PENSION COMMITTEE v BANC OF AMERICA SECS LLC

Why the title? “Those who cannot remember the past are condemned to repeat it. ” George Santayana, Reason in Common Sense, Vol. 1 of The Life of Reason (1905) (Prometheus Books 1998 at 82). © 2009 Hogan & Hartson LLP. All rights reserved. 3

The Zubulake Opinions Zubulake I: To what extent is inaccessible data discoverable, and who should pay? May 2003 Zubulake III: Balances and allocates discovery costs for inaccessible data July 2003 © 2009 Hogan & Hartson LLP. All rights reserved. Zubulake IV: Duty to preserve when litigation reasonably anticipated. Oct. 2003 Zubulake V: Spoliation adverse inference instruction. July 2004 4

Pension Committee Zubulake I: To what extent is inaccessible data discoverable, and who should pay? May 2003 Zubulake III: Balances and Funds allocates placed into discovery receivership costs for ininaccessible S. D. Fla. data July 2003 © 2009 Hogan & Hartson LLP. All rights reserved. Zubulake IV: Duty to preserve when litigation reasonably anticipated. Oct. 2003 Zubulake V: Pension Spoliation Committee adverse Complaint inference filed in S. D. instruction. Fla. Feb. 2004 July 2004 5

The Pension Committee Chronology Citco Defendants identify “gaps” in Plaintiffs’ production - 311 documents not produced Case transferred to S. D. N. Y PSLRA STAY OF DISCOVERY 2004 Oct. 2005 © 2009 Hogan & Hartson LLP. All rights reserved. DEPOSITIONS & DECLARATIONS 2007 Oct. 2007 June 2008 6

What’s So New? Discovery failures now linked to concepts of tort © 2009 Hogan

Tort Concepts “Negligence” is conduct that: • Falls below the standard established by law for the protection of others; • Caused by heedlessness or inadvertence, by which the negligent party is unaware of the results; • May also arise where possible consequences carefully considered and best judgment used. © 2009 Hogan & Hartson LLP. All rights reserved. 8

Tort Concepts “Gross negligence” is conduct that: • Fails to exercise even that care that a careless person would use • Differs from ordinary negligence in degree only, not in kind. © 2009 Hogan & Hartson LLP. All rights reserved. 9

Tort Concepts “Willful, Wanton and Reckless” conduct: • Is unreasonable and intentionally done; • In disregard of a known or obvious risk; • Highly probable to cause harm; • Conscious © 2009 Hogan & Hartson LLP. All rights reserved. indifference to consequences. 10

The Pension Committee Holdings • No willful misconduct • Six plaintiffs grossly negligent – No collection until 2007 – Failure to collect from key players – Failure to preserve back-up tapes – Failure to supervise collection – False and misleading declarations • Spoliation instruction, costs and fees awarded • Seven plaintiffs negligent – Untimely litigation holds – Insufficient custodian searches – Failure to supervise collection – Failure to search in appropriate places • Costs, fees and further discovery awarded © 2009 Hogan & Hartson LLP. All rights reserved. 11

The Pension Committee Continuum n o t n a W ith / l llfu d Fa i W Ba e c n e N s ge i l g os r G e c n e g i l g Ne } Failure to obtain records from all employees © 2009 Hogan & Hartson LLP. All rights reserved. 12

The Pension Committee Continuum n o t n a W ith / l llfu d Fa i W Ba e c n e N s ge i l g os r G e c n e g i l g Ne } Failure to take “all appropriate measures” to preserve ESI © 2009 Hogan & Hartson LLP. All rights reserved. 13

The Pension Committee Continuum n o t n a W ith / l llfu d Fa i W Ba e c n e N s ige l g e N e c n © 2009 Hogan & Hartson LLP. All rights reserved. } os r G ge i l g Failure to issue written litigation hold 14

The Pension Committee Continuum n o t n a W ith / l llfu d Fa i W Ba e c n e N s ige l g e N e c n © 2009 Hogan & Hartson LLP. All rights reserved. } os r G ge i l g Failure to collect information from files of former employees 15

The Pension Committee Continuum n o t n a W ith / l llfu d Fa i W Ba e c n os r G e c n e g i l g Ne © 2009 Hogan & Hartson LLP. All rights reserved. } e N s ge i l g Failure to preserve evidence resulting in loss or destruction of relevant information. 16

The Pension Committee Continuum n o t n a W ith / l llfu d Fa i W Ba e c n os r G e c n e g i l g } e N s ge i l g Failure to collect records from key players Ne © 2009 Hogan & Hartson LLP. All rights reserved. 17

The Pension Committee Continuum } n o t n a W ith / l llfu d Fa i W Ba e c n e N s os r G ge i l g “burning, shredding, wi hard drives” e c n e g i l g Ne © 2009 Hogan & Hartson LLP. All rights reserved. 18

Possible Sanctions • Terminating sanctions (default or dismissal) • Preclusion of evidence (issue/claim preclusion) • Adverse-inference instruction • Fines • Cost shifting • Additional discovery © 2009 Hogan & Hartson LLP. All rights reserved. 19

Adverse Inference Instructions 1. Issue Preclusion: 2. Directs jury to deem certain facts admitted. 2. Direction to Presume: Directs jury to presume (subject to rebuttal) that missing evidence would have been favorable to innocent party (relevance and prejudice). 3. “Spoliation Charge”: Permits (but does not require) a jury to presume the lost evidence is both relevant and favorable to the innocent party (relevance and prejudice). © 2009 Hogan & Hartson LLP. All rights reserved. 20

