e-discovery 2.0

Judge Shira Scheindlin is famous for a number of things in her electronic data discovery opinions, but one notable aspect is her use of quotes to set the tone for her landmark decisions.  In Zubulake she quoted Cool Hand Luke (“What we’ve got here is a failure to communicate.”) and in her latest opinion she quotes George Santayana (”[t]hose who cannot remember the past are condemned to repeat it.”).

Pension Committee of the Univ. of Montreal Pension Plan, et al., v. Banc of America Securities, LLC, et al. (“Pension Committee”) is generating a lot of buzz and reminds me of the Yogi Berra quote: “this is like déjà vu all over again” … particularly when thinking back to her landmark Zubulake decisions.  In this opinion, Judge Scheindlin of the Southern District of New York pens another potential electronic discovery classic, while simultaneously paying homage to her past opus.

Before we get into the “how” and “what” of the 85 page opinion, it’s probably reasonable to posit the “why” question, particularly when Judge Scheindlin and her team spent 300 hours on the mammoth undertaking.

“I, together with two of my law clerks, have spent an inordinate amount of time on this motion. We estimate that collectively we have spent close to three hundred hours resolving this motion. I note, in passing, that our blended hourly rate is approximately thirty dollars per hour (!) well below that of the most inexperienced paralegal, let alone lawyer, appearing in this case. My point is only that sanctions motions, and the behavior that caused them to be made, divert court time from other important duties-namely deciding cases on the merits.”

So, why was this fact pattern worthy of the inordinate amount of briefing time (regardless of the inconceivably low $9,000 fee)?  A skeptic might postulate that Judge Scheindlin has been out of the limelight lately, often being eclipsed by Judges Peck and Grimm.  It’s also been a year since her Securities and Exchange Commission v. Collins & Aikman Corp., opinion and it’s likely that she wanted to hearken back to the good ole Zubulake days, where she had the ear of the entire electronic discovery world.  Her tribute is less than subtle, as she even subtitles Pension Committee: “Zubulake Revisited: Six Years Later.”

Less skeptically, however, she likely sees a host of matters rife with electronic data discovery disputes caused by the bar’s lack of e-discovery savvy.  It seems plausible that Pension Committee is a way for her to coalesce leanings from Zubulake (and beyond) into one, clear expression of legal duties.

Given the length of her opus, we won’t dissect the entire opinion as Ralph Losey did (chockablock with flying gerbils), but will instead focus in on the enduring and potentially controversial sections.  As way of background, the dispute at hand focused on claims by a group of investors who brought an action to recover losses of 550 million dollars stemming from the liquidation of two British Virgin Islands based hedge funds.  Unlike many typical e-discovery disputes, this instant action focused on the conduct of the plaintiffs as they attempted to deal with the often murky landscape of ESI preservation, collection and production.  Fortunately, Judge Scheindlin provided much needed foreshadowing to both readers and bloggers alike in her opening comments:

“Because this is a long and complicated opinion, it may be helpful to provide a brief summary up front. I begin with a discussion of how to define negligence, gross negligence, and willfulness in the discovery context and what conduct falls in each of these categories. I then review the law governing the imposition of sanctions for a party’s failure to produce relevant information during discovery. This is followed by factual summaries regarding the discovery efforts–or lack thereof–undertaken by each of the thirteen plaintiffs against whom sanctions are sought, and then by an application of the law to those facts. Based on my review of the evidence, I conclude that all of these plaintiffs were either negligent or grossly negligent in meeting their discovery obligations. As a result, sanctions are required.”

The finding of sanctions aside, Judge Scheindlin goes out of her way to crystallize duties and identify the type of conduct can cause an e-discovery breach.  Despite significant caveats about the fact intensive nature of each discovery dispute, she nevertheless proffers the following synthesis, which has caused no shortage of consternation amongst electronic discovery practitioners and commentators:

“After a discovery duty is well established, the failure to adhere to contemporary standards can be considered gross negligence. Thus, after the final relevant Zubulake opinion in July, 2004, the following failures support a finding of gross negligence, when the duty to preserve has attached:

• to issue a written litigation hold;
• to identify all of the key players and to ensure that their electronic and paper records are preserved;
• to cease the deletion of email or to preserve the records of former employees that are in a party’s possession, custody, or control;
• and to preserve backup tapes when they are the sole source of relevant information or when they relate to key players, if the relevant information maintained by those players is not obtainable from readily accessible sources.

