at  the Georgetown Law Center’s Advanced E-Discovery Institute CLE in D.C. on November 19, 2010. She was a panelist and purportedly responded to criticism of the opinion as follows:

Now, the other rebuttal is that I know that a lot of the world is unhappy with me about this litigation hold issue, but I never understood what the big problem is. Write it up, protect yourself, it’s credible, you can defend it, and still… I’m not going to back off! I would go all over the country saying, “Why not issue a written litigation hold?” Spell out for your company what they have to do. Instead of fighting with me about it – just do it. Just do it. You will have a defensible process and people will have guidance about what they have to hold on to.

Later in the program, she added a comment about why the Pension Committee dispute was such a challenge:

The ruling of the Pension Committee was the toughest of cases on this list because we don’t have that intentional destruction, the wiping, deletion. This is a case, in a sense, that teaches us the most about best practices and preservation, I think, because it’s not the dramatic case. Everybody knows that if you put on a shredding program, a window washer, you’ve been bad. That’s easy. Those are the easy cases, and that’s Victor Stanley which Judge Grimm said was clear-cut because it was so obvious, so grievous. This is a gray area. What conduct is enough to be reasonable and what’s not?

_________________________________

Judge Rosenthal v. Judge Scheindlin: A Bogus Battle

Judge Lee H. Rosenthal authored an important opinion on sanctions right after Pension Committee. Rimkus v Cammarata, 2010 WL 645253 (S.D. Tex. Feb. 19, 2010). Judge Rosenthal was, at the time, the chair of the Federal Judicial Conference Advisory Committee for Federal Rules of Civil Procedure. Rimkus comments extensively on Judge Scheindlin’s Pension Committee. Many commentators  are spinning Judge Rosenthal’s opinion as critical of Judge Scheindlin’s work and suggest that a high level intellectual duel is going on here. Some even suggest that the two opinions are contra and reflect a divergence in attitude between two luminaries in our world of e-discovery.

I disagree. There is no battle here. If I were to write the Shepard’s comments on these two cases, I would state that Rimkus analyzes, discusses, and explains Pension Committee. I would not say that it criticizes or disagrees. The differences in these two opinions arise from the different laws in their respective Circuits and the different facts underlying the opinions. In Rimkus intentional destruction of evidence was proven. There was no finding of intent or bad faith in Pension Committee, but the facts did establish a whole lot of half-hearted, grossly negligent actions by a plaintiff that bordered on bad faith.

There is no real conflict in these opinions or between these two learned judges. The two opinions are consistent and reflect the same Sedona influenced judicial attitude on e-discovery practices. The differences in their opinions are better explained by the different case facts and jurisdictions. Judge Scheindlin is in New York federal court, which is governed by the laws of the Second Circuit. Judge Rosenthal sits in Texas governed by the laws of the Fifth Circuit. All practicing attorneys understand that this means there will necessarily be divergences in their development of the law. In the Fifth Circuit, which follows the majority rule, intentional destruction of evidence, or bad faith, must be proven before an adverse inference instruction sanction may be imposed. According to Judge Rosenthal, the Seventh, Eighth, Tenth, Eleventh, and D.C. Circuits follow essentially the same rule. In the Second Circuit, gross negligence alone, without proof of intent or bad faith, may suffice for the entry of this sanction. The Third Circuit has a kind of hybrid standard where you “balance the degree of fault and prejudice.” Id. at *7. ”The First, Fourth, and Ninth Circuits hold that bad faith is not essential to imposing severe sanctions if there is severe prejudice, although the cases often emphasize the presence of bad faith.” Id.

Judge Rosenthal goes on to opine that:

The circuit differences in the level of culpability necessary for an adverse inference instruction limit the applicability of the Pension Committee approach. And to the extent sanctions are based on inherent power, the Supreme Court’s decision in Chambers may also require a degree of culpability greater than negligence.

Id. at *7.

I doubt Judge Scheindlin would disagree with this commonsense jurisdictional limitation of her holding in Pension Committee. This is a result of a split in the circuits on the issue of spoliation, and until resolved by the Supreme Court, there will always be some differences in the holdings of the various district courts. The lower courts are bound by the opinions of their Circuit Court of Appeal. A district court judge has no discretion or right to depart from clearly articulated legal standards created by their Circuit Court. So the kind of differences we see in Pension Committee and Rimkus are quite standard and normal. It is part of the common law tradition, where many differences in law by geographical areas are routine. This tolerance of diversity allows the law to slowly grow and, at the same time, evolve creatively to fit the times.

