Magistrate Judge in NY Says Verbal Hold Notice May Be Ok and Questions the Value of Proportionality

It is pretty unusual for a Magistrate Judge to openly disagree with a District Court Judge in their own court, but that is exactly what Magistrate Judge James Francis has done in Orbit One Communications, Inc. v. Numerex Corp., 2010 WL 4615547 (S.D.N.Y., Oct. 26, 2010). He has suggested that verbal hold notices may be appropriate, maybe even better than written hold notices in some circumstances. In so doing he rejects a key holding in Judge Shira Scheindlin’s landmark opinion, Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 685 F.Supp.2d 456, 465 (S.D.N.Y.2010). Perhaps Judge Scheindlin has heard more people lie under oath about what they said and did in the past than Judge Francis. I don’t know. But I do know that writings, by which I of course include ESI, have a good way of keeping witnesses honest. I understand why Judge Scheindlin wanted to provide some specific guidance and bright lines as to what is required in preservation.

Judge Francis’ does not like a rule requiring that preservation notices always be in writing. His argument on this issue in Orbit One is wrapped in strange dicta. The issue of oral versus written notice does not appear to have even been raised in the case . Here are Judge Francis’ words:

Nor are sanctions warranted by a mere showing that a party’s preservation efforts were inadequate. … But, depending upon the circumstances of an individual case, the failure to abide by such standards does not necessarily constitute negligence, and certainly does not warrant sanctions if no relevant information is lost. For instance, in a small enterprise, issuing a written litigation hold may not only be unnecessary, but it could be counterproductive, since such a hold would likely be more general and less tailored to individual records custodians than oral directives could be. Indeed, under some circumstances, a formal litigation hold may not be necessary at all. (emphasis added)

Orbit One Communications, Inc. v. Numerex Corp., 2010 WL 4615547 at 811.

I would not want rely on Judge Francis’ suggestion that verbal notices are ok and a formal lit-hold might not be necessary. I think that preservation notices should always be in writing, even for “small enterprises.” The only exception I can see is for an individual or sole-proprietor with no employees. I don’t think they should send a written notice to themselves, but their lawyer should notify their clients in writing of the duty to preserve.

Of course, written notices should also be followed-up with, and/or preceded by verbal notices, with conversations explaining what is required. Judge Francis recognizes this requirement for follow-up in several other portions of his opinion, which makes his gratuitous rejection of this holding in Pension Committee all the more curious. Indeed, he goes out of his way to emphasize how this is a duty of attorneys, not just parties to litigation. For instance, Judge Francis held (citations and quotations omitted):

The preservation obligation runs first to counsel, who has a duty to advise his client of the type of information potentially relevant to the lawsuit and of the necessity of preventing its destruction. … Moreover, this responsibility is heightened in this age of electronic discovery. … Indeed, for the current “good faith” discovery system to function in the electronic age, attorneys and clients must work together to ensure that both understand how and where electronic documents, records and emails are maintained and to determine how best to locate, review, and produce responsive documents. Attorneys must take responsibility for ensuring that their clients conduct a comprehensive and appropriate document search.

Where the client is a business, its managers, in turn, are responsible for conveying to their employees the requirements for preserving evidence.

To meet its obligations, the litigant must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents. … This step, however, is only the beginning of a party’s discovery obligations. Once a ‘litigation hold’ is in place, a party and [its] counsel must make certain that all sources of potentially relevant information are identified and placed ‘on hold’. Then, counsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched. Thereafter, the duty to preserve discoverable information persists throughout the discovery process; a litigant must ensure that all potentially relevant evidence is retained.

Bottom line to all of this, you should put your preservation notices in writing and follow-up with the key players, talk to them, and take other reasonable steps under the circumstances to preserve relevant information. Do not count on the client, the party to the litigation, to do all that is required, which is exactly what happened in Orbit One. The litany of failures of counsel Judge Francis recounts at *12 is worth reviewing:

There are numerous respects in which Mr. Ronsen and Orbit One failed to adopt appropriate preservation procedures in this case:

• The initial litigation hold for Axonn documents was established by counsel without any apparent input from persons familiar with Orbit One’s computer system; it lacked detailed instructions; there is no indication that it was disseminated to all persons who might have possessed relevant data; and the attorney who issued the hold evidently did not monitor compliance in any way.

