E-Mail Electronic Discovery Sanctions Continue, With New Lawyer Standards Possibly Created

August 2004

Library Sections:

Recently, federal Courts imposed a number of spoliation sanctions involving e-mail electronic discovery. Specifically:

Zubulake vs. UBS Warburg (SD NY: July 20, 2004) - In the fifth ruling in this case, the defendant was sanctioned for failing to save and produce backup tapes. Because of the significance of this series of cases, and because this latest ruling probably sets new standards for lawyers, this matter is discussed in greater detail below.
United States vs. Philip Morris (D.D.C.: July 21, 2004) - Although the Court had ordered preservation of all potentially relevant documents, defendants continued to delete email when it became 60 days old. Finding that a significant number of emails had been permanently destroyed, the Court declared, "It is astounding that employees at the highest corporate level in Philip Morris, with significant responsibilities pertaining to issues in this lawsuit, failed to follow [the] Order ... which, if followed, would have ensured the preservation of those emails which have been irretrievably lost." The Court granted:
- Preclusion of any defense witness who failed to follow the prior retention Order (This specifically affected a number of high-ranking defense witnesses who were to be called),
- $2.75 million in monetary sanctions, and
- Payment of plaintiff's costs relating to the spoliation.
Mosaid Technologies vs. Samsung (NJ: July 8, 2004) - The Court said, "The prejudice resulting from complete and total email spoliation seems particularly obvious…The fact that no technical emails were preserved…demonstrates, at the least, extremely reckless behavior." The Court granted:

An adverse inference jury instruction from the destruction of Samsung emails,
Prohibition of defendant challenges to certain Plaintiff expert assumptions because defendant did not produce electronic evidence on that subject, and
Reimbursement of Mosaid's attorneys fees and costs associated with Mosaid's attempts to secure discovery and prepare the instant motion.

MasterCard vs. Moulton (SD NY: June 22, 2004) Defendants destroyed four months of emails after the lawsuit was filed. Defendants argued that the emails were automatically destroyed by the computer system in the ordinary course of the operating the defendant's computer systems. The Court rejected this argument and sanctioned the defendant by granting an adverse inference jury instruction. The Court said, "The very fact that the emails are missing leaves us in the realm of speculation as to what they contained and in what manner they might have assisted plaintiff in litigating claims."

Zubulake Continues as a Landmark Case

This case provides new commentary on a lawyer's obligations regarding the electronic evidence process that may establish new standards of practice for lawyers.

This most recent ruling is Judge Scheindlin's fifth opinion involving electronic discovery in this two-year contentious dispute. The earlier Zubulake rulings are regularly cited in electronic discovery disputes. The underlying case is a relatively routine employment discrimination dispute. The earlier rulings are summarized below.

In Zubulake I, 217 F.R.D. 309 (SD NY 2003)), plaintiff requested the defendant to produce allegedly relevant emails maintained on back-up tapes. The defendant requested that the cost of such production be shifted to plaintiff. The Court explored a party's obligations to preserve and produce electronic data, as well as the circumstances under which cost shifting would be appropriate. The Court adopted a now often-quoted seven factor test which arguably superceded the previously influential eight factor "Rowe" test. The seven factors are:

The extent to which the request is specifically tailored to discover relevant information
The availability of such information from other sources
The total cost of production, compared to the amount in controversy
The total cost of production, compared to the resources available to each party
The relative ability of each party to control costs, and its incentive to do so
The importance of the issues at stake in the litigation, and
The relative benefits of the parties of obtaining the information

The Court stated that the factors are to be applied "in descending order of importance", and that greater attention should be given to the first two factors which analyze the "marginal utility" of the discovery request. The Court also stated that these factors should be based on facts, and that the most useful way of analyzing the factors and getting facts is to perform a "test run" based on a "small sample" of the data.

