The release of this audio recording raises numerous issues.  Williams' career was already in serious jeopardy prior to the release of this recording, but now, he is virtually un-employable.  His rhetoric and tone exceed that which would be considered normal locker room speak, and leaves little doubt that bounties were indeed taking place. Williams called for specific injuries to numerous San Francisco players, even suggesting players should attempt to go for the head of concussion-prone wide receiver Kyle Williams.  With the multitude of lawsuits already filed against the NFL related to concussion issues, this is pretty damning for Williams, the Saints, and the League as a whole.  It is possible, and perhaps even likely, that Commissioner Goodell could turn Williams' current indefinite suspension into a lifetime ban.  It seems as though Goodell has ample evidence to do so at this point, and he may need to take such a step to remain consistent with the NFL's present crusade in support of player safety.  

To that end, Goodell clearly has authority to discipline Williams, consistent with the NFL's Standard of Conduct: 

Standard of Conduct

While criminal activity is clearly outside the scope of permissible conduct, and persons who engage in criminal activity will be subject to discipline, the standard of conduct for persons employed in the NFL is considerably higher. It is not enough simply to avoid being found guilty of a crime.

Discipline may be imposed in any of the following circumstances:
  • Conduct that imposes inherent danger to the safety and well being of another person; and
  • Conduct that undermines or puts at risk the integrity and reputation of the NFL, NFL clubs, or NFL players.
It will also be interesting to see if this audio recording affects the ongoing appeal of Head Coach Sean Payton.  Payton's chances of succeeding on appeal of his year-long suspension were probably slim before this recording, but in light of the public outcry, it seems certain that Goodell will uphold Payton's suspension. If Payton was in the room during this speech (it appears that he was not at this point), and knew of the bounties (which he has admitted), he had a duty to report Williams and others involved, even if he did not partake in the scheme himself.  Goodell can fall back on the NFL's Standard of Conduct in this regard as well: 

Reporting of Incidents: The League must be advised promptly of any incident that may be a violation of this policy, and particularly when any conduct results in an arrest or other criminal charge.  Players and club employees must report any such incident to the club, which must then report it to NFL Security at (800) NFL-1099. Failure to report an incident will constitute conduct detrimental and will be taken into consideration in making disciplinary determination under this policy. Clubs are also required to report incidents that come to their attention.

Another interesting issue that could trigger litigation is the fact that this audio recording was allegedly not authorized for release.  This recording was captured during filmmaker Sean Pamphilon's work on an ESPN documentary entitled, "Run Ricky Run," which chronicled former Saints player Steve Gleason's fight with Lou Gehrig's disease.  However, Gleason, who expressed regret and disappointment over the release of the recording, apparently owns the rights to all recordings compiled during the filming.  Gleason conceivably could bring an action against Pamphilon for the unauthorized release, though it could be difficult for Gleason to prove damages, given the circumstances. 

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As reported by Forbes, a U.S. District Court sanctioned a prominent U.S. law firmfor manufacturing a frivolous lawsuit.  The case is Lavesky et al. v. ITT Educational Services, Inc., filed under the False Claims Act (“FCA”).  The Lavesky court did not mince words in sanctioning plaintiff’s counsel: “From what the Court can gather, [plaintiff’s attorneys’] view is that virtually any ex-employee will do for purposes of manufacturing an FCA lawsuit.”  

Lavesky carries implications for all cases, not just those filed under the FCA--it provides a blueprint for the defendant victim of a manufactured lawsuit.  If discovery shows that the plaintiff was unaware of the facts upon which she based her lawsuit before an “enlightening conversation” with her attorney, the defendant should consider moving for sanctions pursuant to:(i) Federal Rule of Civil Procedure 11, and (ii) Model Rule of Professional Conduct 7.3, which prohibits lawyers from soliciting “professional employment from a prospective client when a significant motive for the lawyer’s doing so is the lawyer’s pecuniary gain.”  This recipe ended up costing the Lavesky’s counsel almost $400,000 in fees.

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Two undeniable and interconnected facts: the U.S. housing market remains virtually stagnant and the number of lawsuits against real estate professionals is on the rise.  Existing home sales have dropped steadily since 2005.  There is a glut of product on the market, yet relatively few ready, willing and able buyers.  During the same period, delinquency and foreclosure rates have grown at an alarming rate.  Real estate professionals have been under considerable pressure to adapt to the conditions of this weak and sputtering market.  Many have not fared so well, as there has been a noticeable increase in lawsuits filed against agents, brokers, inspectors and other real estate professionals.

A Deeply Troubled Housing Market

There is no concrete formula to calculate when the American housing “bubble” burst.   What we do know is that the market was thriving in or around 2004 – 2007 then began to fizzle in the following years.  New home inventory, whether completed or under construction, grew at a gradual rate between 1997 and 2003.  Then, in or around January 2003, new home development skyrocketed.  By 2005, Americans built more new homes than they had since the late ‘70’s.  By most indicators, American real estate was booming in the summer months of 2005 and 2006.

