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On April 6, a jury sitting in federal district court in Manhattan returned a verdict of nearly $29.3 million in Zubulake v. UBS Warburg LLC, a suit that warns of the fate that may await litigants who take electronic discovery missteps. At the end of the trial of what U.S. District Judge Shira A. Scheindlin had initially expected to be a relatively routine employment discrimination dispute, the jury awarded an equities trader formerly employed by the defendant $9.1 million in compensatory damages and almost $20.2 million in punitive damages, one of the largest awards to an individual discrimination plaintiff ever recorded. UBS Warburg, one of the world’s leading financial firms, has stated that it will move to set aside the verdict, but no matter how that motion or any appeal is resolved, its electronic discovery experience in the Zubulake litigation will remain a cautionary tale. Four of the six opinions the court found itself forced to issue during this litigation’s pre-trial phase concerned the deficiencies of UBS’ e-mail production. As two and one-half years of discovery finally came to a close and the fourth such order was entered, UBS’ handling of electronic evidence had landed it in an unenviable position: It had incurred the wrath of, and an adverse inference instruction sanction from, Scheindlin. UBS’ road to a sanction so severe it would, as the court acknowledged, leave UBS “hard-pressed to prevail on the merits” begins earlier than one might expect. In mid-1999, UBS hired Laura Zubulake to be the director and senior salesperson of its U.S. Asian Equities Sales Desk, reporting to the desk’s manager, Scheindlin’s opinions reveal. At the time of her hiring, Zubulake had been advised that if and when the desk manager position became available, she would be considered for it. But when that position became available in late 2000, UBS did not consider Zubulake and instead hired Matthew Chapin. Contending that Chapin treated her differently from all other members of the desk, all of whom were male, Zubulake ultimately filed a charge of gender discrimination with the EEOC in August 2001. Two months later, UBS fired her. Shortly after filing this gender discrimination, failure to promote and retaliation suit, Zubulake served her first set of document requests, seeking all documents concerning any communication by or between UBS employees concerning her. Because Zubulake herself had produced 450 pages of e-mails that were responsive to this request, UBS’ production of only 100 pages of responsive e-mails proved problematic. In the wake of a conference before the magistrate judge, UBS agreed to produce responsive e-mails from five accounts (Chapin’s, Chapin’s supervisor, two of Zubulake’s co-workers on the desk and the human resources representative who handled issues concerning Zubulake) for August 1999 through December 2001. REQUESTS FOR E-MAIL It then failed to search its backup tapes and optical disks, produced no additional e-mails and insisted its original 100-page production was complete. UBS, no doubt unwittingly, had lit a fuse. The first of the district court’s four discovery rulings addressed Zubulake’s call for production of e-mails that she maintained UBS had deleted from its active servers and, as a result, existed only on its “inaccessible” archival media (i.e., backup tapes), and UBS’ contention that no such discovery should occur or that if it should, Zubulake should pay for it. The ruling set forth the legal standard for determining the allocation of cost for production of inaccessible electronic evidence, concluding that when a responding party has shown that such production will be unduly burdensome or expensive, it must then prove that cost-shifting is warranted under a seven-factor test. The Zubulake test included the following factors, weighted in descending order: The extent to which the request is specifically tailored to discover relevant information; The availability of such information from other sources; The total cost of production, compared to the amount in controversy; The total cost of production, compared to the resources available to each party; The relative ability of each party to control costs and its incentive to do so; The importance of the issues at stake in the litigation; and The relative benefits to the parties of obtaining the information. UBS was ordered to produce, at its own expense, all responsive e-mail existing on its active servers, its optical disks and five of its backup tapes, as a sample. Following the restoration and search of the backup tapes in the sample and UBS’ supplemental production of 853 additional pages of responsive e-mails from those five tapes alone, UBS continued to press for cost-shifting. In its second ruling, the court, upon application of its seven-factor test, allocated 75 percent of the cost to restore and search the remaining backup tapes to UBS and 25 percent to Zubulake. FAILURE TO PRESERVE RECORDS The fuse UBS had lit earlier in the litigation rapidly grew closer to setting off its explosive charge when the effort to restore and search a number of the remaining backup tapes brought the following to light: UBS had failed to preserve all relevant backup tapes, and after Zubulake’s EEOC charge had been filed and an instruction had been given to retain all relevant materials, certain UBS employees had deleted e-mails relevant to Zubulake’s retaliation claim from their active files. Zubulake sought sanctions. The third ruling, while denying Zubulake’s initial request for an adverse inference instruction and her request that UBS pay all costs associated with restoring the