The Importance of Litigation Holds: Zubulake and its Progeny

Litigation holds continue to grow in importance in this electronic world and as more and more organizations go “paperless.”  A litigation hold is a suspension of an organization’s document retention and destruction policies for documents that may be relevant to a lawsuit that has been filed or for litigation that may be reasonably anticipated.  The purpose of a litigation hold is to ensure that relevant data is not destroyed and that employees are advised of document preservation requirements in the face of litigation.  There is a clear need for individuals and organizations to establish and follow a clearly articulated litigation hold process in order to avoid the pitfalls associated with the destruction of evidence after litigation is instituted or reasonably anticipated.     

While most individuals in the legal field are familiar with the concept of a litigation hold, many do not know when the obligation is triggered, who needs to be involved and what needs to be preserved.  A number of cases have arisen in the last few years that address litigation holds and help to define the best practices for issuing a litigation hold.  The most famous of those cases, the Zubulake decisions, were recently “revisited” in Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, No. CIV 05-9016, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010). 

Generally, parties need to be proactive when it comes to litigation holds and put these holds in place before any legal action is instituted.  The question of when the obligation to preserve arises is still unanswered.  Regardless of whether the duty arises when an action is commenced or when litigation is reasonably anticipated, immediate action is necessary to prevent the destruction or loss of data.  In the last 10 years, courts have become increasingly critical of submissive oversight of the litigation hold process. 

When litigation is instituted, or for that matter when litigation is reasonably anticipated, it is essential that a litigation hold be established ordering that all information, electronic or paper, relating to the subject of the litigation or dispute be preserved for possible production in the litigation.  A party’s failure to timely impose a litigation hold can result in court ordered sanctions in the form of monetary sanctions and/or the imposition of an adverse inference charge relative to information being destroyed because a litigation hold was not put in place in a timely manner.

Zubulake and its Progeny: Consequences of Non-Compliance with Litigation Holds

During 2003 and 2004, Judge Shira A. Scheindlin, a judge in the United States District Court for the Southern District of New York, issued a number of innovative opinions in the case of Zubulake v. UBS Warburg.   Zubulake is generally considered the first definitive case in the United States on a wide variety of electronic discovery issues.  These issues, decided in what is commonly known as Zubulake I, III, IV and V , include: 1) the scope of a party’s duty to preserve electronic evidence during the course of litigation; 2) a lawyer’s duty to monitor their clients’ compliance with electronic data preservation and production; 3) data sampling; 4) the ability for the disclosing party to shift the costs of restoring “inaccessible” back up tapes to the requesting party and 5) the imposition of sanctions for the spoliation (or destruction) of electronic evidence.  

In February 2002, Laura Zubulake filed an employment discrimination case alleging gender discrimination, retaliation and illegal retaliation.   Shortly after suit was filed, a discovery dispute arose regarding Zubulake’s request that her former employer, UBS, produce “all documents concerning any communication by or between UBS employees concerning Plaintiff.”  UBS only produced approximately 350 pages of documents including 100 e-mails and insisted that its production was complete.   However, the plaintiff had produced almost 450 pages of e-mails herself and it was discovered that UBS never searched any of its back up tapes that held archived e-mails.   This discovery battle lasted almost two and a half years and resulted in large monetary sanctions against UBS and an adverse inference instruction at trial. 

On January 15, 2010, Judge Scheindlin penned an opinion in Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities  which she titled “Zubulake Revisited.”  The Pension Committee decision addresses the issues of a parties’ preservation obligations and examines spoliation in vast detail.  Judge Scheindlin summed up the opinion in the introduction stating: “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.”   The opinion provides a summary of the law, at least as it stands in the Southern District of New York. 

The Pension Committee decision granted sanctions against 13 plaintiffs for their failure to “timely institute written litigation holds and [for engaging] in careless and indifferent collection efforts after the duty to preserve arose,” among other things.   The plaintiffs in Pension Committee were a group of 96 investors who sought to recover losses of $550 million stemming from the liquidation of two British Virgin Islands-based hedge funds in which they held shares.  The plaintiffs asserted various claims against former directors, administrators and others associated with the funds.   Following the close of discovery, certain defendants moved for sanctions based on what they argued were substantial gaps in the plaintiffs’ document productions.  Specifically, it was argued that “each plaintiff failed to preserve and produce documents – including those stored electronically – and submitted false and misleading declarations regarding their document collection and preservation efforts.”   Put quite simply, Judge Scheindlin stated that “[t]his 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 come documents were lost or destroyed.”  

The court held that “[a] failure to preserve evidence resulting in the loss or destruction of relevant information is surely negligent, and, depending on circumstances, may be grossly negligent or willful.  For example, the intentional destruction of relevant records, either paper or electronic, after the duty to preserve has attached, is willful . . . (and) the failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.”   Shortly after being retained, counsel for the plaintiffs “telephoned and emailed plaintiffs and distributed memoranda instructing plaintiffs to be over, rather than under, inclusive and noting that emails and electronic documents should be included in the production.  Counsel indicated that the documents were necessary to draft the complaint, although they did not expressly direct that the search be limited to these documents.”   The court held that this instruction does not meet the standard for a litigation hold because it does not instruct employees to preserve all relevant paper and electronic documents and it does not “create a mechanism for collecting the preserved records so they can be searched by someone other than the employee.  Rather, the directive places total reliance on the employee to search and select what the employee believed to be responsive records without any supervision from Counsel.”   The court also noted that even though counsel sent monthly updates including a request for documents related to the litigation, counsel never instructed plaintiffs not to destroy records.

