It is hard to believe that it was a little more than a decade ago, in March 2000, when the Hon. Shira A. Scheindlin and Jeffrey Rabkin wrote a fascinating article for the Boston College Law Review in which they concluded: “Given the central role of discovery in most civil litigation, as well as the increasingly common use of computers to generate, store, and transmit information, it is safe to predict that federal courts will see a surge in the number of discovery disputes arising from electronic discovery.”1 

Prior to that writing, there were a handful of reported decisions that even used the words electronic and discovery as an intentional combination.  Over the next five years, we saw merely a few dozen additional reported decisions on electronic discovery, most notably Judge Scheindlin’s series of decisions in the matter of Zubulake v. UBS Warburg LLC.2  Following the Federal Rules Committee’s release of its revisions to Federal Rules of Civil Procedure relating to e-discovery, which went into effect in December 2006, we have witnessed e-discovery jurisprudence explode with such volume, and voraciousness, that it is now being taught as a stand-alone course in several law schools around the country. 

Starting with the Zubulake decisions, the threat of significant discovery sanctions has been one—if not the—primary force drawing litigators’ attention to the growth of e-discovery over the last five years.  Last year was filled with decisions relating to motions for discovery sanctions arising from the alleged failure of a party to fulfill the obligation to preserve electronically stored information (ESI).  In this article, we’ll explore four cases from 2010 that best represent the struggle of the courts, the litigants, and their counsel in dealing with issues related to preserving ESI when the failure to do so should result in discovery sanctions, and if sanctions are warranted, what should be the appropriate punishment.

Case Study #1:

Pension Committee of the Univ. of Montreal Pension Plan v. Banc of America Securities LLC, et al., 685 F. Supp. 2d 456 (S.D.N.Y. Jan. 15, 2010)

It seems fitting that Judge Scheindlin would kick off the 2010 bonanza with her opinion in Pension Committee of the Univ. of Montreal Pension Plan v. Banc of America Securities LLC, et al., which she conveniently titled “Zubulake Revisited: Six Years Later.”3  In this broadly written opinion—often reading more like a treatise—Judge Scheindlin laments the failure of litigants to heed her warnings in the Zubulake case, writing, “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.”4 

Judge Scheindlin’s analysis in Pension Committee explored three areas: (1) the level of culpability of the spoliating parties (in this case, several plaintiffs), (2) the burden of proof on the innocent party (in this case, the defendants) for obtaining sanctions, and (3) the remedies available to the innocent party should the burden be met.  According to Judge Scheindlin, the innocent party, in meeting the burden of poof, is required to demonstrate “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.”  The question of culpability of a party in failing to fulfill the preservation obligations falls under one of three categories according to the court: “negligence,” “gross negligence,” or “willfulness.”   Under the court’s analysis, the burden of proof required by, and remedies available to, the innocent party are inversely dependent on the culpability of the spoliating party.  Thus, the lesser the degree of culpability, the greater the burden of proof on relevance of the lost evidence and prejudice to the innocent party, while the greater the degree of culpability, the greater the likelihood that relevance and prejudice can be presumed,5 subject to the spoliating party’s right to rebut that presumption.6  

Case Study #2

Rimkus Consulting Group, Inc. v. Cammarata, 688 F. Supp. 2d 598 (S.D. Tex. Feb. 19, 2010)

While Pension Committee has been widely reported, analyzed, and often criticized, further analysis of the issue was provided just a few weeks later by U.S. District Judge Lee H. Rosenthal, chair of the Judicial Conference Committee on Rules of Practice and Procedure, who followed up Pension Committee with her own lengthy, more nuanced, opinion in the matter of Rimkus v. Cammarata.  The key difference between the two cases, as Judge Rosenthal noted, is that “unlike Pension Committee, the present case does not involve allegations of negligence in electronic discovery. Instead, this case involves allegations of intentional destruction of electronically stored evidence.”7  Thus, while in Pension Committee a major issue related to whether or not relevance and prejudice could or should be presumed, in Rimkus there was evidence available showing some of what the defendants had destroyed.  Accordingly, the court determined, “There is neither a factual nor legal basis, nor need, to rely on a presumption of relevance or prejudice.”

The question before Judge Rosenthal in Rimkus was whether the intentional, willful acts of the defendants in destroying electronic evidence was deserving of terminating sanctions, or a lesser sanction such as the “spoliation” or “adverse inference” instruction.  Judge Rosenthal determined that (1) defendants breached their duty to preserve electronic evidence;  (2) a reasonable jury could find that the defendants “intentionally and in bad faith deleted emails”;  (3) despite the fact that through the use of computer forensics the plaintiffs were able to recover some evidence, the recovered evidence demonstrated that defendants deleted relevant emails, and that the plaintiffs had been prejudiced by the destruction, though not irreparably;  (4) “[t]he sanction of dismissal or default judgment is appropriate only if the spoliation or destruction of evidence resulted in ‘irreparable prejudice’ and  no lesser sanction would suffice”;  and (5) “…it is appropriate to allow the jury to hear the evidence about the deletion of emails and attachments and about discovery responses that concealed and delayed revealing the deletions.”