[bullets added]

Assuming Pension Committee is followed beyond the bounds of the Southern District of New York, which is still speculative at this stage, it certainly means sleepless nights for corporate legal departments with litigation hold and preservation processes that are less than “contemporary.” While it’s hard to argue with the theoretical appropriateness of the above items, it’s questionable how practical these steps are, particularly for large enterprises that may have dozens (or hundreds) of litigation holds in place at any one point in time.  Multiply the numbers of holds times the disparate types of ESI and the complexities of the IT infrastructures and Judge Scheindlin’s seemly innocuous mandate can quickly become a tactical minefield, rife with sanctions possibilities.  Unfortunately, with the rapid proliferation of social media usage and cloud computing, this already complex paradigm is only going to become more vexing in the near term.

Given that the number of struggling enterprises is legion, it does certainly beg the question whether more folks than not can live up to this new “reasonableness” standard.  If not, this articulation may materially raise the bar and result in a demonstrable increase in spoliation motions, if that were possible.  Already, spoliation charges are often referred to as a “case within the case” by many, something which Judge Scheindlin reluctantly acknowledges.

“Finally, I note the risk that sanctions motions, which are very, very time consuming, distracting, and expensive for the parties and the court, will be increasingly sought by litigants. This, too, is not a good thing. For this reason alone, the most careful consideration should be given before a court finds that a party has violated its duty to comply with discovery obligations and deserves to be sanctioned. Likewise, parties need to anticipate and undertake document preservation with the most serious and thorough care, if for no other reason than to avoid the detour of sanctions.”

[Footnotes omitted]

Perhaps ratcheting up of the e-discovery standard of care can be rationalized as aspiration in nature.  Yet, it is hard to see how it reflects the actual business practices of many in corporate legal departments, particularly when the actions/inactions occurred (as in this case) several years ago when nascent notions about best practices were still evolving.

“The age of this case requires a dual analysis of culpability–plaintiffs’ conduct before and after 2005. The Citco Defendants contend that plaintiffs acted willfully or with reckless disregard, such that the sanction of dismissal is warranted.  Plaintiffs admit that they failed to institute written litigation holds until 2007 when they returned their attention to discovery after a four year hiatus. Plaintiffs should have done so no later than 2005, when the action was transferred to this District. This requirement was clearly established in this District by mid2004, after the last relevant Zubulake opinion was issued. Thus, the failure to do so as of that date was, at a minimum, grossly negligent.”

[Footnotes omitted]

Perhaps my biggest issue with this decision is that it (perhaps myopically) places an inordinate level of importance and awareness of the Zubulake decisions, particularly for those outside Judge Scheindlin’s district.  This lawsuit was initially brought in Florida and “[w]hile a duty to preserve existed in the Southern District of Florida at the time this action was filed, no court in the Eleventh Circuit articulated a ‘litigation hold’ requirement until 2007.”  In my mind, it hardly seems fair to retroactively imbue the Plaintiffs with this type of comprehension and duty.

At the end of the day, and despite quibbling with the equities involved, Judge Scheindlin has largely succeeded in moving the e-discovery ball forward.  The opinion will likely be one of the most widely read cases in 2010 and deservedly so since it describes with precision and clarity the burdens and penalties in the evolving area of ESI spoliation.  The main question will be to what extent will other jurisdictions adopt the same culpability framework and extend the reach of Pension Committee just as happened with the Zubulake line of cases.

Certainly, it could be “déjà vu all over again.”

As Tiger Woods is to golf, the honorable Shira A. Scheindlin is to electronic discovery.  She has unquestionably been the most dominant/visible/outspoken jurist in the electronic discovery realm over the past decade, penning amongst others, the Zubulake opinion, which is commonly referred to as the gold standard in electronic discovery.

But, like Woods, who recently took a sabbatical to mend his surgically repaired knee, Judge Scheindlin has recently been eclipsed by several other notable electronic discovery jurists, namely Judge Grimm (of Victor Stanley and Mancia fame) and Judge Facciola (aka “the Italian Stallion“) both of whom made numerous “best of the year” electronic discovery case law lists.

With Securities and Exchange Commission v. Collins & Aikman Corp., 2009 WL 94311 (S.D.N.Y., Jan. 13, 2009) Judge Scheindlin serves notice that the sheriff is back in town.  She not only tackles a number of thorny electronic discovery topics, but ambitiously takes on the US government in the process.  It’s fairly lengthy opinion, well worth the read, so I’ll just excerpt out a few of the notable takeaways.