• There is no evidence that litigation counsel imposed any formal litigation hold when the instant litigation was commenced.

• When information was deleted from servers, archived, or otherwise manipulated, the employee responsible for information technology was not informed of the Axonn litigation hold or of the pendency of the instant case.

• Primary responsibility for safeguarding information often remained with Mr. Ronsen, the very individual with the greatest incentive to destroy evidence harmful to Orbit One and to his own interests.

• Mr. Ronsen’s treatment of the information within his control was cavalier: he removed computer hardware from Orbit One’s premises, he permitted it to leave his control, and he failed to document his archiving practices.

Nevertheless, as will be discussed in further detail, there is insufficient evidence of any lose of discovery-relevant information.

This is a pretty good list of how not to handle a lit-hold. But the key point is at the end. No harm was done, so so what.

Judge Francis was Right to Deny Sanctions

I agree with Judge Francis’ main point in Orbit One that sanctions were not appropriate in the case because there was no evidence that any spoliation occurred. The negligence in the implementation of a litigation hold did not actually cause any relevant ESI to be lost. Any possibly relevant computer files that were destroyed were copies. There were other duplicate originals of these files and so no harm was done. There was no real loss of information. How can you have actionable spoliation in a situation like that? It is hard to understand why the motions seeking an adverse inference sanction were even brought under these facts. Here is how Judge Francis explains it:

No matter how inadequate a party’s efforts at preservation may be, however, sanctions are not warranted unless there is proof that some information of significance has actually been lost….

It is difficult to see why even a party who destroys information purposefully or is grossly negligent should be sanctioned where there has been no showing that the information was at least minimally relevant. Demonstrating discovery relevance is not a difficult burden to meet, even in the face of spoliation. …

The consequences of omitting any requirement that a party seeking sanctions demonstrate the loss of discovery-relevant information could be significant. Because of the likelihood that some data will be lost in virtually any case, there is a real danger that litigation [would] become a ‘gotcha’ game rather than a full and fair opportunity to air the merits of a dispute. …

Nor are sanctions warranted by a mere showing that a party’s preservation efforts were inadequate.

Respectful Disagreement With Respectful Disagreement

I am sure that Judge Scheindlin would have reached the same conclusion with the facts of Orbit One as Judge Francis, and denied the motion for an adverse inference sanction. I do not construe Pension Committee to require a different result. Even if the hold procedures here did constitute gross negligence, under Pension Committee that only allows a judge to presume loss of relevant evidence and prejudice. It does not require it. Pension Committee just gives a judge leeway to make such a presumption if the judge thinks that the facts showing bad faith or gross negligence justify such a presumption. In Judge Scheindlin’s words: “relevance and prejudice may be presumed when the spoliating party acted in bad faith or in a grossly negligent manner.” Pension Committee, 685 F.Supp.2d at 467. “May be presumed” is far different from “shall be presumed” and I do not think it is a fair reading of Pension Committee to make the presumption mandatory. It is all fact intensive.

For these reasons I must respectfully disagree with Judge Francis who states in at *11 of Orbit One:

The implication of Pension Committee, then, appears to be that at least some sanctions are warranted as long as any information was lost through the failure to follow proper preservation practices, even if there have been no showing that the information had discovery relevance, let alone that it was likely to have been helpful to the innocent party. If this is a fair reading of Pension Committee, then I respectfully disagree.

I for one do not think this is a fair reading of Pension Committee and so I respectfully disagree, which, in a way, is a full-circle agreement with Judge Francis. Aside from the whole written versus oral notice issue, I do not think there is really that much difference between Judge Scheindlin and Judge Francis on sanctions.

Proportionality

Judge Francis also went out of his way in Orbit One to comment negatively on the principle of proportionality, a doctrine near and dear to my heart and that of most Sedonites. See: The Sedona Conference® Commentary on Proportionality in Electronic Discovery available for free downloading at www.thesedonaconference.org.

