This case is an often discussed case because it provides counsel ,parties and Judges with an analytical
framework for considering eDiscovery issues. While it has obvious implications for the parties it sets forth
the factors and consequences for obligations of counsel and parties in finding and keeping safe electronically
stored information - ESI.The Key sections of the opinion -
- AN ANALYTICAL FRAMEWORK AND APPLICABLE LAW
- Defining Negligence, Gross Negligence, and Willfulness in the Discovery
- The Duty to Preserve
- Burdens of
- THE SPECIFICS OF THE
THE PENSION COMMITTEE OF
THE UNIVERSITY OF MONTREAL PENSION PLAN, et al., Plaintiffs, - against - BANC OF AMERICA SECURITIES, LLC, CITCO
FUND SERVICES (CURACAO) N.V., THE CITCO GROUP LIMITED, INTERNATIONAL FUND SERVICES (IRELAND) LIMITED,
PRICEWATERHOUSECOOPERS (NETHERLAND ANTILLES), JOHN W. BENDALL, JR., RICHARD GEIST, ANTHONY STOCKS, KIERAN
CONROY, and DECLAN QUILLIGAN, Defendants.
05 Civ. 9016
UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
685 F. Supp. 2d
456; 2010 U.S. Dist.
January 15, 2010,
January 15, 2010,
HISTORY: As Amended January 15, 2010
Amended by, Sanctions
allowed by, in part Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Secs, LLC, 2010 U.S.
Dist. LEXIS 4546 (S.D.N.Y., Jan. 15, 2010)
HISTORY: Pension Comm. of
the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 2009 U.S. Dist. LEXIS 82301 (S.D.N.Y., Sept. 8,
DISPOSITION: The court granted the administrator's motion for sanctions in
part and allowed a limiting instruction against plaintiffs that had acted in a grossly negligent manner in
fulfilling their discovery obligations. The court awarded the administrator attorney's fees and costs against
all plaintiffs. The court allowed additional discovery against two plaintiffs that had not searched back up data
[**1] For Plaintiffs: Scott M. Berman, Esq., Anne E. Beaumont, Esq., Amy C.
Brown, Esq., Philip A. Wellner, Esq., Robert S. Landy, Esq., Lili Zandpour, Esq., Friedman Kaplan Seiler &
Adelman LLP, New York, New York.
For Citco Defendants:
Lewis N. Brown, Esq., Dyanne E. Feinberg, Esq., Terence M. Mullen, Esq., Elizabeth A. Izquierdo, Esq., Gilbride,
Heller & Brown, P.A., Miami, Florida; Eliot Lauer, Esq., Michael Moscato, Esq., Curtis, Mallet-Prevost, Colt
& Mosle LLP, New York, New York.
For Defendant Banc of
America Securities LLC: Defendant: Peter K. Vigeland, Esq., Dawn M. Wilson, Esq., Paul M. Winke, Esq., Wilmer
Cutler Pickering Hale and Dorr LLP, New York, New York.
Shira A. Scheindlin, United States
BY: Shira A.
[*461] AMENDED OPINION AND
SHIRA A. SCHEINDLIN,
In an era where vast
amounts of electronic information is available for review, discovery in certain cases has become increasingly
complex and expensive. Courts cannot and do not expect that any party can meet a standard of perfection.
Nonetheless, the courts have a right to expect that litigants and counsel will take the necessary steps to
ensure that relevant records are preserved when litigation is reasonably [**2] anticipated, and that such records are collected, reviewed, and produced
to the opposing party. As discussed six years ago in the Zubulake opinions, when [*462] this does not happen, the
integrity of the judicial process is harmed and the courts are required to fashion a remedy. Once again, I have
been compelled to closely review the discovery efforts of parties in a litigation, and once again have found
that those efforts were flawed. As famously noted, "[t]hose who cannot remember the past are condemned to repeat
By now, it should be abundantly clear
that the duty to preserve means what it says and that a failure to preserve records -- paper or electronic -
and to search in the right places for those records, will inevitably result in the spoliation of
1 George Santayana, Reason in Common Sense, Vol. 1 of The Life of
Reason (1905) (Prometheus Books 1998 at 82).
In February, 2004, a
group of investors brought this action to recover losses of 550 million dollars stemming from the liquidation of
two British Virgin Islands based hedge funds in which they held shares: Lancer Offshore, Inc. and OmniFund Ltd.
(the "Funds"). 2
Plaintiffs 3 have asserted claims under the federal
securities [**3] laws and under New York law against former
directors, administrators, the auditor, and the prime broker and custodian of the Funds.
4 The Funds were managed by Lancer Management Group
LLC ("Lancer") and its principal, Michael Lauer. 5 The Funds retained Citco Fund Services (Curacao)
N.V. ("Citco NV") to perform certain administrative duties, but it eventually resigned as administrator of
the Funds. 6
On April 16, 2003, Lancer filed for
On July 8, 2003, the Funds were placed
into receivership in the Southern District of Florida. 8
2 See Second Amended Complaint ("SAC") P 1. Familiarity with the
facts underlying this action is assumed. For a more detailed discussion of the facts see Pension Comm. of the
Univ. of Montreal Pension Plan v. Banc of Am. Sec., No. 05 Civ. 9016, 2009 U.S. Dist. LEXIS 81193, 2009 WL
2876262 (S.D.N.Y. Sept. 4, 2009) and Pension Comm. of the Univ. of Montreal Pension Plan v. Banc
of Am. Sec., 592 F. Supp. 2d 608 (S.D.N.Y. Jan. 5, 2009).
3 Although there are ninety-six plaintiffs in this action, only thirteen
are relevant for this motion. They are: the Morton Meyerson Family Foundation and the 1999 Meyerson Charitable
Remainder Trust ("2M"); Defined Benefit Plan for Hunnicutt &
[**4] Co., Inc., IRA F/B/O William Hunnicutt VFTC as Custodian ("Hunnicutt"); the Coronation International
Active Fund of Funds and Fortis Global Custody Management and Trustee Services (Ireland) Limited as Trustee for
Coronation Universal Fund ("Coronation"); Andre Chagnon, Foundation Lucie Et Andre Chagnon, Sojecci II Ltee, and
Claude Chagnon (the "Chagnon Plaintiffs"); Bombardier Trust (Canada), the Bombardier Trust (UK), and the
Bombardier Trust (U.S.) Master Trust ("Bombardier Trusts"); Fondation J. Armand Bombardier ("Bombardier
Foundation"); the Altar Fund; the Pension Committee of the Pension Plan for The Regime De Retraite De La
Corporation De L'Ecole Polytechnique ("L'Ecole Polytechnique"); Okabena Marketable Alternatives Fund, LLC
("Okabena"); the Corbett Family Charitable Foundation, Inc. ("Corbett Foundation"); Commonfund Global Hedged
Partners, LLC ("Commonfund"); Kuwait and Middle East Financial Investment Company ("KMEFIC"); and the Pension
Committee of the University of Montreal Pension Plan ("UM").
4 See SAC PP 318-460.
5 See id. P 1.
6 See id. PP 4, 13.
7 See id. P 313.
8 See id. P 315.
In October, 2007, during
the discovery process, Citco NV, its parent company, the Citco Group [**5] Limited, and former Lancer Offshore directors who were Citco officers
(collectively with Citco NV, the "Citco Defendants") claimed that substantial gaps were found in plaintiffs'
document productions. As a result, depositions were held and declarations were submitted. This occurred from
October, 2007 through June, [*463] 2008. Following the close of this discovery, the Citco Defendants moved for
sanctions, alleging that each plaintiff failed to preserve and produce documents -- including those stored
electronically -- and submitted false and misleading declarations regarding their document collection and
preservation efforts. The Citco Defendants seek dismissal of the Complaint -- or any lesser sanction the Court
deems appropriate -- based on plaintiffs' alleged misconduct.
Because this is a long
and complicated opinion, it may be helpful to provide a brief summary up front. I begin with a discussion of how
to define negligence, gross negligence, and willfulness in the discovery context and what conduct falls in each
of these categories. I then review the law governing the imposition of sanctions for a party's failure to
produce relevant information during discovery. This is followed by factual [**6] summaries regarding the discovery efforts -- or lack thereof --
undertaken by each of the thirteen plaintiffs against whom sanctions are sought, and then by an application of
the law to those facts. Based on my review of the evidence, I conclude that all of these plaintiffs were either
negligent or grossly negligent in meeting their discovery obligations. As a result, sanctions are
II. AN ANALYTICAL
FRAMEWORK AND APPLICABLE LAW
From the outset, it is
important to recognize what this case involves and what it does not. This case does not present any egregious
examples of litigants purposefully destroying evidence. This is a case where plaintiffs failed to timely
institute written litigation holds and engaged in careless and indifferent collection efforts after the duty to
preserve arose. As a result, there can be little doubt that some documents were lost or
The question, then, is
whether plaintiffs' conduct requires this Court to impose a sanction for the spoliation of evidence. To answer
this question, there are several concepts that must be carefully reviewed and analyzed. The first is plaintiffs'
level of culpability -- that is, was their conduct of discovery acceptable [**7] or was it negligent, grossly negligent, or willful. The second is the
interplay between the duty to preserve evidence and the spoliation of evidence. The third is which party should
bear the burden of proving that evidence has been lost or destroyed and the consequences resulting from that
loss. And the fourth is the appropriate remedy for the harm caused by the spoliation.
Negligence, Gross Negligence, and Willfulness in the Discovery Context
While many treatises and
cases routinely define negligence, gross negligence, and willfulness in the context of tortious conduct, I have
found no clear definition of these terms in the context of discovery misconduct. It is apparent to me that these
terms simply describe a continuum. 9 Conduct is either acceptable or unacceptable. Once it
is unacceptable the only question is how bad is the conduct. That is a judgment call that must be made by a
court reviewing the conduct through the backward lens known as hindsight. It is also a call that cannot be
measured with exactitude and might be called differently by a different judge. That said, it is well established
that negligence [*464] involves unreasonable conduct in that it creates a risk of [**8] harm to others, but willfulness involves intentional or reckless
conduct that is so unreasonable that harm is highly likely to occur.
9 See Reilly v. Natwest Markets Grp. Inc., 181 F.3d 253, 267 (2d Cir.
1999) (stating that the failure to produce evidence occurs '"along a continuum of fault -- ranging from
innocence through the degrees of negligence to intentionality'") (quoting Welsh v. United States, 844 F.2d
1239, 1246 (6th Cir. 1988)).
It is useful to begin
with standard definitions of each term and then to explore the conduct, in the discovery context, that causes
certain conduct to fall in one category or another.
[Negligence] is conduct "which falls below the standard established by
law for the protection of others against unreasonable risk of harm." [Negligence] is caused by heedlessness or
inadvertence, by which the negligent party is unaware of the results which may follow from [its] act. But it may
also arise where the negligent party has considered the possible consequences carefully, and has exercised [its]
own best judgment. 10
The standard of
acceptable conduct is determined through experience. In the discovery context, the standards have been set by
years of judicial decisions [**9] analyzing allegations of
misconduct and reaching a determination as to what a party must do to meet its obligation to participate
meaningfully and fairly in the discovery phase of a judicial proceeding. A failure to conform to this standard
is negligent even if it results from a pure heart and an empty head.
10 Prosser & Keeton on Torts § 31 at 169 (5th ed. 1984) (quoting
Restatement (Second) of Torts § 282) (citations omitted).
"Gross negligence has
been described as a failure to exercise even that care which a careless person would use."
11 According to a leading treatise -- Prosser &
Keeton on Torts -- most courts find that gross negligence is something more than negligence "and differs
from ordinary negligence only in degree, and not in kind." 12
11 Id. § 34 at 211-12.
12 Id. at 212 (citations omitted).
The same treatise groups
willful, wanton, and reckless into one category that requires "that the actor has intentionally done an act of
an unreasonable character in disregard of a known or obvious risk that was so great as to make it highly
probable that harm would follow, and which thus is usually accompanied by a conscious indifference to the
13 Id. at 213 (citing Restatement (Second) of Torts §
500 [**10] and collecting cases).
Applying these terms in
the discovery context is the next task. Proceeding chronologically, the first step in any discovery effort is
the preservation of relevant information. A failure to preserve evidence resulting in the loss or destruction of
relevant information is surely negligent, and, depending on the circumstances, may be grossly negligent or
For example, the intentional destruction
of relevant records, either paper or electronic, after the duty to preserve has attached, is willful.
15 Possibly after October, 2003, [*465] when Zubulake IV
was issued, 16
and definitely after July, 2004, when the
final relevant Zubulake opinion was issued, 17 the failure to issue a written litigation hold
constitutes gross negligence because that failure is likely to result in the destruction of relevant
14 See Treppel v. Biovail, 249 F.R.D. 111, 121 (S.D.N.Y. 2008)
(collecting cases); Doe v. Norwalk Cmty. Coll., 248 F.R.D. 372, 380 (D. Conn. 2007) (finding gross
negligence where there was "no evidence that the defendants did anything to stop the routine destruction of the
backup tapes after [their] obligation to preserve arose"); Pastorello v. City of New York, No. 95 Civ. 470,
2003 U.S. Dist. LEXIS 5231, 2003 WL 1740606, at *11-*12 (S.D.N.Y. Apr. 1, 2003) [**11] (concluding that loss of data due to unfamiliarity with record-keeping policy
by employee responsible for preserving document was grossly negligent).
15 See, e.g., Gutman v. Klein, No. 03 Civ. 1570, 2008 U.S. Dist. LEXIS
97707, 2008 WL 5084182 (E.D.N.Y. Dec. 2, 2008) (adopting finding of the Magistrate Judge that spoliator
acted in bad faith by intentionally deleting computer files).
16 See Zubulake v. UBS Warburg LLC ('Zubulake IV), 220 F.R.D. 212
17 See Zubulake v. UBS Warburg LLC ("Zubulake V"), 229 F.R.D. 422
18 Compare Adorno v. Port Auth. of N Y. & N.J., 258 F.R.D. 217,
228-29 (S.D.N.Y. 2009) (holding that defendants were only negligent where they instituted some form of a
litigation hold -- albeit limited in scope -- when the duty to preserve arose in 2001); with Treppel, 249
F.R.D. at 121 (holding that the failure to preserve backup tapes after December 2003 was sufficient to
constitute gross negligence or recklessness); In re NTL, Inc. Sec. Litig., 244 F.R.D. 179, 198-99 (S.D.N.Y.
2007) ("[T]he Court finds that [the] utter failure to preserve documents and ESI [electronically stored
information] relevant [**12] to plaintiffs' allegations in this
case . . . to be at least grossly negligent.") (collecting cases).
The next step in the
discovery process is collection and review. Once again, depending on the extent of the failure to collect
evidence, or the sloppiness of the review, the resulting loss or destruction of evidence is surely negligent,
and, depending on the circumstances may be grossly negligent or willful. For example, the failure to collect
records -- either paper or electronic -- from key players constitutes gross negligence or willfulness as does
the destruction of email or certain backup tapes after the duty to preserve has attached. By contrast, the
failure to obtain records from all employees (some of whom may have had only a passing encounter with the
issues in the litigation), as opposed to key players, likely constitutes negligence as opposed to a higher
degree of culpability. Similarly, the failure to take all appropriate measures to preserve ESI likely falls in
the negligence category. 19 These examples are not meant as a definitive list.
