ESI Preservation 2010 Case Law Update

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Contents

TiTle Page & inTRODUCTiOn 1

The ThRee Seminal eSi CaSeS Of 2010 2

aDDiTiOnal SeleCTeD CaSeS Of 2010 6

COnClUSiOn 10

COmPleTe OPiniOnS 11

OffiCe lOCaTiOnS 551

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2010 ESI Preservation Case Law Update

During the past decade the obligation to preserve electronically stored information (ESI) has continued to be shaped and defined by case law across the United States. 2010

was no different in this regard. For your review, we provide summaries of what we think were 2010’s most noteworthy cases in the area of ESI preservation.

You are likely already well-familiar with spoliation in general and the sanctions a court can impose for a litigant’s failure to properly preserve evidence, including ESI. This letter focuses primarily on the obligations that arise, and the potential sanctions that can be imposed, once a reasonable anticipation of litigation (or an investigation) has triggered the duty to preserve. There is no question that certain severe sanctions can be a death sentence in litigation, including the preclusion of evidence, an adverse inference instruction to a jury, and obviously a dispositive sanction such as a default judgment or a dismissal. Although the federal circuits have slightly varying standards, all federal courts consider the spoliating party’s degree of culpability, the relevance of the lost evidence, and the resulting prejudice on the innocent party when determining whether to impose a sanction and the severity of the sanction.

Provided below is a review of eight relevant cases, including what we have deemed the three seminal ESI cases from the past year: Pension Committee, Rimkus, and Victor Stanley II. Although the three opinions differ in many regards, they each remain consistent with several basic trends we have observed during the past year:

► courts continue to display less tolerance for preservation errors;

► Preservation errors often have a major impact on the litigation even when not fatal; and

► Preservation errors are less likely to occur when a litigant follows reasonable and appropriate steps, including the issuance of a legal hold plus follow-up supervision and monitoring of the hold.

In selecting ESI-related opinions to address we have deliberately steered away from many cases with egregious fact patterns where imposition of a severe sanction was never in doubt. The use of programs named “File Shredder” and “Privacy Eraser Pro” to deliberately destroy ESI on the eve of an inspection makes for interesting reading.1 However, opinions pertaining to such behavior are not particularly instructive relative to methods by which a litigant can comply with preservation obligations. Therefore, we have instead focused primarily on cases in which better preservation practices, policies and procedures at an organization-wide level could have prevented spoliation of ESI.

For many potential litigants, ESI preservation issues are treated as secondary in importance to the underlying substantive issues. The Rimkus opinion responds to such treatment as follows:

“Spoliation of evidence--particularly of electronically stored information--has assumed a level of importance in litigation that raises grave concerns. Spoliation allegations and sanctions motions distract from the merits of a case, add costs to discovery, and delay resolution. The frequency of spoliation allegations may lead to decisions about preservation based more on fear of potential future sanctions than on reasonable need for information. Much of the recent case law on sanctions for spoliation has focused on failures by litigants and their lawyers to take adequate steps to preserve and collect information in discovery.”2

Certainly we all have a natural inclination to focus on the merits of a case rather than the preservation of ESI. However, we believe that the implementation of a legal hold policy and associated set of procedures, along with a general understanding of e-Discovery case law, will help prevent spoliation allegations and sanctions motions which “distract from the merits of a case, add costs to discovery, and delay resolution.”

1 See Peal v. Lee, 403 Ill. App. 3d 197 (Ill. App. Ct. 1st Dist. 2010).2 Rimkus Consulting Group, Inc. v. Cammarata, 688 F. Supp. 2d 598, 607

(S.D. Tex. 2010).

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The Three Seminal ESI Cases of 2010Pension Committee v. Banc of America Southern District of New York, January 15, 2010

With little doubt, the most discussed legal opinion of 2010 pertaining to e-Discovery and ESI is Pension Committee v. Banc of America.3 You may recall that we distributed an update on this case last year. This opinion, authored by Judge Shira Scheindlin of Zubulake fame, clarified numerous preservation responsibilities of litigants. In fact, the court held that certain failures in the preservation of ESI can be deemed gross negligence, thereby permitting a court to impose sanctions based on the culpability of the spoliating party. Specifically, the court identified the following examples of gross negligence in the context of ESI preservation:

► Failure to issue a written litigation hold;

► Failure to cease routine deletion of e-mail;

► Failure to collect ESI from key players;

► Failure to collect ESI from retained files of former employees; and,

► Failure to preserve backup tapes if sole source of relevant info.