As a bit of background…  the Collins case centered around a securities fraud complaint brought by the SEC against the Collins & Aikman Corp. and its former CEO David A. Stockman.  The crux of the dispute surrounded questions concerning the government’s discovery obligations in civil discovery (versus in a purely SEC investigation per se).

There were four distinct but interrelated disputes, namely:

“(1) Whether identifying responsive documents that have been organized by the producing party invades the protection accorded to attorney work-product and how a government agency-acting in its investigative capacity-must respond to a request for the production of documents. (2) Whether a government agency may unilaterally restrict the scope of its search based on an assertion of an “undue burden” on limited public resources. (3) How much information the Government must disclose in order to allow an adversary-and the court-to assess an objection based on the deliberative process privilege. (4) Whether a government agency may unilaterally exclude its own e-mail from document production on the ground that most-but not all-will be privileged.”

Addressing the work product claims, the court found against the government, again reinforcing several recent opinions about electronic discovery search:

“The SEC contends that Stockman can search through the ten million pages and find substantially the same documents identified by the SEC without impinging on the thought processes of the SEC attorneys. Indeed-at significant expense and delay-Stockman could search the document databases using appropriate search terms, but the inaccuracy of such searches is by now relatively well known.  A page-by-page manual review of ten million pages of records is strikingly expensive in both monetary and human terms and constitutes “undue hardship” by any definition.” [Citing, George L. Paul and Jason R. Baron's article: Information Inflation: Can the Legal System Adapt?

After losing the first battle, the SEC argued that even if the compilations were not protected as work product, it could produce the "complete, unfiltered, and unorganized investigatory file" since this was how the documents were "maintained in the usual course of its business."  This second attempt was similarly unpersuasive as Judge Scheindlin held that the "usual course of business" exemption did not apply:

"[C]onducting an investigation-which is by its very nature not routine or repetitive-cannot fall within the scope of the “usual course of business.” While the SEC routinely collects and maintains regulatory submissions such 10-K reports, in its investigative capacity the agency conducts tailored probes of a company or an industry, requiring the gathering of records from diverse sources. Many if not most of the 1.7 million documents in the SEC production here were likely collected in the agency’s investigatory role. Thus it is no surprise that the complete collection is maintained as it was collected-in large disorderly databases. The documents can only be provided in a useful manner if the agency organizes or labels them to correspond to each demand.”

Next, Judge Scheindlin addressed the SEC’s decision to “unilaterally” limit its search to “centralized compilations” which ultimately “turned up nothing.”  She found that the SEC’s “blanket refusal to negotiate a workable search protocol” was “patently unreasonable” citing both Mancia and the Sedona Conference’s Cooperation Proclamation:

“Rule 26(f) requires the parties to hold a conference and prepare a discovery plan. … Had this been accomplished, the Court might not now be required to intervene in this particular dispute. I also draw the parties’ attention to the recently issued Sedona Conference Cooperation Proclamation, which urges parties to work in a cooperative rather than an adversarial manner to resolve discovery issues in order to stem the ‘rising monetary costs’ of discovery disputes.”

As the coup de gras, Judge Scheindlin addressed and rejected out of hand the SEC’s most untenable claim that it would not produce e-mail “generated or received by the Commission itself” because “nearly all responsive e-mails will be privileged, protected, or non-substantive.”

“Because e-mails are inherently searchable, the SEC’s blanket refusal to produce any in-coming or outgoing e-mails is unacceptable. Without even an attempt to negotiate search terms that would weed out privileged, protected, or irrelevant e-mails, the SEC cannot reasonably assert that a routine aspect of modern discovery-search and review of a party’s e-mail-is beyond its capability. Essentially, the SEC’s position is that the cost of such a search is simply too high, but it has made no effort to document the cost or the likelihood that it would produce relevant, nonprivileged material. The concept of sampling to test both the cost and the yield is now part of the mainstream approach to electronic discovery.”

At the end of the day, the Collins opinion seems to make statement the Judge Scheindlin is back with a vengeance and she’s serving notice that the government isn’t above the law:

“Like any ordinary litigant, the Government must abide by the Federal Rules of Civil Procedure.”

Besides knocking the government down a peg, Judge Scheindlin throws her judicial weight behind a number of important but nascent trends, including the Sedona Cooperation Proclamation, the related need to meet & confer, the use of sampling and the challenges of electronic discovery search. While none of these notions are groundbreaking, her substantial backing means increasing clarity for lawyers and litigation support practitioners everywhere.  And, that’s certainly welcome.