Adverse Inference Instructions n o t n a W ith / l llfu d Fa i W Ba e c n e N s os r G e c n e g i l g Ne ge i l g “May seem unfair” but prevents “gotcha” litigation game. Burden on Innocent Party Relevance & Prejudice © 2009 Hogan & Hartson LLP. All rights reserved. 22

Adverse Inference Instructions n o t n a W ith / l llfu d Fa i W Ba en e N s g i l g ce e c n e g i l g Ne o p m -I d te t i m r e P os r G d e s Rebuttable Presumption Relevance & Prejudice © 2009 Hogan & Hartson LLP. All rights reserved. 23

Zubulake IV, 220 F. R. D. 212, 219 -20 (S. D. N. Y. 2004) “In practice, an adverse inference instruction often ends litigation – it is too difficult a hurdle for the spoliator to overcome. The in terrorem effect of an adverse inference is obvious. . Accordingly, the adverse inference instruction is an extreme sanction and should not be given lightly. ” © 2009 Hogan & Hartson LLP. All rights reserved. 24

A Very Adverse Instruction. . . “I instruct you, as a matter of law, that each of these plaintiffs failed to preserve evidence after its duty to preserve arose. 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. ” © 2009 Hogan & Hartson LLP. All rights reserved. 25

Key Considerations Resulting from Pension Committee: © 2009 Hogan & Hartson LLP. All rights

Preservation Duty • Applies to plaintiffs too! • Existed since 1985 (Roe and Bills) • Here, duty triggered in April 2003 when, – Fund filed bankruptcy – Complaint filed with BVI Financial Services Commission – Certain plaintiffs had retained counsel – Communication initiated with other plaintiffs © 2009 Hogan & Hartson LLP. All rights reserved. 27

Litigation Hold • Must be in writing • Instruction to “collect” not a litigation hold: – No direction to preserve all relevant records – No mechanism for collecting records for search by someone other than employee • Plaintiff’s © 2009 Hogan & Hartson LLP. All rights reserved. must issue before filing 28

Supervision of Collection • Self collection insufficient (in this case) • Bad when collector – “had no experience conducting searches” – “received no instruction on how to do so” – “had no supervision during collection” – “had no contact with Counsel during the search” • Should have – “been taught proper search methods” – “remained in constant contact with Counsel” – “been monitored by management” © 2009 Hogan & Hartson LLP. All rights reserved. 29

Consider What Should Exist • Plaintiffs had a “fiduciary duty” to conduct due diligence, thus – “Surely – records must have existed” “The paucity of records produced. . . and the admitted failure to preserve. . . leads inexorably to the conclusion that relevant records have been lost or destroyed. ” © 2009 Hogan & Hartson LLP. All rights reserved. 30

Custodians • Failure to collect from key players – gross negligence • Failure to collect from “all employees” – negligence • Former employees? • Evaluate © 2009 Hogan & Hartson LLP. All rights reserved. early and often 31

Address Other Possible Sources • “[P]ersonal computers outside of. . . office” • Palm

Stay of Discovery • PSLRA (or other) stay of discovery does not justify: – Failure to preserve – Failure to issue litigation hold – Failure to “focus efforts” on discovery © 2009 Hogan & Hartson LLP. All rights reserved. 33

Declarations • Court emphasized importance of declarations’ accuracy, but – 4 had to be amended – 1 included information not previously revealed – “most” were “false and misleading” – and/or issued without personal knowledge • Memorialize preservation and collection efforts!! © 2009 Hogan & Hartson LLP. All rights reserved. 34

Memorialize • What files were searched? • How search was conducted? • Who was

Backup Tapes – Preservation • No requirement “all” backup tapes preserved. • Preserve “if such tapes are the sole source of relevant information” • For example, “if active files of key players are no longer available” © 2009 Hogan & Hartson LLP. All rights reserved. 36

Backup Tapes – Search • Routine searches not required except: – Relevant material existed but was not produced; – Or, when relevant material should have existed but was not produced. © 2009 Hogan & Hartson LLP. All rights reserved. 37

Not Addressed In Pension Committee • Proportionality • Early (Rule 26(b)(2)(C)(iii)) attention (Rule 26(f))

Final Thoughts. . . • Pension Committee resulted from “ignorant” or “indifferent” practices. • “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. ” • Observe © 2009 Hogan & Hartson LLP. All rights reserved. the Rule of Reason. 39

Lagniappe www. Technology. In. Litigation. com © 2009 Hogan & Hartson LLP. All rights

Today’s Presenter: Alvin F. Lindsay Mr. Lindsay is a partner at Hogan & Hartson LLP where he specializes in complex commercial litigation and arbitration. He is the author of a book and DVD titled Technology In Litigation published by the National Institute for Trial Advocacy (NITA). The Associated Press calls Mr. Lindsay “an expert in technology and litigation, ” and The Wall Street Journal quoted him extensively in explaining the December 2006 revisions to the Federal Rules of Civil Procedure to encompass electronically stored information. Mr. Lindsay hosts the website Technology. In. Litigation. com, and can be reached at AFLindsay@HHLaw. com. © 2009 Hogan & Hartson LLP. All rights reserved. 41

For more information on Hogan & Hartson, please visit us at www. hhlaw. com Abu Dhabi Baltimore Beijing Berlin Boulder Brussels Caracas Colorado Springs Denver Geneva Hong Kong Houston London Los Angeles Miami Moscow Munich New York Northern Virginia Paris Philadelphia San Francisco Shanghai Silicon Valley Tokyo Warsaw Washington, DC © 2009 Hogan & Hartson LLP. All rights reserved. 42