This is the third in a series of guest blogs on Judge Shira A. Scheindlin’s landmark decision, 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). The articles were all originally published together as a white paper in the Legal Hold Pro™ Signature Series, Pension Committee Revisited: One Year Later, edited by Brad Harris and Ron Hedges. The first blog in this series introduced the paper and reprinted the lead article by Craig D. Ball. The second reproduced the next three articles by Kevin F. Brady, William P. Butterfield, and Maura R. Grossman. This third in a four-part series presents the articles on Pension Committee by John J. Jablonski, Browning E. Marean, and me. The last in the series, which is coming soon, will present the articles of Jonathan Redgrave, Paul Weiner, and Denise Talbert.
As I said before, this is a pretty good set of articles that not only facilitate in-depth understanding of Pension Committee, but also provide an interesting glimpse into the many attitudes, styles, and points of view of leaders in this dynamic area of the law.
Lessons from the Frontlines
By John J. Jablonski
To the uninitiated the focus on litigation holds in 2010 seems overblown. For those in the trenches, 2010 certainly added to the collective angst highlighting the risks and consequences litigants face whenever a litigation hold is contemplated. Cases like Pension Committee and Rimkus confirmed that a defensible litigation hold business process is more important now than at any other point in the United States. 2010 is also notable because there is a very real possibility that help may be on its way in the form of a new federal rule addressing preservation. The specific form of help, however, is still in the works and likely years away.
As an author, commentator and practicing attorney devoted to helping organizations with litigation hold issues I was able to participate in all aspects of litigation holds in 2010 – from helping companies struggling with developing a defensible preservation business process; helping implement litigation holds; defending litigation holds during litigation; explaining emerging case law to judges, practitioners and clients; and authoring two significant submissions to the Federal Rules Advisory Committee seeking a preservation amendment to the Federal Rules of Civil Procedure. I am drawing from these experiences to offer a few lessons for companies, attorneys and judges.
The number one lesson for companies is simple. Be sure to document the good faith efforts taken to preserve evidence. The best way to do this is to issue a written litigation hold and then memorialize the steps taken to enforce the litigation hold. An email, memorandum or litigation hold software notice is a valuable first step toward avoiding sanctions. Developing even a basic litigation hold business process will create a significant return on investment. The process does not need to be complex, merely repeatable. Accusing a company of spoliation is a common tactic. The costs associated with defending against spoliation accusations can eclipse any actual sanctions. Spending a little time, effort and money early should take this argument away from your opponents.
Two important lessons gleaned for attorneys. First, attorneys need to understand what it means to their clients to implement a litigation hold. For companies with complex computer systems, it is not as simple as flipping a switch to preserve “any and all ESI related to the facts and circumstances relevant to the Smith case.” Be sure to speak with your clients about any internal processes already in place and work with your clients to efficiently implement a litigation hold. Second, stop sending your clients litigation hold “advice” letters seemingly more designed to prevent legal malpractice then to actually alert your clients to their duty to preserve ESI. You need to be a friend in the process, not an adversary. Offer guidance to help implement a litigation hold, develop its scope and enforce it.
Judges (although some are trying) continue to apply outdated legal concepts like spoliation to litigation hold issues. This has forced some companies to spend millions of dollars preserving ESI in a legally defensible way – despite the absence of a written rule directly requiring litigation holds. Well intentioned companies are jumping through judicially created hoops to demonstrate good faith with uncertain results. The gotcha game of testing the reasonable limits of preservation to gain a tactical advantage in litigation continues to grow. In the digital age information is fluid – not static. In other words, the very benefits of ESI (the speed at which it is created, shared, stored and destroyed) make it extraordinarily difficult to identify and preserve. Yet, many judges believe that the solution is to simply buy more storage capacity. This misses the point.
The need for change is well documented in Preservation – Moving the Paradigm (Lawyers for Civil Justice, Nov. 10, 2010) and submitted to the Federal Rules Advisory Committee. Judges need to focus on the evidence that exists in a case and not the evidence that was lost. Adverse inferences and other harsh sanctions should only be granted when ESI is intentionally destroyed with the intent to prevent its use in litigation. In most cases a significant amount of evidence remains and a missing email or two should be no different than a faded memory. A new way of thinking about preservation must emerge to meet the demands of the 21st century. The current preservation—spoliation paradigm must change. A change in the Federal Rules may be coming, but any change is years away.
This past year will always be known to me as the year of the litigation hold. Hopefully it will also be known as the year that tipped the scales toward finding solutions and not just a sign of spoliation cases to come.
Disagreement with Pension Committee Requirement that All Hold Notices be in Writing
By Ralph C. Losey
One of the most controversial requirements in Pension Committee is that litigation hold notices must always be in writing. At least one judicial opinion expressly disagrees with this requirement: Orbit One Communications, Inc. v. Numerex Corp., 2010 WL 4615547 (S.D.N.Y., Oct. 26, 2010). Magistrate Judge James Francis opined in Orbit One that verbal hold notices may be appropriate, maybe even better than written hold notices in some circumstances. Others agree with Judge Scheindlin and argue that a verbal hold notice is not worth the paper it is written on.