In addition to providing bright-line rules for which ESI preservation failures constitute gross negligence, Judge Scheindlin explained when a court should presume that lost evidence was relevant to the litigation and that the loss was prejudicial to the requesting party4:

► Relevance and prejudice may be presumed when the spoliating party acted in bad faith or in a grossly

3 Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Secs, LLC, 2010 U.S. Dist. LEXIS 4546 (S.D.N.Y. Jan. 15, 2010).

4 Bulleted quotations paraphrased from Pension Committee [internal quotations omitted].

negligent manner. Where a party destroys evidence in bad faith, that bad faith alone is sufficient circumstantial evidence from which a reasonable fact finder could conclude that the missing evidence was unfavorable to that party.

► Although many courts in this district presume relevance where there is a finding of gross negligence, application of the presumption is not required. However, when the spoliating party was merely negligent, the innocent party must prove both relevance and prejudice in order to justify the imposition of a severe sanction. The innocent party may do so by adducing 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. In other words, the innocent party must present extrinsic evidence tending to show that the destroyed e-mails would have been favorable to its case.

► Courts must take care not to hold the prejudiced party to too strict a standard of proof regarding the likely contents of the destroyed or unavailable evidence, because doing so would allow parties who have destroyed evidence to profit from that destruction.

Based upon the loss of ESI caused by the preservation failures of many plaintiffs in the underlying litigation, Judge Scheindlin presumed relevance and prejudice and ruled that at trial the jury would receive an adverse inference instruction. This sanction effectively destroyed the plaintiffs’ case. Notably, an important take-away from this case stems from Judge Scheindlin’s bold announcement that her Zubulake series of opinions from 2003 to 2006 had placed

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litigants on notice of ESI preservation obligations, including the requirement to issue a legal hold. This indicates the clear trend in this area of law that in recent years courts have had significantly reduced tolerance for ESI preservation failures..

Rimkus Consulting Group v. CammarataSouthern District of Texas, February 19, 2010

This opinion, by Judge Lee Rosenthal of the Southern District of Texas, received extensive publicity during the first half of 2010 as it was issued in the wake of Pension Committee and is viewed by many commentators as a response to the harsh sanctions imposed by Judge Scheindlin. However, despite an apparent surface-level conflict between these two seminal cases, the analysis of sanctions in Rimkus was based on Fifth Circuit case law rather than Second Circuit case law as in Pension Committee. Nevertheless, many e-Discovery commentators have considered these two cases to be dueling opinions due to the difference in the severity of the sanctions imposed.

The dispute underlying the opinion involved claims by former employees of Rimkus Consulting Group regarding an alleged lack of enforceability of noncompete clauses that the employees had signed prior to terminating their employment. At issue in this opinion were allegations of “the intentional destruction of emails and other electronic information at a time when they were known to be relevant to anticipated or pending litigation.”5 Following a lengthy discussion and analysis of spoliation sanctions and the relevant facts, the court held that the employees had deliberately deleted e-mails and their attachments after the duty to preserve had been triggered.

Anyone with a passing familiarity of Pension Committee, and the knowledge that a failure to issue a litigation hold was held to constitute gross negligence and warrant an adverse inference sanction, would expect severe sanctions where a litigant deliberately

5 Id.

destroyed evidence that was subject to the duty to preserve. However, under the Fifth Circuit’s standards, the court did not issue a dispositive sanction, as requested by the non-spoliating party. Instead of focusing on the spoliating party’s failures, the Rimkus court highlighted the absence of prejudice due to the availability of extensive remaining evidence which supported both the employer’s counter claims and its defenses to the claims brought by its former employees. As a result, the court held only that the jury could hear evidence of the employees’ deletion of e-mails and could infer that the destroyed evidence would have been favorable to the employer if it believed that the employees committed intentional spoliation. Additionally, the employees were ordered to pay fees and costs associated with the litigation as it pertained to the spoliation issue.