Based on the vast number of new homes built at the turn of the century, it would be fair to assume that this development was catered to a growing number of eager would-be homeowners on the market for a new home.  However, the supply far exceeded the demand.  Every year beginning in 2005 through 2008 resulted in a significant drop in existing home sales compared to the prior year.  In other words, Americans were not purchasing homes at the rate those homes were built.  By way of example, Americans purchased approximately 100,000 less homes in June 2007 than they had in June 2006.  During that same stretch, however, developers continued to build new homes at a staggering rate.  As a result, the market could not support itself and soon collapsed. 

Following the peak in 2007 – 2008, new home inventory dropped dramatically.  That drop continued until today when new home inventory nationwide is significantly lower than that recorded in decades.  As a result of that rapid decline, new homeowners found themselves living in property valued far less than the price they recently paid.  Houses were rapidly losing value nationwide.  By some accounts over 10 percent of mortgaged homes in 2008 – 2009 were “underwater”; or, the mortgaged amount exceeded the actual value of the property.  Some suggest that the number of underwater homes continues to climb.

Sub-prime lending, of course, also played a significant role in the rise, and fall in the real estate market.  Sub-prime financing, or high-interest loans, is catered toward high-risk borrowers.  As the market reached its peak, sub-prime lending also increased.  Only two percent of mortgages issued in 2000 were classified as sub-prime compared to nearly 30 percent in 2006.  When the market was healthy, lenders were willing to take on more risk and perhaps were more creative with their lending agreements.  Less documentation, reduced or zero down-payment, low initial interest rates that ballooned over time and other strategies were developed to get buyers in the door.  The problem: aggressive lending programs invited Americans to purchase homes that they literally could not afford.  What naturally followed was rampant delinquency and foreclosure.

During the good years, between 1995 and mid-2006, approximately 5 percent of all active loans were considered “delinquent” and about 1 percent was the subject of foreclosure proceedings. The delinquency started to slowly climb in ‘06 and ‘07 then took off in 2008 to a high of nearly 10 percent  of all active loans as of year-end 2009.  Foreclosures also increased to over 4 percent of all active loans.  In 2008 and particularly 2009 – 2010, a higher percentage of delinquent properties resulted in foreclosure proceedings which, in turn, resulted in more short sales and REO properties.  A disproportionate number of these foreclosures were the result of sub-prime financing.  Of course, real estate professionals suffered as a result.

Increased Claims Against Real Estate Professionals

No doubt due, at least in part, to the distressed real estate market, claims against real estate professionals have risen over the past several years.  Moreover, the types of claims against real estate professionals have changed due to the peculiarities of the recent rise and dramatic fall of the market.  Agency issues, mortgage rescue scams, breach of fiduciary duty, fraud, negligence, breach of contract, and false representation issues are among the classes of claims on the rise against real estate professionals.  Why the rise in claims?  Here are several plausible explanations: 

Dabbling: Due to the reduced work-load, the real estate professional may be more willing to take on work outside of his/her comfort zone in order to generate revenue, including property or construction management or providing credit counseling or quasi-legal advice as opposed to selling real estate.
 
Loan and Investment Fraud: Knowingly or unwittingly modifying transactional documents to mischaracterize the nature of a purchase to obtain more favorable loan terms.  For example, denoting the purchase of a Bed and Breakfast as a “residential” property rather than an “income producing” property to generate better financing terms and, hence, close a deal.
 
Lay Offs:  The termination of the most experienced (and most highly compensated) staff in order to reduce expenses while retaining a staff less able to meet the needs of their customers.
 
Misrepresentation:   Even good faith reliance on a desperate seller’s disclosures, which turn out to be false, may result in a fraudulent or negligent misrepresentation claim against a real estate agent for allegedly ignoring red flags.
 
Referrals: A real estate professional may be subject to “negligent referral” liability by suggesting that her client retain the services of a particular vendor of some kind (e.g. inspector or title agency) of there are flubs on the job.
 
Unauthorized practice of law:  A real estate professional walks a fine line between representation of her client, providing general advice and performing a legal function especially with respect to the financial end of a transaction.  Should an agent provide advice outside of her scope of expertise, she may be subject to a claim of negligence, misrepresentation as well as the unauthorized practice of law.
 
Short sales and foreclosures:  Perhaps more than any other cause, the most significant increase in real estate disputes of late is due to the foreclosure crisis.  Short sales lead to difficulties regarding property condition disclosures.  For example, since short sales can be a lengthy process, the condition of a property may change while the transaction is pending.  Often, lenders and sales agents insist on listing short sales “as is” which may result in unreliable or non-existent disclosures and surprises following settlement.  These surprises all too often lead to lawsuits. Moreover, these sales are overlayed with transactional complexity beyond the ken of less experienced real estate professionals, a hazard in and of itself.  By way of example, short sales and foreclosures may force a real estate professional to address priorities amongst multiple liens or lending and listing problems as a result of the fact that prior owners are typically not involved in these transactions.

What Lies Ahead?

Signals of a recovery remain distant and weak.  Fiscal policy at the macroeconomic level suggests continued pessimism and caution, as seen in sustained historic low borrowing rates, but these low rates continue to be foiled by far more rigorous underwriting standards.  What one hears is: there’s plenty of money to borrow for people who don’t need it.  So, those who earn a living off of the sale of real estate will find themselves under stress for the foreseeable future.
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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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