e-Lessons Learned

Given our recent treatment of Zubulake as the “ebook of Genesis” on the creation of ediscovery, it is important to note that sanctions for ediscovery mishaps existed even before the term was coined.

This case arose out of a class action lawsuit brought by Prudential policy holders alleging that Prudential engaged in a scheme to sell life insurance through deceptive practices. On September 15, 1995, the court entered its first Order requiring that all parties preserve all documents and other records containing information potentially relevant to the litigation. This opinion relates to the multiple instances of document destruction by Prudential employees and agents after the issuance of this Order.

In 1994, pursuant to a regulatory directive issued to most life insurance companies, Prudential undertook a sweep of its sales materials to remove any unauthorized materials. To accomplish this, the company issued a manual that outlined the procedures to be followed in order to identify and remove all unauthorized sales materials. The materials specifically called for the destruction of all materials no longer authorized by Prudential.

Subsequent to the court order directing the preservation of documents, various document retention notices were sent to various employees within Prudential. All except one of these notices were sent via email. At the time, less than half of the employees had email or access to email, and none of the notices were ever printed out in hard copy or posted for all employees to see. The management charged with notifying the employees failed to adequately ensure that all employees were made aware of the document retention policy. The management did not forward the emails to all the employees, nor did management distribute the document retention policies via hard copy to the employees. This resulted in some of the employees seeing various emails relating to document retention, however most employees did not see any.

Because of the haphazard approach to the dissemination of the emails and notices, documents continued to be destroyed. One particularly extreme situation occurred in the Prudential Cambridge office where 9000 client files were reviewed and any unauthorized materials were destroyed. Most employees from the Cambridge office denied ever seeing any of the emails relating to document retention. In compliance with the existing document destruction policies, Prudential made unannounced compliance audits to the field offices to ensure that the offices were destroying the appropriate materials. At these audits, the auditors would destroy any unapproved sales materials, and issue fines and sanctions to employees that were not complying with the destruction policy.

The Federal Rules of Civil Procedure provide for sanctions when a party to litigation fails to obey a pre-trial order. The Court must “let the punishment fit the crime.” The Third Circuit provides a two-part test with concomitant factors to determine whether and which sanctions are appropriate. First, the Court must consider the conduct at issue and must explain why the conduct warrants sanctions. A pattern of wrongdoing may require stiffer sanctions than an isolated incident. Second, after evaluating the conduct at issue, the Court must consider the range of permissible sanctions and must explain why less severe sanctions are inadequate or inappropriate. After making its findings of fact and law, the Court was satisfied that the conduct of Prudential explicitly violated the mandate to preserve documents.

Although there is no proof that Prudential, through its employees, engaged in conduct intended to thwart discovery through the purposeful destruction of documents, its haphazard and uncoordinated approach to document retention denied its opponents potential evidence to establish facts in dispute. Because the destroyed records in Cambridge are permanently lost, the Court will draw the inference that the destroyed materials are relevant and if available would lead to the proof of a claim. When the September 15, 1995 Court Order to preserve documents was entered, it became the obligation of senior management to initiate a comprehensive document preservation plan and to distribute it to all employees. The senior management needed to advise its employees of the pending litigation, provide them with a copy of the Court’s Order, and to acquaint its employees with the possible sanctions that the Court could issue for noncompliance with this Court’s Order. When senior management fails to establish and distribute a comprehensive document retention policy, it cannot shield itself from responsibility because of field office actions. The obligation to preserve documents that are potentially discoverable materials is an affirmative one that rests squarely on the shoulders of senior corporate officers.

Here, Prudential violated the Order of the Court to preserve documents and failed to advise its field offices of the pending litigation and the Court-ordered requirement to preserve documents. While e-mail is an appropriate means for a corporation to disseminate its policy, the internal orders directed to the field by Prudential lacked coordination and represented a haphazard response. Further, because documents have been destroyed, they can never be retrieved and the resultant harm is incalculable. Thus, the Court concluded that there existed more than enough to warrant sanction. The sanctions issued to Prudential for its conduct are listed below:

Sanctions Issued:

1. Within ten days after the opinion, Prudential shall mail to every employee a copy of the Court’s September 15, 1995 Order, together with a full explanation of the pending litigation and the civil and criminal sanctions that apply to the failure to follow an Order of the Court.
2. Within thirty days, Prudential shall submit to the Court a written manual that embodies Prudential’s document preservation policy.
3. During the pendency of the litigation, Prudential shall dedicate a telephone “hotline” to facilitate reports of document destruction, if any.
4. During the pendency of the litigation, Prudential shall establish a certification process wherein each field manager shall certify that his/her office is in compliance with the document retention manual and has not engaged in document destruction contrary to Prudential’s established policy.
5. Within ten days after the opinion, Prudential shall pay to the Clerk of the United States District Court for the District of New Jersey, the sum of $1,000,000. This sanction recognizes the unnecessary consumption of the Court’s time and resources in regard to the issue of document destruction.
6. Prudential shall promptly reimburse plaintiffs’ counsel for all fees and costs associated with the motion for sanctions, the order to show cause, the depositions and discovery in preparation for the depositions, and the preparation and distribution of the Report of Investigation to the Court and counsel.
7. The sanctions contained herein are without prejudice to the subsequent imposition of additional sanctions as may be fair and appropriate to remedy unknown harm to individual party opponents caused by document destruction.

Scott Paterson is a third year student at Seton Hall Law School with an interest in Tax Law. After graduation, Scott will be working for a New Jersey Superior Court Criminal Judge.

Article posted on May 28, 2009 at 2:06 AM |              More... 
Tagged as: Accessibility, Legal Hold/Preservation, Sanctions.
View more articles implicating: Document Custodians, Employees, Owners/Executives, Upper Management, Zubulake Case Line
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