He warns litigants and attorneys to not rely on the doctrine in making preservation decisions. I must again respectfully disagree with Judge Francis. We must rely on notions of reasonability and proportionality. There is too much information to preserve it all. But here is Judge Francis’ argument:

Although some cases have suggested that the definition of what must be preserved should be guided by principles of “reasonableness and proportionality,” Victor Stanley, Inc. v. Creative Pipe, Inc., No. 06-2662, 2010 WL 3703696, at *24 (D.Md. Sept.9, 2010); see Rimkus Consulting Group, Inc. v. Cammarata, 688 F.Supp.2d 598, 613 (S.D.Tex.2010), this standard may prove too amorphous to provide much comfort to a party deciding what files it may delete or backup tapes it may recycle. [FN10] Until a more precise definition is created by rule, a party is well-advised to “retain all relevant documents (but not multiple identical copies) in existence at the time the duty to preserve attaches.”

So now he not only disagrees with Judge Shira Scheindlin, he also disagrees with Judge Paul Grimm (Victor Stanley) and Judge Lee Rosenthal (Rimkus). All three judges are, by the way, on the Rules Committee and are certainly among the top judges in the country on issues of procedure, especially e-discovery related issues. One wonders what Judge Francis had for breakfast the day he wrote Orbit One. But that is the beauty of our judicial system. It encourages free debate and, barring controlling precedent, a judge can call it as he or she sees it. Judge Francis certainly does that. In fact, he goes on to drop a footnote 10 to buttress his dissenting views on proportionality:

Reasonableness and proportionality are surely good guiding principles for a court that is considering imposing a preservation order or evaluating the sufficiency of a party’s efforts at preservation after the fact. Because these concepts are highly elastic, however, they cannot be assumed to create a safe harbor for a party that is obligated to preserve evidence but is not operating under a court-imposed preservation order. Proportionality is particularly tricky in the context of preservation. It seems unlikely, for example, that a court would excuse the destruction of evidence merely because the monetary value of anticipated litigation was low.

Once again I must respectfully and strenuously disagree with Judge Francis. It is in my view contradictory to say on the one hand that “reasonableness and proportionality are surely good guiding principles for a court that is considering … the sufficiency of a party’s efforts,” and then on the other to say these same principles should not govern lawyers efforts. The courts have charged attorneys with the heavy burden to “ensure the preservation of relevant documents.” How else can we be expected to do that, ensure our clients efforts, if we cannot apply the principles of reasonability and proportionality (which are really two sides of the same coin)?

It is no answer to say we are well advised to “retain all relevant documents.” There are too many documents to do that. We no longer live in a paper world. Legal practice has changed dramatically in the past five years. We can no longer afford the “whole truth.” The idea of relevance is also too vague, especially in the crazy world of notice pleading. We must have the protection of reasonable preservation, of proportional preservation. The value of litigation must and should be taken into consideration. It is not reasonable to require a party to spend a fortune on preservation efforts when the merits of the case do not require it. Rule One of FRCP does not allow such an interpretation of legal doctrine.

By rejecting the application of proportionality to preservation Judge Francis promotes the game of “gotcha” that he wants to discourage. He was correct when he noted earlier in the opinion “that some data will be lost in virtually any case.” That is why it is important to be proportional in your preservation efforts. Do not lose too much, do not keep too much. Factor in the costs and burden of preservation. Look for the reasonable middle ground. To require full preservation, no matter what the cost, will inevitably make “litigation a ‘gotcha’ game, rather than a full and fair opportunity to air the merits of a dispute.”

Conclusion

Judge Francis has written a feisty opinion in Orbit One that suggests a verbal hold notice might be sufficient. You would be ill-advised to rely on that. He also disses proportionality and calls it too flexible. I am hopeful that other judges will not follow suit. Its flexible quality is one of its strengths. I do not think it is amorphic. It has form. It is a general abstract form, but so too is reasonability, so too are all the important legal doctrines that guide lawyers’ actions every day. Both proportionality and reasonablity are at the very backbone of the law. Proportionality is not only a basic principle of law, it is a basic principle of math, science, art, philosophy, and nature.

Of course, it would help if judges would all agree on specifics of what these principles mean in everyday e-discovery practice and present us with bright line rules. That is exactly what Judge Scheindlin was trying to do in Pension Committee with the bright line requirement of putting hold notices in writing. I hope other judges will now do the same with proportionality in preservation, rather than just reject it out of hand.