Each case will turn on its own facts and the varieties of efforts and failures is infinite. I have drawn the
examples above from this case and [**13] others. Recent cases have
also addressed the failure to collect information from the files of former employees that remain in a party's
possession, custody, or control after the duty to preserve has attached (gross negligence)
20 or the failure to assess the accuracy and validity of
selected search terms (negligence). 21
19 See Treppel, 249 F.R.D. at 121.
20 See Cache La Poudre Feeds, LLC v. Land O 'Lakes, Inc., 244 F.R.D.
614, 627-28 (D. Colo. 2007).
21 See Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251,
259-62 (D. Md. 2008).
B. The Duty to
Preserve and Spoliation
Spoliation refers to the destruction or material alteration of evidence
or to the failure to preserve property for another's use as evidence in pending or reasonably foreseeable
litigation. The right to impose sanctions for spoliation arises from a court's inherent power to control the
judicial process and litigation, but the power is limited to that necessary to redress conduct "which abuses the
judicial process." The policy underlying this inherent power of the courts is the need to preserve the integrity
of the judicial process in order to retain confidence that the process works to uncover the truth. . . .
The [**14] courts must protect the integrity of the judicial
process because, "[a]s soon as the process falters . . . the people are then justified [*466] in abandoning support for
the system." 22
The common law duty to
preserve evidence relevant to litigation is well recognized. 23 The case law makes crystal clear that the breach of
the duty to preserve, and the resulting spoliation of evidence, may result in the imposition of sanctions by a
court because the court has the obligation to ensure that the judicial process is not abused.
24 It is well established that the duty to preserve
evidence arises when a party reasonably anticipates litigation. 25 "'[O]nce a party reasonably anticipates litigation, it
must suspend its routine document retention/destruction policy and put in place a 'litigation hold' to ensure
the preservation of relevant documents.'" 26 A plaintiff's duty is more often triggered before
litigation commences, in large part because plaintiffs control the timing of litigation.
22 Silvestri v. General Motors, 271 F.3d 583, 589 (4th Cir. 2001)
(quoting Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 111 S. Ct. 2123, 115 L. Ed. 2d 27 (1991), and
United States v. Shaffer Equip. Co., 11 F.3d 450, 457 (4th Cir. 1993)) (citations
23 See Fed. R. Civ. P. 37(f) Advisory Committee Note ("A
preservation obligation may arise from many sources, including common law, statutes, regulations, or a court
order in the case."). See also Kronisch v. United States, 150 F.3d 112, 126-27 (2d Cir.
24 See generally [**15]
Chambers, 501 U.S. 32, 111 S. Ct. 2123, 115 L. Ed. 2d 27
25 See Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 436 (2d Cir.
26 Treppel, 249 F.R.D. at 118 (quoting Zubulake IV, 220 F.R.D. at
27 See Innis Arden Golf Club v. Pitney Bowes, Inc., 257 F.R.D. 334, 340
(D. Conn. 2009) (concluding that a duty to preserve arose when plaintiff retained counsel in connection with
potential legal action but had not yet identified responsible parties); Cyntegra, Inc. v. Idexx Labs., Inc.,
No. 06 Civ. 4170, 2007 U.S. Dist. LEXIS 97417, 2007 WL 5193736, at *3 (C.D. Cal. Sept. 21, 2007) (stating
that because plaintiffs control when litigation begins, they "must necessarily anticipate litigation before the
complaint is filed"); Indemnity Ins. Co. of N. Am. v. Liberty Corp., No. 96 Civ. 6675, 1998 U.S. Dist. LEXIS
9475, 1998 WL 363834, at *4 n.3 (S.D.N.Y. June 29, 1998) (holding that "the following factors demonstrate
that plaintiff was on notice that a lawsuit was likely so as to trigger a duty [**16] to preserve the evidence: (1) the sheer magnitude of the losses; (2)
that plaintiff attempted to document the damage through photographs and reports; and (3) that it immediately
brought in counsel as well as experts to assess the damage and attempt to ascertain its likely causes in
anticipation of litigation").
C. Burdens of
The third preliminary
matter that must be analyzed is what can be done when documents are no longer available. This is not an easy
question. It is often impossible to know what lost documents would have contained. At best, their content can be
inferred from existing documents or recalled during depositions. 28 But this is not always possible. Who then should bear
the burden of establishing the relevance of evidence that can no longer be found? And, an even more difficult
question is who should be required to prove [*467] that the absence of the missing material has caused prejudice to the innocent
28 See, e.g., Connor v. Sun Trust Bank, 546 F. Supp. 2d 1360, 1376-77
(N.D. Ga. 2008) (holding that the nonproduction of a relevant email that must have been deleted no more than
ten days prior to the case being filed tended to indicate that other relevant emails were [**17] not produced); Treppel, 249 F.R.D. at 123 (noting that the
existence of emails produced by other custodians "does suggest that additional relevant discoverable materials
may be present on [defendant employee's] laptop that were neither preserved by him nor backed up in 2005. While
almost all of the e-mails were created before the obligation to preserve arose, this does not rule out the
possibility that other relevant e-mails may have been deleted from [defendant employee's] laptop after that
The burden of proof
question differs depending on the severity of the sanction. For less severe sanctions -- such as fines and
cost-shifting -- the inquiry focuses more on the conduct of the spoliating party than on whether documents were
lost, and, if so, whether those documents were relevant and resulted in prejudice to the innocent party. As
explained more thoroughly below, for more severe sanctions -- such as dismissal, preclusion, or the imposition
of an adverse inference -- the court must consider, in addition to the conduct of the spoliating party, whether
any missing evidence was relevant and whether the innocent party has suffered prejudice as a result of the loss
On the [**18] question of what is "relevant," the Second Circuit has provided the
[O]ur cases make clear that "relevant" in this context means something
more than sufficiently probative to satisfy Rule 401 of the Federal Rules of Evidence. Rather, the party
seeking an adverse inference must adduce sufficient evidence from which a reasonable trier of fact could infer
that "the destroyed or unavailable evidence would have been of the nature alleged by the party affected by its
It is not enough for the
innocent party to show that the destroyed evidence would have been responsive to a document request. The
innocent party must also show that the evidence would have been helpful in proving its claims or defenses --
i.e., that the innocent party is prejudiced without that evidence. Proof of relevance does not
necessarily equal proof of prejudice.
29 Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 108-09
(2d Cir. 2002) (quoting Kronisch, 150 F.3d at 127) (emphasis added).
In short, the innocent
party must prove the following three elements: that the spoliating party (1) had control over the evidence and
an obligation to preserve it at the time of destruction [**19] or
loss; (2) acted with a culpable state of mind upon destroying or losing the evidence; and that (3) the missing
evidence is relevant to the innocent party's claim or defense. 30
30 See id. at 107.
Relevance and prejudice
may be presumed when the spoliating party acted in bad faith or in a grossly negligent manner. "Where a party
destroys evidence in bad faith, that bad faith alone is sufficient circumstantial evidence from which a
reasonable fact finder could conclude that the missing evidence was unfavorable to that party."
31 Although many courts in this district presume
relevance where there is a finding of gross negligence, application of the presumption is not required.
32 However, when the spoliating [*468] party was merely
negligent, the innocent party must prove both relevance and prejudice in order to justify the imposition of a
severe sanction. 33 The innocent party may do so by "adduc[ing] sufficient
evidence from which a reasonable trier of fact could infer that 'the destroyed [or unavailable] evidence would
have been of the nature alleged by the party affected by its destruction.'" 34 "In other words, the [innocent party] must present
extrinsic evidence tending to show that the [**20] destroyed
e-mails would have been favorable to [its] case." 35 "Courts must take care not to 'hold[ ] the prejudiced
party to too strict a standard of proof regarding the likely contents of the destroyed [or unavailable]
evidence,' because doing so 'would . . . allow parties who have ... destroyed evidence to profit from that
31 Id. at 109 (citing Kronisch, 150 F.3d at
32 See id. ("[A] showing of gross negligence in the destruction or
untimely production of evidence will in some circumstances suffice, standing alone, to support a finding
that the evidence was unfavorable to the grossly negligent party.") (emphasis added); Treppel, 249 F.R.D. at
121-22 ("While it is true that under certain circumstances 'a showing of gross negligence in the destruction
or untimely production of evidence' will support [a relevance] inference, the circumstances here do not warrant
such a finding, as the defendants' conduct 'does not rise to the egregious level seen in cases where relevance
is determined as a matter of law.'") (quoting Residential Funding, 306 F.3d at 109 and Toussie v.
County of Suffolk, No. 01 Civ. 6716, 2007 U.S. Dist. LEXIS 93988, 2007 WL 4565160, at *8 (E.D.N.Y. Dec. 21,
2007)); Zubulake IV, 220 F.R.D. at 221 [**21]
("[B]ecause UBS's spoliation was negligent and possibly reckless, but not willful, Zubulake must demonstrate
that a reasonable trier of fact could find that the missing e-mails would support her claims."). Cf. In re
NTL, Inc. Sec. Litig., 244 F.R.D. at 200 (holding that movant was not required to submit extrinsic proof of
relevance where movant had established gross negligence).
33 See Byrnie v. Town of Cromwell, Bd. of Educ, 243 F.3d 93, 108 (2d
Cir. 2001) ("[T]he burden falls on the 'prejudiced party' to produce 'some evidence suggesting that a
document or documents relevant to substantiating [its] claim would have been included among the destroyed
files.'") (quoting Kronisch, 150 F.3d at l27).
34 Residential Funding, 306 F.3d at 109 (quoting Kronisch, 150
F.3d at 127). Accord Scalera v. Electrograph Sys., Inc., No. 08 Civ. 50, 262 F.R.D. 162, 2009 U.S. Dist.
LEXIS 91572, 2009 WL 3126637, at *16 (E.D.N.Y. Sept. 29, 2009) ('"[A] party seeking sanctions for spoliation
must demonstrate that the evidence destroyed was 'relevant' to its claims or defenses. At least where more
severe sanctions are at issue, this means that the moving party must show that the lost information would have
been favorable to it.'") (quoting Chan v. Triple 8 Palace, Inc., No. 03 Civ. 6048, 2005 U.S. Dist. LEXIS
16520, 2005 WL 1925579, at *7 (S.D.N.Y. Aug. 11, 2005)).
35 Toussie, 2007 U.S. Dist. LEXIS 93988, 2007 WL 4565160, at
36 Residential Funding, 306 F.3d at 109 [**22] (quoting Kronisch, 150 F.3d at 128).
No matter what level of
culpability is found, any presumption is rebuttable and the spoliating party should have the opportunity to
demonstrate that the innocent party has not been prejudiced by the absence of the missing information.
37 If the spoliating party offers proof that there has
been no prejudice, the innocent party, of course, may offer evidence to counter that proof. While requiring the
innocent party to demonstrate the relevance of information that it can never review may seem unfair, the party
seeking relief has some obligation to make a showing of relevance and eventually prejudice, lest litigation
become a "gotcha" game rather than a full and fair opportunity to air the merits of a dispute. If a presumption
of relevance and prejudice were awarded to every party who can show that an adversary failed to produce any
document, even if such failure is completely inadvertent, the incentive to find such error and capitalize on it
would be overwhelming. This would not be a good thing.
37 See, e.g., Stevenson v. Union Pacific R.R. Co., 354 F.3d 739, 750
(8th Cir. 2004) (holding that district court properly imposed an adverse instruction but abused its
discretion when it did not permit defendant to rebut the presumption that it destroyed documents in bad faith).
If the court orders a mandatory presumption, or if the jury chooses to draw a presumption, that the missing
evidence is both relevant and prejudicial, the burden of rebutting this presumption will always rest with the
To ensure that no
party's task is too onerous or too lenient, I am employing [**23]
the following burden shifting test: When the spoliating party's conduct is sufficiently egregious to justify a
court's imposition of a presumption of relevance and prejudice, or when the spoliating party's conduct
warrants permitting the jury to make such a presumption, the burden then shifts [*469] to the spoliating party to
rebut that presumption. The spoliating party can do so, for example, by demonstrating that the innocent party
had access to the evidence alleged to have been destroyed or that the evidence would not support the innocent
party's claims or defenses. If the spoliating party demonstrates to a court's satisfaction that there could not
have been any prejudice to the innocent party, then no jury instruction will be warranted, although a lesser
sanction might still be required.
The remaining question
is what remedy should the court impose. "The determination of an appropriate sanction for spoliation, if any, is
confined to the sound discretion of the trial judge and is assessed on a case-by-case basis."
38 Where the breach of a discovery obligation is the
non-production of evidence, a court has broad discretion to determine the appropriate sanction.
39 Appropriate [**24] sanctions should "(1) deter the parties from engaging in spoliation;
(2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore 'the
prejudiced party to the same position [it] would have been in absent the wrongful destruction of evidence by the
opposing party.'" 40
38 Fujitsu, 247 F.3d at 436.
39 See Residential Funding, 306 F.3d at 107. See also Fujitsu,
247 F.3d at 436 (reiterating the Second Circuit's "case-by-case approach to the failure to produce relevant
evidence" in determining sanctions); Reilly, 181 F.3d at 267 ("Trial judges should have the leeway to
tailor sanctions to insure that spoliators do not benefit from their wrongdoing -- a remedial purpose that is
best adjusted according to the facts and evidentiary posture of each case.").
40 West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir.
1999) (quoting Kronisch, 150 F.3d at 126).
It is well accepted that
a court should always impose the least harsh sanction that can provide an adequate remedy. The choices include
-- from least harsh to most harsh -- further discovery, 41 cost-shifting, 42 fines, 43 special jury instructions, 44 preclusion, 45 and the entry of default judgment [**25] or dismissal (terminating sanctions). 46 The selection of the appropriate remedy is a delicate
matter requiring a great deal of time and attention by a court.
41 See, e.g., Treppel, 249 F.R.D. at 123-24 (ordering additional
discovery, including forensic search of adversary's computer).
42 See, e.g., Green (Fine Paintings) v. Mcclendon, No. 08 Civ. 8496, 262
F.R.D. 284, 2009 U.S. Dist. LEXIS 71860, 2009 WL 2496275, at *7 (S.D.N.Y. Aug. 13, 2009) (awarding monetary
sanctions to the movant).
43 See, e.g., United States v. Philip Morris USA, Inc., 327 F. Supp. 2d
21, 25 (D.D.C. 2004) (ordering defendant to pay $ 2.75 million in fines).
44 See, e.g., Arista Records LLC v. Usenet.com, Inc., 608 F. Supp. 2d
409, 443-44 (S.D.N.Y. 2009) (ordering an adverse inference instruction as a sanction for defendants'
spoliation of evidence).
