Alert: Seminal E-Discovery Case Ends With $29.2 Million Jury Verdict

November 16, 2005

What began in February 2002 as a routine employment discrimination action, became one of the most storied electronic discovery cases in history, ending after seven reported district court decisions and a $29.2 million jury verdict for the plaintiff - likely the largest jury verdict in history for a single-plaintiff employment discrimination action. 

On February 15, 2002, Laura Zubulake filed an employment discrimination action in federal court in the Southern District of New York against UBS Warburg LLC alleging causes of action for sex discrimination and retaliation.  However, shortly after the lawsuit was filed, a discovery dispute ensued regarding Zubulake's request that UBS produce "all documents concerning any communication by or between UBS employees concerning Plaintiff."  Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 312 (S.D.N.Y. 2003).  UBS produced only 100 emails, insisting that its production was complete; but Zubulake soon learned that UBS never searched any of its back-up tapes containing archived emails.  This began a two and a half-year discovery battle resulting in significant monetary sanctions against UBS, as well as an "adverse inference" instruction at trial.

Electronic Discovery And Cost Shifting:

One of the first landmark decisions resulting from the discovery dispute related to cost-shifting (i.e. whether the requesting party or the producing party must bear the costs of searching and producing electronic data contained on back-up tapes).

The Court set forth a seven-factor test to determine if cost-shifting is appropriate:

1.  The extent to which the request is specifically tailored to discover relevant information;

2.  The availability of such information from other sources;

3.  The total cost of production, compared to the amount in controversy;

4.  The total cost of production, compared to the resources available to each party;

5.  The relative ability of each party to control costs and its incentive to do so;

6.  The importance of the issues at stake in the litigation; and

7.  The relative benefits to the parties of obtaining the information.

Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 322 (S.D.N.Y. 2003). 

Following its test, the Court ordered UBS to produce all responsive email from its active servers and optical disks at its own expense.  Id. at 324.  It further ordered UBS to bear 75% of the costs to restore its back-up tapes ($165,954.67) and the entirety of the costs required to search and produce data from the restored tapes ($107,694.72).  Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 291 (S.D.N.Y. 2003).  (For more information regarding "cost-shifting," see FB+M Business Litigation Law Alert dated June 12, 2003: "The Increasing Cost Of Electronic Discovery.")

Duty To Preserve Documents:

In another landmark decision, the Court considered the extent of a party's duty to preserve documents relevant to the litigation, stating:  "As a general rule . . . a party need not preserve all backup tapes even when it reasonably anticipates litigation."  Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003) (emphasis added). 

The scope of a party's preservation obligation can be described as follows:  Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a "litigation hold" to ensure the preservation of relevant documents.  As a general rule, that litigation hold does not apply to inaccessible backup tapes (e.g., those typically maintained solely for the purpose of disaster recovery), which may continue to be recycled on the schedule set forth in the company's policy.  On the other hand, if backup tapes are accessible (i.e., actively used for information retrieval), then such tapes would likely be subject to the litigation hold.

However, . . . [i]f a company can identify where particular employee documents are stored on backup tapes, then the tapes storing the documents of "key players" to the existing or threatened litigation should be preserved if the information contained on those tapes is not otherwise available.  This exception applies to all backup tapes.

Zubulake, 220 F.R.D. at 218.

Potential "Adverse Inference" For Failure To Preserve Documents:

The Court also considered potential sanctions for violations of discovery obligations.  In this regard, the Court first held that "[a] party seeking an ‘adverse inference' instruction must show that: (1) the producing party had an obligation to retain the document at the time it was destroyed; (2) the record was destroyed with a "culpable state of mind" (including ordinary negligence); and (3) the destroyed evidence was relevant, such that a trier of fact could find it would support a claim or defense.  Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 220 (S.D.N.Y. 2003).  However, a showing of bad faith alone satisfies the second and third inquiries.  Id. 

The Court found that UBS destroyed the documents with the requisite culpability, but also found that Zubulake could not demonstrate that the destroyed evidence was relevant to her claims (the third-prong of the "adverse inference" test above).  Id. at 222.  Thus, although an "adverse inference" was not warranted, the Court required UBS to bear Zubulake's costs for re-deposing certain UBS witnesses regarding the destruction of documents.  Id.

However, in a later opinion, the Court found that UBS's destruction of documents was willful, and therefore, the destroyed documents were presumed relevant.  Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243 (SAS), 2004 U.S. Dist. LEXIS 13574, at *50 (S.D.N.Y. July 20, 2004).  The Court then issued the following instruction to the jury:

You have heard that UBS failed to produce some of the e-mails sent or received by UBS personnel in August and September 2001.  Plaintiff has argued that this evidence was in defendants' control and would have proven facts material to the matter in controversy.

If you find that UBS could have produced this evidence, and that the evidence was within its control, and that the evidence would have been material in deciding facts in dispute in this case, you are permitted, but not required, to infer that the evidence would have been unfavorable to UBS.

In deciding whether to draw this inference, you should consider whether the evidence not produced would merely have duplicated other evidence already before you.  You may also consider whether you are satisfied that UBS's failure to produce this information was reasonable.  Again, any inference you decide to draw should be based on all of the facts and circumstances in this case.
Id. at *61-62.

Suggested Steps To Adequately Preserve Documents:

In one of the many opinions, the Zubulake Court suggested: "[I]t is not sufficient to notify all employees of a litigation hold and expect that the party will then retain and produce all relevant information.  Counsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched."  Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243 (SAS), 2004 U.S. Dist. LEXIS 13574, at *35 (S.D.N.Y. July 20, 2004).

First, counsel must issue a "litigation hold" at the outset of litigation or whenever litigation is reasonably anticipated.  The litigation hold should be periodically re-issued so that new employees are aware of it, and so that it is fresh in the minds of all employees.

Second, counsel should communicate directly with the "key players" in the litigation, i.e., the people identified in a party's initial disclosure and any subsequent supplementation thereto . . . .

Finally, counsel should instruct all employees to produce electronic copies of their relevant active files.  Counsel must also make sure that all backup media which the party is required to retain is identified and stored in a safe place. 

Id. at *39-40 (citations omitted).