Despite a seemingly conflicting result with Pension Committee, upon close analysis the Rimkus decision was based largely on its facts and on a different application of spoliation sanctions in the Fifth Circuit. Regardless of these differences, Rimkus emphasizes litigants’ preservation requirements and reinforces the need for companies to have defensible legal hold procedures in place. Notable quotes from Rimkus include:6

► Dismissal is an available sanction when a party has engaged deliberately in deceptive practices that undermine the integrity of judicial proceedings because courts have inherent power to dismiss an action when a party has willfully deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice.

► A court has statutory authority to impose costs, expenses, and attorneys’ fees on any attorney who so multiplies the proceedings in any case unreasonably and vexatiously.

► Whether preservation conduct is acceptable in a case depends on what is reasonable, and that in turn

6 Bulleted quotations paraphrased from Rimkus [internal quotations omitted].

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depends on whether what was done--or not done--was proportional to that case and consistent with clearly established applicable standards. As Judge Scheindlin pointed out in Pension Committee, that analysis depends heavily on the facts and circumstances of each case and cannot be reduced to a generalized checklist of what is acceptable or unacceptable.

► Determining whether sanctions are warranted and, if so, what they should include, requires a court to consider both the spoliating party’s culpability and the level of prejudice to the party seeking discovery.

♦ Culpability can range along a continuum from destruction intended to make evidence unavailable in litigation to inadvertent loss of information for reasons unrelated to the litigation.

♦ Prejudice can range along a continuum from an inability to prove claims or defenses to little or no impact on the presentation of proof.

► A court’s response to the loss of evidence depends on both the degree of culpability and the extent of prejudice. Even if there is intentional destruction of potentially relevant evidence, if there is no prejudice to the opposing party, that influences the sanctions consequence. Even if there is an inadvertent loss of evidence but severe prejudice to the opposing party, that too will influence the appropriate response, recognizing that sanctions (as opposed to other remedial steps) require some degree of culpability.

► With regard to the safe harbor for routine destruction under Fed. Rule Civ. Pro. 37(e), a retention/deletion policy that pertains to emails subject to a present duty to preserve is not a routine, good-faith operation of a computer system where the policy is implemented after the duty to preserve has been triggered.

Victor Stanley v. Creative Pipe (“Victor Stanley II”)District of Maryland, September 9, 2010

Though perhaps not as widely known as Judge Shira Scheindlin, one of the more notable judges in the field of e-Discovery is Chief Magistrate Judge Paul Grimm of the District of Maryland. His judicial opinions have covered a wide swath of e-Discovery topics. Most recently, Judge Grimm gained increased recognition for the severity of spoliation sanctions issued in Victor Stanley II: imposition of a prison sentence for contempt of court until the spoliator paid his adversary’s attorney’s fees and costs.7

Judge Grimm’s lengthy opinion in Victor Stanley II recounted an extensive history of failures by defendant Creative Pipe and its president, Mark Pappas, to preserve ESI relevant to the pending litigation. More specifically, the court discussed “eight discrete preservation failures” by defendants while labeling the defendants “the gang that couldn’t spoliate straight.” These eight failures are as follows8

(1) Pappas’s failure to implement a litigation hold;

(2) Pappas’s deletions of ESI soon after [Victor Stanley] filed suit;

(3) Pappas’s failure to preserve his external hard drive after Plaintiff demanded preservation of ESI;

(4 Pappas’s failure to preserve files and emails after Plaintiff demanded their preservation;

(5) Pappas’s deletion of ESI after the Court issued its first preservation order;

(6) Pappas’s continued deletion of ESI and use of programs to permanently remove files after the Court admonished the parties of their duty to preserve evidence and issued its second preservation order;

7 The first Victor Stanley opinion pertained primarily to attorney-client privilege issues and is not specifically relevant to ESI preservation.

8 All bulleted points and quotations paraphrased from Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 516 (D. Md. 2010) [internal quotations omitted].