That is all that is going on here in these two so-called “dueling opinions.” I see no quarrel between the judges. I see no divergence of approach where one is more corporate-friendly than another. Both judges understand that perfection is impossible. Both are thus human-friendly. Mistakes will be made and evidence will be lost or destroyed. It is inevitable in large-scale ESI preservation and discovery. No humans are perfect, regardless of whether they work alone or in a large corporation.

It appears to me that both judges understand that reasonability of effort is the proper legal standard for litigants and their attorneys. Both understand that evidence, especially ESI, will sometimes be lost, and that severe sanctions are not appropriate if reasonable efforts have been made.

This is a hard concept for some lawyers and judges to understand, and it does seem to stand law’s esteemed reasonable man on his head. In the world of paper discovery, if reasonable efforts were made, paper documents would not be lost or destroyed. Period. End of story. The loss of evidence was synonymous with a breach of duty to act reasonably. In other words, if evidence was destroyed, then this was per se negligence. It is an example of that famous old tort doctrine: res ipsa loquitur (the thing speaks for itself).

It is my contention, and I believe that both Judge Rosenthal and Scheindlin would agree, that in the new world of ESI discovery, this doctrine and old common sense view of spoliation no longer apply. In today’s terabyte-world, you can be making reasonable efforts, and still lose or destroy evidence. The loss of ESI is not per se negligence. The loss of a computer file or files is not the same thing as a barrel falling on your head! Res ipsa loquitur should not apply.

If you have trouble with that, then look at it another way. If the loss or destruction of ESI must always be negligence, must always be a result of an unreasonable action, a mistake, then the reasonable efforts made to try to avoid this negligence outweigh and supersede the one act of negligence. In other words, a series of reasonable acts counter-mines and negates one unreasonable act. Now you could argue this is what is meant by good faith negligence, or at least the absence of bad faith. But I contend the words are wrong, that in the ESI-world, evidence can be lost or destroyed by the reasonable man with no breach of duty at all. If that stands the reasonable man doctrine in spoliation on its head, well, so be it. That is the reality of large-scale electronic discovery today.

Conclusion

The differences in the law of the Circuits highlighted by the Rimkus and Pension Committee opinions are subtle and limited. They pertain to the degree of proof required to impose the most severe of sanctions. It does not apply to the best practices underlying reasonability of effort. I assume, although Rimkus does not expressly say so, that Judge Rosenthal would also find the reliance on mere verbal preservation notice alone, not accompanied by written notice, to be gross negligence. It is just that the severity of sanction permitted in the Fifth Circuit for gross negligence based spoliation is less that than in the Second Circuit.

Judge Rosenthal did every lawyer and judge a favor by preparing the Rimkus opinion. This 100 plus page decision is an excellent work of scholarship. If Pension Committee is the bookend to Zubulake, which it most certainly is, then Rimkus is the must-read second volume to Pension Committee, the one that examines the laws of all of the Circuits on spoliation and sanctions. It puts Pension Committee in perspective and reminds us that the e-discovery world extends beyond New York. Judge Scheindlin’s Pension Committee primarily discussed the law of New York district courts and the Second Circuit. Judge Rosenthal not only discussed the law of her Fifth Circuit, but went on the examine the laws of spoliation in all circuits. When read together, Pension Committee and Rimkus provide the Bar with a good overview of the current law of sanctions in this country. Both are likely to become widely cited. I leave you with a few of my favorite quotes from Rimkus v Cammarata, 2010 WL 645253 (S.D. Tex. Feb. 19, 2010) and urge you to read the rest for yourself:

*1Spoliation of evidence–particularly of electronically stored information–has assumed a level of importance in litigation that raises grave concerns. Spoliation allegations and sanctions motions distract from the merits of a case, add costs to discovery, and delay resolution. The frequency of spoliation allegations may lead to decisions about preservation based more on fear of potential future sanctions than on reasonable need for information. Much of the recent case law on sanctions for spoliation has focused on failures by litigants and their lawyers to take adequate steps to preserve and collect information in discovery. [FN1] The spoliation allegations in the present case are different. They are allegations of willful misconduct: the intentional destruction of emails and other electronic information at a time when they were known to be relevant to anticipated or pending litigation. FN1. See, e.g., Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, No. 05 Civ. 9016, 2010 WL 184312 (S.D.N.Y. Jan.15, 2010). …

