The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, et al., 05 Civ. 9016 (SDNY Jan. 11, 2010)

Starting with Manpower, the intro of her opinion, Judge Scheindlin invokes Santayana’s famous saying that “those who You cannot remember the past are condemned to repeat it.”  This ominous start is in response to the flawed efforts of legal holds and ediscovery she saw in The Pension Committee v. Banc of America case. This opinion starts this year off with a bang with a strong reiteration of the need for written legal holds and effective preservation efforts in order to avoid spoliation and resulting sanctions.

In this case, Judge Scheindlin who inaugurated the concept of legal holds in her landmark Zubulake opinions, makes a bravura appearance in The Pension Committee v. Banc of America which may serve as a bookend to her the Zubulake opinions from six years ago. This is a complex case with many aspects that involved the ediscovery process. We’ll focus on her opinions about the legal hold notification process.

The case involves a complex securities litigation in which a group of investors tried to recover $550 million in losses in February 2004 due to the collapse of two British Virgin Island-based hedge funds. During the discovery process, the defendants asserted that the 13 plaintiffs failed to preserve documents and ESI and then made “false and misleading declarations” about their preservation efforts. (p.2)

After digging into the details of the discovery process, Judge Scheindlin found that counsel for the plaintiffs lightly worded email about gathering documents “does not meet the standard for a litigation hold” (p.10) because it did not instruct employees to preserve records or have provisions for collection. A proper legal hold was issued, but not until early 2007 resulting in spoliation.

The court concluded that several of the plaintiffs acted in a grossly negligent manner by “failing to institute a timely written litigation hold.” (p.15) When issuing sanctions, the court pointed out that “most plaintiffs conducted discovery in an ignorant and indifferent fashion.” (p.28) Sanctions included a strongly worded adverse inference instruction Florida and monetary sanctions to share the burden of the defendants’ expenses surrounding this issue, and the door for additional discovery was left open.

In such a high stakes case – remember, $550 million is on the line – the failure to issue written legal holds in a timely manner and the resulting spoliation, partially driven by the lack of understanding of a plaintiff’s responsibility to preserve evidence, has significantly undermined the claim. The impacts of this case will emerge, but the strong reiteration of the need for a written legal hold is undeniable.

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