Deconstructing Pension Committee: the evolving rules of evidence spoliation and sanctions in the electronic discovery era.

• Author: Deyo, Michael W.

1. INTRODUCTION

   U.S. District Court Judge Shira Scheindlin is arguably the nation's most influential judicial authority on the topic of electronic discovery ("e-discovery"). This article will review Judge Scheindlin's seminal e-discovery opinion in Pension Committee, (1) and analyze the subsequent treatment of, and marks left by, a few notable aspects of her ruling.

   A discussion of Judge Scheindlin's Pension Committee Order and Opinion is incomplete without first mentioning the series of decisions which are her greatest legacy in the area of e-discovery, collectively referred to as Zubulake. (2) Indeed, the very first words Judge Scheindlin penned in Pension Committee read "Zubulake Revisited: Six Years Later." (3)

   In the Zubulake series of opinions, Judge Scheindlin brought into focus the foundational legal principles relevant to modern discovery practice: preservation, production, and spoliation (4) of electronically stored information. Judge Scheindlin illuminated the legal rules governing these emerging issues, and helped pave the way for the December 2006 amendments to the Federal Rules of Civil Procedure. (5) Whether one agrees or disagrees with the lines drawn by Judge Scheindlin, her Zubulake opinions indisputably captured widespread attention and left indelible marks on the nation's judicial system. Indeed, the Zubulake opinions have been cited extensively, and are afforded deferential treatment by numerous District Courts (6) and by trial and/or appellate courts in several states. (7) It truly was a landmark case.

   A simple reading of Pension Committee may leave one wondering why others consider it the most notable e-discovery opinion since Zubulake. After all, Judge Scheindlin simply revisits many of the ideas and standards she first articulated in Zubulake, without ostensibly upsetting or extending her initial rulings significantly. (8) Upon close examination, however, practical intricacies are revealed that substantially affect discovery practice. Moreover, the subsequent treatment of Pension Committee by other courts has highlighted the absence (and need for) national standards pertaining to the preservation of electronically stored information and the appropriate protocols governing spoliation sanctions should litigants fail to do so adequately.

   Judge Scheindlin's decision in Pension Committee is probably best characterized as an attempt to further ignite litigants--and their counsel--to take their discovery obligations seriously, and to reinforce a sense of fairness for victims of spoliation. To this end, Pension Committee is noteworthy for two reasons: (1) it formulaically links the failure to carry out defined preservation tasks with concepts of negligence and gross negligence; and (2) where spoliation results from gross negligence, it provides for rebuttable presumptions that the information lost was relevant and that the innocent party was prejudiced by the spoliation. (9)

   For these same reasons, Pension Committee is widely criticized for establishing unreasonably stringent per se rules that are too disconnected from everyday "in the trenches" litigation practice, and for swinging the pendulum too far in favor of parties seeking spoliation sanctions by relaxing the burden of proof (and thus encouraging spoliation motions as an offensive tactic). (10) For example, Judge Scheindlin deems the failure to utilize a written litigation hold notice an act of gross negligence in and of itself (even if verbal instructions are given); the consequence of which is a nearly automatic presumption, as matter of law, that a party moving for severe sanctions was actually prejudiced by an alleged loss of discoverable information. (11)

   The debate surrounding Pension Committee--and more generally spoliation and sanctions--boils down to the trilogy of scienter, relevance, and prejudice alluded to above, and the effect each of these elements has on one another in the context of imposing severe sanctions, such as an adverse inference jury instruction. (12) Before and after Pension Committee, courts across the nation have struggled to find a consistent and fair balance, repeatedly confronting questions like: Is the spoliation of evidence attributable to ordinary negligence sufficient for the imposition of an adverse inference instruction or must there be proof of bad faith? Who should carry the burden of proving that evidence destroyed by an adversary was or was not relevant, or that the innocent party was or was not prejudiced? Should this burden be allocated among the parties based upon the mental culpability of the spoliating party, and, if so, to what extent? (13) Judge Scheindlin provides her views in Pension Committee; others reach disparate results.

