By Brad Harris and Ron Hedges

Anyone in our society who conducts business should preserve records as required by law and good business practices. It might also be necessary to preserve records once a "litigation hold" has been imposed. But what happens when a hold is not implemented or "misses" relevant records? A failure to preserve may lead to allegations of "spoliation" of relevant records. The following article addresses one of the leading judicial decisions in the United States courts on preservation and spoliation and reminds everyone that the governing law varies and, whatever law governs, the consequences of spoliation can be very serious.

By now the names are all-too-familiar: Pension Committee, Rimkus, Victor Stanley II, and Orbit One. A raft of opinions in the United States Courts throughout 2010 and beyond highlight the uncertainty and growing risk associated with the lack of uniformity around preservation practices in the Information Age. Not surprising, such lack of specificity and consistent direction results in attorneys, both retained and inside counsel, being obligated to perhaps conform to a “lowest” or “highest” – depending on one’s perspective – preservation standard. And an unfortunate consequence is that  some attorneys and their clients may fail to act at all out of confusion, while others overreact and self-impose undue burdens. These reactions only worsen the problem for the legal community and litigants.

Many commentators agree that greater uniformity is needed. However, the best approach may take time to gain momentum and even longer to “gel” into a formal amendment to the Federal Rules of Civil Procedure or other law. Nevertheless, Pension Committee, together with Rimkus and Victor Stanley II, has begun the debate. This article will look at the events that have catalyzed the discussion and will look at how the conversation is shaping up.

The Past as Precedent
Since electronic discovery came to prominence with Judge Shira Scheindlin’s Zubulake v. UBS Warburg opinions starting in 2003, the industry focused on the technical challenges of avoiding spoliation of electronically stored information (ESI). Much of the focus until now has centered on how to ensure data integrity during collection, culling and production. Yet in overcoming technical aspects of electronic discovery, many practitioners overlooked the procedural aspects around legal holds and preservation. The outcome has been a growing judicial intolerance for lackadaisical attitudes and abject failures in preserving electronic information. The bill has come due. Judge Scheindlin issued Pension Committee v. Banc of America Securities (SDNY, 2010) in January 2010 and put the spotlight on the preservation aspect of discovery response. As she notes in her opinion, this complex securities case did not involve “any egregious examples of litigants purposefully destroying evidence,” making it a more challenging litigation to adjudicate because it explores the gray areas. Her findings of negligence and gross negligence for avoidable preservation failures spurred the debate, as well as her notion of relieving the burden on the system by punishing insufficient practices that slow the judicial process.

Subsequent opinions in 2010 dealt with differing sets of facts, yet reinforced a call to action. Some cases involved egregious and intentional spoliation by litigants attempting to conceal potentially incriminating evidence that was later able to be recovered (Rimkus Consulting v. Nickie Cammarata, SDTX, 2010; Victor Stanley, Inc. v. Creative Pipe, Inc., et al., DMD, 2010). Still others confronted issues of inadvertently lost data that needed to be evaluated on the degree to which it did or did not prejudice the opponent’s case (Orbit One Communications, Inc. v. Numerex Corp., SDNY, 2010).

As Judge Paul Grimm noted in Victor Stanley II, “[r]ecent decisions…have generated concern…regarding the lack of uniform national standard governing” preservation and spoliation issues. In particular, he acknowledges that the courts are struggling with a number of specific concerns:

• To know when the duty to preserve attaches,
• The level of culpability required to justify sanctions,
• The nature and severity of sanctions, and
• The scope of the duty to preserve and whether it is tempered by proportionality.

Since Perfection Isn’t The Standard, What Is?

Judge Scheindlin reiterated in Pension Committee that “[c]ourts cannot and do not expect that any party can meet a standard of perfection.” So if perfection is unattainable, what should the courts and litigants expect?

Such uncertainty is driving the call for uniform standards nationally. Among other things, both State and Federal courts struggle with what might be called a “trilogy” of relevance, prejudice and intent:

• Relevance – How can the relevance of electronic information be established when that information no longer exists?
• Prejudice – How can a party show that it has been prejudiced by the loss of electronic information?
• Intent – Is negligent loss of electronic information sufficient for the imposition of severe sanctions or must there be some showing of intentional misconduct?

With regard to prejudice, the U.S. Circuits disagree as to whether prejudice must be shown: the Fourth and Seventh have shown that intentional conduct is sufficient to presume relevance whereas negligent or grossly negligent conduct is not; the Fifth says that presumption is rebuttable; and in the Second Circuit opinions include Judge Francis in Orbit One that requires presumption and relevance, while Scheindlin’s Pension Committee rejected the ‘pure heart, empty head’ defense and that prejudice may be presumed. With regard to intent, some Circuits differ in the level of intent required before sanctions are imposed -- some requiring a threshold of bad faith, while others require intentional or willful conduct and still others warranting sanctions for mere negligence.