Based on the defendants’ dissatisfaction with the plaintiffs’ efforts to produce documents, the court ordered the plaintiffs to provide declarations regarding their efforts to preserve and produce documents.   The plaintiffs’ declarations described their process for identifying and preserving documents and asserted that they produced all relevant documents in their possession.  However, after deposing some of the plaintiffs the defendants concluded that most of the declarations were false or were made without the declarants’ personal knowledge.  The judge concluded that some of the plaintiffs conducted e-discovery in an “ignorant and indifferent fashion.”  Thirteen of the ninety-six plaintiffs were sanctioned.  

In particular, Judge Scheindlin found fault with the sanctioned plaintiffs’ failure to issue litigation holds until after the stay in the litigation was lifted in 2007.   She also found the sanctioned plaintiffs had failed to identify, collect, and preserve back-up tapes and other sources of potentially responsive electronic evidence.   She also found that six of the thirteen plaintiffs had been grossly negligent and ordered a burden-shifting jury instruction as to them.  

In deciding whether to impose sanctions, Judge Scheindlin stated:

I stress that at the end of the day the judgment call of whether to award sanctions is inherently subjective.  A court has a “gut reaction” based on years of experience as to whether a litigant has complied with its discovery obligations and how hard it worked to comply.  Second, while it would be helpful to develop a list of relevant criteria a court should review in evaluating discovery conduct, these inquiries are inherently fact intensive and must be reviewed case by case.

Further, “after a discovery duty is well established, the failure to adhere to contemporary standards can be considered gross negligence.”   Thus, Judge Scheindlin held that the following four failures to adhere to contemporary standards warrant a finding of gross negligence, when the duty to preserve has attached:

  • Failure to issue a written litigation hold;
  • Failure to identify all of the key players and to ensure that their electronic and paper records are preserved;
  • Failure to cease the deletion of email or to preserve the records of former employees that are in a party’s possession, custody, or control;
  • Failure 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.

Finally, the judge noted that “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.”  Id.     

Issuing an Effective Litigation Hold

In the wake of the recent decision in Pension Committee as well as other similar cases, it is imperative that an organization threatened with litigation institute an effective litigation hold promptly.  Following are 10 best practices for an effective litigation hold:

  1. Take the steps to identify in advance where potentially relevant data is stored in active systems, backups, archival systems and other locations, such as portable devices and third-party hosted systems.
  2. Put in place methods to identify, as early as possible, those who should be contacted for the timely preservation of data potentially related to the matter at hand (individual employee/custodians, enterprise and business unit data custodians, IT, third parties and collection service providers).
  3. Confer with outside counsel and service providers early in the process and throughout to set clear goals and expectations to reduce risk.
  4. Prioritize your hold efforts to address relevant evidence most at risk for spoliation if quick action is not taken to preserve it.
  5. Develop written hold notice templates as appropriate, and retain copies of sent notices.   They may be needed when your legal hold process is challenged.
  6. Identify which temporal ranges (date ranges) will be needed for the legal hold, including ongoing preservation requirements.
  7. Develop exit checklists and processes for reviewing departing employees’ legal hold obligations.  These should identify and inventory their data sources, such as laptop hard drives, portable storage devices and smartphones, and relate both the departing custodians’ name and their data to existing hold matters. In addition, identify their successor data owners.  Coordinate with HR as appropriate.
  8. Incorporate personal follow-ups with individual and enterprise data custodians as part of your legal hold process. This is often a critical and effective step to learn more about the data, nature and merits of the case.  Document and track each follow-up, keeping in mind the need to preserve privilege.
  9. Differentiate between those matters where custodial self-selection is advisable and those that are not (e.g., fraud, employment, and various types of investigations).  Plan for implementing forensic and other collection methods to reduce the risk of spoliation and foul play in particularly sensitive matters.
  10. Manage your data before it manages you and your budget.  

Identifying and preserving documents and electronic data presents challenges and risks for organizations, individuals and attorneys alike.  Organizations need to create and implement an effective litigation hold process for documents, both electronic and paper, that are reasonable and can hold up if challenged in court.

  1. Zubulake v. UBS Warburg, 217 F.R.D. 309 (S.D.N.Y. 2003) (“Zubulake I”);  Zubulake v. UBS Warburg, 216 F.R.D. 280 (S.D.N.Y. 2003) (Zubulake II”); Zubulake v. UBS Warburg, 220 F.R.D. 212 (S.D.N.Y. 2003) (Zubulake IV”); Zubulake v. UBS Warburg, 2004 WL 1620866 (S.D.N.Y. July 20, 2004) (Zubulake V”).
  2. Zubulake II did not involve issues relating to electronic discovery.
  3. Zubulake I, 317 F.R.D. 309, 311 (S.D.N.Y. 2003).
  4. Id. at 312-313.
  5. Id. at 313.
  6. Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, No. CIV 05-9016, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010).
  7. Id. at *1. 
  8. Id. at *5.
  9. Id. at *2-*3. 
  10. Id. at *1. 
  11. Id. at *2. 
  12. Id. at *3. 
  13. Id. at *8. 
  14. Id. 
  15. Id. 
  16. Id.
  17. Id. at *23.
  18. Id.
  19. Id.
  20. Id. at 12-17.
  21. Id. at *7. 
  22. Id. 
  23. Id. 
  24. Beard, Jeffrey J., Best Practices for Legal Hold Processes, ILTA White Paper, Litigation Support: Document Forensics and Legal Holds, May 2009. 
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