45 See, e.g., Brown v. Coleman, No. 07 Civ. 1345, 2009 U.S. Dist. LEXIS
82302, 2009 WL 2877602, at *4 (S.D.N.Y. Sept. 8, 2009) (precluding certain evidence from being introduced at
46 See, e.g., Gutman, 2008 U.S. Dist. LEXIS 97707, 2008 WL 5084182, at
*2 (granting a default judgment for defendants' intentional destruction of evidence).
The Citco Defendants
request dismissal -- the most extreme sanction. However, a terminating sanction is justified in only the most
egregious [**26] cases, 47 such as
[*470] where a party has engaged in perjury, tampering with
evidence, or intentionally destroying evidence by burning, shredding, or wiping out computer hard drives.
48 As described below, there is no evidence of such
misconduct in this case.
47 See West, 167 F.3d at 779 ("Because dismissal is a 'drastic
remedy,' it 'should be imposed only in extreme circumstances, usually after consideration of alternative, less
drastic sanctions.'") (quoting John B. Hull, Inc. v. Waterbury Petroleum Prods., Inc., 845 F.2d 1172, 1176
(2d Cir. 19888)).
48 See, e.g., Gutman, 2008 U.S. Dist. LEXIS 97707, 2008 WL 5084182
(granting default judgment where court-appointed digital forensic expert had determined that defendants had
tampered with a computer to permanently delete files and conceal the chronology of the deletions); McMunn v.
Memorial Sloan-Kettering Cancer Ctr., 191 F.Supp. 2d 440, 446-62 (S.D.N.Y. 2002) (dismissing plaintiff's
claims for intentionally and in bad faith lying during depositions, destroying potentially critical evidence
which could have harmed her case, repeatedly lying and misleading defendant to prevent the deposition of key
witnesses, editing certain tapes before turning them over to defendant so [**27] that they would provide stronger evidence in plaintiff's favor, and
engaging in a sham transaction to unfairly bolster her claim); Miller v. Time-Warner Commc'ns, No. 97 Civ.
7286, 1999 U.S. Dist. LEXIS 14512, 1999 WL 739528, at *2-*4 (S.D.N.Y. Sept. 22, 1999) (granting dismissal
where plaintiff deliberately erased a harmful handwritten notation and committed perjury in pre-trial
Instead, the appropriate
sanction here is some form of an adverse inference instruction that is intended to alleviate the harm suffered
by the Citco Defendants. Like many other sanctions, an adverse inference instruction can take many forms, again
ranging in degrees of harshness. The harshness of the instruction should be determined based on the nature of
the spoliating party's conduct -- the more egregious the conduct, the more harsh the
In its most harsh form,
when a spoliating party has acted willfully or in bad faith, a jury can be instructed that certain facts are
deemed admitted and must be accepted as true. 49 At the next level, when a spoliating party has acted
willfully or recklessly, a court may impose a mandatory presumption. 50 Even a mandatory presumption, however, is
considered to be rebuttable. 51 [**28]
49 See, e.g., Smith v. Kmart Corp., 177 F.3d 19, 29 n.4 (1st Cir.
1999) ("[I]t it a permissible sanction to instruct a jury to accept certain facts as true."). See also
Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc., No. CA 03-5049, 2005 WL 674885, at *10
(Fla. Cir. Ct. Mar. 23, 2005) (ordering that portions of plaintiff's amended complaint be read to the jury and
then instructing the jury "that those facts are deemed established for all purposes in this action"), rev'd
on other grounds, 955 So. 2d 1124 (Fla. Dist. Ct. App. 2007).
50 See, e.g., West, 167 F.3d at 780 ("[T]he trial judge could (1)
instruct the jury to presume that the exemplar tire was overinflated; (2) instruct the jury to presume that the
tire mounting machine and air compressor malfunctioned; and (3) preclude [plaintiff] from offering evidence on
these issues."); Knowlton v. Teltrust Phones, Inc., 189 F.3d 1177, 1182 (10th Cir. 1999) ("[Y]ou must
presume that the evidence which Teltrust Phones, Inc. would not provide would have weighed against Teltrust
Phones, Inc. and in favor of Knowlton.") (emphasis added).
51 See Knowlton, 189 F.3d at 1184 ("Because the sanction [of the
mandatory presumption] was not [**29] a default, however, the
presumption was rebuttable.").
The least harsh
instruction permits (but does not require) a jury to presume that the lost evidence is both
relevant and favorable to the innocent party. If it makes this presumption, the spoliating party's rebuttal
evidence must then be considered by the jury, which must then decide whether to draw an adverse inference
against the spoliating party. 52 This sanction [*471] still benefits the
innocent party in that it allows the jury to consider both the misconduct of the spoliating party as well as
proof of prejudice to the innocent party. 53 Such a charge should be termed a "spoliation charge"
to distinguish it from a charge where the a jury is directed to presume, albeit still subject to
rebuttal, that the missing evidence would have been favorable to the innocent party, and from a charge where the
jury is directed to deem certain facts admitted.
52 See Zimmerman v. Associates First Capital Corp., 251 F.3d 376, 383
(2d Cir. 2001) (upholding adverse inference instruction that permitted parties to present spoliation
evidence to the jury and instructed the jury that it was "permitted, but not required, to infer that [the
destroyed] evidence [**30] would have been unfavorable to the
defendant"); Reilly, 181 F.3d at 267; Vodusek v. Bayliner Marine Corp., 71 F.3d 148, 156 (4th Cir.
1995); Nucor Corp. v. Bell, 251 F.R.D. 191, 203 (D.S.C. 2008); Zubulake V, 229 F.R.D. at
439-40; see also Leonard B. Sand, et al., 4 Modern Federal Jury Instructions-Civil P
53 See Residential Funding, 306 F.3d at 109 n.4 ("[A] court's role
in evaluating the 'relevance' factor in the adverse inference analysis is limited to insuring that the party
seeking the inference had adduced enough evidence of the contents of the missing materials such that a
reasonable jury could find in its favor.") (emphasis in original).
Monetary sanctions are
also appropriate in this case. "Monetary sanctions are appropriate 'to punish the offending party for its
actions [and] to deter the litigant's conduct, sending the message that egregious conduct will not be
Awarding monetary sanctions "serves the
remedial purpose of compensating [the movant] for the reasonable costs it incurred in bringing [a motion for
This sanction is imposed in order to
compensate the Citco Defendants for reviewing the declarations, conducting the additional
depositions, [**31] and bringing this motion.
54 Green, 2009 U.S. Dist. LEXIS 71860, 2009 WL 2496275, at *6
(quoting In re WRT Energy Sec. Litig., 246 F.R.D. 185, 201 (S.D.N.Y. 2007)).
Three final notes.
First, I stress that at the end of the day the judgment call of whether to award sanctions is inherently
subjective. A court has a "gut reaction" based on years of experience as to whether a litigant has complied with
its discovery obligations and how hard it worked to comply. Second, while it would be helpful to develop
a list of relevant criteria a court should review in evaluating discovery conduct, these inquiries are
inherently fact intensive and must be reviewed case by case. Nonetheless, I offer the following
After a discovery duty
is well established, the failure to adhere to contemporary standards can be considered gross negligence. Thus,
after the final relevant Zubulake opinion in July, 2004, the following failures support a finding of
gross negligence, when the duty to preserve has attached: to issue a written litigation hold; to identify all of
the key players and to ensure that their electronic and paper records are preserved; to cease the deletion of
email or to preserve the records of former employees that are
[**32] in a party's possession, custody, or control; and to preserve backup tapes when they are the sole source
of relevant information or when they relate to key players, if the relevant information maintained by those
players is not obtainable from readily accessible sources.
Finally, I note the risk
that sanctions motions, which are very, very time consuming, distracting, and expensive for the parties and the
will be increasingly sought by litigants.
This, too, is not a good thing. For this reason alone, the
[*472] most careful consideration should be given before a court
finds that a party has violated its duty to comply with discovery obligations and deserves to be sanctioned.
Likewise, parties need to anticipate and undertake document preservation with the most serious and thorough
care, if for no other reason than to avoid the detour of sanctions.
56 I, together with two of my law clerks, have spent an inordinate amount
of time on this motion. We estimate that collectively we have spent close to three hundred hours resolving this
motion. I note, in passing, that our blended hourly rate is approximately thirty dollars per hour (!) well below
that of the most inexperienced paralegal, let alone lawyer, appearing in this case. My point is only that
sanctions motions, and the behavior that caused them [**33] to be
made, divert court time from other important duties -- namely deciding cases on the merits.
57 This was not the first Lancer-related suit filed. UM filed a complaint
with the Financial Services Commission of the British Virgin Islands on March 23, 2003 seeking redemption of its
shares in the Funds. See 4/8/04 Affidavit of Johnny Quigley, former director of Chagnon Foundation, Ex. 1
to the 6/26/09 Declaration of Dyanne Feinberg, the Citco Defendants' counsel ("Feinberg Decl.") ("Quigley
Aff."), P 10(b). In June 2003, UM engaged White & Case LLP to commence an action against Lauer and Lancer
and a complaint was filed (the "First Complaint"). See 3/27/08 Declaration of Andree Mayrand, Director,
Investment Management of UM, Ex. 2 to the Declaration of Lance Gotko, plaintiffs' counsel ("Gotko Decl.")
("Mayrand Decl."), P 2. In July 2003, the Securities Exchange Commission ("SEC") brought an action against Lauer
and Lancer in connection with the Funds. See Securities and Exchange Commission v. Lauer, No. 03 Civ.
80612 (S.D. Fla. 2003) (the "SEC Action"). At the request of the Receiver appointed in the SEC Action, UM
withdrew its First Complaint. In September [**34] 2003, UM engaged
Hoguet Newman Regal & Kenney, LLP to commence an action against Lancer's service providers and filed a
second complaint (the "Second Complaint"). See Mayrand Decl. P 3. In January 2004, UM withdrew the Second
Complaint and engaged Counsel to commence this action on its behalf. See id. P 4. Scott Berman has served
as lead counsel for plaintiffs throughout this litigation. He was originally with Brown Rudnick Berlack Israels
("BRBI"), but, on January 10, 2005, his present law firm, Friedman Kaplan Seiler & Adelman LLP ("FKSA") was
substituted as counsel of record for plaintiffs. Reference to Berman his present and former firms is intended by
the use of the term "Counsel."
In the summer of 2003, a
group of investors formed an ad hoc "policy consultative committee" to represent the interests of the Funds'
investors, including "monitor[ing] the court proceedings" against Lancer and the Funds and "retain[ing] legal
counsel as necessary ...," 58 On September 17 and 18, 2003, this group of investors
met prospective legal counsel. 59 Although some plaintiffs had previously retained
in October or November, 2003,
61 plaintiffs retained BRBI and [*473] Berman as lead
counsel [**35] for this suit. 62 This lawsuit was then instituted on February 12, 2004
in the Southern District of Florida. 63 On October 25, 2005, the case was transferred to this
Court as a result of defendants' motion to transfer venue.
58 Quigley Aff. P 15.
59 See id. P 19.
60 In March 2003, the Chagnon Plaintiffs retained counsel "in connection
with matters related to its investment in the Funds." Id. PP 10-11. Hunnicutt also engaged counsel in
March 2003 to file a complaint against Lancer and the Funds "to recover fees owed ... for marketing services
[he] performed . . . ." Declaration of William Hunnicutt, President of Hunnicutt & Co., Inc., Ex. 4 to Gotko
Decl. ("Hunnicutt Decl."), P 2. In mid-2003, Okabena engaged Foley & Lardner LLP to file a claim in the
United States Bankruptcy Court for the District of Connecticut against Lancer, Lauer and others. See
Declaration of Sherry Van Zee, Vice President of Investment Administration and Chief Compliance Officer of
Okabena Investment Services, Inc., Ex. 4 to Gotko Decl. ("Van Zee Decl."), PP 2, 4. All plaintiffs have retained
current Counsel in connection with this action.
61 Although plaintiffs represent that Counsel was retained in November
2003, at least [**36] one email indicates that Counsel may have
been retained as early as October 17, 2003. See 10/17/03 Email to Counsel, Ex. 12 to Gotko Deccl., at IC
1. Documents with page numbers "IC " are documents
submitted to the Court in camera and remain subject to the attorney-client privilege. I disclose no more
information than necessary to identify the documents on which I rely.
62 See Quigley Aff. P 9.
63 Plaintiffs note that they have "objected to producing any documents
dated after February 12, 2004 (the date this action was commenced)." See Plaintiffs' Memorandum of Law in
Opposition to the Citco Defendants' Motion for Sanctions ("Pl. Opp.") at 10. Plaintiffs do not disclose whether
they raised this objection in response to a motion to compel from the Citco Defendants or whether both parties
agreed to the February 12, 2004 discovery cutoff.
EFFORTS AT PRESERVATION AND PRODUCTION
Shortly after its
retention in October or November, 2003, Counsel contacted plaintiffs to begin document collection and
Counsel telephoned and emailed plaintiffs
and distributed memoranda instructing plaintiffs to be over, rather than under, inclusive, and noting that
emails and electronic [**37] documents should be included in the
Counsel indicated that the documents were
necessary to draft the complaint, although they did not expressly direct that the search be limited to those
64 See 10/17/03 Email to Counsel, Ex. 12 to Gotko Decl., at IC
65 See 11/11/03 Memorandum to Investors from Counsel, Ex. 12 to
Gotko Decl. ("11/11/03 Memorandum") at IC 5; 8/5/09 Declaration of Travis A. Corder, plaintiffs' counsel, in
Opposition to Citco Defendants' Motion for Sanctions ("Corder Decl.") P 4.
66 See 11/11/03 Memorandum.
This instruction does
not meet the standard for a litigation hold. It does not direct employees to preserve all relevant
records -- both paper and electronic -- nor does it create a mechanism for collecting the preserved
records so that they can be searched by someone other than the employee. 67 Rather, the directive places total reliance on the
employee to search and select what that employee believed to be responsive records without any supervision from
Throughout the litigation, Counsel sent
plaintiffs monthly case status memoranda, which included additional requests for Lancer-related documents,
including electronic documents. [**38] But these memoranda never
specifically instructed plaintiffs not to destroy records so that Counsel could monitor the collection and
production of documents. 69
67 See Shira A. Scheindlin, et al., Electronic Discovery and
Digital Evidence: Cases and Materials 147-49 (2009) (providing a sample litigation hold, including instruction
to "immediately suspend the destruction of any responsive" paper or electronic documents or
68 See, e.g., Adams v. Dell, 621 F. Supp. 2d 1173, 1194 (D. Utah
2009) (holding that defendant had violated its duty to preserve information, in part because the defendant's
preservation practices "place operations-level employees in the position of deciding what information is
relevant"); see also Zubulake V, 229 F.R.D. at 432 ("[I]t is not sufficient to notify all
employees of a litigation hold and expect that the party will then retain and produce all relevant
information.") (emphasis in original). I note that not every employee will require hands-on supervision from an
attorney. However, attorney oversight of the process, including the ability to review, sample, or spot-check the
collection efforts is important. The adequacy of each search must be evaluated on a case by case
69 See 8/7/09 Declaration of Amy C. Brown, plaintiffs' counsel, in
Opposition to Citco Defendants' Motion for Sanctions ("Brown Decl.") PP 5-14, 16, 20, 21, 22, 26-33, 38 (and
documents cited therein).