Case Study #3

Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497 (D. Md. Sept. 9, 2010)

In September 2010, we received the second major decision in the matter of Victor Stanley v. Creative Pipe, in which highly influential Magistrate Judge Paul Grimm issued dispositive sanctions against defendant Creative Pipe for what Judge Grimm described as “the single most egregious example of spoliation that I have encountered in any case that I have handled or in any case described in the legion of spoliation cases I have read in nearly 14 years on the bench.”

In this sweeping opinion, Judge Grimm indirectly questioned the methodology for determining appropriate sanctions for the failure to preserve ESI espoused by Judge Scheindlin in Pension Committee and, more particularly, Judge Rosenthal in Rimkus, noting that the duty to preserve evidence is an obligation owed to the court and civil justice system, and not to the adversarial party.  This, Grimm comments,

…is a subtle, but consequential, distinction.  A proper appreciation of the distinction informs the Court’s decision regarding appropriate spoliation sanctions. Where intentionally egregious conduct leads to spoliation of evidence but causes no prejudice because the evidence destroyed was not relevant, or was merely cumulative to readily available evidence, or because the same evidence could be obtained from other sources, then the integrity of the judicial system has been injured far less than if simple negligence results in the total loss of evidence essential for an adversary to prosecute or defend against a claim. In the former instance, the appropriateness of a case-dispositive sanction is questionable despite the magnitude of the culpability, because the harm to the truth-finding process is slight, and lesser sanctions such as monetary ones will suffice. In contrast, a sympathetic though negligent party whose want of diligence eliminates the ability of an adversary to prove its case may warrant case-dispositive sanctions, because the damage to the truth-seeking process is absolute.

That said, Grimm notes that, without regard to the degree of culpability of the spoliating party, “[w]hat frustrates courts is the inability to fashion an effective sanction to address the drain on their resources caused by having to wade through voluminous filings, hold lengthy hearings, and then spend dozens, if not hundreds, of hours painstakingly setting forth the underlying facts before turning to a legal analysis that is multi-factored and involved.”

Finding that the defendant, including its president, Mark Pappas, committed multiple acts of willful spoliation of ESI, Grimm solved his frustration by injecting a strong dose of general deterrence into the corpus of e-discovery case law, ordering (1) default judgment as to the liability of defendants in the underlying copyright claim; (2) a permanent injunction on the underlying copyright claim; (3) defendant to pay plaintiff’s fees and costs; and (4) defendant Mark Pappas held in civil contempt, pursuant to Rule 37(b)(2)(A)(vii), for repeated violations of the court’s orders, and imprisoned for two years, subject to his personal payment of plaintiff’s approved fees and costs.

While Grimm gained the distinction of being the first to wield the biggest stick in the arsenal of a federal judge—civil imprisonment—for willful spoliation of evidence, on review following Pappas’s objection, U.S. District Judge Marvin J. Garbis reversed the civil contempt order, while otherwise approving all other aspects of Judge Grimm’s opinion.  Judge Garbis wrote that he “does not find it appropriate to order Defendant Pappas incarcerated for a future possible failure to comply with his obligation to make payment of an amount to be determined in the course of further proceedings.”8    Yet far from letting Pappas off the hook, Judge Garbis ordered Pappas to pay the first installment of attorneys’ fees and costs of $337,796.37 within one week, with the remainder to be paid once determined by Judge Grimm.9  Mr. Pappas apparently made this initial payment in a timely manner in November 2010, and as of the time of submission of this article, the parties are preparing for a hearing regarding the total amount of attorneys’ fees and costs that are appropriately attributable to Mr. Pappas’s conduct.

Case Study #4:

Orbit One Communications v. Numerex Corp., 2010 U.S. Dist. LEXIS 123633, 2010 WL 4615547 (S.D.N.Y Oct. 26, 2010)

As we moved toward the close of 2010, a dissent from the movement toward stricter sanctions emerged from a different voice in the Southern District of New York.  In the matter of Orbit One Communs. v. Numerex Corp., Magistrate Judge James C. Francis IV denied defendant Numerex’s motion for an adverse inference on the basis that it was “unable to demonstrate that relevant information has in fact been destroyed….” 