The Road to New Rules

The dissonance between the various Circuits is building a strong case to update the Federal Rules of Civil Procedure. The momentum has been building because of the uncertainty the counselors face in advising clients involved in civil litigation that has the possibility of reaching the federal court system. By default, attorneys are obliged to practice to the strictest standard (routinely acknowledged to be articulated by the findings in Pension Committee).

The calls for change started to build at The Conference on Civil Litigation held at Duke Law School in May 2010. The Duke Conference’s E-Discovery Panel that included imminent federal jurists developed a list of key areas. According to member Judge Scheindlin at a subsequent public discourse, “the consensus of the panel members was that there is an acute need for increased certainty and predictability in connection with the accrual, scope, and enforcement of preservation duties.”

The E-Discovery Panel discussed a proposed rule designed to address the following issues:

• General and specific triggers for attachment of the obligation to preserve information, including electronically stored information;
• The scope of the preservation duty, including both time frame and the types of covered data and data sources;
• The form or format in which data subject to preservation should be maintained;
• Limitations and guidance for determining the individual database users and data custodians for whom detailed data must be captured and preserved;
• Preservation standards applicable to non-parties;
• Limitations as to the duration of preservation duties and their applicability to post-suit records and data;
• The contours of a safe harbor for organizations utilizing formal litigation hold procedures;
• The extent to which internal efforts to ensure and accomplish proper preservation should be protected as work product; and
• The consequences and related procedural requirements applicable in instances of alleged breaches of the preservation duty.

A group of associations that represent the defense bar collaborated on a policy paper that proposes changes to Rule 26 and Rule 34 to limit the scope of discovery “on the claims and defenses in the action” as asserted in pleadings, and to explicitly invoke the principle of proportionality.

In their paper (“Reshaping the Rules of Civil Procedure for the 21stCentury, Lawyers for Civil Justice, et. al., May 2, 2010), the conclusion was reached that “preservation has developed into one of the most vexing issues affecting civil litigation in today’s federal courts.” All too often, organizations fear a conundrum of “damned if you do, damned if you don’t” when it comes to deciding when a preservation duty attaches and what will constitute reasonable and good faith preservation efforts. Clearly, greater clarity and consistency from rules-making bodies is warranted that will be consistently-applied and proportional in approach. The group is trying to get away from the costly process of “discovery about discovery” which has risen at an alarming rate.

Another area of focus is on existing litigation hold expectations that have been created on an ad hoc basis by the courts. More guidance is required, including a proposal to permit spoliation sanctions “only where willful conduct for the purpose of depriving the other party of the use of the destroyed evidence results in actual prejudice to the other parties.”

Leading e-discovery expert Maura Grossman recently wrote that “it seems fairly obvious at this point that the most likely consequence of this inconsistency and uncertainty is that there will be some changes to the Federal Rules, most likely to Federal Rule of Civil Procedure 37” which covers the failures to make disclosures and to cooperate in discovery.

The road to rules changes will take time utilizing a process designed to ensure changes are implemented in a thoughtful and reasoned manner. Unfortunately, this built-in lag creates periods where the practice of law is ahead of the rules making bodies. Until then, litigators should continue to aspire to the Pension Committee standard, including implementing timely legal holds, taking steps to ensure recipients understand and act appropriately, and being actively engaged in the preservation and collection processes.

The good news is that despite the controversy, Judge Scheindlin took great efforts to write her opinion in a scholarly manner that is fair and reasonable when one gets beyond the “sound bites.” Until the FRCP can take their place, the brightest lines remain those that Judge Scheindlin has drawn for us.

Brad Harris, vice president of legal products for Zapproved Inc., has more than 25 years of experience in the high technology and enterprise software sectors. Brad is a frequent author and speaker on legal hold best practices, and led electronic discovery legal technology consulting while at Fios, Inc., from 2004 to 2009. He has held senior management positions at prominent public and privately held companies, including Hewlett-Packard Company and Tektronix, Inc.

Ron Hedges, former United States Magistrate Judge and principal in Ronald J. Hedges, LLC. Ron was appointed in 1986 as a United States Magistrate Judge in the United States District Court for the District of New Jersey, where he served as the Compliance Judge for the Court Mediation Program, a member of the Lawyers Advisory Committee, and both a member and reporter for the Civil Justice Reform Act Advisory Committee. Ron has also been an adjunct professor at Seton Hall University School of Law (1993-2007) and at Georgetown University Law Center since 2006.

Contributed article submitted exclusively to the National Law Journal
Submitted: March 8, 2011