Base on this initial ruling, with the assistance of an outside vendor, defendant restored emails from five back-up tapes selected by plaintiff. The emails were searched to determine those relevant to plaintiff's requests. The total cost of restoring the five tapes, reviewing the e-mails for relevance, performing an attorney review, and producing the results to plaintiff was approximately $19,000. Based on the initial costs, defendant estimated the cost of producing everything else would be almost $275,000. In Zubulake II, Civ. 1243, WL 21087136 (SD NY May 13, 2003), the Court evaluated the preliminary information pursuant to the Court's seven factor test to determine whether the production of additional emails was "unduly burdensome". In Zubulake II, the Court determined that the defendant should be responsible for the "lion's share" of the costs. The Court noted that the initial work generated 600 relevant emails that provided support for plaintiff's claims that were not available from any other source. In applying the third factor, the Court noted that Ms. Zubulake's high salary ($650,000 per year) generated the potential for a multi-million dollar recovery. The Court concluded that 25% of the costs should be shifted to the plaintiff.

In Zubulake III, 216 F.R.D. 280 (SD NY 2003), the Court evaluated the results of the back-up tape restoration. The Court held that the defendant must continue to carry most of the burden of complete back-up tape restoration because plaintiff demonstrated that (i) the backup tapes would likely contain relevant information, and (ii) defendant failed to keep all relevant information (principally e-mails) in its active files. Interestingly, the Court's rationale describes the underlying factual situation in the vast majority of circumstances.

Plaintiff chose to restore 16 backup tapes. During this process, the parties discovered that certain back-up tapes were missing. In Zubulake IV, 220 F.R.D. (SD NY 2003), plaintiff moved for sanctions because (i) the back-up tapes should have been retained based on defendant's document retention policy, and (ii) relevant emails had been deleted from active files (and hence would only be on the back-up tapes) after defendant had issued a litigation hold. At this time, the Court declined sanctions because (i) the spoliation did not appear willful, and (ii) it was not clear that the deleted information would be particularly helpful to plaintiff. However, the Court did allow certain defendant employees to be re-deposed, and for defendant to pay for related costs.

Zubulake V arose out of information from the re-depositions ordered in Zubulake IV. Plaintiff discovered that (i) relevant emails had been deleted, some irretrievably, and (ii) relevant information in active electronic files had never been produced. Plaintiff again sought sanctions. This time, the Court agreed.

In Zubulake V, the Court addressed obligations of counsel. The Court focused on counsel being better able than the litigant to understand (i) the legal requirements and (ii) the items relevant to the litigation. The Court held that it was not enough for legal counsel to merely instruct a client to preserve email, but counsel must also take "affirmative steps" to ensure that evidence is preserved. The Court noted, "while UBS personnel deleted e-mails, copies of many of these emails were lost or belatedly produced as a result of counsel's failures…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…If a party acts contrary to counsel's instructions, or to a court's order, it acts at its own peril."

Because of the spoliation identified in Zubulake V, the Court ordered:

An adverse inference jury instruction because of the missing evidence
Defendant to pay all of plaintiff's attorney's fees and costs associated with the motion
Additional discovery for plaintiff - Defendant was ordered to pay plaintiff's attorney's fees and costs with any depositions or re-depositions caused by the misconduct, as well as all cost of restoring remaining relevant back-up files

Possible New Requirements for Legal Counsel

The Court specified the following "reasonable steps" required by legal counsel:

"Becoming fully familiar with her client's document retention practices, as well as the client's data retention architecture"
Identifying "key players" and "sources of discoverable information"
Putting "in place a litigation hold and making that known to all relevant employees by communicating with them directly"
Repeating the litigation hold instructions "regularly"
"Monitoring the compliance so that all sources of discoverable information are identified and retained on a continuing basis"
"Calling for employees to produce copies of relevant electronic evidence"
"Arranging for the segregation and safeguarding of any archival media (e.g., back-up tapes) that [the client] has a duty to preserve"

Some lawyers are already involved with some of these areas. However, few lawyers are as involved in their client's electronic discovery implementation as the Zubulake Court specified. In particular, the requirements to (i) repeat the litigation hold instructions regularly and (ii) monitor compliance with this litigation hold are not routine for most legal counsel.

Because of the increasing importance of electronic business records and communications, all of the Zubulake rulings are important to in-house and outside lawyers.

Read our article on document retention advice where a litigation hold is not yet appropriate.

Fulcrum Inquiry is a financial consulting firm. We help lawyers and their clients with electronic discovery, computer forensics, and litigation consulting.