The Pension Committee Decision: the Duty to Preserve Records
| Publication year | 2011 |
| Pages | 39 |
2011, January, Pg. 39. The Pension Committee Decision: The Duty to Preserve Records
January 2011
Vol. 40, No. 1 [Page 39]
The Civil Litigator articles address issues of importance and interest to litigators and trial lawyers practicing in Colorado courts. The Civil Litigator is published six times a year.
Coordinating Editor
Timothy Reynolds, Boulder, of Holme Roberts and Owen, LLP, (303) 417-8510, timothy.reynolds@hro.com
This article examines the Pension Committee decision, in which Judge Shira Scheindlin of the Southern District of New York set out significant new law concerning discovery obligations, this time focusing on those who are negligent or grossly negligent in failing to preserve electronic and paper documents. An earlier series of decisionsby Judge Scheindlin laying out rules on e-discovery, known as the Zubulake cases, were discussed in a two-part article published in The Colorado Lawyer in August and September 2007.
The Pension Commitee of the University of Montreal Pension Plan v. Banc of America Securities, LLC opinion, writtenby Judge Shira Scheindlin of the U.S. District Court for the Southern District of New York, states:
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.
This case does not present any egregious examples of litigants purposefully destroying evidence. This is a case where plaintiffs failed to timely institute written litigation holds and engaged in careless and indifferent collection efforts after the duty to preserve arose. As a result, there can be little doubt that some documents were lost or destroyed.(fn1)
Over the last decade, courts have refined the obligations of parties to preserve and collect paper and electronic documents. The continual and rapid changes in technology and the expansion of media on which people create and store information have made these obligations increasingly important in civil litigation.
In the Zubulake v. UBS Warburg LLC cases,(fn2) Judge Scheindlin profoundly influenced how courts across the country understand and handle discovery. In a series of decisions, she synthesized and laid out important new rules as to when the duty to preserve paper and electronic documents arises, who should bear the cost of retrieving hard-to-access electronic documents, and how to determine what sanctions to award for willful misconduct.
In Pension Committee, Judge Scheindlin has turned to the thornier problems of defining parties' obligations to preserve and collect relevant documents, both paper and electronic, and the sanctions for the parties who do not act willfully or in bad faith but who,by handling their discovery obligations with a "pure heart and an empty head,"(fn3) cause the loss or destruction of documents through negligence or gross negligence. As with her Zubulake opinions, courts and litigants across the country, including in Colorado, will rely on Judge Scheindlin's framework and reasoning in Pension Committee when discovery problems emerge, particularly with regard to the loss of paper and electronic documents due to carelessness or gross negligence. This article reviews Judge Scheindlin's key role in developing discovery rules, and analyzes the Pension Committee case, considering the impact its holdings will have on discovery issues in Colorado.
Why Pension Committee Matters in Colorado
Although Pension Committee is not binding precedent in any Colorado court, state and federal courts here likely will rely on the opinion when facing discovery issues. Colorado state courts have yet to adopt any specific rules of civil procedure to deal with the challenges of discovery of electronic documents. Instead, state courts apply the pre-existing rules of civil procedure to handle such discovery on an ad hoc basis.(fn4) Colorado state courts' reliance on general discovery rules means that when e-discovery issues are litigated in state courts, parties and judges frequently will look to federal courts for guidance.(fn5)
Within the federal courts, Judge Scheindlin is one of the leading experts on discovery issues, particularly of electronic documents, and is well known for her five Zubulake opinions.(fn6) In Zubulakev. UBS Warburg LLC, a rather innocuous employment dispute over gender discrimination and retaliation became overwhelmedby discovery preservation and collection issues. The lessons from the Zubulake cases were discussed in depth in a two-part article published in The Colorado Lawyer in 2007.(fn7)
In Zubulake I, Judge Scheindlin first had to determine whether the defendant/employer was required to search backup tapes for deleted e-mails.(fn8) She then set out a balancing test to analyze which party would bear the cost of the retrieval.(fn9) After resolving an unrelated issue in Zubulake II,(fn10) in Zubulake III, Judge Scheindlin applied her cost-shifting balancing test to determine which party would have to pay for discovery of inaccessible information.(fn11)
Zubulake IV, the most influential of the five opinions, held that a party's duty to preserve documents arises when "a party reasonably anticipates litigation."(fn12) Determining the accrual date for when the duty to preserve arises is an important first step in managing discovery, and two federal court decisions in Colorado have relied on Zubulake IV for this accrual rule.(fn13) Zubulake IV also addressed the issue of sanctions for a party's failure to preserve backup tapes.(fn14)
Finally, in Zubulake V, Judge Scheindlin found that the defendant had (1) willfully destroyed relevant e-mails; (2) failed to request information from a key employee; (3) failed to issue a litigation hold instruction to another key employee; and (4) failed to safeguard backup tapes.(fn15) As a result, she awarded monetary sanctions to the plaintiff and ordered that the plaintiff also was entitled to an adverse inference instruction concerning the deleted e-mails and destroyed backup tapes.(fn16)
The Zubulake opinions have been widely cited and relied onby federal and state courts across the nation that are grappling with discovery issues. To give some context to the magnitude of their importance, since the opinions were issued in 2003 and 2004, they have been cited in more than 300 reported decisions and 2,200 articles and treatises.(fn17) As a result, when Judge Scheindlin subtitled the Pension Committee opinion, "Zubulake Revisited: Six Years Later,"(fn18) courts, attorneys, and commentators around the country took notice.
The Pension Committee Case
The Pension Committee case itself concerned a group of primarily Canadian institutional investors who were suing to recover $550 million in losses from the liquidation of two offshore hedge funds sited in the British Virgin Islands.(fn19) Prior to the funds' liquidation, in April 2003 the fund manager had declared bankruptcy.(fn20) In October and November 2003, an ad hoc committee of investors retained lead counsel for the suit.(fn21) The investors first filed suit in the Southern District of Florida in February 2004, and the case was transferred to the Southern District of New York in October 2005.(fn22)
In 2004, a stay was issued in the case pursuant to the Private Securities Litigation Reform Act; the stay remained in place until early 2007.(fn23) During that three-year stay...
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