These general rules [of spoliation] are not controversial. But applying them to determine when a duty to preserve arises in a particular case and the extent of that duty requires careful analysis of the specific facts and circumstances. It can be difficult to draw bright-line distinctions between acceptable and unacceptable conduct in preserving information and in conducting discovery, either prospectively or with the benefit (and distortion) of hindsight. Whether preservation or discovery conduct is acceptable in a case depends on what is reasonable, and that in turn depends on whether what was done–or not done–was proportional to that case and consistent with clearly established applicable standards. (emphasis added) [FN8]

As Judge Scheindlin pointed out in Pension Committee, that analysis depends heavily on the facts and circumstances of each case and cannot be reduced to a generalized checklist of what is acceptable or unacceptable. [FN9] FN8. See THE SEDONA PRINCIPLES: SECOND EDITION, BEST PRACTICES RECOMMENDATIONS & PRINCIPLES FOR ADDRESSING ELECTRONIC DOCUMENT PRODUCTION 17 cmt. 2.b. (2007) (“Electronic discovery burdens should be proportional to the amount in controversy and the nature of the case. Otherwise, transaction costs due to electronic discovery will overwhelm the ability to resolve disputes fairly in litigation.”). FN9. Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, No. 05 Civ. 9016, 2010 WL 184312, at *3 (S.D.N.Y. Jan.15, 2010). For example, the reasonableness of discovery burdens in a $550 million case arising out of the liquidation of hedge funds, as in Pension Committee, will be different than the reasonableness of discovery burdens in a suit to enforce noncompetition agreements and related issues, as in the present case.

Applying a categorical approach to sanctions issues is also difficult, for similar reasons. Determining whether sanctions are warranted and, if so, what they should include, requires a court to consider both the spoliating party’s culpability and the level of prejudice to the party seeking discovery. Culpability can range along a continuum from destruction intended to make evidence unavailable in litigation to inadvertent loss of information for reasons unrelated to the litigation. Prejudice can range along a continuum from an inability to prove claims or defenses to little or no impact on the presentation of proof. A court’s response to the loss of evidence depends on both the degree of culpability and the extent of prejudice. Even if there is intentional destruction of potentially relevant evidence, if there is no prejudice to the opposing party, that influences the sanctions consequence. And even if there is an inadvertent loss of evidence but severe prejudice to the opposing party, that too will influence the appropriate response, recognizing that sanctions (as opposed to other remedial steps) require some degree of culpability.

_________________________

SUPPLEMENTAL READING: Read the first parts of both of these opinions wherein the law is discussed. These opinions are very long, but you only need to read the first segments where these distinguished jurists, Judge Scheindlin and Judge Rosenthal, begin their respective opinions with a learned discussion of the law. After that, the bulk of these near hundred page opinions are devoted to factual details of the parties sanctionable conduct and the application of the law to the facts. These segments of the opinions may be skimmed or skipped. Also read William Hamilton’s Sanctions Cube article.

EXERCISE: Find the opinion issued after Pension Committee by Magistrate Judge Frank Maas wherein Ralph Losey’s fear that the case would be used to support the incorrect notion that any loss of ESI is res ipsa loquitur negligence. Here is another one: identify a requirement for reasonable efforts included in Pension Committee that you think may go too far, may impose too great a burden on the average litigant?

Students are invited to leave a public comment below. Insights that might help other students are especially welcome. Let’s collaborate!

Copyright Ralph Losey 2015

 

Ralph Losey is a practicing attorney who specializes in electronic discovery law. He is a principal in a U.S. law firm with over 50 offices & 800 lawyers where he supervises electronic discovery work and litigation support. Ralph has written over two million words on law and technology, including six books on electronic discovery. His latest books are "E-Discovery for Everyone" (ABA 2017) and "Perspectives on Predictive Coding" (ABA 2017) (ed. & contributor). His blog is widely read in the industry: "e-DiscoveryTeam.com." Ralph is the founder and principal author of "Electronic Discovery Best Practices" and "e-Discovery Team Training," a free online course covering all aspects of e-discovery. Ralph's sub-speciality is the search and review of electronic evidence using multimodal methods, including artificial intelligence. He also has a free online training program to teach these advanced methods - the "TAR Course." Ralph has devoted a month of his time each year since 2013 to research and test various AI-enhanced document review methods. In 2015 and 2016 Ralph and his Team participated in the TREC Total Recall Track experiments sponsored by the National Institute of Standards and Technology. Ralph has been involved with computers and the law since 1978. His full biography is found at RalphLosey.com. Ralph is the proud father of two children, Eva M. Losey and Adam Colby Losey, a high-tech lawyer married to another e-discovery lawyer, Cat Jackson Losey, and, best of all, Ralph has been married since 1973 to Molly Friedman Losey, a mental health counselor and life-long friend.

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