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(7) Pappas’s failure to preserve ESI when he replaced the CPI server; and,

(8) Pappas’s further use of programs to permanently delete ESI after the Court issued numerous production orders.

A reading of Victor Stanley II leaves little doubt that the defendant’s multitude of preservation failures and repeated attempts to deliberately destroy ESI, even after specifically being instructed otherwise by the Court, infuriated Judge Grimm. As a result, Judge Grimm ruled that “Pappas’s pervasive and willful violation of serial Court orders to preserve and produce ESI evidence be treated as contempt of court, and that he be imprisoned for a period not to exceed two years, unless and until he pays Plaintiff’s attorney’s fees and costs.” Though the severity of this sanction derived from deliberate spoliation, Judge Grimm reinforced the primary rules pertaining to preservation of ESI, including that a litigant can be held liable for spoliation of evidence caused by an agent or third-party in possession of ESI.

► A party may be held responsible for the spoliation of relevant evidence done by its agents. This obligation is not negated should a third party entrusted with the evidence either lose or discard it. Thus, agency law is directly applicable to a spoliation motion, and the level of culpability of the agent can be imputed to the master.

► Parties must preserve potentially relevant evidence under their control.

♦ In the Fourth Circuit and the Second Circuit, documents are considered to be under a party’s control when that party has the right, authority, or practical ability to obtain the documents from a non-party to the action.

♦ In the Fourth Circuit, as well as the First and Sixth Circuits, the preservation duty applies not only when the evidence is in the party’s control.There is also a duty to notify the opposing party of evidence in the hands of third parties.

♦ In contrast, district courts in the Third, Fifth, and Ninth Circuits have held that the preservation duty exists only when the party controls the evidence, without extending that duty to evidence controlled by third parties.

♦ What should a company that conducts business across numerous Federal Circuits do to develop a preservation policy that complies with the inconsistent obligations imposed by these circuits? This is the question for which a suitable answer has proven elusive.

► Breach of the preservation duty is also premised on reasonableness: A party breaches its duty to preserve relevant evidence if it fails to act reasonably by taking positive action to preserve material evidence. The action must be reasonably calculated to ensure that relevant materials will be preserved, such as giving out specific criteria on what should or should not be saved for litigation.

► Each case will turn on its own facts. The variety of efforts and failures is infinite. Information may have been lost or destroyed inadvertently for reasons unrelated to the litigation, or the loss may result from intentional acts calculated to prevent the other party from accessing the evidence. Therefore, the court must rely on its 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.

► That Defendants failed to take any reasonable measures to preserve data is accurate. The evidence of record is abundantly clear that Defendants did not implement any system to prevent users from deleting files from the server or to stop the backup system from being overwritten.

In addition to the recognition of multiple preservation failures, Judge Grimm included in this opinion criticism of the defendant’s use of an unqualified ESI expert whose wife was employed by defendant:

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► In evaluating the weight to be given to defendant’s expert’s testimony, I cannot overlook his dependence on his wife’s income, as he testified that his wife earns approximately 75-80% of their family income.

► Defendant’s expert’s qualifications as an ESI expert leave much to be desired, as he has not taken any college-level computer courses or passed any Microsoft proficiency tests. He is certified from HP to repair their printers and computers, but failed the one Microsoft examination he took. In contrast, Plaintiff’s ESI expert has passed Microsoft tests,

teaches a college-level computer forensics course, and has worked on computers professionally since 1993.

Although this opinion’s notoriety derives extensively from the imposition of a potential prison term as a spoliation sanction (technically for contempt of court), Judge Grimm has provided many useful practice tips in the area of ESI preservation, from recognizing the obligation to preserve ESI in possession of third-parties, to the need for a party to retain an appropriate ESI consultant.

Additional Selected Cases of 2010In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices, etc.Central District of California, July 20, 2010

The class action plaintiffs in this widely known multidistrict litigation against Toyota are seeking damages for economic losses due to an alleged loss of value of their automobiles stemming from the company’s heavily publicized unintended acceleration problems. Although this recent judicial opinion is merely a preservation order, it provides insight into the forms of ESI which must be maintained pursuant to the duty to preserve and, more importantly, the methods of preservation which the court deems “reasonable.”

