Simply "Going through the Motions" With E-Discovery Creates Serious Risks
By David Cole


It is easy to understand that intentionally destroying evidence during a lawsuit will get you into serious trouble. But an important federal case published last week is making waves in the world of e-discovery because it demonstrates that companies risk serious consequences, even when they do not intentionally destroy evidence, by simply not being as thorough as they could have been in preserving and collecting electronic evidence. As such, the case of The Pension Committee of the University of Montreal Pension Plan v. Banc of American Securities, LLC, et al., provides important lessons for all companies.

What the companies did (or didn't do)

The Pension Committee case began in 2004 when a group of investors filed suit to recover $550 million in losses caused by the liquidation of two hedge funds in which they held shares. When the case began, the plaintiffs and their lawyers did not issue a written "litigation hold" telling employees to preserve all potentially relevant evidence and to stop their routine document retention/destruction policies. As a result, some employees deleted old emails without knowing they were doing anything wrong. Backup tapes with potentially relevant evidence also stayed in the companies' normal rotation schedules and were overwritten.

When searching for electronic evidence, the plaintiffs did not involve management or their lawyers, but instead delegated the tasks to individual employees and asked them to search their own computers without supervision. Other plaintiffs delegated the search efforts to a supervisor who, although generally knowledgeable about computers, did not have the experience or training needed to accurately and thoroughly search for electronic evidence. As a result, the plaintiffs located and produced very few emails and electronic documents, which made the opposing parties and the court very suspicious.

How the court punished the companies

Although there was no evidence of the loss or destruction of specific documents, the court believed that documents likely existed at some point in time, but were lost or destroyed as a result of the plaintiffs' half-hearted efforts. The court explained that, "surely records must have existed documenting the due diligence, investments, and subsequent monitoring of these investments. The paucity of records produced by some plaintiffs and the admitted failure to preserve some records or search at all for others by all plaintiffs leads inexorably to the conclusion that relevant records have been lost or destroyed."

As a result, the court sanctioned the plaintiffs by deciding to instruct the jury at trial that "as a matter of law, each of these plaintiffs failed to preserve evidence after its duty to preserve arose." It also decided to tell the jury that it may presume that the lost evidence was relevant to the case, harmful to the plaintiffs, and helpful to the defendants. In addition, the court imposed monetary sanctions against the plaintiffs by awarding the defendants their costs and attorney's fees associated with the discovery disputes. The court also ordered the plaintiffs to search their backup tapes at their own expense.

Lessons to be learned

The court's opinion is clear that, while companies do not have to be perfect when producing documents, at a minimum they must act diligently and search thoroughly. Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policies and put in place a "litigation hold" to ensure the preservation of relevant documents. In doing this, companies should: (1) identify the key players and ensure that their electronic and paper records are preserved; (2) cease the deletion of email and preserve the records of former employees that are still in the company's possession, custody, or control; and (3) preserve all backup tapes when they are the sole source of relevant information (e.g., when the active files of key players are no longer available).

During litigation, management and key players need to take an active role in the preservation and collection of evidence. They should work with counsel to identify sources of electronic information and how they can be searched. The search efforts should not be delegated to individual employees without supervision, but should be assigned to individuals with sufficient experience and training to complete an accurate and thorough search. Management and counsel should then monitor the process to make sure it is done and done correctly. While not every employee will require hands-on supervision, oversight of the process, including the ability to review, sample, or spot-check the collection efforts is important.

For more information regarding this article, please contact Mr. Cole at 770.818.1287 or by email at [email protected].



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