A corporation attempting to comply with its preservation obligations today walks a tightrope. Reasonableness and proportionality should be the guide for preservation of electronically stored information (ESI).[1] But inconsistent federal court decisions and the real fear of sanctions lead many corporations to throw reasonableness and proportionality out the window.[2] These corporations proceed to overpreserve ESI at great current and future expense.[3]
The recent decision in Pippins v. KPMG will undoubtedly heighten anxiety, and many corporations will take away from the opinion that they must overpreserve ESI to properly discharge their preservation obligations.[4] The Pippins decision also provides guidance on avoiding overpreservation by showing how important it is to engage in good faith discussions with opposing counsel regarding the scope of preservation and to be transparent and reasonable.
Facts And Rulings In Pippins v. KPMG
The case was brought in 2011 in the Southern District of New York by audit associates seeking to recover overtime wages under the Fair Labor Standards Act and New York state labor law. Plaintiffs moved for conditional certification, and the court stayed discovery pending resolution of the motion. KPMG had preserved more than 2,500 hard drives of former and departing audit associates who fell into the putative classes. KPMG claimed to have spent over $1.5 million on this preservation effort based on a cost of $600 per hard drive.
KPMG and plaintiffs’ counsel had engaged in extensive negotiations regarding the scope of preservation. Both sides agreed that sampling was an appropriate mechanism for preservation in this case but could not agree on the sampling methodology. Plaintiffs anticipated that the hard drives would contain usage information, log-in/log-out information, application records, forms and other contents showing the range of hours they worked and the substance of their work. Plaintiffs sought to obtain more information about the contents of the hard drives to inform whether preservation of the hard drives was appropriate.
Rather than provide information on the contents of the drives, KPMG attempted to demonstrate the availability of alternative sources of information that it believed would be more authoritative than the materials contained on the hard drives. KPMG noted that it had preserved ESI tending to show the job duties and hours of audit associates, including human resource records describing their job duties and job titles; recruiting documents and job postings; performance reviews; training materials; time records showing hours recorded; and payroll records showing their compensation. KPMG was also preserving ESI relating to audits for seven years pursuant to recordkeeping regulations and professional standards. KPMG refused, however, to allow plaintiffs to randomly sample the hard drives of five employees that counsel had vetted for privilege - or even one hard drive - for plaintiffs’ counsel to determine whether or not the drives contained relevant information. KPMG also refused to provide information on the contents of the drives; refused to inform plaintiffs whether the data on the hard drives might be derived from other sources; refused to discuss the costs of possible alternatives to preserving the data on the hard drives; and refused plaintiffs’ request for a Federal Rule of Civil Procedure 30(b)(6) deposition to learn what the hard drives contained.
When negotiations broke down, KPMG moved for a protective order to limit the scope of its preservation obligations, including requiring the preservation of 100 hard drives, or in the alternative, shifting the costs of preserving more than the 100 hard drives to the plaintiffs. KPMG argued, among other things, that the cost of ongoing preservation of this incredibly large number of hard drives, including the costs that may be incurred if the hard drives were to remain available and subject to discovery in other litigation, was disproportionate because it would “swallow the amount at stake in the litigation.” KPMG also argued that it did not have a duty to preserve the hard drives of putative class members until a motion to certify the classes was granted because they did not constitute key players.
United States Magistrate Judge James L. Cott denied KPMG’s motion for protective order and required KPMG to continue to preserve the hard drives.[5] KPMG appealed to the district court.[6] United States District Court Judge Colleen McMahon conditionally certified the class while the appeal was pending. A month later, after confirming that the parties did not believe certification mooted the parties’ dispute relating to the motion for protective order, the court affirmed the magistrate judge’s order denying KPMG’s motion for protective order.
The district court’s ruling that all of the drives should be preserved was based on its finding that the hard drives were relevant to the dispute. KPMG’s refusal to allow plaintiffs’ counsel to obtain information about the drives was a significant factor contributing to the court’s relevance finding. The court found that KPMG could have easily disproved relevance by producing several hard drives to plaintiffs and the magistrate judge, and its failure to do so established that the drives were likely to contain information about the number of hours potential opt-in plaintiffs worked and about their job responsibilities as the plaintiffs had claimed.
The refusal to provide information also doomed KPMG’s proportionality argument. The court had the estimate provided by KPMG that showed the cost of preservation of the hard drives, but it did not have information about the contents of the hard drives, which would have shown the benefits of preservation. The court found that it could not even begin to engage in a proportionality analysis and analyze whether preserving the hard drives outweighed its benefit because it was missing a key part of the equation.
The court also found that the audit associates receiving opt-in notice were all potential plaintiffs in the action as potential class members and thus were all key players.