2. A SUMMARY OF THE PENSION COMMITTEE OPINION AND ORDER

   Pension Committee involved a complex securities litigation filed by a group of ninety-six investors trying to recover $550 million in losses incurred from the collapse of two hedge funds. (14) In anticipation of litigation, the plaintiffs engaged outside counsel who "telephoned and e-mailed plaintiffs and distributed memoranda" instructing the plaintiffs to begin collecting and producing to counsel copies of relevant documents that were necessary to draft the complaint. (15) The case was filed in the Southern District of Florida in February 2004; it was transferred to the Southern District of New York in October 2005. (16)

   The defendants asserted numerous discovery violations from October 2007 to June 2008, including allegations that thirteen plaintiffs failed to preserve electronically stored information and documents, and then made "false and misleading declarations regarding their document collection and preservation efforts." (17) The defendants moved the court to impose sanctions against the thirteen plaintiffs for their alleged discovery misconduct. (18)

   According to the court, the plaintiffs targeted by the motion "clearly failed to preserve and produce relevant documents that existed at the time (or shortly after) the duty to preserve arose." (19) The missing documents included 311 cross-referenced e-mails that were not produced by some plaintiffs, but were by others. (20) The court also concluded that certain unknown, yet presumptively relevant documents were missing from the plaintiffs' productions, including documents that were presumed to have existed as part of the plaintiffs' fiduciary duty of due diligence prior to making significant investments in the hedge funds. (21)

   It is important to note that Pension Committee does not involve "any egregious examples of litigants purposefully destroying evidence." (22) Still, Judge Scheindlin imposed severe sanctions in the form of a spoliation jury instruction against certain plaintiffs because they "failed to timely institute written litigation holds and engaged in careless and indifferent collection efforts after the duty to preserve arose." (23)

   1. Court-Imposed Sanctions for the Spoliation of Evidence

      It is well established that when spoliation of evidence occurs, a court may impose discovery sanctions pursuant to Rule 37(b) of the Federal Rules of Civil Procedure, and more generally, pursuant to a court's "inherent power to manage its own affairs." (24)

      Initially, Judge Scheindlin notes that sanctions range in degree of severity, and that the severity of penalties is tied directly to the scienter of the spoliating party. (25) She then attempts to define, in the context of discovery misconduct, the meaning of various terms of mental culpability cemented firmly in modern law: ordinary negligence, gross negligence, and willful conduct. (26) Applying these concepts of scienter to discovery misconduct, Judge Scheindlin observes that the failure to preserve or collect evidence "resulting in the loss or destruction of relevant information is surely negligent, and, depending on the circumstances, may be grossly negligent or willful." (27)

      After defining the continuum of mental culpability in broad stroke, Judge Scheindlin attempts to match the failure to complete specific e-discovery tasks satisfactorily with the corresponding level of culpability. (28) In so doing, Judge Scheindlin creates a formulaic approach to measuring mental culpability based on particular actions and omissions of a party against whom spoliation is alleged. Though attributing levels of mental culpability to specific e-discovery failures is hardly a novel concept (and, indeed, something that must be done to decide nearly every spoliation motion), no court had previously attempted to define standardized criteria for assigning culpability. (29) In this respect alone, Pension Committee is notable.

   2. The Burden of Proving Spoliation

      Before examining the discovery misconduct-to-scienter pairings Judge Scheindlin defines, it is important to understand the significance of her undertaking, and the effect of these pairings on spoliation analysis. To succeed on a motion for severe sanctions, such as an adverse inference jury instruction, it must generally be proven that the spoliating party: (1) had control over the evidence; (2) had a duty to preserve the evidence at the time it was destroyed; (3) acted with a "culpable state of mind;" (30) and (4) the missing evidence is "relevant" to the innocent party's claim or defense. (31) The Second Circuit has provided guidance to define what "relevance" means in the context of spoliation sanctions:

      [O]ur cases make clear that "relevant" in this context means something more than sufficiently probative to satisfy Rule 401 of the Federal Rules of Evidence. Rather, the party seeking an adverse inference must adduce sufficient evidence from which a reasonable trier of fact could infer that "the destroyed or unavailable evidence would have been of the nature alleged by the party affected by its destruction." (32) Judge Scheindlin notes carefully, however, that proof of relevance is not enough (even when the Second Circuit's heightened relevancy...