[*474] In 2004, a stay pursuant to
the Private Securities Litigation Reform [**39] Act ("PSLRA") was
instituted and remained in place until early 2007. 70 Counsel "did not focus [their] efforts ... on
discovery" while the PSLRA discovery stay was in place and plaintiffs did not issue a written litigation hold
until 2007. 71
In May, 2007, the Citco Defendants made
their first document requests. 72
70 See Corder Decl. P 10. In June, 2004, defendants moved to dismiss
the First Amended Complaint. As a result, discovery was stayed pursuant to the PSLRA. See 15 U.S.C. §§
77z-l(b)(1); 78u-4(b)(3)(B). In September, 2005, the district court in Florida denied defendants'
motion to dismiss, without prejudice, and ordered this matter transferred to this District. Various motions and
amendments of pleadings caused the continuation of the discovery stay until February 2007, when this Court
resolved defendants' motions to dismiss the Second Amended Complaint.
71 Pl. Opp. at 4. Plaintiffs' statement implies that somehow they were
absolved of their collection and preservation obligations while the PSLRA stay was in place. But this would
directly contravene the PSLRA, which expressly requires parties to preserve all potentially relevant evidence
during the pendency of a stay and provides [**40] for sanctions for
a failure to comply. See 15 U.S.C. § 78u-4(b)(3).
72 See Brown Decl. P 24.
plaintiffs commenced on August 30, 2007. Those depositions revealed that there were gaps in plaintiffs' document
By October, 2007, the Citco Defendants
were dissatisfied with plaintiffs' efforts to produce missing documents. 74 In response to a request from the Citco Defendants,
the Court ordered plaintiffs to provide declarations regarding their efforts to preserve and produce
73 See 10/1/07 Letter from Feinberg to Berman, Ex. 1 to the 9/15/09
Supplemental Declaration of Dyanne Feinberg ("Supp. Feinberg Decl.") ("10/1/07 Feinberg Letter"); Brown Decl. P
74 See 10/1/07 Feinberg Letter.
75 See 10/30/07 Hearing Transcript, Ex. 1 to Feinberg
Counsel spent a huge
amount of time preparing the declarations, including drafting, questioning plaintiffs' employees, and attempting
to locate documents that had not yet been produced. 76 Counsel emphasized to each declarant the importance of
the declarations' accuracy and that each should be carefully reviewed prior to its execution.
77 In a systematic manner, each declaration identifies
the declarant's relationship [**41] to the plaintiff and that, upon
retaining Counsel in late 2003 or early 2004 -- if not earlier -- the steps plaintiff took to locate and
preserve documents relating to its Lancer investment (the "2003/2004 Search"). Most declarations also discuss
receiving, and complying with, a second search request in late 2007 or early 2008 (the "2007/2008 Search"). Each
declarant states that he or she believes the company located, preserved, and produced "all" Lancer-related
documents in its possession at the time of either the 2003/2004 search, the 2007/2008 search, or both. Each
declarant also states that no responsive documents in plaintiff's possession, custody, or control were discarded
or destroyed following a specific point in time -- either after the "request to preserve [*475] them," a specified date,
or after the declarant arrived at the company.
76 See 8/6/09 Declaration of Lizbeth Parker, plaintiffs' counsel, in
Opposition to Citco Defendants' Motion for Sanctions ("Parker Decl.") P 5 (attesting to a total of 910 hours).
FKSA handled all declarations except for the initial declarations of Scott Letier and Ian Trumpower of 2M. These
were produced by 2M's additional counsel, Curran Tomko Tarski,
[**42] LLP. See id. P 8.
77 See Emails from Counsel to plaintiffs, Ex. 14 to Gotko Decl., at
were submitted in the first half of 2008. At least four declarants submitted amended declarations,
78 and at least one deponent submitted a declaration
containing information not revealed prior to his deposition. 79 The Citco Defendants then sought to depose certain
declarants and other relevant individuals. The Court granted that request. 80 The Citco Defendants found additional gaps in
plaintiffs' productions. By cross referencing the productions of other plaintiffs, former co-defendants, and the
Receiver in the SEC Action, the Citco Defendants were able to identify at least 311 documents from twelve of the
thirteen plaintiffs (all but the Bombardier Foundation) that should have been in plaintiffs' productions, but
were not included ("311 Documents"). 81 In addition, the Citco Defendants discovered that
almost all of the declarations were false and misleading and/or executed by a declarant without personal
knowledge of its contents.
78 These declarants include Letier and Trumpower of 2M, Isabelle Poissant
of L'Ecole Polytechnique, and Normand Gregoire of the Chagnon
[**43] Plaintiffs. The circumstances surrounding the amendments made by Letier and Trumpower are discussed
infra at Part V.D. 1.a.
79 See Hunicutt Decl. P 8 (revealing that he recalled after his
deposition that sometime prior to March 13, 2003, Hunnicutt "inadvertently deleted [his] sent e-mail messages
from his computer. While some pre-March 2003 e-mail survived, the overwhelming majority were
80 See 4/22/08 Hearing Transcript, Ex. 1 to Feinberg Decl. Some
declarants had been deposed prior to submitting declarations and were not deposed again.
81 The Citco Defendants have provided a chart for each plaintiff
identifying the documents they believe should have been produced by that plaintiff. Each document is identified
by date, sender, recipient, Bates number, and deposition exhibit number. The parties employed a system that
identified the party that produced that document as part of the Bates number. For example, the Bates number for
a document produced by the Chagnon Plaintiffs begins "CHAG " and the Bates number for a document produced by the Altar Fund
begins "ALT ." The Bates number on a document that the
Citco Defendants claim a particular plaintiff failed to produce identifies [**44] the entity that did produce it.
A. Duty to Preserve
and Document Destruction
By April, 2003, Lancer
had filed for bankruptcy, UM had filed a complaint with the Financial Services Commission of the British Virgin
Islands, Hunnicutt and the Chagnon Plaintiffs had retained counsel, and the Chagnon Plaintiffs had initiated
communication with a number of other plaintiffs. It is unreasonable to assume that the remaining plaintiffs --
all sophisticated investors -- were unaware of the impending Lancer collapse while other investors were filing
suit and retaining counsel. Accordingly, each plaintiff was under a duty to preserve at that time. While, as
discussed below, the duty to issue a written litigation hold might not have been well established at that time,
it was beyond cavil that the duty to preserve evidence included a duty to preserve electronic records.
82 This duty was well established as early as 1985 and has been repeatedly
stated by courts across the country. See, e.g., Rowe Enter., Inc. v. William Morris Agency, Inc., 205 F.R.D.
421, 428 (S.D.N.Y. 2002) (stating that "[e]lectronic documents are no less subject to disclosure than paper
records" (citing, inter alia, [**45] Bills v. Kennecott
Corp., 108 F.R.D. 459, 461 (D. Utah 1985)).
The burden then falls to
the Citco Defendants to demonstrate that documents
[*476] were destroyed after the duty to preserve arose. The Citco
Defendants first point to the 311 Documents, most of which post-date the onset of plaintiffs' duty to preserve.
Thus, those plaintiffs that failed to produce these documents clearly failed to preserve and produce relevant
documents that existed at the time (or shortly after) the duty to preserve arose. This is not true, however,
with respect to the Bombardier Foundation, Commonfund, KMEFIC, and UM. 83 While three of these plaintiffs (all but the
Bombardier Foundation) failed to produce documents that the Citco Defendants now have, those documents are older
records that may not have been in plaintiffs' possession and/or control at the time the duty to preserve
83 See Documents Not Produced by Commonfund, Ex. 11 to Feinberg
Decl., (emails between 7/12/99 and 4/10/02); Deposition of Abdullateef Al-Tammar, Ex. 11 to Feinberg Decl.
("Al-Tammar Dep."), at 90-92 (1997 Executive Summary prepared by KMEFIC); five UM documents, 9/30/98 Letter, Ex.
13 to Feinberg Decl., 6/30/99 Letter, Ex. 13 to [**46] Feinberg
Decl., 4/02 and 7/02 Poulin Notes, Ex. 13 to Feinberg Decl., 1999 Lancer Year End Review Newsletter, Ex. 13 to
Feinberg Decl. The Citco Defendants have failed to identify any documents or emails not produced by the
In addition to citing
specific documents not produced by each plaintiff, the Citco Defendants next ask this Court to assume that each
plaintiff also received or generated documents that have not been produced by anyone and are now presumed to be
Plaintiffs call such a request "absurd"
and argue that any such inference would be based on no more than "rank speculation." 85 The Citco Defendants' argument is by far the more
84 See Citco Defendants' Motion for Sanctions ("Citco Mem.") at
85 Pl. Opp. at 3.
All plaintiffs had a
fiduciary duty to conduct due diligence before making significant investments in the Funds. Surely records must
have existed documenting the due diligence, investments, and subsequent monitoring of these investments. The
paucity of records produced by some plaintiffs 86 and the admitted failure to preserve some records or
search at all for others by all plaintiffs leads inexorably to the conclusion that relevant [**47] records have been lost or destroyed. 87
86 Coronation produced no documents from 1999 to 2000, and very few
documents from 2001 to 2002. The Chagnon Plaintiffs produced only four documents from 1998 through 2002. Okabena
produced only ten emails for the entire relevant period.
87 For example, in August, 2009, 2M produced nearly seven hundred
additional emails, over one hundred of which were copied to, but never produced by, Coronation, the Chagnon
Plaintiffs, Okabena, Bombardier Trusts, L'Ecole Polytechnique, and the Altar Fund. See Citco Defendants'
Reply Memorandum in Support of Their Motion for Sanctions ("Citco Reply") at 7 n.10.
88 The culpability, relevance of lost documents, prejudice, and appropriate
sanctions are evaluated for each plaintiff infra Part V.D.
The age of this case
requires a dual analysis of culpability -- plaintiffs' conduct before and after 2005. The Citco Defendants
contend that plaintiffs acted willfully or with reckless disregard, such that the sanction of dismissal is
Plaintiffs admit that they failed to
institute written litigation holds until 2007 when they returned their attention to discovery after a four year
hiatus. Plaintiffs [**48] should have done so no later than 2005,
when the action was transferred to this District.
[*477] This requirement was clearly established in this District
by mid-2004, after the last relevant Zubulake opinion was issued. 90 Thus, the failure to do so as of that date was, at
a minimum, grossly negligent. The severity of this misconduct would have justified severe sanctions had the
Citco Defendants demonstrated that any documents were destroyed after 2005. They have not done
It is likely that most of the evidence
was lost before that date due to the failure to institute written litigation holds.
89 See Citco Mem. at 1.
90 See Zubulake V, 229 F.R.D. 422. While a duty to preserve existed
in the Southern District of Florida at the time this action was filed, no court in the Eleventh Circuit
articulated a "litigation hold" requirement until 2007. Compare Banco Latino, S.A.C.A. v. Gomez Lopez, 53 F.
Supp. 2d 1273, 1277 (S.D. Fla. 1999) ("A litigant is under a duty to preserve evidence which it knows, or
reasonably should know, is relevant in an action.... Sanctions may be imposed upon litigants who destroy
documents while on notice that they are or may be relevant to litigation or potential [**49] litigation, or are reasonably calculated to lead to the discovery of
admissible evidence.") with In re Seroquel Prods. Liab. Litig., 244 F.R.D. 650, 663 (M.D. Fla. 2007)
(adopting the Southern District of New York's litigation hold requirement).
91 See Farella v. City of New York, Nos. 05 Civ. 5711 & 05 Civ.
8264, 2007 U.S. Dist. LEXIS 7420, 2007 WL 193867, at *2 (S.D.N.Y. Jan. 25, 2007) ("[F]or sanctions to be
appropriate, it is a necessary, but insufficient, condition that the sought-after evidence actually existed and
was destroyed.") (emphasis omitted).
Almost all plaintiffs'
pre-2005 conduct, apart from the failure to issue written litigation holds, is best characterized as either
grossly negligent or negligent because they failed to execute a comprehensive search for documents and/or failed
to sufficiently supervise or monitor their employees' document collection. For some plaintiffs, no further
evidence of culpable conduct is offered. For others, the Citco Defendants have provided additional evidence. For
example, one plaintiff -- the Bombardier Foundation -- admitted that it destroyed backup data in 2004, after the
duty to preserve at least some backup tapes was well-established. Similarly, several plaintiffs [**50] failed to collect and preserve documents of key players -- including
members of investment committees and/or boards of directors. 92 One further problem bears mention. Each plaintiff was
directed by this Court to submit a declaration documenting its search efforts for two periods -- 2003/2004 and
2007/2008, as well as any steps taken in between. In the end, almost every plaintiff submitted a declaration
that -- at best -- lacked attention to detail, or -- at worst -- was intentionally vague in an attempt to
mislead the Citco Defendants and the Court. In addition, plaintiffs had a duty to adequately prepare
knowledgeable witnesses with respect to these topics. Which files were searched, how the search was conducted,
who was asked to search, what they were told, and the extent of any supervision are all topics reasonably within
the scope of the inquiry. Several plaintiffs violated this duty. 93
92 These plaintiffs include Hunnicutt, Coronation, the Chagnon Plaintiffs,
Bombardier Trusts, and the Bombardier Foundation. See, e.g., In re NTL Sec. Litig., 244 F.R.D. at 198-99
(finding gross negligence when not all key players received the litigation hold memoranda).
93 All plaintiffs failed [**51] in this duty to the extent that they stated that all documents
were produced when this was not so. However, in particular, 2M, the Chagnon Plaintiffs, Bombardier Trusts, and
the Bombardier Foundation submitted misleading or inaccurate declarations. See, e.g., Continental Cas. Co. v.
Compass Bank, No. 04 Civ. 766, 2006 U.S. Dist. LEXIS 12288, 2006 WL 533510, at *17 (S.D. Ala. Mar. 3, 2006)
(ordering monetary sanctions where affidavit suggested that defendant had not found any responsive documents in
its possession at the time of the request, but responsive documents were later found after a more thorough
search). While Counsel took substantial steps to ensure that plaintiffs' declarations were truthful, the
declarants appear to have ignored Counsel's instructions to verify the accuracy of the declaration prior to
[*478] From my review of the
evidence submitted by the parties and discussed at the hearings held on October 30, 2007 and April 22, 2008, I
conclude that no plaintiff engaged in willful misconduct. However, as outlined below, I find that 2M, Hunnicutt,
Coronation, the Chagnon Plaintiffs, Bombardier Trusts, and the Bombardier Foundation acted with gross
negligence, and the Altar Fund, L'Ecole Polytechnique, [**52]
Okabena, the Corbett Foundation, Commonfund, KMEFIC, and UM acted in a negligent manner.
C. Relevance and
For those plaintiffs
that were grossly negligent, I find that the Citco Defendants have "adduced enough evidence" that plaintiffs
have failed to produce relevant documents and that the Citco Defendants have been prejudiced as a result. Thus,
a jury will be permitted to presume, if it so chooses, both the relevance of the missing documents and resulting
prejudice to the Citco Defendants, subject to the plaintiffs' ability to rebut the presumption to the
satisfaction of the trier of fact.