As explained in the stipulated order, the parties are required to identify all document custodians and to preserve a wide range of documents, plus tangible items, pursuant to the preservation requirements of the Federal Rules of Civil Procedure. Though silent regarding many specific preservation issues, the court-ordered stipulation in the Toyota litigation provides guidance to litigants regarding implementation of defensible preservation methods. ESI ordered to be preserved, and the methods of preservation, are as follows, in pertinent part:9

9 All bulleted points and quotations paraphrased from In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, & Prod. Liab. Litig., 2010 U.S. Dist. LEXIS 86136 (C.D. Cal. July 20, 2010).

► E-mails and attachments to e-mails, including all metadata associated with both the e-mail and any attachments. Reasonable preservation approaches include:

i. Identifying individuals reasonably likely to create or receive electronic mail documents and instructing such individuals to retain such electronic mail documents in electronic form,

ii. Use of an automated electronic preservation system that identifies and preserves specific emails based on reasonable criteria such as predetermined keywords and/or other reasonable criteria,

iii. Saving electronic mail documents in [its] electronic mail program and refraining from deleting or otherwise altering electronic mail documents and attachments required under this Order, or

iv. Taking any other reasonable preservation step(s) as appropriate for such data.

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► Other non-e-mail electronic documents saved on Network Accessible Storage Devices, Local Hard Drives, External Hard Drives or Other Electronic Media, including all metadata that is contained within a file when the file is preserved. Reasonable preservation approaches include:

i. Preserving an identical copy of all such documents,

ii. Making reasonable efforts to identify individuals whom they reasonably expect to create, receive or otherwise come into possession of electronic documents saved on Network Accessible Storage Devices and to notify them of their duties and obligations to preserve documents under this Order, or

iii. Taking any other reasonable preservation step(s) as appropriate for such data.

Phillip M. Adams & Assocs., L.L.C. v. Winbond Electronics, ASUS Computer, et al.District of Utah, July 21, 2010 & September 16, 2010

This long-running intellectual property dispute involving alleged piracy of computer source code has produced numerous judicial opinions during the past several years. In an opinion issued this past July, the Court discussed the degree of prejudice that would result from a failure by ASUS to produce its original source code. In a concise but scathing opinion, the Court criticized ASUS as follows:10

ASUS again reveals its lack of an information retention policy. Engineers would maintain data on their own, and had no specific requirements on data retention. Another ASUS witness testified that “when an individual left the company, the hard drive should be left with the company. But there was no SOP or standard SOP.”

Although the court ultimately denied a motion for sanctions against ASUS (on the basis that ASUS

10 Paraphrased from Phillip M. Adams & Assocs., L.L.C. v. Winbond Elecs. Corp., 2010 U.S. Dist. LEXIS 74216 (D. Utah July 21, 2010).

had reassembled the source code and that therefore its adversary would not be prejudiced), this opinion provides another strong warning about the failure of a litigant, or potential litigant, to properly preserve ESI. As the court inferred, an information retention policy should have been in place to prohibit (or at least limit) employees from maintaining data individually, and there should have been a policy in place to prevent loss of ESI when employees leave the company.

This past September, less than two months later, the Court issued another opinion related to ESI preservation triggered by the plaintiff’s continued request for spoliation sanctions against the defendant. Notable in this opinion was that the defendant asserted an argument that its preservation failures should have been excused based on its lack of experience with patent litigation. In fact, a corporate representative testified in a deposition that the defendant “didn’t have enough legal knowledge” to know that it needed to preserve evidence. Perhaps not surprisingly, this argument was decisively rejected by the Court as such an excuse would effectively create an immunity from preservation requirements, such as for any newly formed company.11

Jones v. Bremen High School DistrictNorthern District of Illinois, May 25, 2010

In Jones v. Bremen High School District, a seemingly routine employment discrimination case, the plaintiff, a former school district employee, requested that spoliation sanctions be entered against the school district based on its alleged failure to preserve relevant ESI. The court confirmed the following preservation errors:12

► Defendant did not place a litigation hold on electronically created documents when it first learned that plaintiff had filed an EEOC charge against it.

