Play Nice or Pay the Price: Failing to Cooperate in Creating Preservation Protocols Can Result in Significant Consequences
The dual issues of over-preservation and proportionality took center stage in a recent Southern District of New York class and collective action litigation, leading to a Magistrate’s opinion in Pippins v. KPMG, No. 11-377 (S.D.N.Y. Oct. 7, 2011), and a District Court’s affirmance in Pippins v. KPMG, Civ. No. 11-377 (S.D.N.Y. Feb. 3, 2012), which are sending shock waves through the e-discovery community. The effect of those shock waves here is particularly acute for FLSA and other employment-related class action defendants where the targeted company often possesses and controls ESI pertaining to sometimes thousands of potential plaintiffs.
Pippins arose out of allegations under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. and the New York State Labor Law, Article 19, § 201 et seq.(and corresponding regulations). In the October opinion, United States Magistrate Judge Cott rejected Defendant KPMG’s application for a protective order to limit its preservation efforts to a random sample of 100 hard drives from the computers used by the several thousand potential putative class members. The Magistrate Judge ordered KPMG to preserve all hard drives at issue because he was, as the District Judge perceived it, impeded by the lack of any information from KPMG that would enable the court to “balance the value of any data contained on the hard drives against the cost of preserving it.” Judge Cott’s opinion sent panic throughout the legal community because it expanded the preservation obligation to potential class action plaintiffs without a balancing or proportionality analysis under F.R.C.P. 26(c).
On February 3, 2012, in a frank and somewhat scathing opinion, United States District Judge McMahon affirmed the Magistrate holding that his opinion was correct in every respect, save for perhaps the Magistrate’s reluctance to involve Judge McMahon earlier in the process. By way of background, Judge McMahon had stayed discovery while resolving the Motion to Conditionally Certify the Class, which she ultimately granted after Pippins I on January 3, 2012. While the motion was pending, KPMG filed its motion for a protective order. KPMG’s primary objection was cost-related, arguing that at the price of $600 per hard drive, the financial burden of preserving hard drives of 7,500 potential opt in plaintiffs in the FLSA matter and 1,500 putative state class members would “swallow the amount at stake.” In fact, KPMG noted that they had already incurred more than $1.5 million in its preservation of about 2,500 former employees’ laptops. As an alternative, KPMG requested that Plaintiffs be obligated to bear the costs of preserving hard drives beyond the initial 100 offered.
In response, Plaintiffs sought a more meaningful sample and ultimately requested an order (1) requiring KPMG to preserve all hard drives of departed employees and (2) directing KPMG to provide Plaintiffs with five hard drives for inspection to “determine whether this issue is even worth fighting about.” As noted by Plaintiffs, “it would be difficult, if not impossible to generate search terms without the opportunity to first determine what the hard drives contain.” Nonetheless, in Judge McMahon’s view, KPMG was not advancing the ball because of its decision not to provide any hard drives for inspection. Ultimately, while the Motion to Certify was pending, Judge Cott ordered preservation of all existing hard drives of former employees until otherwise ordered by him or the parties had reached an agreement regarding methodology to obtain the appropriate sample.
In affirming this decision, Judge McMahon did not let anyone off the hook. She took particular umbrage that no one sought clarification of whether the stay precluded negotiation of the appropriate inspection and sampling procedure so that discovery could “proceed in a meaningful way” while the Motion to Certify was pending. In some terse dicta, she explained that “I cannot begin my discussion of this dispute without recognizing that a complete misinterpretation by everyone of the discovery stay I imposed seems to have contributed to the parties’ inability to agree on a sampling methodology.”
Although Judge McMahon acknowledged that other courts have been hesitant to apply a proportionality test to preservation duties, she made clear that Judge Cott was backed into a corner when he cast a very wide preservation net because the party seeking relief had thwarted his ability to conduct a proportionality analysis. The Court agreed that Judge Cott had no choice but to order preservation of the hard drives of all former employees who she had little trouble holding were “key players” under Zubulake v. UBS Warburg LLC IV, 220 F.R.D. 212, 217-18 (S.D.N.Y. 2003) (“Zubulake IV”), meaning that they were “likely to have relevant information.” As stated by Judge McMahon, if a party withholds information that might help streamline discovery in this type of case, that party should “reasonably anticipate” that each employee or audit associate who would be receiving an opt-in notice should be deemed a potential plaintiff in the matter.
Although this case may cause defendants in class actions to cower at the prospect of potential pre-certification preservation obligations, the Pippins decisions must be read in the context of the parties’, in particular defendants’, failure to cooperate in the early stages of the e-discovery process. Parties resisting wholesale or perceived overextensive preservation and production demands must take care when making proportionality arguments to preface those arguments with clear indicia of cooperation in the early stages of discovery. Objecting parties must, in short, provide the court with the tools necessary to clearly assess the extent of the purported burden, the costs involved and in some cases the lack of relevant information relating to the objected demands. While it is undoubtedly true that this level of cooperation may require disclosing more than a party may initially want, and entail risk in the sense that the sampling may result in evidence that weighs in favor of broader preservation or disclosure, Pippins clearly demonstrates the downside risk to taking the alterative approach.
Sandro G. Ocasio is an Associate on the Gibbons E-Discovery Task Force.