For those plaintiffs
that were negligent, the Citco Defendants must demonstrate that any destroyed documents were relevant and the
loss was prejudicial. To meet this burden, the Citco Defendants begin by pointing to the 311 Documents. While
many of these documents may be relevant, the Citco Defendants suffered no prejudice because all were eventually
obtained from other sources. As noted by plaintiffs, "Citco possesses every one of the 311 [D]ocuments; indeed,
every one of these documents was marked as an exhibit and used by Citco at depositions."
94 The Citco Defendants had the
opportunity [**53] to question witnesses about these documents
and will be able to introduce them at trial. Severe sanctions based on the failure to produce the 311
Documents is not justified.
94 Pl. Opp. at 6.
By contrast, it is
impossible to know the extent of the prejudice suffered by the Citco Defendants as a result of those emails and
documents that have been permanently lost due to plaintiffs' conduct. The volume of missing emails and documents
can never be learned, nor can their substance be known. "Because we do not know what has been destroyed, it is
impossible to accurately assess what harm has been done to the [innocent party] and what prejudice it has
Such documents may have been helpful to
the Citco Defendants, helpful to plaintiffs, or of no value to any party. But it is plaintiffs' misconduct that
destroyed the emails and documents. Given the facts and circumstances presented here, I can only [*479] conclude that the Citco
Defendants have carried their limited burden 96 of demonstrating that the lost documents would have
been relevant. The documents that no longer exist were created during the critical time period. Key players must
have engaged in correspondence regarding the relevant [**54]
transactions. There can be no serious question that the missing material would have been
95 Philip Morris, 327 F. Supp. 2d at 25. Accord United States ex
rel. Miller v. Holzmann, No. 95 Civ. 1231, 2007 U.S. Dist. LEXIS 21681, 2007 WL 781941, at *1 (D.D.C. Mar. 12,
2007) ("The government's conduct created a situation where we cannot assess exactly what or how much
information was lost and what or how much information was important to the defendants' case. It would defy logic
at this point to give the government the benefit of the doubt on its word alone that it gave the defendants the
functional equivalent of the information contained within those documents in some form or another. The
government is in little better position to make such a statement based on information or belief than defendant
is in arguing that every document destroyed was a potential 'smoking gun.' The documents are lost. The fact is
that there is no way of verifying either contention, and this is caused directly by the government's conduct in
handling these documents.").
96 While I have already noted that this burden cannot be too strict, the
citation bears repeating. See Residential Funding, 306 F.3d at 109 (noting that the
prejudiced [**55] party should not be held '"to too strict a
standard of proof regarding the likely contents of the destroyed evidence,' because doing so 'would ... allow
parties who have ... destroyed evidence to profit from that destruction'") (quoting Kronisch, 150 F.3d at
Prejudice is another
matter. The Citco Defendants have gathered an enormous amount of discovery -- both from documents and
Unless they can show through extrinsic
evidence that the loss of the documents has prejudiced their ability to defend the case, then a lesser sanction
than a spoliation charge is sufficient to address any lapse in the discovery efforts of the negligent
97 Plaintiffs state that they "produced some 43,000 pages of documents
...." Pl. Opp. at 4. They do not explain, however, whether the 43,000 figure includes all ninety-six plaintiffs,
the twenty Phase I plaintiffs, or the thirteen plaintiffs discussed in this motion.
Because this motion
involves the conduct of thirteen plaintiffs, and because the Citco Defendants have charged each plaintiff with
distinct discovery misconduct, a factual summary as to each plaintiff is required. 98 In addition, because the stakes [**56] are high for both sides, and because sanctions should not be awarded
lightly nor should discovery misconduct be tolerated, it is important to carefully review that conduct to
determine whether any plaintiff engaged in culpable conduct and, if so, what level of culpability should be
assigned. Each plaintiff's discovery efforts is described below together with my determination of the adequacy
of those efforts.
98 The parties submitted nearly sixty-five pages of briefing consisting
almost entirely of factual arguments and almost five hundred pages of evidence. To detail every plaintiff's
search efforts and their alleged faults would be extremely onerous. Although all submitted materials were
carefully considered, this Opinion and Order sets forth a limited recitation of the material
1. Plaintiffs that
Acted in a Grossly Negligent Manner
As detailed below, 2M,
Hunnicutt, Coronation, the Chagnon Plaintiffs, Bombardier Trusts, and the Bombardier Foundation were grossly
negligent in their discovery efforts. In each instance, these plaintiffs' 2003/2004 Searches were severely
deficient. In addition to failing to institute a timely written litigation hold, one or more of these
plaintiffs [**57] failed to collect or preserve any
electronic documents prior to 2007, continued to delete electronic documents after the duty to preserve arose,
did not request documents from key players, delegated search efforts without any supervision from management,
destroyed backup data potentially containing responsive documents of key players that were not otherwise
available, and/or submitted misleading or inaccurate declarations. 99
[*480] From this conduct, it is fair to presume that responsive
documents were lost or destroyed. The relevance of any destroyed documents and the prejudice caused by their
loss may also be presumed.
99 A cautionary note with respect to backup tapes is warranted. I am not
requiring that all backup tapes must be preserved. Rather, if such tapes are the sole source of
relevant information (e.g., the active files of key players are no longer available), then such backup
tapes should be segregated and preserved. When accessible data satisfies the requirement to search for and
produce relevant information, there is no need to save or search backup tapes. See Fed. R. Civ. P.
Because this permissive
presumption is rebuttable, I find that no reasonable juror could conclude that the Citco Defendants were
prejudiced by plaintiffs' failure to produce the 311 Documents. With regard to those documents that are missing
or destroyed, however, the Citco Defendants are entitled to a spoliation instruction permitting the jury to
presume, if it so chooses, that these documents would have been both relevant and prejudicial. The jury must
then consider whether the plaintiffs have successfully rebutted this presumption. If plaintiffs succeed, no
adverse inference will be drawn. If plaintiffs cannot [**58] rebut
the presumption, the jury will be entitled to draw an adverse inference in favor of the Citco
In his October, 2007
deposition, Letier, 2M's former Chief Financial Officer ("CFO"), testified that although he served as the lead
contact with Counsel prior to leaving 2M in 2004, he was not in charge of gathering and producing
He further testified that he neither took
any steps to ensure that emails relating to the Funds were not deleted nor was he aware of anyone else at 2M
doing so. 101
He testified that he did not recall "ever
giv[ing] instructions to anyone to preserve" Lancer-related documents and never received any such
On March 31, 2008, Letier submitted a
declaration stating that he directed other employees to locate and preserve Lancer-related documents and that
"all documents" related to Lancer had been produced to Counsel during the 2003/2004 Search.
103 Letier also declared that to the best of his knowledge
no Lancer-related documents were discarded or destroyed after Counsel instructed 2M to locate all documents in
its possession in late 2003 or early 2004. 104 Subsequently, Letier amended his declaration to
clarify that [**59] only "paper documents" had been
100 See Deposition of Scott Letier, Ex. 2 to Feinberg Decl. & Ex
1 to Supp. Feinberg Decl. ("Letier Dep."), at 27, 100-101.
101 See id. at 109-110.
102 Id. at 110.
103 3/31/08 Declaration of Scott Letier, Ex. 2 to Feinberg Decl., PP 3,
104 See id. PP 2, 5-6.
105 6/19/08 Amended Declaration of Scott Letier, Ex. 1 to Gotko Decl., P 4
Trumpower, 2M's current
CFO and General Counsel, also submitted a declaration requiring amendment. Trumpower's initial declaration
indicated that 2M had searched for electronic documents prior to his arrival at 2M in 2007. In his amended
declaration, Trumpower clarified that his declaration addressed only the 2007/2008 Search.
106 Trumpower also declared that [*481] to the best of his
knowledge, all relevant documents in 2M's possession at the time of the 2007/2008 Search were submitted to
Counsel and no documents had been discarded or destroyed at 2M since his arrival in February 2007.
107 Trumpower testified that no emails had been deleted
from 2M's server since 2004 and personal folders were not automatically deleted from 2M's network.
108 The Citco Defendants also complain that 2M failed to
produce "reams [**60] of research" on Lancer referenced in
Trumpower's deposition and another email. 109 This research was, in fact, destroyed after April,
Finally, the Citco Defendants have
identified forty-six emails 111 that were sent or received by 2M between June 9, 2003
and October 28, 2003, that were not produced by 2M. 112 2M "did not produce a single email or electronic
document" until 2008. 113 Then, on August 7 and 21, 2009, just days after
plaintiffs submitted their opposition to this motion, 2M produced 8,084 pages of documents -- more than three
times the number of documents previously produced. 114 This production included nearly seven hundred
106 Compare Declaration of Ian Trumpower, Ex. 2 to Feinberg Decl., P
3 ("In October 2007, 2M was requested (the 'Request') to conduct another search for any electronic
documents and e-mails relating to the Meyerson Entities' investments in Lancer.") (emphasis added) with
Amended Declaration of Ian Trumpower, Ex. 1 to Gotko Decl., ("Am. Trumpower Decl.") P 3 ("In October 2007, 2M
was requested to conduct another search, including a search for any electronic documents and e-mails
relating to the Meyerson Entities' investments in Lancer. [**61] In
May 2008, 2M was requested to confirm that it had searched its network computer server for any electronic
documents relating to Lancer that were not attachments to emails (together, the 'Request').").
107 See Am. Trumpower Decl. PP 2, 5-6.
108 See Deposition of Ian Trumpower, Ex. 5 to Gotko Decl., at 49;
8/7/09 Declaration of Andrew S. Pak, plaintiffs' counsel, in Opposition to Citco Defendants' Motion for
Sanctions ("Pak Decl.") PP 22-24. The majority of the Pak Declaration is comprised of inadmissible hearsay
gleaned from "follow-up" information from clients. Only those portions of the Pak Declaration substantiated by
documentary evidence were considered. See Sellers v. M.C. Floor Crafters, Inc., 842 F.2d 639, 643 (2d Cir.
1988) ("A hearsay affidavit is not a substitute for the personal knowledge of a party."). Even if the
unsubstantiated assertions in the Pak Declaration had been considered, they would not have affected the outcomes
for any plaintiff.
109 Citco Mem. at 7.
110 See 4/22/08 Email to Counsel, Ex. 14 to Gotko Decl., at IC
111 Plaintiffs quibble with defendants over the number of emails each
plaintiff failed to produce, arguing, among other things, that defendants double [**62] counted emails. For example, if a single email was sent to five
plaintiffs and no plaintiff produced the email, the Citco Defendants counted the email against each plaintiff
that received it. Plaintiffs' argument is unavailing. If each plaintiff had preserved and produced the same
email, then the Citco Defendants should have received five copies it -- one from each
112 See Documents Not Produced by [2M], Ex. 2 to Feinberg
113 Citco Mem. at 5.
114 See Citco Reply at 7 n. 10.
115 See id.
The Citco Defendants
have shown that 2M took no action to collect or preserve electronic documents prior to 2007, did not produce a
single email or electronic document until 2008, and then dumped thousands of pages on the Citco Defendants only
when it faced the prospect of sanctions. 116 Although 2M can verify that it has not deleted any
emails from its server since 2004, there is no similar representation for the most relevant period -- i.e.,
prior to 2004. 2M also concedes that its employees' collection lacked oversight and that no direction was
given either orally or in writing to preserve documents or cease deleting emails, until a written litigation
hold was issued in 2007. Finally, 2M's [**63] initial declarations
were misleading as to whether 2M had conducted any electronic searches prior to 2007. These declarations, alone,
would have supported a finding of bad faith. However, given that
[*482] each declarant submitted an amended declaration within a
reasonable time of being notified of the deficiencies in the original declaration, 117 2M's conduct, on the whole, amounts to gross
116 That documents were suddenly discovered a few months ago only heightens
the concern that there may be additional relevant documents that still have not been produced.
117 See Fed. R. Civ. P. 26(e)(1).
At his deposition,
William Hunnicutt, President of Hunnicutt, testified that to the best of his recollection, he maintained all of
the emails he sent regarding Lancer from the inception of his relationship with Lancer in April 1998 through the
first quarter of 2003. 118 However, Mr. Hunnicutt also testified that he had a
practice of deleting emails unless he "felt there was an important reason to keep them" and did not recall
anyone ever instructing him to discontinue that practice. 119 In addition, Mr. Hunnicutt took no steps during the
2003/2004 Search to request documents from, [**64] or search the
files of, one current and one former employee to whom Hunnicutt assigned Lancer-related work.
120 Some of this work was done by the employees on their
personal computers outside of Hunnicutt's offices. 121 When shown emails he had sent but not produced, Mr.
Hunnicutt could not explain why he had not produced them. 122 However, when Mr. Hunnicutt submitted his declaration
approximately two months later, he stated that he now recalled having accidently deleted his email "sent" file
prior to March 13, 2003. 123 The Citco Defendants have identified fifty-seven
emails that Mr. Hunnicutt sent between February 3, 1999 and May 14, 2003, but did not produce.
118 See Deposition of William Hunnicutt, Ex. 3 to Feinberg Decl.
("Hunnicutt Dep."), at 25-27.
119 Id. at 36-37. Accord Pl. Opp. at 10 (admitting that after
November 2003, "Hunnicutt apparently did not alter his practice of deleting received emails that he did not
think sufficiently important to be saved").
120 See Hunnicutt Dep. at 32-35. The record does not reflect when the
former employee stopped working for Hunnicutt.
121 See id.
122 See id. at 26, 37-38.
123 See Hunnicutt Decl. P 8.
124 See Documents From Hunnicutt Not Produced, [**65] Ex. 3 to Feinberg Decl. While only one of these emails post-date April,
2003, it is likely that as of that date many of these emails would have been in the possession of Hunnicutt, as
most entities maintain electronic records for at least a year on active servers or on backup
continued deletion of emails long after 2003 is inexcusable, as is Hunnicutt's failure to seek any
Lancer-related documents or emails from one current employee and one former employee who worked on the Lancer
These actions and inactions -- including
the loss of the fifty-seven emails -- lead inexorably to the conclusion that relevant documents were not
produced and are now lost. This conduct amounts to gross negligence.
125 Although this employee's files were not physically in Hunnicutt's
possession because she worked outside Hunnicutt's offices, this fact does not affect Hunnicutt's obligation to
search her files. See In re NTL, Inc. Sec. Litig., 244 F.R.D. at 195 ("Under Rule 34, control does
not require that the party have legal ownership or actual physical possession of the documents at issue; rather,
documents are considered to be under a party's control when that party [**66] has the right, authority, or practical ability to obtain the documents
from a non-party to the action.") (quotation marks omitted). Hunnicutt may also have had an obligation to
request documents from its former employees during the 2003/2004 Search, assuming it had the "practical ability"
to do so.
out of offices in London and Cape Town, South Africa, delegated the 2003/2004 Search to Mei Hardman, an employee
in the "due diligence area." 126 Despite declaring that to the best of her knowledge
Coronation located and preserved "all documents relating to Lancer," 127 Hardman testified at her deposition that she had no
experience conducting searches, received no instruction on how to do so, had no supervision during the
collection, and no contact with Counsel during the search. 128 Hardman stated that she searched only the investment
team's drive on the London computer network, even though she was aware that not all emails or electronic
documents on the office computers of investment team members would be on that drive. 129 Hardman communicated the request for documents to the
Cape Town office during a brief telephone conversation without imparting instructions. [**67] 130 Hardman was also aware that Coronation kept backup
tapes, but never searched them for Lancer-related documents and was unaware of anyone else doing so.