Judge Francis and others imagine many circumstances where exceptions to written to notice should apply. For instance, they would not necessarily require notices to be in writing where small enterprises are involved. In the words of Judge Francis:
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)
Id. at 811.
I am inclined to agree with Judge Scheindlin in Pension Committee on the issue of written notice. I think that preservation notices should always be in writing, even for “small enterprises.” The only exception I can see is where the only notice would be from the sender to him or herself. In this not uncommon situation a written notice would be an empty gesture and should not be required. But still, even in that situation, the attorney representing such a solo defendant or plaintiff should advise their client of their duty to preserve in writing.
Judge Francis and others disagree with the writing requirement primarily because they oppose the automatic imposition of at least some sanctions from such an omission, and contend that this is inevitable under Pension Committee. They recognize, correctly I think, that in some occasions this omission of a writing could be a minor error. They object to automatically assuming the omission to be gross-negligence with resulting presumptions of destruction of relevant evidence. This is the stated rationale of Judge Francis‘ objection 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.
This is not a fair reading of Pension Committee. Pension Committee does not require the automatic imposition of sanctions when only verbal notice is given. It requires a finding of gross negligence, to be sure, but that does not in turn require a presumption of harm.
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.
The key word here is “may.” The holding “may be presumed” is far different from “shall be presumed.” Judge Scheindlin emphasizes this point when she goes on to state in the same paragraph that:
Although many courts in this district presume relevance where there is a finding of gross negligence, application of the presumption is not required.
Judge Francis‘ reading of Pension Committee ignores this important distinction. It also ignores Judge Scheindlin‘s emphasis on the importance of the total facts and the judge‘s “gut reaction” to them.
First, I stress that at the end of the day the judgment call of whether to award sanctions is inherently subjective. A court has a “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. Second, while it would be helpful to develop a list of relevant criteria a court should review in evaluating discovery conduct, these inquiries are inherently fact intensive and must be reviewed case by case.89
The paramount role of judicial discretion and fact-finding should not be overlooked. The presumption of gross negligence established in Pension Committee for a variety of omissions, including written notice, is just the beginning of sanctions analysis. All of the facts must still be considered and carefully examined before any court determines that sanctions are warranted, and if so, what remedy is appropriate.
It‘s Up to Us to Right-Size Our Preservation Efforts
By Browning Marean
No doubt about it: When I look back on 2010 Pension Committee was certainly one of the most significant cases of the year. And it‘s interesting to note that more ink has been spilled on this case than perhaps any other, including those out of the U.S. Supreme Court. Judge Scheindlin‘s proclamations certainly were noteworthy, and reflect a growing recognition that pre-litigation actions need to be considered in the Rules that guide discovery.
The Pension Committee opinion provides a lot of useful guidance to practitioners. However, one of the challenges that we face, and one not discussed in this opinion, is the issue of proportionality. A lack of clear and uniform standards complicates this further, and although many in the industry may have seen Judge Francis‘ opinion in Orbit One recently as a breath of fresh air, the fact remains that we must look to the strictest standard when uncertain what jurisdiction may ultimately apply to our cases. Without question, the Pension Committee is now that gold standard for preservation.
In practical terms, we need to figure out how we‘re going to right-size our litigation holds to address reasonableness and proportionality in a given case. Since it isn‘t clear what may pass muster, we must continue to rely on opinions that have come before, and magistrate judges to help interpret them going forward. Achieving greater consistency and predictability through changes in the Rules is a noble goal, and one that we need to strive toward. However, it‘s important to remember that consistency at the Federal level is just one aspect. When one considers that an estimated 97 percent of all litigation is handled in the state courts, the issue of uniformity is certainly not likely to get resolved anytime soon.
In the meantime, approaching the challenge laid out by Judge Scheindlin and others requires reasoned thought, flexibility and some degree of risk-taking. In the same way that “no battle plan survives its first contact with the enemy,” one should expect that a litigation hold will rarely survive its first contact with the data. A legal hold is not a “fire-and-forget” missile — you have to not only aim carefully, but keep control of it from beginning to end. You also have to have the courage to decide when it is reasonable not to go out with “all your guns blazing” (i.e., preserve everything forever), taking instead a reasoned and proportional response to the litigation threat.
Pension Committee, and the opinions that followed, reinforce some fundamental best practices that should already be in place. First, ensure that you have a process to follow when responding to a duty to preserve. And second, keep an audit trail. Maintain a database anytime a triggering event is considered, and keep track of the analysis done in determining if and when a duty to preserve has arisen. Keep track of the process of determining scope. Keep track of your legal holds, and what steps the organization took in response. Consistency, transparency and documentation always make it easier to defend your actions later.
Pension Committee didn‘t set any new precedent, nor is it the law of the land, but given the same facts, I believe most jurisdictions would have reached the same exact conclusion. Courts have and will continue to take lawyers to task for organizations not doing what they should have done to preserve data. So there‘s no turning back, and over time such opinions will undoubtedly be ratified by the law.