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Zubulake IV: Court Denies Motion for Adverse Inference Instruction but Defendant to Pay for Re-deposing Witnesses

Posted in CASE SUMMARIES

Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) (“Zubulake IV”)

During the restoration effort described in the court’s prior opinions, the parties discovered that certain backup tapes were missing. It also became clear that certain isolated, relevant emails created after Zubulake’s initial EEOC charge had been deleted from UBS’s system, and existed only on backup tapes.

As a result, Zubulake sought: (1) an order requiring UBS to pay in full the costs of restoring the remainder of the monthly backup tapes; (2) an adverse inference instruction against UBS with respect to the missing backup tapes; and (3) an order directing UBS to bear the costs of re-deposing certain individuals concerning the issues raised by the destruction of evidence and any newly-produced emails.

The court began its opinion by setting forth a summary of the duty to preserve evidence, and specifically addressed how that duty should apply to a company’s backup tapes. It stated that identifying the boundaries of the duty to preserve involves two related inquiries: (1) when does the duty to preserve attach, and (2) what evidence must be preserved? 2003 WL 22410619, at *2.

As to the first question, Zubulake argued that the duty to preserve arose in April 2001, even though she did not file her EEOC complaint until August 2001, because that is when UBS should have known that the evidence was relevant to future litigation. The court stated: “Merely because one or two employees contemplate the possibility that a fellow employee might sue does not generally impose a firm-wide duty to preserve.” Id. at *3. However, the court found that “almost everyone associated with Zubulake” recognized the possibility that she might sue months before she actually filed her EEOC claim. Accordingly, since “the relevant people at UBS anticipated litigation in April 2001,” that is when the duty to preserve was triggered. Id.

As to the question of the scope of the duty to preserve, the court wrote:

Must a corporation, upon recognizing the threat of litigation, preserve every shred of paper, every e-mail or electronic document, and every backup tape? The answer is clearly, “no.” Such a rule would cripple large corporations, like UBS, that are almost always involved in litigation. As a general rule, then, a party need not preserve all backup tapes even when it reasonably anticipates litigation.

2003 WL 22410619, at *3 (footnotes omitted) (emphasis added). At the same time, the court stated, anyone who anticipates being a party to a lawsuit, or who is a party to a lawsuit, “must not destroy unique, relevant evidence that might be useful to an adversary.”

The court stated that the duty to preserve extends to those employees likely to have relevant information – the “key players” in the case. As to what must be retained, the court provided the following guidance, specifically addressing the preservation of backup tapes:

A party or anticipated party must retain all relevant documents (but not multiple identical copies) in existence at the time the duty to preserve attaches, and any relevant documents created thereafter. In recognition of the fact that there are many ways to manage electronic data, litigants are free to choose how this task is accomplished. For example, a litigant could choose to retain all then-existing backup tapes for the relevant personnel (if such tapes store data by individual or the contents can be identified in good faith and through reasonable effort), and to catalog any later-created documents in a separate electronic file. That, along with a mirror-image of the computer system taken at the time the duty to preserve attaches (to preserve documents in the state they existed at that time), creates a complete set of relevant documents. Presumably there are a multitude of other ways to achieve the same result.

Id. at *4. The court then summarized the duty to preserve obligations:

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 subject to the litigation hold.

However, it does make sense to create one exception to this general rule. If 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.

Id. With that groundwork laid, the court went on to consider Zubulake’s motion for sanctions. First, the court declined to reconsider its earlier cost-shifting order, noting that it knew of the missing backup tapes and deleted emails at the time of its prior order, and had already factored that evidence into its decision. Second, the court denied Zubulake’s request that an adverse inference instruction be given. The court emphasized that an adverse inference instruction is an extreme sanction that should not be given lightly, and set out the three elements required for an adverse inference instruction: (1) an obligation to preserve the evidence that was destroyed; (2) that the evidence was destroyed with a “culpable state of mind” and (3) that the destroyed evidence was “relevant” – i.e., that it would have been both relevant and favorable to the injured party’s claims. Id. at *6. The court determined that, although Zubulake had established the first two elements, she failed to prove the third.

The court stated that UBS had a duty to preserve the evidence in question, based largely on the timeframe in which the evidence was created. The evidence at issue was either created after Zubulake’s claims were filed, or created before any claims were filed, but after the time at which litigation could have been anticipated. Thus, the first element was shown. Next, the court observed that “whether a company’s duty to preserve extends to backup tapes has been a grey area.” Id. It concluded that, because of the uncertainty surrounding the treatment of backup tapes, UBS’s failure to preserve all potentially relevant backup tapes amounted to mere negligence, rather than gross negligence or recklessness. However, UBS’s failure to preserve certain tapes was found to be grossly negligent, if not reckless. The “culpability” element was likewise satisfied.

Since UBS’s spoliation was not willful, Zubulake was required to demonstrate the relevance of the missing emails. To do this, she needed not only to prove relevance in the ordinary sense, but also show that the destroyed evidence would have been favorable to her. (This is in contrast to the situation where evidence is destroyed willfully, where the spoliator’s mental culpability is itself evidence of the relevance of the documents destroyed.) The court noted that in its earlier rulings, it had found that the recovered emails were, by-and-large, relevant in the sense that they bore on issues in the litigation, but none amounted to a smoking gun. Nowhere in the 68 recovered emails which were presented to the court was there evidence that Zubulake’s supervisor disliked her because of her gender. And, the court emphasized, those 68 emails were the ones that Zubulake had selected as being the most relevant among those produced in the sample restoration. The court concluded that there was no reason to believe that the lost emails would be any more likely to support Zubulake’s claims. Accordingly, although the destroyed evidence may have been relevant in the sense that term is normally understood, Zubulake had failed to show that it was relevant in the sense that it supported her claims.

Lastly, the court granted Zubulake’s request that UBS bear the costs of re-deposing certain individuals. The court stated that there was no question that emails that UBS should have produced to Zubulake were destroyed. That being the case, the court ordered UBS to bear Zubulake’s costs for re-deposing certain witnesses for the limited purpose of inquiring into issues raised by the destruction of evidence, and for inquiring into issues raised by any newly discovered emails.