11 Phillip M. Adams & Assocs., LLC v. Windbond Elecs. Corp., 2010 U.S. Dist. LEXIS 97305 (D. Utah Sept. 16, 2010).

12 All bulleted points and quotations paraphrased from Jones v. Bremen High Sch. Dist. 228, 2010 U.S. Dist. LEXIS 51312 (N.D. Ill. May 25, 2010).

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► Only three employees of defendant, administrators against whom plaintiff’s allegations were primarily directed, were tasked by the district to search through their own electronic mail, and no one else’s, and cull out relevant documents.

► There is no evidence that suggests that the employees’ assessment of what was relevant and what was not was guided by outside counsel. These three employees, and only these three employees, were asked to preserve whatever email and documents they believed were relevant.

► Defendant’s e-mail system permitted employees to permanently delete emails by “double-deleting” the email from his or her computer. After thirty days it would automatically erase from the back-up system.

Based on the above, the Court held that the defendant did not reasonably prevent employees from destroying documents concerning the case and failed to adequately supervise the three employees who were asked to preserve documents. Following a discussion of the legal standards requiring preservation of evidence, including ESI, the Court held that defendant’s preservation failures warranted the following sanctions:

► The jury will be informed that Defendant had a duty to preserve all email concerning plaintiffs’ allegations, but that it did not begin to do so until 11 months after the duty to preserve was triggered.

► Defendant will be precluded from arguing that the absence of discriminatory statements from the relevant ESI is evidence that no such statements were made;

► Defendant will be assessed the costs and fees of plaintiff’s preparation of the motion for sanctions; and,

► If it so chooses, Plaintiff will be permitted to depose witnesses concerning emails that Defendant eventually produced, and such depositions will be at Defendant’s cost.

Passlogix Inc. v. 2FA TechnologySouthern District of New York, April 27, 2010

The lawsuit underlying this opinion involved the alleged breach of a licensing agreement between two companies in the business of selling security-related software. The dispute at issue pertained to spoliation by 2FA’s two principals who allegedly deleted “at least twelve e-mails, ninety-one text messages, and forty Skype messages.”13 2FA allegedly failed to retain computer logs as well. The court held as follows:14

► 2FA had a duty to preserve the ESI and computer logs;

► 2FA acted with a “culpable state of mind” based on its gross negligence from failing to issue a litigation hold; and,

► Extrinsic evidence introduced by Passlogix demonstrated that the lost ESI would have been relevant and that its loss was prejudicial to Passlogix.

The court ultimately held that a sanction of an adverse inference or evidentiary preclusion would be overly harsh. The court instead assessed a monetary fine of $10,000. Although this amount may at a glance seem trivial, the court explained that the relatively small amount of the fine was due to 2FA being a “small corporation” and that a fine of that amount would serve “the dual purposes of deterrence and punishment” by directly affecting both of the company’s sole principals and co-founders.

Orbit One Communications v. Numerex Corp.Southern District of New York, October 26, 2010

This opinion, issued by Magistrate Judge James Francis who sits in the Southern District of New York alongside Judge Scheindlin, has received a fair degree

13 Passlogix, Inc. v. 2FA Tech., LLC, 708 F. Supp. 2d 378, 415 (S.D.N.Y. 2010).

14 All bulleted points and quotations paraphrased from Passlogix, Inc. v. 2FA Tech.

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of publicity for disagreeing with certain propositions announced in Pension Committee and for refusing to grant sanctions where a party failed to issue a written litigation hold. But is this an actual disagreement with Pension Committee, or merely a different result based on different underlying facts? A review of the facts in Orbit One may help explain. This matter involved a motion by defendant Numerex for sanctions against Orbit One based on that party’s preservation failures. Judge Francis found the following errors in Orbit One’s preservation efforts:15

► The initial litigation hold was established by counsel without any apparent input from persons familiar with Orbit One’s computer system:

♦ It lacked detailed instructions;

♦ There is no indication that it was disseminated to all persons who might have possessed relevant data; and,

♦ The attorney who issued the hold evidently did not monitor compliance in any way.

► There is no evidence that litigation counsel imposed any formal litigation hold when the instant litigation was commenced.

