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Electronic Discovery Compliance Update

In January of this year, Judge Shira Sheindlin of the Southern District of New York issued a decision reaffirming and expanding on crucial electronic discovery issues she highlighted six years earlier, in her groundbreaking “Zubulake” case. The new case, The Pension Committee of the University of Montreal Pension Plan v. Banc of America Sec., LLC ((2010) No. 05 Civ. 9016) provided Judge Sheindlin the opportunity to more fully examine the duties of parties to litigation to preserve information, and provide guidance on when sanctions should be imposed for misconduct during the discovery process.

The language used in Montreal Pension case is strong and unambiguous: “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.” The case was brought by a group of investors seeking to recover $550 million dollars after the liquidation of two hedge funds. Claims under federal securities law and New York state laws were brought against the funds’ former directors, administrators, auditor, broker, and custodian.  During the litigation, some of the defendants claimed that the plaintiffs had not produced all documents they should have produced. The plaintiffs were deposed, and defendants then moved for sanctions based on the failure to preserve and produce documents, and the submission of false declarations by plaintiffs.

The case enabled Judge Sheindlin to issue a lengthy opinion defining negligence, gross negligence, and willfulness in the discovery process, and provide examples of the type of conduct that fits in each of those categories. She also examined the requirements for issuing sanctions against a party for failure to produce relevant information. Ultimately, Judge Sheindlin found the plaintiffs’ discovery efforts had been negligent or grossly negligent, and sanctions were imposed. These included adverse jury instructions and monetary sanctions.

The case is an emphatic reminder for attorneys and their clients – once a claim is anticipated, it is vital that litigants preserve potentially relevant information. If potential evidence is lost, a court may decide the loss could have been prevented and issue sanctions against the party that was negligent or that intentionally destroyed records. Whether pursuing a claim or defending against one, the last thing anyone involved in a lawsuit wants is an unfavorable judicial determination based on a failure to preserve evidence. For more guidance on basic electronic discovery guidelines and compliance, see this update on California’s electronic discovery rules and this Electronic Discovery Guide for businesses, executives, and human resources professionals.

Erin L. McDermit, Employment Group