The cases cited in Orbit One all concur that “[i]n the absence of bad faith or other sufficiently egregious conduct, ‘it cannot be inferred from the conduct of the spoliator that the evidence would even have been harmful to him.’”  But where this case differed, and caught the attention of many, was in its direct challenge to certain sections of Pension Committee, Rimkus, and Victor Stanley.  Particularly, the court wrote “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.”

In support of his position, Judge Francis created a new dichotomy for considering relevance, distinguishing between evidence that is of, what he calls, “assistive relevance” versus “discovery relevance.” He stated:

Use of the term “relevance” in Residential Funding, where the court was referring to assistive relevance, should not be confused with broad discovery relevance; for discovery purposes, information is relevant to the extent that it “appears reasonably calculated to lead to the discovery of admissible evidence.” Fed. R. Civ. P. 26(b)(1). Thus, prior to assessing whether a party has breached a preservation obligation, whether it did so with a culpable state of mind, and whether the lost information would have been helpful to the innocent party, a court considering a sanctions motion must make a threshold determination whether any material that has been destroyed was likely relevant even for purposes of discovery.10

Unfortunately, the attempted distinction made between “assistive relevance” and “discovery relevance” is muddied by the court’s failure to actually define “assistive relevance.”  Moreover, the term does not exist in any other reported case, and the court failed to cite to any authority in support. 

As noted in the opinion, the law in the Second Circuit is that to hold “the prejudiced party to too strict a standard of proof regarding the likely contents of the destroyed evidence would subvert the prophylactic and punitive purposes of the adverse inference, and would allow parties who have intentionally destroyed evidence to profit from that destruction.”11  Nonetheless, after considering each alleged act of spoliation, Judge Francis concluded, “[t]he plaintiffs did not engage in model preservation of electronically stored information in this case. But they are not liable for spoliation sanctions, much less a severe sanction such as an adverse inference, because there is insufficient evidence that any relevant information has been destroyed.”

Defendant Numerex Corp. has subsequently filed objections to Judge Francis’s order denying its motion for discovery sanctions,12 and is presently awaiting the decision from District Judge Lewis A. Kaplan.

Analysis

The frustration voiced by Judge Grimm in Victor Stanley in crafting sanctions that will encourage timely and appropriate preservation of ESI, while deterring particularly gross negligence and willful spoliation, are likewise apparent in Judge Scheindlin’s opinion in Pension Committee, and Judge Rosenthal’s writings in Rimkus.  Together, these cases can be read as reflecting a clear and growing movement by some influential members of the judiciary to address the continuing failure of attorneys to competently, and proactively, address and manage e-discovery.13  

However, Orbit One shows us that there is a lack of unanimity on the federal bench, particularly with Magistrate Judge Francis and Judge Scheindlin both sitting in the Southern District of New York.  What Judge Francis and his brethren do seem to agree upon are the lack of clear standards for determining the scope of a preservation obligation and the difficulty in balancing the requirement that spoliation cannot exist absent some indication that destroyed evidence was subject to discovery, “lest litigation become a ‘gotcha’ game rather than a full and fair opportunity to air the merits of a dispute.”14  Judge Francis wants bright-line rules and predictability.15  Yet Judges Scheindlin, Rosenthal, and Grimm begrudgingly suggest that this is not possible.  As Judge Rosenthal wrote:

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. 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.16    

In calling into question Zubulake, Pension Committee, Rimkus, and Victor Stanley, Judge Francis creates two pictures. The first is of the poor litigant who innocently destroys completely non-relevant ESI while under a duty to preserve relevant documents, and is suddenly subject to harsh discovery sanctions.  The second is of the poor litigant who innocently fails to implement a litigation hold resulting in the destruction of only non-relevant ESI, while every shred of relevant ESI is miraculously segregated and saved, and yet the poor litigant is subject to harsh discovery sanctions.  But these are not the facts of any case cited in Orbit One. 

There is not a single reported case that supports the proposition that a litigant should be subject to sanctions under Rule 37 for destroying clearly non-relevant ESI that is not, by any stretch of the imagination, subject to a preservation hold.  But in the real world, there are few examples of such absolute clarity.  So, when a storage device containing a mix of relevant and non-relevant ESI is wiped, or when a custodian who should be subject to a litigation hold never receives notice and freely deletes e-mails and files from his or her computer, or when archival tapes containing the sole copy of relevant ESI are overwritten, the courts are left to determine if anything relevant was destroyed, and if so, whether the requesting party was prejudiced by the loss of discoverable ESI. 

