Alert: Corporate Counsel and Human Resource Professional

December, 2004

I. Introduction

Q. What can happen, when despite company instructions, employees delete e-mails related to another employee’s discrimination claim?

A. The court can enter penalties (sanctions) including payment for re-deposing witnesses, restoring deleted information, attorneys’ fees and a negative inference instruction to the jury.

Because of their importance, we have been tracking a federal judge’s rulings about “electronic discovery.” Over four prior opinions, Federal Judge Scheindlin has exercised considerable judicial patience but now has slammed down the gavel. Zubulake v. UBS Warburg L.L.C. (July 20, 2004). The case illustrates the danger when an employee presses the delete button on their computer.

Corporate Counsel and HR On Notice

The results of that case are a nightmare for corporate counsel and for human resource professionals and their companies. As discussed below, companies and their attorneys have been put on notice of a high standard regarding document retention in this court decision.

“What is true in love is equally true at law: Lawyers and their clients need to communicate clearly and effectively with one another to ensure that litigation proceeds efficiently.” - Judge Scheindlin

II. Facts

A. Background

Laura Zubulake was an equities trader for a securities firm of UBS Warburg L.L.C. (“UBS”). Zubulake filed a charge of gender discrimination with the EEOC in August of 2001. In February of 2002, Zubulake filed a federal lawsuit. However, well before that, in April 2001, UBS employees were on notice that Zubulake intended to bring a lawsuit. Back in August of 2001, UBS’s in-house attorneys gave oral instructions to employees not to destroy or delete relevant documents or information and to segregate such information in separate files. The instructions pertained to electronic and hard copy files but did not specifically refer to “backup tapes” on which the company stored deleted information. Also in August 2001, UBS’s outside counsel met with several key players in the litigation and reiterated UBS’s instructions reminding the key players to preserve relevant documents, including e-mails. In February, after Zubulake filed her federal lawsuit, UBS put its “do not destroy e-mails” instruction into writing.

B. Procedural History

The current decision is actually the fifth in a series of decisions related to Zubulake’s attempt to track down e-mails that had been deleted by UBS employees despite the instructions of its attorneys. In the fifth decision, the court ordered that witnesses be re-deposed at the company’s expense.

C. Zubulake V

As a result of the re-deposing of UBS employees, Zubulake learned about even more deleted e-mails and about existing e-mails on UBS’s active computer servers that had never been produced, despite Zubulake’s request (which were now two years old). Zubulake also presented evidence that some UBS employees did not produce documents to counsel which also hindered her investigation for two years.

D. One E-Mail Never Produced

The key alleged “discriminator”, Mr. Chapin, deleted several e-mails. One was not recoverable and therefore was lost entirely. From other e-mail communications it appeared that the lost e-mail would have contained a verbatim quotation of a conversation between the Plaintiff Zubulake and a co-worker related to her lawsuit. Also, after two years of litigation and discovery, many backup tapes during the time relevant to the lawsuit were missing and it was impossible to know if they were lost entirely.

E. Many E-Mails Deleted And Only Later Recovered

Despite UBS’s counsel’s instructions to preserve all e-mails, key employees deleted information that was only later recovered off of non-missing, backup tapes, thus showing intentional deletion of e-mails despite instructions to the contrary. One such e-mail indicated that Ms. Zubulake had said that “all she wanted is to be treated like the other guys on the [trading desk].” In another e-mail the alleged discriminator’s supervisor, Hardisty, warned Chapin about his management of Zubulake and reminded Chapin that Zubulake could be a “good broker.”

F. Retained But Not Produced E-Mails

During the re-deposing of certain key witnesses, a Ms. Kim testified that she was never asked to produce her e-mail files regarding Zubulake to legal counsel and that she in-fact did not produce them. Among the documents in Kim’s computer records was a conversation in which Zubulake complained about the way women were treated at UBS. In another, two key players discussed termination of Zubulake and that they should have fired her sooner.

III. Legal Standard

The court in earlier Zubulake decisions had explained that when a company is aware of foreseeable litigation or pending litigation, it has a duty to preserve property for another’s use as evidence in that litigation. Failure to do so, or destruction of the information is called “spoliation.” When there is evidence of “spoliation,” the court can enter sanctions including money damages and in certain circumstances, issue an “adverse inference instruction” to the jury. An adverse inference instruction advises the jury that if they find that the company could have produced material evidence, the jury can infer that the evidence was unfavorable to the company. In an earlier decision, Zubulake IV, the court had said that if a company reasonably “anticipates” litigation, then it has to suspend routine document retention and the company’s destruction policy and put in place a “litigation hold” to ensure it preserves relevant documents.

Judge’s Postscript:

“The subject of the discovery of electronically stored information is rapidly evolving. When this case began more than two years ago, there was little guidance... Much has changed in that time. There have been a flood of recent opinions - including a number from appellate courts... .”

A. What To Expect From Your Attorneys. What You Also Must Do To Comply.

The court said that UBS’s legal counsel was not blameless. Counsel had failed to inform certain key players to put documents on “litigation hold.” The court spelled out many steps for the attorneys to follow. And, put companies and their attorneys on notice of the obligations to cooperate and to comply. From here on, attorneys must do the following:

Counsel’s duty to locate relevant information. The court said that legal counsel must become fully familiar with his or her client’s document retention policies. Legal counsel also must become familiar with the client’s data retention “architecture”, which means talking to information technology personnel. Further, counsel must interview each employee who is a key player in the alleged incidents;
Counsel’s continuing duty to ensure preservation. Both the company and its legal counsel have a duty to retain information identified as potentially relevant and the information must be produced in full response to an opposing party’s requests. Furthermore, if new information is discovered, the company and their attorneys must immediately supplement, i.e., update previously incorrect responses. As a result, legal counsel will probably periodically resend to you “litigation hold instructions.” Counsel also will have to make more frequent follow-up on-site inspections. These and more should be expected from counsel in the future, and of the companies and human resources department themselves.

IV. Conclusion -- Worse Case Scenario Occurred!

Because these procedures were not followed, a nightmare, worse case scenario took place. UBS was ordered to:

Restore and produce relevant documents from backup tapes;
Pay for re-deposing of key employees related to newly discovered e-mail and information restored from backup tapes;
Pay all reasonable expenses including attorneys’ fees incurred by Zubulake;
The court prepared a “negative inference instruction” to go to the jury. In essence, the court advised that if the jury felt that material facts relevant to the controversy had not been produced despite the company having control over the facts, then the jury could infer that the information which UBS did not produce would have been unfavorable to UBS.

PRACTICE TIPS

Require key employers to sign an acknowledgement that he/she:

Has not deleted or destroyed relevant information.
Will in interviews, with the company’s legal counsel, disclose all relevant documents and electronic data.

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