Federal Judge Reminds Businesses of the Importance of an Effective Records Retention Program

By: Michael F. Schmitz

Courts continue to remind businesses that, when it comes to records retention and the conduct of discovery, “[t]hose who cannot remember the past are condemned to repeat it.”  This most recent warning came from District Judge Schira Scheindlin, in an eighty-seven page opinion in The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, LLC, et al., in the United States District Court for the Southern District of New York, Case No. 05 Civ. 9016 (SAS), detailing the duty to preserve records and the harsh sanctions for failing to do so.

During the discovery process of this case, substantial gaps were found in the plaintiffs’ document productions.  Therefore, several defendants moved for sanctions, alleging that the plaintiffs failed to preserve and produce documents and electronically stored information.

From the outset, the Court emphasized that the case did not present any egregious examples of the plaintiffs purposefully destroying evidence.  Rather, the Court characterized the plaintiffs’ conduct as the failure to timely institute written litigation holds, and as engaging in careless and indifferent collection efforts after the duty to preserve arose.  The Court found that the plaintiffs’ conduct resulted in the destruction of evidence, which justified relatively harsh sanctions.

Before determining the appropriate sanction, the Court defined negligence, gross negligence, and willfulness in the context of tortuous conduct in records preservation and discovery.  The Court then found the plaintiffs’ conduct to constituted “gross negligence,” and specifically identified the following unacceptable conduct:

(1) Failure to issue a “litigation hold” on documents when there is a duty to preserve.

(2) Failure to identify the key players and make sure their records are preserved.

(3) Failure to stop the deletion of e-mail and failure to preserve backup tapes that are the only source of relevant information.

(4) Failure to supervise document preparation efforts.
The Court issued monetary sanctions, including attorneys’ fees, as to all plaintiffs, both those which were negligent and those which were grossly negligent in their preservation and production of records.  Further, as for the plaintiffs which “conducted discovery in an ignorant and indifferent fashion,” and were found to be grossly negligent, the Court also ordered a very strongly worded adverse jury charge which, if the case proceeds to trial, will result in the jury being instructed that they are to presume that evidence was destroyed by the plaintiffs and to further presume that the destroyed evidence would have been favorable to the defendants.

The importance of having, reviewing and complying with a business’s record retention policy is underscored by this opinion, and is highlighted each time a court sanctions a company for failing to preserve and produce its records. 

Weltman, Weinberg & Reis will continue to monitor trends in electronic discovery, records retention policies and compliance, and we are available to discuss these issues with you, review your company’s records retention policies and procedures, and represent your interests in litigation.

If you have any questions on this information, please contact Michael F. Schmitz, Esq. Michael is an Associate in the Litigation & Defense department in the Cleveland office of Weltman, Weinberg & Reis Co., L.P.A. Michael can be reached at (216) 685-1106 or via e-mail at mschmitz@weltman.com.


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