In questioning Pension Committee, Judge Francis espouses the “no harm, no foul” argument, writing in Orbit One, “[i]t 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.”17    For retributivists, this is a compelling and logical viewpoint.  However, the U.S. Supreme Court and the Second Circuit have already accepted the utilitarian view and found Judge Francis’s position invalid for Rule 37 sanctions in general,18 and in regard to sanctions for the spoliation of evidence in particular.19

Conclusion

Sanctions for discovery violations under Rule 37 were not new to litigation as we started the 21st century.  Two things that were new in the first decade of this century were the massive increase in the volume of ESI that is subject to discovery, and the accompanying complexities in managing the preservation of all that potential evidence.  This was especially true as custodians continued to create, edit, and delete relevant ESI. 

It is axiomatic that ignorance of the law is not an excuse.  As we conclude the first decade of e-discovery, these cases demonstrate that the judiciary’s tolerance of willful blindness to the requirements of the changing litigation landscape is likewise coming to an end. 

1          Hon. Shira A. Scheindlin & Jeffrey Rabkin, Electronic Discovery in Federal Civil Litigation: Is Rule 34 Up to the Task? 41 B.C. L. Rev 327, 341 (2000).

2          See 216 F.R.D. 280 (S.D.N.Y. 2003) (“Zubulake III”);  220 F.R.D. 212 (S.D.N.Y. 2003) (“Zubulake IV”); 229 F.R.D. 422 (S.D.N.Y. 2004) (“Zubulake V”).

3          Note:  This title appears on the filed opinion as well as in the Westlaw electronic publication, but has inexplicably been left off the Lexis electronic publication.

4          Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 685 F. Supp. 2d 456, 462 (S.D.N.Y. 2010).

5          Id. at 467, 468 (“Relevance and prejudice may be presumed when the spoliating party acted in bad faith or in a grossly negligent manner. …  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.”).

6          Id. at 468 (“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.”).

7          Rimkus Consulting Group, Inc. v. Cammarata, 688 F. Supp. 2d 598, 611 (S.D. Tex. 2010).

8          Victor Stanley, Inc. v. Creative Pipe, Inc., No. MJG-06-2662, Doc. 397 at 3-4 (D. Md., filed Nov. 1, 2010).

9          Victor Stanley, Inc. v. Creative Pipe, Inc., No. MJG-06-2662, Doc. 400 at 1 (D. Md., filed Nov. 1, 2010).

10         Id. at *33-34 (internal citation to Residential Funding Corp. v. DeGeorge Fin.Corp., LLC, 306 F.3d 99 (2d Cir. 2002)).

11         Id. at *33, citing Kronisch v. United States, 150 F.3d 112, 128 (2d Cir. 1998); Residential Funding Corp. v. DeGeorge Fin. Corp., LLC, 306 F.3d 99, 109 (2d Cir.  2002).

12         Orbit One Communs. v. Numerex Corp., No. 1:08-CV-00905-LAK-JCF, Doc. 259 (S.D.N.Y., filed Nov. 11, 2010).

13         As previous noted, Judge Rosenthal is currently serving as chair of the Judicial Conference Committee on Rules of Practice and Procedure.  Judges Rosenthal and Scheindlin served on the Rules Committee which put forth the 2006 E-Discovery Amendments to the F.R.C.P., and Judge Grimm is currently serving on the Advisory Committee on Civil Rules.

14         Pension Committee, supra n.4  at 468.

15         “Although some cases have suggested that the definition of what must be preserved should be guided by principles of ‘reasonableness and proportionality,’ 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.  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.’”  2010 U.S. Dist. LEXIS 123633, at *20 (internal citations omitted).

16         Rimkus, supra n.7, at 613, emphasis by the court.

17         Orbit One, supra n.12, at *36-37.

18         “…the most severe in the spectrum of sanctions provided by statute or rule must be available to the district court in appropriate cases, not merely to penalize those whose conduct may be deemed to warrant such a sanction, but to deter those who might be tempted to such conduct in the absence of such a deterrent.” NHL v. Metro. Hockey Club, 427 U.S. 639, 643 (1976).

19         “Rule 37 sanctions serve other functions unrelated to the prejudice suffered by individual litigants: ‘Disciplinary sanctions under Rule 37 are intended to serve three purposes. First, they ensure that a party will not benefit from its own failure to comply. Second, they are specific deterrents and seek to obtain compliance with the particular order issued. Third, they are intended to serve a general deterrent effect on the case at hand and on other litigation, provided that the party against whom they are imposed was in some sense at fault.’”  Southern New Eng. Tel. Co. v. Global NAPs Inc., 624 F.3d 123, 149 (2d Cir. 2010) (citing Update Art, Inc. v. Modiin Publ’g, Ltd., 843 F.2d 67, 71 (2d Cir. 1988)).