United States: The Latest on Managing e-Discovery in Litigation

On July 20, 2004, in her fifth written opinion in a "relatively routine employment discrimination dispute," Judge Shira A. Scheindlin of the U.S. District Court for the Southern District of New York imposed sanctions against UBS Warburg ("UBS") for destroying relevant e-mail messages during the litigation. The court ordered UBS to pay expenses and attorney fees incurred by plaintiff Laura Zubulake in pursuit of the missing e-mails. Zubulake v. UBS Warburg LLC, 2004 WL 1620866, at *1 (S.D.N.Y, July 20, 2004). In addition to the monetary sanctions, Judge Scheindlin also granted plaintiff’s request for additional discovery and for a jury instruction permitting a negative inference to be drawn from the missing evidence.

In August 2001, Zubulake filed a gender discrimination suit arising out of her termination as an equities trader. Soon after receiving notice of lawsuit, UBS’ in-house and outside counsel instructed personnel to retain relevant electronic information. However, these instructions did not specifically mention UBS’ electronic backup files, which stored deleted e-mails and were periodically recycled as part of the firm’s normal data retention procedures. This "failure to communicate" resulted in the destruction of discoverable electronic information when, notwithstanding the litigation hold instructions, certain UBS employees deleted relevant emails.

In her written opinion, Judge Scheindlin held that it is not enough for lawyers merely to instruct a client to preserve e-mail and other relevant evidence once litigation is reasonably anticipated. Rather, counsel must take "affirmative steps" to ensure that evidence is preserved. Although Judge Scheindlin found both UBS and its lawyers were to blame for the apparent "failure to communicate" that resulted in the destruction of the e-mails, she concluded that "the duty to preserve and produce documents rests on the party," not its counsel. Zubulake, 2004 WL 1620866, at *12. While many of the deleted e-mails were eventually recovered, the courtordered data recovery came at great expense and delay. Judge Scheindlin concluded that the failures that led to the destruction or delayed production of relevant information significantly prejudiced Zubulake such that sanctions were warranted.

The court noted that, "while UBS personnel deleted e-mails, copies of many of these e-mails were lost or belatedly produced as a result of counsel’s failures." Id. But while "more diligent action on the part of counsel would have mitigated some of the damage caused by UBS’ deletion of e-mails, UBS deleted the e-mails in defiance of explicit instructions not to." Id. The court further noted that, "If a party acts contrary to counsel’s instructions or to a court’s order, it acts at its own peril." Id. at *15. Thus, the court found only UBS’ conduct rose to the level of culpability necessary to support sanctions.

Having concluded that UBS was under a duty to preserve the e-mails and that it deleted presumably relevant e-mails willfully, Judge Scheindlin considered the proper sanctions. She first concluded that the jury would be given an adverse inference instruction with respect to e-mails deleted after notice of the litigation was communicated. Second, she ordered UBS to pay the costs associated with any depositions or re-depositions in light of the recent information. Third, UBS was ordered to pay all reasonable expenses, including attorneys’ fees, incurred by Zubulake in connection with the motion. Fourth, Zubulake is free to introduce at trial the testimony of UBS personnel, which was later contradicted by the belated e-mails. Finally, Judge Scheindlin ordered UBS to pay for the restoration of the remaining relevant backup files.

Judge Scheindlin has established herself as perhaps the most knowledgeable and influential jurist on e-discovery issues. This opinion, as well as her earlier orders in Zubulake, provide important guidance for corporate and outside counsel on the electronic discovery issues and effective record management. After concluding that UBS’ willful destruction of presumably relevant e-mails supported sanctions against the client, Judge Scheindlin’s order focused significant attention on the role of counsel in managing electronic discovery and litigation holds. The court’s order specifically details counsel’s "duty to effectively communicate to her client its discovery obligations so that all relevant information is discovered, retained and produced." Id. at *14.

In Judge Scheindlin’s view, it is not sufficient for counsel to simply notify employees that there is a litigation hold and expect that the party will then retain and produce all relevant information. Counsel must take reasonable affirmative steps to accomplish the following: (1) "identify sources of discoverable information"; (2) "put in place a litigation hold and make that known to all relevant employees by communicating with them directly"; (3) reiterate the litigation hold instructions "regularly" and "monitor compliance so that all sources of discoverable information are identified and retained on a continuing basis"; and (4) "call for employees to produce copies of relevant electronic evidence, and…arrange for the segregation and safeguarding of any archival media (e.g., back-up tapes) that the [client] has a duty to preserve." See id. These steps are likely to become the standard of "best practices" for counsel in future litigation. While most of these practices are likely frequently followed, Judge Scheindlin’s prescription for regular reiteration of the litigation hold and monitoring compliance probably are not common practices today. Given the notoriety of the Zubulake case and Judge Scheindlin’s reputation, these practices will likely be adopted by other courts in evaluating electronic discovery issues and requests for sanctions. Accordingly, firms or counsel in any pending litigation or agency investigation who fail to adopt these practices act at their peril.

This article is presented for informational purposes only and is not intended to constitute legal advice.