In today’s world of information explosion and super-complex technology systems, there is always more that could be done to preserve. I hope that more judges will begin to understand that. Proportionality of efforts must apply to all e-discovery tasks, including especially preservation. Electronic discovery lawyers are asked every day to make judgment calls as to when enough is enough. The courts should demand reasonable efforts by the litigants and attorneys who appear before them, but not perfection. Judge Francis seems to be imposing a standard of perfection upon attorneys by his rejection of proportionality in preservation, while at the same time conceding it is impossible. Judge Scheindlin got it right in Pension Committee when she said:

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.

The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, et al., 2010 WL 184312 at *1 (S.D.N.Y. Jan. 15, 2010).

Judge Rosenthal also got it right in Rimkus when she said:

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.”

Rimkus, 688 F. Supp. 2d at 613.

Last, but not least, Judge Grmm got it right in Victor Stanley II when he said:

In determining the scope of information that should be preserved, the nature of the issues raised in the matter, experience in similar circumstances and the amount in controversy are factors that may be considered. Put another way, “the scope of preservation should somehow be proportional to the amount in controversy and the costs and burdens of preservation.” Grimm, 37 U. BALT. L. REV. at 405.

10 Responses to Magistrate Judge in NY Says Verbal Hold Notice May Be Ok and Questions the Value of Proportionality

  1. Aaron Taylor says:

    Excellent post and affirmation of the reasonableness and proportionality rulings.

  2. [...] Judge in NY Says Verbal Hold Notice May Be Ok and Questions the Value of Proportionality – http://tinyurl.com/396bkao (Ralph [...]

  3. [...] Judge in NY Says Verbal Hold Notice May Be Ok and Questions the Value of Proportionality – http://tinyurl.com/396bkao (Ralph [...]

  4. [...] Magistrate Judge in NY Says Verbal Hold Notice May Be Ok and Questions the Value of Proportionality by Ralph Losey go to source [...]

  5. [...] as challenging The Sedona Conference’s take on proportionality, as Ralph Losey points out in his review of the case last [...]

  6. Patrick Oot says:

    Ralph,

    I respectfully disagree with your post.

    Judge Francis is finally laying the ground for reasonable guidance that isn’t governed by e-discovery community scare tactics. This case looks at the totality of the facts and not just a mere “did they tick the box” decision.

    Lawyers love multi-factored tests and check lists. The problem when applying those tests to concepts of reasonableness and good-faith is that they don’t fold well into every single fact pattern.

    Think of it this way: Hypothetically, your firm is involved in a billing dispute with a client. Although you were a key billing partner on the matter, Bob Jones, the lawyer managing the billing dispute litigation never actually sent you (a lawyer) a written legal hold.

    Should this really be a threshold issue? I would assume, you, as an experienced litigator, would understand your obligations to retain information, and a written legal hold notice might not even be needed.

    You seem to be selling process Kool Aid in you critique of Judge Francis’ opinion. I think his honor’s opinion was well balanced and a proper analysis of the facts.

    I am sure I will see you on the circuit in a few weeks and look forward to talking about this.

    Best,

    Patrick

  7. Ralph Losey says:

    Your use of the phrase “well balanced” for the Orbit opinion is ironic because the opinion rejects proportionality in preservation. Proportionality is necessary for balance and here I agree with Judges Grimm and Rosenthal. I hold Judge Francis in great respect. He is one of the smartest judges out there in this area of the law, but I think he got it wrong on this one. Please note that I did fully agree with his ruling and applaud his basic insights. It is just the dicta here on proportionality and oral notices that I disagree with. See you around and good luck in your new job.

  8. Anne Kershaw says:

    Check out today’s New York Law Journal article about the Orbit One case by Chris Boehning, Dan Toal and Richard Eisenberg (Paul Weiss). Excellent.

  9. I am also hopeful that other judges will not follow suit, because I believe there are enough cases to support the critical need for issuing a written litigation hold notice. The thought of enterprises considering the remarks of Judge Francis as a reason not to issue a written legal hold is a scary proposition.

    However I do appreciate the emphasis placed on outside counsel to advise their clients of a defensible process and then FOLLOW through to insure that those recommendations are carried out.

    Thank you for analyzing this case and helping us keep it in perspective.

  10. [...] v. Gnosis S.P.A., 2010 WL 1631519, at *4 (S.D.N.Y. Apr. 20, 2010) (J. Sullivan); also see: Losey, Magistrate Judge in NY Says Verbal Hold Notice May Be Ok and Questions the Value of Proportionality (2010) (commentary on Orbit [...]

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