Pippins May Lead Corporations To Continue Overpreserving
Many believe the silver lining in the Pippins decision is the court’s statement that proportionality is relevant to preservation. But in actuality, the court ruled that preservation is a factor for a court to consider in determining whether to grant a motion for protective order limiting the scope of preservation. The court disappointingly suggested that parties should not consider proportionality on their own when determining the scope of preservation prior to filing a motion for protective order, and should overpreserve ESI from the date that the duty to preserve is triggered until they have an opportunity to reach agreement with opposing counsel or file a motion for a protective order seeking to have a court define its preservation obligations. The court stated that “proportionality is a highly elastic concept” and that “until a more precise definition is created by rule, prudence favors [either] retaining all relevant materials, or swiftly moving for a protective order.”[7]
The court’s statements fail to take into consideration that the duty to preserve can be triggered months or years before there is a complaint or court action to seek relief, opposing counsel with whom to engage or even an identifiable party, and thus the opportunity to confer with opposing counsel or to seek court intervention may be months or years away. Additionally, after a party has already gone to the trouble and expense of overpreserving for a significant period, the bell cannot be unrung and the impetus for engaging with opposing counsel or seeking court intervention has passed except arguably for future preservation efforts or to obtain cost-shifting. Moreover, the corporation that incurs the expense of overpreserving and then later argues preservation was too burdensome and costly is in a losing position from the start. Courts are likely to find under these circumstances that preservation could not have been so costly or burdensome if already achieved and likely to opt to maintain the status quo as both the magistrate judge and the district court did in Pippins.
Pippins Provides Guidance On How To Avoid Overpreservation
KPMG was in a seemingly enviable position as a producing party that had already taken extraordinary steps and expense to preserve more than 2,500 hard drives and now sought an order limiting ongoing preservation. KPMG had a 10-page, detailed supporting declaration reflecting that it had spent $1.5 million to preserve the hard drives. Yet, this diligent party was repeatedly chastised by the court. The court’s decision was highly motivated by KPMG’s refusal to share information with opposing counsel, and KPMG’s refusal permeated the entire decision. The lesson from Pippins is that it pays to engage in good faith discussions with opposing counsel as early as possible regarding the scope of preservation, and it pays to be transparent and reasonable. While this is not a new concept in the e-discovery world, the Pippins decision is a great example of how the failure to cooperate and be transparent can impact a case.[8]
[1] See The Sedona Conference, Commentary on Proportionality in Electronic Discovery, 11 Sedona Conf. J. 289, 291 (2010) (“The burdens and costs of preservation of potentially relevant information should be weighed against the potential value and uniqueness of the information when determining the appropriate scope of preservation”); Rimkus Consulting Group, Inc. v. Cammarata, 688 F. Supp. 2d 598, 613 (S.D. Tex. 2010). (“Whether preservation or discovery conduct is acceptable in a case depends on what is reasonable, and that in turn depends on whether what was done - or not done - was proportional to that case and consistent with clearly established applicable standards.”)
[2] See Dan H. Willoughby, Jr., Rose Hunter Jones and Gregory R. Antine, Sanctions for E-Discovery Violations: By the Numbers, 60 Duke L.J. 789 (2010) (collecting cases on sanctions and showing an increase in motions for sanctions filed and awarded in the district courts).
[3] The lack of guidance on preservation is one reason the Advisory Committee on Civil Rules is exploring, among many different approaches, revising the Federal Rules of Civil Procedure to add a new rule on preservation. See Memorandum prepared for the Discovery Subcommittee of the Advisory Committee on Civil Rules mini-conference on preservation and sanctions on Sept. 9, 2011, available at http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/DallasMiniConf_Materials/Preservation-Sanction%20Issues.pdf and additional materials related to the mini-conference available at http://www.uscourts.gov/RulesAndPolicies/FederalRulemaking/Overview/DallasMiniConfSept2011.aspx (last visited March 26, 2012).
[4] Pippins v. KPMG LLP, 2012 WL 370321 (S.D.N.Y. Feb. 3, 2012).
[5] See United States Magistrate Judge Cott’s Memorandum and Order at Pippins v. KPMG LLP, 2011 WL 4701849, at *1 (S.D.N.Y. Oct. 7, 2011).
[6] United States Magistrate Judge Cott’s decision and the appeal was closely followed by the e-discovery industry and others. The United States Chamber of Commerce filed an amicus brief in support of KPMG’s position. See Brief for Chamber of Commerce of the United States of America as Amicus Curiae in Support of Defendant's Objections to the Magistrate Judge's Oct. 11, 2011 Order, 2011 WL 5379895 (S.D.N.Y. Nov. 8, 2011).
[7] Pippins, 2012 WL 370321 *11 (citations omitted). The court also stated that Magistrate Judge Cott appropriately cautioned that proportionality “may prove too amorphous to provide much comfort to a party deciding what files it may delete or backup tapes it may recycle” before that party files a motion for protective order seeking to have a court define its preservation obligations.” Id.
[8] See The Sedona Conference® Cooperation Proclamation (2008).
Published March 28, 2012.
