Records Retention In The Electronic Age

The duty to preserve relevant documents, whether written or electronic, arises whenever parties reasonably anticipate the possibility of litigation. When a party reasonably anticipates litigation, that party must suspend its routine document retention policy and put a “litigation hold” in place in order to ensure the preservation of relevant documents.  Judge Shira Scheindlin in the case of The Pension Committee of the University of Montreal Pension Plan et al., v. Banc of America Securities, LLC, et al., 2010,  noted that this case did not present any egregious examples of the purposeful destruction of evidence but rather was a situation in which some of the plaintiffs failed to institute timely written litigation holds and engaged in careless and indifferent collection efforts after their duty to preserve arose. It is noteworthy that the judge stated that there are “cases routinely define negligence, gross negligence, and willfulness in the context of tortious conduct. [But,] 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. Conduct is either acceptable or unacceptable."               

On January 15, 2010, Judge Shira Scheindlin of the United States District Court for the Southern District of New York, issued an 85-page amended opinion in the case of The Pension Committee of the University of Montreal Pension Plan et al., v. Banc of America Securities, LLC, et al., 2010 . Judge Scheindlin, who was the author of a series of landmark electronic discovery opinions in Zubulake v. UBS Warburg, titled her recent opinion: “Zubulake Revisited: Six Years Later.”

The case originated in 2004 when 96 investors sought to recover losses of $550 million from the liquidation of two British Virgin Islands-based hedge funds in which they held shares. They asserted claims against former directors, administrators and other officials connected with the funds.

The plaintiffs first produced electronic documents responsive to discovery requirements in 2004 when the complaint was filed . They did so again in 2007 when a stay was lifted. After depositions were taken the court additionally ordered each plaintiff to provide a declaration setting forth what efforts they each had undertaken to recover documents. When discovery closed, the defendants moved for sanctions, arguing that the plaintiffs had failed to preserve and produce documents including several that had been stored electronically. They also claimed the plaintiffs submitted false and misleading declarations. After stating that the court did not expect perfection, the judge wrote that 13 of the plaintiffs should be sanctioned for negligence and gross negligence, stating that “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." Otherwise, she stated, the “integrity of the judicial process is harmed and the courts are required to fashion a remedy."

So here are some teaching points from this decision. First, the issue of spoliation can be made against either party. In this case, the plaintiffs were the spoliators and the judge did not hesitate to sanction them, including ordering an adverse inference against the plaintiffs whom the judge found had engaged in grossly negligent conduct.  Second, the judge held that the “failure to issue a written litigation hold is [sufficient to] constitute[ ] gross negligence because that failure is likely to result in the destruction of relevant information.”  Therefore, the need for the litigation hold to issue is of substantial importance as a part of the document retention protocol when litigation is reasonably likely. Third, the judge reiterated the importance of preserving records of former employees that are in a party’s possession, custody or control.  The court held that the failure to preserve such documents supported a finding of gross negligence.  Fourth, the judge made clear that there is no duty to preserve backup tapes unless the tapes are the sole source of relevant information for the key players and the information is not obtainable from readily accessible sources.  If the tapes are the sole source of relevant information, then those backup tapes should be segregated and preserved.  “When accessible data satisfies the requirement to search for and produce relevant information, there is no need to save or search backup tapes.”

Certainly, a party should want to comply with appropriate record retention protocol because in the event of noncompliance the risk and level of sanction can be overwhelming and is left to the discretion of the trial judge. But also remember that if protocol was not or cannot now be followed, candor with your opponents and the judge is critical. It may mean the difference between the court ruling on a sanction for careless indifference and one based upon an intentional attempt to mislead the parties or the judge as to the level of compliance the party was able to accomplish.

Timothy G. Kerrigan is a director at Hamblett & Kerrigan, P.A. His present practice focuses on complex legal situations both in the litigation and in the ADR context. He is available as a litigator, client advocate or as an ADR neutral. Mr. Kerrigan is certified by the State Office of Mediation and Arbitration both as a mediator and as an arbitrator. You can reach Attorney Kerrigan by e-mail at tkerrigan@nashualaw.com

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