remaining backup tapes, granted her request to re-depose, at UBS’ expense, several of its key players in the suit to inquire about the newly restored e-mails and the destruction of electronic evidence. Following the re-depositions and a supplemental e-mail production by UBS that was tardy by nearly two years, Zubulake moved again for the sanction of an adverse inference instruction. By this time, discovery was nearing its end and the court was cognizant of the following: E-mails and deposition testimony revealed that UBS’ key players anticipated litigation by Zubulake as early as April 2001. As a result, the court determined that UBS’ duty to preserve evidence attached in that month, fully four months before Zubulake filed her EEOC charge and 10 months before she filed her suit. But it wasn’t until August 2001, when Zubulake filed her EEOC charge, that UBS’ lawyers first gave an oral directive to preserve relevant documents, an instruction they ultimately issued in writing in February 2002 and again in September 2002. Unfortunately, not every key player received this directive. And not all of the UBS employees who received this directive followed it. In defiance of the explicit instructions they had received, a number of them deleted highly relevant e-mails from their active files. Those deleted e-mails were ultimately located because they surfaced in backup tapes or the files of another employee. But the court found at least one relevant e-mail was deleted and never recovered; the total number of relevant e-mails deleted and then irretrievably lost is impossible to know. When the duty to preserve attaches, the Zubulake court further determined, a party must put a “litigation hold” in place. All sources of potentially relevant information must be put “on hold,” one’s routine document retention/destruction policy must be suspended, and one’s accessible backup tapes and inaccessible backup tapes storing otherwise unavailable information of one’s key players must be preserved. The court also noted that counsel’s duties include affirmatively overseeing a client’s compliance with such a litigation hold and monitoring its efforts to retain and produce relevant documents. But it wasn’t until August 2002, when Zubulake specifically requested the responsive e-mails stored on backup tapes, that UBS’ outside counsel alerted its IT department that it was required to preserve all relevant backup tapes. Unfortunately, UBS employees did not follow this directive, nor did they follow UBS’ own retention policy, which required backup tapes to be retained for three years. At least 10 backup tapes containing the files of key players in the most relevant time periods were lost, depriving Zubulake altogether of any relevant electronic evidence that would have continued to exist only on those tapes. The court determined that UBS and its counsel were required to take reasonable measures to locate all sources of relevant information. Additionally, the court had required UBS to produce all responsive e-mails from its active servers in its first discovery ruling. But it wasn’t until early 2004, after the deposition of one and the re-deposition of the other, that any relevant electronic data was produced from the active files of two of UBS’ key players. On their face, a number of the e-mails that had been deleted, only to be restored or newly located and then produced to Zubulake two years after her initial document request, undercut the deposition testimony of various of UBS’ key players on material points. RESULTING CONSEQUENCES The charge exploded. Concluding that both UBS and its counsel had failed with regard to their respective duties concerning the preservation and production of relevant data — and that UBS had acted willfully in its destruction of potentially relevant electronically stored information — the Zubulake court, in its fourth discovery ruling, imposed the sanction of an adverse inference jury instruction, determining it would instruct the jury as follows:
You have heard that UBS failed to produce some of the e-mails sent or received by UBS personnel in August and September 2001. Plaintiff has argued that this evidence was in defendants’ control and would have proven facts material to the matter in controversy. If you find that UBS could have produced this evidence, and that the evidence was within its control, and that the evidence would have been material in deciding facts in dispute in this case, you are permitted, but not required, to infer that the evidence would have been unfavorable to UBS. In deciding whether to draw this inference, you should consider whether the evidence not produced would merely have duplicated other evidence already before you. You may also consider whether you are satisfied that UBS’ failure to produce this information was reasonable. Again, any inference you decide to draw should be based on all of the facts and circumstances in this case.

The Zubulake rulings regarding cost-shifting in electronic discovery, the duty to preserve electronically stored information, and sanctions for spoliation of electronic evidence have influenced numerous courts, litigants and commentators. At the conclusion of the fourth discovery opinion, Scheindlin observed, “Now that the key issues have been addressed and national standards are developing, parties and their counsel are fully on notice of their responsibility to preserve and produce electronically stored information.” Given the court’s orders and the outcome of the trial in Zubulake, anything less than a conscientious and faithful discharge of this responsibility may prove quite costly.

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