126 Declaration of Mei Hardman, Ex. 3 to Gotko Decl., P 1.
127 Id. P 8.
128 See Deposition of Mei Hardman, Ex. 4 to Feinberg Decl. & Ex.
10 to Gotko Decl. ("Hardman Dep."), at 18-21, 47-48, 39-42, 41-43, 55-57, 62-64, 73-74, 81.
129 See id. at 47-48.
130 See id. at 55-57, 73-74, 81, 62-64, 68-75, 84-90. Plaintiffs
respond that the files of employees in the Cape Town office, who played a role in Coronation's investment
decisions, were produced. See Pl. Opp. at 11-12.
131 See Hardman Dep. at 41-43. Plaintiffs argue that Hardman was not
obligated to search the backup tapes because they are server-wide and not readily accessible, and that the key
players searched their own computers. They further argue that there is no evidence that any other employees had
Lancer-related documents. See Pl. Opp. at 12.
Hardman also asked only
three employees -- Stuart Davies, Anthony Gibson, and Maria Meadows -- out of a number of other employees in the
London office to search their computers for emails and electronic documents. 132 According to an internal [**68] Coronation memorandum, Davies, Gibson, and Meadows were part of a
larger "investment team" comprised of up to twenty "investment specialists" in London, including fund managers,
research analysts, due diligence analysts, and risk managers. 133 Although Hardman resisted the characterization that
the other investment specialists would have been involved in Lancer-related decisions,
134 she acknowledged that investment specialist Fred
Ingham was involved in Lancer-related decisions in July, 2003. 135 Hardman also acknowledged that the files of Amrusta
Blignaut, Coronation's compliance officer and Arne Hassel, Chief Investment Officer of Coronation's
investment team, were never searched, but she did not know whether either Blignaut or Hassel held those
positions prior to late 2003. 136 The Citco Defendants have identified thirty-nine
emails from May 16, 2003 [*484] through September 19, 2003 that Coronation did not produce.
137 Coronation produced no emails or
correspondence from 1998 through 1999 and only limited emails and correspondence from 2000 through
132 See Hardman Dep. at 57.
133 See id. at 70-71.
134 See id. at 72 ("Q. Did you have an understanding one way or the
other whether [**69] those were the only three individuals in the
London office who were involved in either the due diligence for the Lancer investments or the monitoring of the
Lancer investments? A. Yes, those were the only people involved. . . . [Meadows], other than [Davies and
Gibson], is the only employee that was there at the time when Lancer was invested in I
135 See id. at 69-70.
136 See id. at 74.
137 See Documents Not Produced by Coronation, Ex. 5 to Feinberg
138 Coronation produced one email from 2000, six emails and three letters
from 2001, and eight emails and three letters from 2002. See Citco Mem. at 11. While it is impossible to
know whether emails and correspondence from 1998 through 2002 were still in Coronation's possession in April,
2003, Coronation did produce some documents from this time frame. Thus, it is fair to presume that some records
from this time frame were in Coronation's possession at the time the duty to preserve arose. See supra n.
Hardman was ill-equipped
to handle Coronation's discovery obligations without supervision. Given her inexperience, Hardman should have
been taught proper search methods, remained in constant contact with Counsel, and should have
been [**70] monitored by management. She searched only one
network drive, permitted other employees to conduct their own searches, and delegated the Cape Town office
search without follow-up. Hardman knew that backup tapes existed, but did not search them and, to the best of
her knowledge, they have not been searched to this day. 139
139 See Hardman Dep. at 41-43. Because Coronation still has relevant
backup tapes and because a search of these tapes is now justified, particularly given the very limited
production of documents for the relevant period, Coronation is directed to search these tapes at its expense or
explain why it is no longer possible to conduct such a search.
In addition to the
paucity of Coronation's document production for the years 1998 through 2002 and the recent production of emails
by 2M including many that were copied to Coronation, the Citco Defendants have identified a number of employees
Coronation should have searched but did not -- including approximately seventeen members of the investment team,
Coronation's compliance officer, and Coronation's chief investment officer. While it is not entirely clear that
all of these people were involved with Lancer, it is clear that Ingham's files were not searched and there is no
question that Ingham [**71] was involved with Lancer-related
investments in July, 2003. Based on the all of these facts it is apparent that Coronation acted in a grossly
d. The Chagnon
The Chagnon Plaintiffs
proffered Normand Gregoire, their Vice President of Investments, 140 as their declarant with regard to their discovery
Having joined the Chagnon Plaintiffs in
2004, the majority of Gregoire's declaration pertaining to the 2003/2004 Search was based on information given
to him by others. 142
[*485] Gregoire's declaration stated that the Chagnon Plaintiffs
produced "all documents" -- including emails and electronic documents -- in their possession to Counsel in
February or March 2004. 143 Gregoire then admitted that some emails that had been
located in 2004 were not provided to Counsel until 2008. 144
140 See Deposition of Normand Gregoire, Ex. 6 to Feinberg Decl. &
Exs. 9 & 10 to Gotko Decl. ("Gregoire Dep."), at 10.
141 The Citco Defendants fault the Chagnon Plaintiffs for not providing
current General Counsel, Jean Maurice Saulnier, as their declarant because, according to the Citco Defendants,
Saulnier "oversaw" the 2003/2004 Search. See Citco Mem. at 13. Gregoire's deposition [**72] testimony is clear that, although Saulnier was involved in the search
effort, it was former employee Johnny Quigley that coordinated the earlier search. See Gregoire Dep. at
142 See Amended Declaration of Normand Gregoire ("Gregoire Decl."),
Exs. 1-2 to Gotko Decl., P 2 (stating that he was "relying on information and documents provided to [him] by
current and former employees . . ."). In addition to Gregoire's admissions to this effect, Gregoire did not know
how searches were conducted or the instructions given to employees and was unsure whether the Chagnon
Plaintiffs' network was searched for emails and electronic documents.
143 Id. P 4.
144 See Gregoire Dep. at 57-59.
In response to a
questionnaire served on all plaintiffs, the Chagnon Plaintiffs identified at least twelve employees as having
either been involved in decisions to invest in Lancer or having had some contact with Lancer on behalf of
Of the twelve, Gregoire could only state
conclusively that four were asked to search for relevant documents in the 2003/2004 Search.
146 When some of the eight were later questioned in
connection with the 2007/2008 Search, the conversations were brief -- the Chagnon Plaintiffs
received [**73] cursory confirmation that the employees either
had no documents or had only a few that had already been produced, and the Chagnon Plaintiffs did not follow
up or conduct their own search. 147 The Citco Defendants have identified three emails
from May and June 2003 that the Chagnon Plaintiffs did not produce. 148 The Citco Defendants also note that the Chagnon
Plaintiffs produced only two emails and two pieces of correspondence from 1998 through 2002.
149 The Chagnon Plaintiffs produced an unspecified
number of emails from 2003. 150
145 See id. at 69-75.
146 See id. at 70-75.
147 See id. at 89-96. The Citco Defendants specifically focus on
Germaine Bourgeois, a former employee of the Chagnon Plaintiffs. See Citco Mem. at 14. Bourgeois
testified that he did not recall anyone from the Chagnon Plaintiffs asking him if he had any documents even
though Gregoire's declaration states that he asked Bourgeois to search for and preserve all documents, including
electronic data and email correspondence. See Gregoire Decl. P 3(c); Deposition of Germaine Bourgeois,
Ex. 6 to Feinberg Decl. ("Bourgeois Dep."), at 154-55. Despite his deposition testimony to the contrary,
Counsel's records reflect that the [**74] Chagnon Plaintiffs did
request such documents from Bourgeois and he turned them over to Counsel in February 2004. See Parker
Decl. PP 10-11 and documents cited therein.
148 See Documents Not Produced by the Chagnon Plaintiffs, Ex. 6 to
Feinberg Decl. Although the Citco Defendants represent that the Chagnon Plaintiffs did not produce seven emails,
plaintiffs demonstrate that four were produced by the Chagnon Plaintiffs. See Chart, Ex. 11 to Gotko
Decl., at GD 156 (identifying these documents as produced by the Chagnon Plaintiffs).
149 See Citco Mem. at 13. See also supra
150 See id. at 13 n. 11.
was misleading and inaccurate in that it indicated "all" documents had been produced, when, as Gregoire
admitted, some emails located in 2004 were not provided to Counsel until 2008. The Chagnon Plaintiffs produced
an unusually small number of emails and correspondence from 1998 through 2002 -- a total of four.
151 In addition, the recent production of emails by 2M
included a number of emails on which the Chagnon Plaintiffs were copied. These emails were not produced by the
Chagnon Plaintiffs. Two-thirds of the key players were never asked for documents during the
2003/2004 [**75] Search. When they were contacted in 2007/2008,
those employees had few, if any, documents. This combination of facts supports the conclusion that the
Chagnon Plaintiffs were grossly negligent.
151 See supra nn.123 & 137.
[*486] e. Bombardier
Patricia Romanovici, who
joined Bombardier Trusts as Advisor, Compliance and Committee Secretary in May, 2007, submitted a declaration
and testified regarding Bombardier Trusts' search efforts. Because her arrival at Bombardier Trusts post-dated
the 2003/2004 Search, she relied in large part on information provided to her by another employee, Guy
Romanovici declared that Bombardier Trusts
had preserved and located "all documents" in their possession in 2003, 153 but also admitted that Bombardier Trusts failed to
search for or preserve emails or electronic documents prior to 2007, despite the inherent conflict in
these two statements. 154
152 See Deposition of Patricia Romanovici, Ex. 7 to Feinberg Decl.
& Ex. 10 to Gotko Decl. ("Romanovici Dep."), at 17-21. Although still a Bombardier Trusts employee, Dionne
no longer holds the same position.
153 Declaration of Patricia Romanovici, Ex 2 to Gotko Decl. ("Romanovici
Decl."), P 10
154 See id. P 3 [**76]
(declaring that in 2003 employees had been asked to "locate and preserve all paper documents relating to
Lancer") (emphasis added); id. P 4 ("Bombardier preserved all paper documents collected in
response to" Counsel's request) (emphasis added).
In 2007, Bombardier
Trusts hired a vendor to retrieve from backup tapes electronic data and email relating to Bombardier Trusts'
investments in Lancer. 155 Romanovici stated that to the best of her
understanding, "it is the practice of Bombardier's Information Technology [("IT")] Department to back up
electronic data and email correspondence monthly, but not necessarily to preserve it indefinitely."
156 This practice was not suspended for any employee at
any time. "For a number of months during the years 2001 and 2002," Bombardier Trusts was not able to recover
emails because backup tapes either never existed or were blank. 157 Romanovici speculated that the loss of these tapes was
"possibl[y] due to systemic technological problems." 158
155 See id. P 6.
156 Id. P 7.
acknowledged that only five current and former employees were asked to produce documents in the 2003/2004
At least eleven individuals on
the [**77] Investment Committee of the Bombardier Trusts were not
asked for any documents -- paper or electronic -- during the 2003/2004 Search, even though they may have been
involved in the decisions to invest or redeem shares in the Funds. 160 Romanovici did not know whether the company's central
files had been searched during the 2003/2004 Search or the extent of communication between Dionne and
Romanovici also admitted that personal
computers were not searched in the 2003/2004 Search and that if any documents were deleted from the server prior
to the 2007/2008 Search, they would not be retrievable unless stored on a backup tape.
162 The Citco Defendants have identified thirteen
emails from June 10, 2003 through August 17, 2003 that Bombardier Trusts did not produce.
159 See id. P 3; Romanovici Dep. at 41-44.
160 See Romanovici Dep. at 51-52, 67-68.
161 See id. at 105-107.
162 See id. at 83-84, 87, 90.
163 See Documents Not Produced by Bombardier Trusts, Ex. 6 to
[*487] In addition to submitting a
misleading and inaccurate declaration, Bombardier Trusts failed to search for, or take steps to preserve,
any electronic documents prior to 2007. 164 Instead, it admittedly collected only
[**78] paper documents from its employees who worked on
That the vendor hired in 2007 was not able
to retrieve e-mails from some backup tapes is not surprising given that the recycling of backup tapes was never
suspended. In addition, at least eleven members of its Investment Committee were not asked for any
documents -- paper or electronic -- or instructed to preserve documents, until 2007. 166 Finally, a number of emails were never produced,
including emails only recently produced by 2M on which Bombardier Trusts was copied. The combination of these
actions and inactions -- coupled with Bombardier Trusts' failure to produce a number of emails -- amounts to
164 See Romanovici Decl. P 7. Notably, no personal computers were
searched in 2003/2004.
165 See id. P 3.
166 See id.; Romanovici Dep. at 41-44, 51 -52,
f. The Bombardier
Lyne Lavoie, the
Bombardier Foundation's director of administration and grants, supervised the Bombardier Foundation's search
efforts. Lavoie declared in 2004 that she instructed the Bombardier Foundation employees to locate and preserve
"all files relating to Lancer." 167 There is no indication that the Bombardier
Foundation [**79] searched for electronic documents or emails at
that time. Lavoie admitted that the Bombardier Foundation gave Counsel only those documents the Foundation
"understood to be responsive," even though additional Lancer-related documents were preserved.
168 The documents that were preserved after the 2003/2004
Search were not produced to Counsel until 2007. 169
167 Declaration of Lyne Lavoie, Ex. 3 to Gotko Decl. ("Lavoie Decl."), PP
169 See id. P 5(c).
Foundation "backs up electronic documents and e-mails for a period of one year, then overwrites the prior year's
backed-up data with information from the next year." 170 This practice was never suspended.
171 In 2007, the Bombardier Foundation directed a vendor
to search the company's servers for electronic documents and email relating to Lancer between January 1, 1999
and December 31, 2003. 172 This search "did not capture any documents or e-mails
relating to Lancer that may have been deleted prior to 2007." 173 Noting that pursuant to the Foundation's document
retention policy only backup data for the year 2003 would have been in existence in 2004, Lavoie admits that
"certain electronic data and-or emails for the year [**80] 2003 
may have been deleted from the [Foundation's] servers prior to the time of its electronic search" in
170 Id. P 9.
171 See Deposition of Lyne Lavoie ("Lavoie Dep."), Ex. 8 to Feinberg
Decl., at 51-52.