► When information was deleted from servers, archived, or otherwise manipulated, the employee responsible for information technology was not informed of the litigation hold or of pendency of the instant case.

► Primary responsibility for safeguarding information often remained with Orbit One’s key employee, the very individual with the greatest incentive to destroy harmful evidence.

► The key employee’s treatment of the information was cavalier: he removed computer hardware from the premises, he permitted it to leave his control, and he failed to document his archiving practices.

15 Bulleted quotations paraphrased from Orbit One Communications v. Numerex Corp., 2010 U.S. Dist. LEXIS 123633 (S.D.N.Y. Oct. 26, 2010).

Despite heavily criticizing Orbit One’s deficient preservation efforts, Judge Francis refused to issue sanctions based on “a mere showing that [Orbit One]’s preservation efforts were inadequate.” In stark contrast to Pension Committee, there was no suggestion here of a loss of relevant evidence since additional copies of nearly all of the lost ESI happened to remain in existence. Some ESI had been automatically backed up to a server and a lost hard drive was later recovered It was determined that ESI deleted to free up server space pre-dated the relevant issues. As a result, the opposing party was unable to demonstrate prejudice due to the preservation failures.

The ruling in Orbit One is not surprising and perhaps seems quite obvious based on the facts. However, this opinion is notable due to its disagreement with Pension Committee:

“The implication of Pension Committee appears to be that at least some sanctions are warranted as long as any information was lost through the failure to follow proper preservation practices, even if there has been no showing that the information had discovery relevance, let alone that it was likely to have been helpful to the innocent party. If this is a fair reading of Pension Committee, then I respectfully disagree.”

Is Pension Committee wrong, or is Judge Francis mistaken when asserting that Pension Committee supports the imposition of sanctions even where norelevant information is lost? Pension Committee does not hold that sanctions are required for a loss of information, but rather only that “[r]elevance and prejudice may be presumed when the spoliating party acted in bad faith or in a grossly negligent manner.” Regardless of this analysis, the takeaway from Orbit One is that a potential litigant must take steps to avoid preservation errors so that it need not rely on fortuitous circumstances to avoid a loss of relevant information and imposition of spoliation sanctions. 16

16 Orbit One also criticizes the concept of proportionality despite its pervasive acceptance for narrowing the scope of preservation obligations. This criticism seems unfounded and is unlikely to gain widespread acceptance.

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ConclusionThe cases discussed above significantly reinforce the litigation-related preservation requirements to issue timely legal holds and subsequently oversee employee compliance. Attention to these obligations will minimize the risk of destroying ESI, irrespective of the degree of culpability (i.e., whether through simple negligence or deliberate acts of a rogue employee). The absence of a solid legal hold policy with defined procedures is more likely to foster an environment in which such an employee can deliberately delete ESI. Though organizations will always find it difficult to police their own employees, existence of legal hold procedures will help reduce this risk, such as by imaging employees’ hard drives and conducting early ESI collection when deemed appropriate.

The severity of a sanction for a preservation failure (and whether a sanction should be imposed at all) always depends on a balancing of the spoliating party’s degree of culpability, the relevance of the lost evidence, and the resulting prejudice to the innocent

party. Although the analysis of these factors and the resulting sanctions can vary from one federal circuit to the next, certain preservation requirements are uniformly required. Most notably, this includes the issuance of a legal hold and the ensuing supervision and monitoring of the hold. This includes a strong preference to avoid custodian self-collection of ESI. The preservation obligation does not require perfection, but when ESI is lost, the existence of a legal hold policy and associated set of procedures is more likely to render the preservation efforts defensible and reduce the severity of any spoliation sanctions.

We are pleased to provide this review of recent case law pertaining to the preservation of ESI. If you have any questions regarding any of the above cases, recent ESI preservation trends, or anything else related to e-Discovery, please do not hesitate to contact us.

