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An investment bank defending against a multimillion-dollar gender discrimination lawsuit was grossly negligent in allowing electronic evidence to be destroyed, but that evidence will not be construed against it, a Manhattan federal judge ruled Wednesday. Southern District Judge Shira Scheindlin declined to issue an adverse inference instruction as a sanction against UBS Warburg for the destruction of backup e-mail tapes. If the instruction had been issued, the jury would have been told that it could infer that had the destroyed evidence been available, it would have helped the plaintiff’s case. Such an instruction often ends litigation, since it becomes too difficult a hurdle for the party that destroyed the evidence to overcome. The decision, Zubulake v. UBS Warburg, 02 Civ. 1243, is the fourth opinion resolving discovery disputes in the case. It comes on the heels of a July ruling that received a lot of attention as the first application of a modified formula developed by Scheindlin for evaluating cost-shifting in electronic discovery cases. There, Scheindlin found that the plaintiff, fired equities trader Laura Zubulake, must bear 25 percent of an estimated $164,000 it would cost to restore, search and produce the bank’s backup tapes that she hoped would support her case. In the restoration effort that followed, the parties discovered that certain backup tapes were missing and e-mails deleted. Zubulake moved for evidentiary and monetary sanctions against UBS Warburg for its failure to preserve the missing tapes and e-mails. In Wednesday’s ruling, the court rebuffed Zubulake on all but one request, ordering the bank to pay for the cost of re-examining certain witnesses about newly discovered e-mails. Zubulake was a senior salesperson and director of UBS Warburg’s U.S. Asian Equities Sales Desk, a job that earned her upwards of $650,000 a year. She was fired in October 2001, about two months after she filed a charge of gender discrimination with the Equal Employment Opportunity Commission against the bank. She alleged she was passed over for a promotion, subjected to sexist remarks and belittled by her boss and co-workers. The perpetrator of much of the abuse, she claimed, was Matthew Chapin, who received the promotion Zubulake had been up for. The missing tapes contained Chapin’s e-mails for the month of April 2001, as well as the April 2001 e-mails of two of Zubulake’s co-workers, and the June 2001 e-mails of Chapin’s supervisor. Also missing were several months worth of e-mails by a human resources employee who was handling Zubulake’s charge. Scheindlin found that the bank had a duty to preserve all the missing evidence, since it should have known that the e-mails may be relevant to future litigation. Although Zubulake did not file her EEOC charge until August 2001, by April of that year, “almost everyone associated with Zubulake recognized the possibility that she might sue,” the court wrote. Additionally, the court found that the missing e-mails were all from “key players” in the case — those employees likely to have relevant information. The court also found that the bank failed to comply with its own retention policy, which would have preserved the missing evidence. Despite a policy requiring backup tapes to be retained for three years and an explicit directive by a company attorney that the tapes be preserved, backup tapes of Zubulake’s co-workers and boss disappeared, the court found. The judge found that the bank was merely negligent for destroying the co-workers’ backup tapes, but grossly negligent for losing other backup tapes of the human resources employee handling Zubulake’s charge, “during a time when UBS was unquestionably on notice of its duty to preserve.” The bank’s negligent destruction of the tapes met two of the three elements needed to impose sanctions for spoliation of evidence, the court noted. But Zubulake failed to demonstrate that the missing e-mails would support her claims, and thus could not meet the third prong of the test for an adverse inference instruction. In previous decisions, the judge found that the backup tapes were relevant in the sense that they bore on the issues in the litigation, but also “specifically held that ‘nowhere (in the 68 e-mails produced to the court) is there evidence that Chapin’s dislike of Zubulake related to her gender,’” the court wrote. Since those 68 e-mails were selected by Zubulake as being the most relevant among those produced, “there is no reason to believe that the lost e-mails would be any more likely to support her claims,” the judge wrote. James A. Batson of Liddle & Robinson represented Zubulake. Kevin B. Leblang and Norman C. Simon of Kramer Levin Naftalis & Frankel represented UBS Warburg.

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