172 See Lavoie Decl. P 5.
173 Id. P 9.
174 Id. P 11. Accord id. P 12.
At her deposition,
Lavoie testified that it was also possible that emails and electronic documents from 1999 through 2003 may have
been in employees' possession but [*488] deleted after 2004. 175 Lavoie also testified that she instructed only two
employees to search and preserve files related to Lancer, but did not recall telling them to preserve electronic
documents or email and did not confirm that they had done so. 176 The documents of the members of the Foundation's
Investment Committee or Board of Governors were never searched because any documents in their possession would
be "duplicative." 177 The Bombardier Foundation contends that its investment
decisions were handled by Bombardier Trusts and it is unlikely that the Foundation would have any documents that
the Trusts did not have. 178 Plaintiffs provide no support for this contention. If
this were [**81] correct, every document produced by the Bombardier
Foundation would also have been produced by Bombardier Trusts. This is not the case. The Citco Defendants have
not identified any emails or documents not produced by the Bombardier Foundation.
175 See Lavoie Dep. at 89-90.
176 See id. at 21-25, 90.
177 Lavoie Decl. PP 6-8.
178 See Pl. Opp. at 17 (citing Pak Decl. P 7).
Foundation's failure to search for any electronic documents or emails related to Lancer until 2007
cannot be rectified given Lavoie's admission that relevant information has been deleted from the Foundation's
servers. The Bombardier Foundation's discovery efforts failed in other significant respects: It failed to
request any documents -- paper or electronic -- from the Foundation's Investment Committee or its Board of
Governors; it never altered its practice of overwriting backup data to preserve the records of key players; and
it also withheld until 2008 documents it had collected in 2004, but had independently and arbitrarily decided
were not "responsive." Such conduct, coupled with the Bombardier Foundation's misleading and inaccurate
declaration, amounts to gross negligence.
2. Plaintiffs that
Acted in a Negligent [**82] Manner
The Altar Fund, L'Ecole
Polytechnique, Okabena, the Corbett Foundation, Commonfund, KMEFIC, and UM were negligent in their discovery
efforts. None of them instituted a written litigation hold in a timely manner, although all of them did so by
2007. Employees with possible Lancer involvement were not clearly instructed to preserve and collect all
Lancer-related records. I have already held that after mid-2004, in the Southern District of New York, the
failure to issue a written litigation hold in a timely manner amounts to gross negligence. I must therefore
explain why, after careful consideration, I have found that these plaintiffs were negligent rather than grossly
The failure to institute
a written litigation hold in early 2004 in a case brought in federal court in Florida was on the borderline
between a well-established duty and one that was not yet generally required. Thus, the rule of lenity compels
the conclusion that this conduct alone, under these circumstances, is not sufficient to find that a
plaintiff acted in a grossly negligent manner. 179 I therefore have looked to any additional errors made
during the discovery phase to determine whether the conduct
[*489] was [**83]
negligent or grossly negligent. Here, as described below, each of the plaintiffs in this category engaged in
additional negligent conduct in carrying out its discovery obligations.
179 I reach this conclusion, in part, because once the duty to institute a
litigation hold was clearly established -- when the case was transferred to this District in 2005, it is very
likely that electronic records that existed in 2003 would have been lost or destroyed. Thus, instituting the
litigation hold in 2005 instead of 2007 may not have made any difference.
a. The Altar
president of Altar Asset Management Inc., which served as investment advisor to the Altar Fund, was the sole
decision-maker regarding the Altar Fund's Lancer investments. 180 Lombardi declared that he conducted the 2003/2004
Search and everything in the Altar Fund's possession was produced. 181 According to Lombardi, in the normal course of
business, employees are instructed to print all communications, including emails, related to clients.
182 Those hard copies are then filed and those files on
Lancer and the Funds were produced. 183 When examined at his deposition, Lombardi did not know
what email systems his company [**84] used, how electronic
documents were stored, and admitted that he did not personally perform any electronic searches for responsive
Instead, Lombardi had instructed two
assistants to conduct the searches without any supervision and was unfamiliar with the extent of their
The Citco Defendants have identified
fifty-three emails from March 20, 1997 through September 19, 2003 that the Altar Fund did not produce.
186 These documents included emails to Lauer, Lancer,
other plaintiffs and investors. The Citco Defendants have also identified five paper documents, as well as
Lancer Offshore financial statements for 1998 through 2000, that were not produced. 187
180 See Deposition of Richard Lombardi, Ex. 5 to Feinberg Decl. &
Ex. 10 to Gotko Decl. ("Lombardi Dep."), at 383. Other than his two assistants, the Altar Fund's only other
employee was his part-time analyst. See id.
181 See Declaration of Richard Lombardi, Ex. 4 to Gotko Decl., PP 3,
5, 9, 10.
182 See Lombardi Dep. at 582-585, 590-594.
183 See id.
184 See id. at 592-593, 598-599.
185 See id. at 608-609.
186 See Documents Not Produced by the Altar Fund, Ex. 5 to Feinberg
187 See Citco Mem. at 12. See also Pl. Opp. [**85] at 14 n. 13 (identifying the five documents as follows: two were
produced by other plaintiffs; of the remaining three that were produced either by the Receiver or Lancer, one is
a promissory note for $ 15,000, dated March 20, 1997, from Lombardi to Lancer, which he received as an advance
on expenses he had incurred in his then-capacity as a marketing agent for Lancer; another is an October 2002
invoice from Lombardi to Lancer; and the last is an April 3, 2000 fax from Lombardi to Lauer, in which Lombardi
confirms certain investor meetings).
Lombardi delegated the
search for records to his assistants, but failed to provide any meaningful supervision. He was unfamiliar with
the Altar Fund's email systems or how the Altar Fund maintained its electronic files. Moreover, the Citco
Defendants have identified nearly fifty emails sent or received by Lombardi between May 2003 and
September 2003 that were not produced by the Altar Fund as well as several paper documents. Moreover, the Altar
Fund failed to produce emails it received that were discovered as a result of 2M's recent production of emails.
This, alone, demonstrates that the Altar Fund's effort to find and produce all relevant documents [**86] was insufficient. The totality of the circumstances supports a finding
Poissant, Director of L'Ecole Polytechnique, supervised the
[*490] 2003/2004 Search. 188 In late 2003, Poissant undertook to produce and
preserve "all" employees' documents, including emails. 189 L'Ecole Polytechnique delegated the management of its
assets, including recommending, monitoring, and discontinuing its investments, to its Investment
Despite the Investment Committee's role in
L'Ecole Polytechnique's Lancer investments, Poissant recalled asking at most five Investment Committee members
to search for Lancer-related documents and asked only one to preserve Lancer-related documents prior to
Francois Morin, chair of the Investment
Committee during the relevant period, was the one member both asked to search and preserve his paper and
electronic documents during the 2003/2004 Search, which he confirmed doing. 192 The Citco Defendants identify an additional three
individuals who they claim should have been contacted for documents: (1) Pierre Bataille, whose role is not
clear from the evidence; (2) Mario Lefebvre, who was a member of the [**87] Investment Committee until March 15, 2000; and (3) Louis Lefebvre, who
joined the Investment Committee in September 2003. 193 When L'Ecole Polytechnique performed a system-wide
search of its electronic documents and emails in 2007 and 2008, the only responsive emails that were located
were found on Poissant's computer, because she had a practice of preserving every email that she sent or
Poissant, however, played no role in the
Investment Committee's decision to invest in Lancer 195 and no emails were recovered for any other member of
the Investment Committee. 196 The Citco Defendants have identified nine emails from
March 26, 2003 through August 17, 2003 that were sent to or from Morin that were not produced by L'Ecole
188 See 6/19/08 Amended Declaration of Isabelle Poissant Decl. ("Am.
Poissant Decl.") P 1.
189 See id. P 2.
190 See Deposition of Isabelle Poissant, director of L'Ecole
Polytechnique, Ex. 8 to Feinberg Decl. ("Poissant Dep."), at 24-25; Am. Poissant Decl. 11.
191 See Poissant Dep. at 45-51, 53-54, 70-71.
192 See Deposition of Francois Morin, Ex. 10 to Gotko Decl., at
197-199, 202-207, 209.
193 See Poissant Dep. at 51-52. Plaintiffs note that [**88] Mario Lefebvre was no longer an Investment Committee member when the
duty to preserve arose and Louis Lefebvre could not have created any relevant material because he did not join
the Committee until September 2003 - long after the Funds entered into receivership. See Pl. Opp. at
194 See Am. Poissant Decl. P 6.
195 See Citco Mem. at 18 n. 13.
196 See Am. Poissant Decl. P 7.
197 See Documents Not Produced by L'Ecole Polytechnique, Ex. 9 to
failed to conduct a thorough search of its computer system for Lancer-related documents and failed to
specifically direct all the members of the Investment Committee of the need to preserve Lancer-related
documents. Nonetheless, the chair of the Committee and five of its members of the Committee did search their
records. Bataille's records should have been searched during the 2003/2004 Search, although it is unclear
whether he was even a member of the Investment Committee or played any role in L'Ecole Polytechnique's Lancer
Finally, the Citco
have identified nine emails that were not produced by L'Ecole Polytechnique, plus an unspecified number
recently produced by 2M on which L'Ecole Polytechnique [**89]
was copied. Taken together, L'Ecole Polytechnique's conduct was negligent.
198 The failure to search the records of a single possible member of the
Investment Committee - where the records of five other committee members and the Chair were searched - is
negligent but not grossly negligent.
Sherry Van Zee, Vice
President of Investment Administration and Chief Compliance Officer, served as Okabena's declarant.
199 Van Zee declared that Okabena located and preserved
"all documents," including electronic data and emails, in connection with the 2003/2004 Search.
200 She also declared that all files of employees who were
involved in Okabena's Lancer investment were searched, including electronic files and all "servers" had been
searched for email and electronic documents at that time. 201 At her deposition, Van Zee testified that Okabena
actually searched only certain email in-boxes and the "F" drive. 202 Van Zee also testified that although she was aware
that Okabena backed up its electronic data four times a year and maintains the tapes in a safety-deposit box,
these tapes were never searched. 203 While routine searches of backup tapes are not
required, they should be searched when it has been shown that relevant material existed but was not produced, or
relevant material should have existed but was not produced. Because both conditions are met, Okabena is
required to conduct this search or explain why it is unable to do so.
199 See Van Zee Decl. P 1.
200 Id. P 5.
201 Id. The Citco [**90]
Defendants complain that at least two key employees - Bruce Lueck, President and Chief Investment Officer of
Okabena from pre-2000 to 2003, and Adele Gorilla, Investment Manager for Okabena Investment Services until
October 2003 - testified that they had no recollection of receiving any instructions to preserve documents.
See Citco Mem. at 19. However, there is no indication that their documents were not collected as part of
Okabena's search efforts. In fact, the opposite appears to be true. See Deposition of Bruce Lueck, Ex. 9
to Feinberg Decl., at 83 (testifying that he was asked to search his files for documents relating to Lancer
"[e]arly on"); Deposition of Adele Gorilla, Ex. 9 to Feinberg Decl., at 70-75 (testifying that before her
departure she collected and produced to Okabena all Lancer-related documents, including email and electronic
202 See Deposition of Sherry Van Zee, Ex. 9 to Feinberg Decl. &
Ex. 10 to Gotko Decl., at 74-77. The "F" drive appears to be a shared network drive.
203 See id. at 85-89 [**91] .
The Citco Defendants
have identified thirty-nine emails from August 26, 1999 through September 19, 2003 that were not produced by
and note that Okabena produced
approximately ten emails for the entire relevant period. 205 On August 7, 2009, after plaintiffs
filed [*492] their
opposition to this motion, Okabena produced three of the thirty-nine emails previously produced by
Finally, when 2M produced the seven
hundred new emails in August, 2009, Okabena was among those plaintiffs to whom some of them were copied. The
very small number of emails produced by Okabena, the failure to produce thirty-nine emails, and the recent
production of emails by 2M including many that were copied to Okabena, together with the failure to conduct a
thorough search for ESI, demonstrates that Okabena was negligent in carrying out its discovery
204 See Documents Not Produced by Okabena, Ex. 10 to Feinberg Decl.
Thirty-five of the emails not produced date from June through September, 2003. The remaining four are: (1) an
August 26, 1999 fax from Okabena to Lancer analyst Martin Garvey requesting Lancer's historical [**92] returns for an internal project (plaintiffs claim that Okabena produced
Garvey's response); (2) a February 8, 2000 email stating that Offshore was performing well; (3) a June 28, 2000
letter from Van Zee to Quilligan of Citco NV, asking him to send the June 30, 2000 market valuations (plaintiffs
note that Okabena produced Citco NV's July 5, 2000 response); and (4) a May 22, 2002 request from Adele Gorilla
(nee Neumann) of Okabena to Hunnicutt following up on Lancer's delayed IRS filling. See Exs. 6, 7 to
Gotko Decl. at GD 87-96.
205 See Citco Mem. at 20 (stating that Okabena produced two emails
for 1999, four emails for 2000, two emails for 2001, and two emails for 2002).
206 See Citco Reply at 12.
d. The Corbett
initially testified on behalf of the Corbett Foundation with regard to its discovery efforts. Corbett testified
that at no point during the 2003/2004 Search had he personally instructed anyone to preserve emails and
He also did not know what steps were taken
to search for documents, or which files, offices, and computers were searched. 208 Corbett then clarified that his assistant, Melanie
Craig, had actually directed the search. She subsequently [**93]
submitted a declaration. 209
207 See Deposition of Richard Corbett, Ex. 10 to Feinberg Decl. &
Ex. 9 to Gotko Decl., at 255-260.
208 See id.
209 See id. at 255-256.
Craig stated that during
the 2003/2004 Search, she located and preserved all responsive documents, including electronic documents and
She searched her own computer and
Corbett's other assistant was tasked with searching the Foundation's only other computer.
211 Craig did not oversee that search and did not search
Corbett's palm pilot. 212 The Citco Defendants have identified twenty-two emails
that the Corbett Foundation received between June 23, 2003 and August 17, 2003, but that were not produced by
the Corbett Foundation. 213
210 See 1/10/08 Declaration of Melanie Craig, Ex. 10 to Feinberg
Decl., P 2.
211 See Deposition of Melanie Craig, Ex. 10 to Feinberg Decl., at
212 See id.
213 See Documents Not Produced by Corbett Foundation, Ex. 10 to
Craig admitted that she
failed to search Corbett's palm pilot, which may have contained emails. Neither Corbett nor Craig instructed
employees to preserve their emails or paper documents. This conduct, together with the Corbett Foundation's
failure to produce the twenty-two [**94] emails identified by the
Citco Defendants, demonstrates that the Corbett Foundation was negligent in meeting its discovery
Commonfund's general counsel, declared that he supervised Commonfund's 2003/2004 Search and that all Commonfund
documents were located and produced in the first half of 2004. 214 At his deposition, Auchincloss testified that he
delegated the search to paralegal Carolyn Blanch. 215 When pressed, Auchincloss did not know the details of
Blanch's communication with employees regarding
[*493] preservation or whether employees complied.
216 On October 7, 2004, Blanch distributed a
company-wide email directing employees to search their records for Lancer-related documents.