Thomas W. Tobin, Esq. Daniel M. Braude, Esq.Wilson, Elser, Moskowitz, Edelman & Dicker LLP Wilson, Elser, Moskowitz, Edelman & Dicker LLP

thomas.tobin@wilsonelser.com daniel.braude@wilsonelser.com

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HOUSTON 5847 San Felipe Houston, TX 77057-4033 713.353.2000

LAS VEGAS 300 South 4th Street 11th Floor Las Vegas, NV 89101-6014 702.382.1414

LONDON 65 Fenchurch Street London, England EC3M 4BE +44.20.7553.8383

LOS ANGELES 555 South Flower Str eet Los Angeles, CA 90071-2407 213.443.5100

LOUISVILLE 100 Mallard Creek Road Suite 400-A Louisville, KY 40207-4194 502.238.8500

McLEAN 8444 Westpark Drive McLean, VA 22102-5102 703.245.9300

MIAMI 100 Southeast Second Street Miami, FL 33131-2126 305.374.4400

NEW JERSEY 200 Campus Drive Florham Park, NJ 07932-0668 973.624.0800

NEW YORK 150 East 42nd Street New York, NY 10017-5639 212.490.3000

ORLANDO 105 East Robinson Street Orlando, FL 32801-1655 407.423.7287

PHILADELPHIA Independence Square West The Curtis Center Philadelphia, PA 19106-3308 215.627.6900

SAN DIEGO 655 West Br oadway San Diego, CA 92101-8484 619.321.6200

SAN FRANCISCO 525 Market Str eet San Francisco, CA 94105-2725 415.433.0990

WASHINGTON, D.C. 700 11th Str eet, NW Suite 400 Washington, DC 20001-4507 202.626.7660

WEST PALM BEACH 222 Lakeview Avenue Suite 500 West Palm Beach, FL 33401-6140 561.515.4000

WHITE PLAINS 3 Gannett Drive White Plains, NY 10604-3407 914.323.7000

BERLIN AFFILIATE Bach, Langheid & Dallmayr Grolmanstrasse 36 10623 Berlin, Germany +49.30.88 62 69-0

COLOGNE AFFILIATE Bach, Langheid & Dallmayr Beethovenstrasse 5-13 60674 Köln, Germany +49.221.94.40 27-0

FRANKFURT AFFILIATE Bach, Langheid & Dallmayr Oeder Weg 52-54 60318 Frankfurt, Germany +49.69.92 07 40-0

MUNICH AFFILIATE Bach, Langheid & Dallmayr Karlstrasse 10 (Karolinenblock)

+49.89.54 58 77-0

MEXICO CITY AFFILIATE Rubio V illegas y Asociados, S.C. Rio Duero, Col Cuauhtemoc 06500 Mexico City D.F., Mexico +52 55 5242.0700

PARIS AFFILIATE Honig Mettetal Ndiaye (HMN & Partners) 2 Avenue Montaigne 75008 Paris +33 (0) 1 53 57 50 50

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Cover: ESI Preservation 2010 Case Law UpdateContentsIntroduction: 2010 ESI Preservation Case Law UpdateThe Three Seminal ESI Cases of 2010Pension Committee v. Banc of AmericaRimkus Consulting Group v. CammarataVictor Stanley v. Creative Pipe(“Victor Stanley II”)

Additional Selected Cases of 2010In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices, etc.Phillip M. Adams & Assocs., L.L.C. v. Winbond Electronics, ASUS Computer, et al.Jones v. Bremen High School DistrictPasslogix Inc. v. 2FA TechnologyOrbit One Communications v. Numerex Corp.

ConclusionComplete OpinionsPension Committee v. Banc of America - Doc 320Pension Committee v. Banc of America - Doc 358Rimkus Consulting Group v. Cammarata - Doc 450Victor Stanley v. Creative Pipe(“Victor Stanley II”) - Doc 377Doc 377-1: Spoliation Sanctions by Circuit

In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices, etc. - Doc 249Phillip M. Adams & Assocs., L.L.C. v. Winbond Electronics, ASUS Computer, et al. - Doc 1416Phillip M. Adams & Assocs., L.L.C. v. Winbond Electronics, ASUS Computer, et al. - Doc 1723Jones v. Bremen High School District Doc 71Passlogix Inc. v. 2FA Technology - Doc 68Orbit One Communications v. Numerex Corp. - Doc 152

Our Firm in BriefOffice LocationsBack Cover