217 For the same reasons discussed earlier with respect
to Counsel's email directions to all plaintiffs, this email is insufficient to constitute a written
litigation hold. 218
214 See 12/21/07 Declaration of John Auchincloss, Ex. 5 to Gotko
215 See Deposition of John Auchincloss, Ex. 10 to Feinberg Decl.
& Ex. 9 to Gotko Decl. ("Auchincloss Dep."), at 11.
216 See id. at 66.
217 See 10/7/04 Blanch email, Ex. 15 to Gotko Decl., at IC
218 See supra Part V.B.
As [**95] far as Auchincloss was aware, no request for preservation or collection
was made to Commonfund's Audit and Risk Management Committee. 219 Although Auchincloss testified that concerns related
to Lancer "may" have been communicated to the Committee, the minutes of Committee meetings "specifically mention
the Lancer investment." 220 The Citco Defendants have identified twenty-five
emails between July 12, 1999 and April 10, 2002 sent between Commonfund employees and Hunnicutt, but not
produced to the Citco Defendants. 221 Twenty-four of these emails were produced by
Commonfund in the SEC Action, but not identified to the Citco Defendants as Commonfund documents until September
10, 2007 - after the deposition of a key Commonfund employee. 222 The single email Commonfund never produced attached a
March 1, 2000 Monthly Performance Review for Lancer. Commonfund produced the Performance Review, but not the
cover email. 223
On August 7, 2009, after plaintiffs filed
their opposition to this motion, Commonfund produced minutes of meetings of its Audit and Risk Management
Committee for September 20, 2002, February 15, 2003, and June 21, 2003. 224
219 See Auchincloss Dep. at 67.
220 Citco Reply at [**96]
221 See Documents Not Produced by Commonfund, Ex. 11 to Feinberg
222 See Citco Mem. at 13; 9/10/07 Letter, Ex. 7 to Gotko Decl., at GD
223 See 3/1/00 Lancer Monthly Performance Review, Ex. 7 to Gotko
Decl., at GD 104-105.
224 See 8/7/09 Letter from Counsel to the Citco Defendants, Ex. 1 to
Supp. Feinberg Decl.
Auchincloss signed his
declaration without fully investigating Commonfund's 2003/2004 Search and lacked personal knowledge of the steps
taken by Commonfund to preserve and produce documents. Although Commonfund contacted a number of key players to
collect documents, Commonfund failed to collect documents from its Audit and Risk Management Committee. Because
the Citco Defendants have demonstrated that the Committee had some involvement in Lancer - although not at the
level of key decision makers - their documents should have been collected. This conduct - together with the
failure to produce a variety of documents to the Citco Defendants 225 and the late production of the Committee minutes -
supports the conclusion that Commonfund was negligent in complying with its discovery
225 Because Commonfund produced twenty-four of these documents in the SEC
action, there [**97] is no doubt that these documents were in its
possession after the duty to preserve arose.
who joined KMEFIC in September, 2007 as the General Manager, International Investments Division, submitted a
declaration on behalf [*494] of KMEFIC. Al-Tammar acknowledged that his understanding of KMEFIC's 2003/2004
Search stemmed from discussions with Mohamed Almarzook, KMEFIC's former General Manager.
226 Al-Tammar stated that "all documents" were located
and preserved. 227 But his declaration reveals that the employees were
directed to search their own computers and files. KMEFIC did not conduct its own search of its servers
and employee hard drives until 2007. 228 Al-Tammar also stated that Almarzook, who bore
primary responsibility for monitoring KMEFIC's investments in Lancer, had informed him that Almarzook would
have been copied on all Lancer-related emails. 229 His emails were searched and produced.
230 Prior to the 2007/2008 Search, members of KMEFIC's
Investment Committee - which voted on investment decisions - were not asked to search for or retain
226 See Declaration of Abdullateef Al-Tammar, Ex. 3 to Gotko Decl.
("Al-Tammar Decl."), P 2.
227 Id. PP 2, 3-6.
228 See [**98]
id. P 6.
229 See id.
230 See id.
231 See id. PP 9, 12.
At his deposition,
Al-Tammar was unable to testify to the facts underlying the statements related to the 2003/2004 Search in his
declaration. When faced with two Lancer-related emails produced by KMEFIC on which Almarzook was not copied,
Al-Tammar stated that Almarzook, in fact, never told him that Almarzook was copied on all emails.
232 Yet, Al-Tammar had previously sent an email to
Counsel, copying Almarzook, stating that Almarzook had "confirmed that he would have been copied on all
correspondence concerning Lancer." 233 While the Citco Defendants have not identified any
emails that KMEFIC has failed to produce, they state that KMEFIC failed to produce a 1997 executive summary.
Regarding the executive summary, Al-Tammar declared that "an additional search" for the missing executive
summary was conducted during the 2007/2008 Search, 234 but he testified that he did not know whether a search
for this document was ever done previously. 235
232 See Al-Tammar Dep. at 76-77.
233 See 3/27/08 email, Ex. 14 to Gotko Decl., at IC 28 (emphasis in
234 See Al-Tammar Decl. P 9 (emphasis added).
235 See Al-Tammar Dep. at 102-103.
not [**99] request documents from its Investment Committee before
2007. Key players searched their own files without supervision from management or counsel. Finally, Al-Tammar
failed to carefully inquire into the details of KMEFIC's search prior to signing his declaration and relied on
the possibly false assertion that one employee - Almarzook - would have been copied on any Lancer-related email.
This conduct was negligent.
Director, Investment Management of UM, declared that at the time White & Case was retained in June, 2003, UM
searched and preserved "all" Lancer-related documents, including electronic documents and email, in the
possession of current and former UM employees. 236 UM searched again when Counsel [*495] was retained in January
But, in fact, UM's efforts did not include
searching the electronic files of all employees. Rather, the search consisted of reviewing only UM's
server's subfiles titled "Lancer." 238 Mayrand conducted this initial search herself, but
consulted UM's IT personnel, possibly as early as 2004 or as late as 2006. 239 In early 2004, she contacted current and former
members of UM's Investment Committee and asked for any Lancer-related documents. [**100] 240 However, she did not recall asking for emails or
instructing them to preserve all Lancer-related materials. 241
236 See Mayrand Decl. P 2. The Citco Defendants baselessly assert
that Mayrand "admit[s]" that UM failed to preserve any documents after it retained White & Case in 2003 in
connection with UM's first contemplated suit against Lancer and the Funds. Citco Mem. at 24. Mayrand not only
makes no such admission, but expressly states that "[a]t or around that time, I undertook to locate and preserve
all documents" related to that action. Mayrand Decl. P2. The evidence also contradicts the Citco Defendants'
assertion, demonstrating that UM sent White & Case documents "directly related with [UM] investments and
redemption notices" in May and June 2003. Lancer Offshore Background Documents, Ex. 8 to Gotko Decl., at GD
107-108 (identifying documents "sent to White and Case on May 30 and June 2, 2003"). Accord 7/10/03
Letter to White & Case, Ex. 15 to Gotko Decl., at IC 49-50 (attaching responsive
237 See Mayrand Decl. PP4-5.
238 See Deposition of Andree Mayrand, Ex. 12 to Feinberg Decl.
("Mayrand Dep."), at 137-138.
239 See id. at 124-129, 137-138. The Citco Defendants
claim [**101] that Germaine Bourgeois - the Director of Investments
for UM at the time of the Lancer investment until 2001 - was never asked for his Lancer-related documents.
See Citco Mem. at 25. Yet, Counsel's records show that Bourgeois was asked for documents, which he
produced in February, 2004. See Parker Decl. P 11.
240 See Mayrand Dep. at 139-140.
241 See id. at 124-129, 137-138.
The Citco Defendants
identify five documents that were never produced by UM. 242 The first is a September 30, 1998, "lock up" letter
imposing restrictions on UM's ability to redeem its shares. 243 The second is a June 30, 2000 letter from Citco NV,
containing a list of securities held by Lancer as of June 30, 1999. 244 The third and fourth are two sets of written questions
by Mathieu Poulin, an analyst at UM, regarding concerns about Lancer in April and July, 2002.
245 Poulin testified that he drafted these questions on
his computer and did not recall deleting them, but they were never produced by UM. 246 Instead, they were produced from Poulin's current
employer, the Chagnon Plaintiffs. 247 The fifth is the 1999 Lancer Year End Review
Newsletter (the "1999 Newsletter"). 248 The 1999 Newsletter first produced by UM was
missing [**102] the page that disclosed a surge in redemptions in
the summer of 1998, which necessitated a liquidation of part of the portfolio resulting in losses to the
Plaintiffs contend that the document was
accidentally copied double sided to single sided. The document was
[*496] recopied and reproduced. 250 However, the reproduced copy did not include the same
handwritten notation "copie," as did the originally produced copy.
242 The Citco Defendants offer no evidence that four of these documents were
in UM's possession as of April, 2003.
243 See 9/30/98 Letter, Ex. 13 to Feinberg Decl.
244 See 6/30/00 [**103]
Letter, Ex. 13 to Feinberg Decl.
245 See Poulin Lists, Ex. 13 to Feinberg Decl.
246 See Deposition of Mathieu Poulin, Ex. 13 to Feinberg Decl., at
247 See Poulin Lists, Ex. 13 to Feinberg Decl. (bearing Bates stamps
indicating that they were produced from the Chagnon Plaintiffs).
248 See 1/28/99 Lancer Offshore Year End Review, Ex. 14 to Feinberg
249 See id.
250 See Pak Decl. P 13; 1/28/99 Lancer Offshore Year End Review, Ex.
8 to Gotko Decl., at GD 109-119.
UM did not do a complete
search of its ESI. UM searched only its electronic server's subfiles titled "Lancer." This folder may, or may
not, have encompassed all Lancer-related documents. UM did not check the electronic files of each employee to
confirm that his or her search was complete. Although UM sought documents from the Investment Committee in 2004,
that request may not have included ESI. Finally, UM's initial production of the 1999 Newsletter was - at best -
sloppy and - at worst - was an attempt to suppress information. I decline to credit the latter explanation
offered by the Citco Defendants. In sum, UM was negligent in meeting its discovery obligations.
The Citco Defendants
have demonstrated that most plaintiffs conducted discovery in an ignorant and indifferent fashion. With respect
to the grossly negligent plaintiffs - 2M, Hunnicutt, Coronation, the Chagnon Plaintiffs, Bombardier Trusts, and
the Bombardier Foundation - I will give the following jury charge:
The Citco Defendants have argued that 2M, Hunnicutt, Coronation, the
Chagnon Plaintiffs, Bombardier Trusts, and the Bombardier Foundation destroyed relevant evidence, or failed to
prevent the destruction of relevant evidence. This is known as the "spoliation of evidence."
Spoliation is the
destruction of evidence or the failure to preserve property [**104]
for another's use as evidence in pending or reasonably foreseeable litigation. To demonstrate that spoliation
occurred, the Citco Defendants bear the burden of proving the following two elements by a preponderance of the
First, that relevant evidence was destroyed after
the duty to preserve arose. Evidence is relevant if it would have clarified a fact at issue in the trial and
otherwise would naturally have been introduced into evidence; and
Second, that if relevant evidence was destroyed after the
duty to preserve arose, the evidence loss would have been favorable to the Citco Defendants.
I instruct you, as a
matter of law, that each of these plaintiffs failed to preserve evidence after its duty to preserve
This failure resulted from their gross
negligence in performing their discovery obligations. As a result, you may presume, if you so choose, that such
lost evidence was relevant, and that it would have been favorable to the Citco Defendants. In deciding whether
to adopt this presumption, you may take into account the egregiousness of the plaintiffs' conduct in failing to
preserve the evidence.
[*497] However, each of these
plaintiffs has offered evidence that (1) no evidence was lost; (2) if evidence was lost, it was not
relevant; [**105] and (3) if evidence was lost and it was relevant,
it would not have been favorable to the Citco Defendants.
If you decline to
presume that the lost evidence was relevant or would have been favorable to the Citco Defendants, then your
consideration of the lost evidence is at an end, and you will not draw any inference arising from the
However, if you decide
to presume that the lost evidence was relevant and would have been favorable to the Citco Defendants, you must
next decide whether any of the following plaintiffs have rebutted that presumption: 2M, Hunnicutt, Coronation,
the Chagnon Plaintiffs, Bombardier Trusts, or the Bombardier Foundation. If you determine that a plaintiff has
rebutted the presumption that the lost evidence was either relevant or favorable to the Citco Defendants,
you will not draw any inference arising from the lost evidence against that plaintiff. If, on the other
hand, you determine that a plaintiff has not rebutted the presumption that the lost evidence was both
relevant and favorable to the Citco Defendants, you may draw an inference against that plaintiff and in favor of
the Citco Defendants - namely that the lost evidence would have been [**106] favorable to the Citco Defendants.
Each plaintiff is
entitled to your separate consideration. The question as to whether the Citco Defendants have proven spoliation
is personal to each plaintiff and must be decided by you as to each plaintiff individually.
251 It is important to explain that the jury is bound by the Court's
determination that certain plaintiffs destroyed documents after the duty to preserve arose. See West, 167
F.3d at 780 (upholding jury instruction that directed the jury to presume certain facts). However, the jury
is not instructed that the Court has made any finding as to whether that evidence is relevant or whether
its loss has caused any prejudice to the Citco Defendants. The jury must make these determinations
because, if the jury finds both relevance and prejudice, it then may decide to draw an adverse inference in
favor of the Citco Defendants which could have an impact on the verdict. Such a finding is within the province
of the jury not the court. Cf. Nucor, 251 F.R.D, at 202-03 (discussing that certain sanctions, such as
default, are imposed by the court rather than the jury).
In addition, all
plaintiffs are subject to monetary sanctions. The Citco Defendants
[**107] are entitled to an award of reasonable costs, including attorneys' fees, associated with reviewing the
declarations submitted, deposing these declarants and their substitutes where applicable, and bringing this
motion. The Citco Defendants shall submit a reasonable fee application to this Court for approval. Once
approved, the costs are to be allocated among these plaintiffs.
I have also considered
whether the Citco Defendants should be entitled to additional discovery. If a lesser sanction is appropriate
that is always a better course. With regard to Coronation and Okabena, plaintiffs admit that backup tapes exist
and have not been searched. They do not explain why such a search cannot still be conducted. The goal of
discovery is to obtain evidence, not to issue sanctions. Thus, Coronation and Okabena are ordered to search
their backup tapes for the relevant period at their expense, or demonstrate why such backup tapes cannot be
searched, within thirty days.
Further discovery is not
necessary for the remaining plaintiffs. Given the number of submitted declarations and numerous depositions that
have already occurred in this action, more discovery of the remaining plaintiffs would not [**108] be fruitful. At this stage, the costs of conducting further discovery
would far outweigh the benefit of any results. Therefore, no further discovery is warranted.
For the reasons
discussed above, the Citco Defendant's motion for sanctions is granted in part. While litigants are not required
to execute document productions with absolute precision, at a minimum they must act diligently and search
thoroughly at the time they reasonably anticipate litigation. All of the plaintiffs in this motion failed to do
so and have been sanctioned accordingly.
[*498] The Clerk of the Court is
directed to close this motion (Docket No. 248).
Dated: New York, New