KPMG Judge Kicks the Sisyphean Stone of Proportionality Back Down the Hill

Those of us who think that the US Federal Rules of Civil Procedure relating to preservation are utterly bonkers get powerful reinforcement from a case brought against KPMG in the Southern District of New York. The plaintiffs are described as “entry-level auditors” and their claim is for overtime payments. A US Magistrate Judge has ordered that KPMG must preserve the hard drives of computers used by anyone who might join in the action. The Chamber of Commerce has filed an amicus brief, as have the Washington Legal Foundation and the International Association of Defence Counsel, asserting between them (I summarise) that the order is both wrongly made and “profoundly significant” (and not in a good way) for businesses.

An article by Alison Frankel summarises the issues and gives links to both amicus briefs and to the order.

One must, of course, be careful up to a point in commenting adversely on the rules of another jurisdiction. I am careful also to say that it is the rules and case law as they have developed which are “bonkers”, rather than the judge. The gist of the amicus briefs is that findings like this exacerbate an already disproportionate and over-expensive situation. I have recently written about the differences between the US and UK rules on this subject and am about to do so again in response to thoughtful comments made on my articles by Howard Sklar of Recommind and Philip Favro of Symantec. For today’s purposes, I will avoid contention (to the extent that the description “bonkers” can be seen as non-contentious) and merely point you to the story.

I am helped in this by the succinct and clear form of the amicus briefs. The WLF and IADC brief makes two points. The first is effectively a proportionality point whose core is “that the decision of the Magistrate Judge, by condoning broad ESI preservation orders without regard to their cost, will skew the outcome of civil litigation by (for all practical purposes) forcing defendants to enter into settlements as a less expensive alternative to complying with preservation orders”. The second challenges the judge’s finding that every former employee who might join in the action qualified as a “key player” whose hard drives must be preserved – “such a broad definition of a “key player” is unprecedented; amici are concerned that acceptance of that definition in the class action context will lead to an exponential increase in discovery costs for class action defendants.”

The first of these has deep implications because “any economically rational defendant would consider settling the litigation rather than incurring such a large discovery expense”. This, amici say, is permitting the use of procedural rules to alter substantive rights, which was not the intention of Congress. To me, who repeatedly bangs on about the “overriding objective” in the UK rules and the “just, speedy and inexpensive” equivalent in FRCP Rule 1, such an order is self-evidently disproportionate to any perceived risk of injustice to the plaintiff’s and (by almost inevitable corollary) represents injustice to the defendants. The factual question as to the definition of “key players”, with its analysis of what was said about them by Judge Scheindlin in Zubulake, is also interesting to those of us who urge an intelligent focus on what really matters in place of a grapeshot approach to preservation.

The Chamber of Commerce brief flatly recites that the judge “erred in refusing to apply a proportionality standard” and “in holding that every class or collective action member is a “key player””. The brief refers to the Manual for Complex Litigation published by the Federal Judicial Center and to US Magistrate Judge Paul Grimm’s view in his Opinion in Victor Stanley, Inc v Creative Pipe, Inc that the duty to preserve “is neither absolute, nor intended to cripple organizations… [T]he scope of preservation should somehow be proportional to the amount in controversy and the costs and burdens of preservation.”

Perhaps the key part of the Chamber of Commerce brief is this:

“… Because of the threat of sanctions, a decision – like the Magistrate Judge’s – that overstates the duty of preservation will effectively become the law. For in the absence of controlling authority, parties and their counsel have no way to know in advance what standard a court will ultimately apply, and in an over-abundance of caution, they may feel obligated to follow the broader standard preservation adopted by any court. It is imperative that this court overturns the Magistrate Judge’s decision and correct its errors of law.”

Sisyphus - TitianTrenchant stuff, as one would expect from any brief about discovery which carries the signature of Maura Grossman of Wachtell, Lipton, Rosen and Kats. Over the last year, the Sisyphean Stone of proportionality and common sense has made progress up the steep hill represented by Judge Scheindlin’s Zubulake conclusions. The Magistrate Judge in the KPMG case seems to my eye to have kicked it down again. The point here is not whether either of these judges were wrong on the facts of the cases before them, but the impact which these cases have on lawyers trying to define their clients’ obligations. The closing words of the Chamber of Commerce brief, quoted above, say it all.

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About Chris Dale

I have been an English solicitor since 1980. I run the e-Disclosure Information Project which collects and comments on information about electronic disclosure / eDiscovery and related subjects in the UK, the US, AsiaPac and elsewhere
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2 Responses to KPMG Judge Kicks the Sisyphean Stone of Proportionality Back Down the Hill

  1. Philip Favro says:

    The KPMG case seems consistent with other recent American and English opinions discussing proportionality. Courts treat proportionality like the defense of “unclean hands.” A party who raises “unclean hands” must have a record of clear and acceptable conduct for the court even to consider the argument. If that party has engaged in any type of chicanery either before or during litigation, prevailing on this defense is nearly impossible.

    Like “unclean hands,” proportionality essentially requires a litigant to approach the court with a clean slate of conduct in discovery/disclosure. Without such a record, it is difficult for the party raising the argument to prevail.

    My theory is born out in at least four recent cases:

    1) Pippin v. KPMG. The court noted that KPMG was itself responsible for the burden since it “failed to work effectively with Plaintiffs in order to generate a potential means of constructing an appropriate sample.” Since “KPMG’s ongoing burden is self-inflicted” and given the relevance of the requested materials, the proportionality argument was rejected.

    2) Escamilla v. SMS Holdings Corp. The individual defendant (represented by Jackson Lewis) raised proportionality to argue that he should be not be obligated to alone pay for additional discovery ordered by the court. The additional discovery, however, was required to address issues created by defendant’s failure to preserve relevant evidence. Since “the burden and expense of this discovery was self-inflicted,” the proportionality argument was rejected.

    3) Brooks v. Macy’s. Though never invoking the term “proportionality,” the defendant essentially argued as much when it asserted that the discovery was unduly burdensome and oppressive due to the age, location and (dis)organization of the requested documents. The court sympathized with but ultimately rejected the burden argument. “[D]isorganized record-keeping does not excuse a party from producing relevant documents.”

    4) Omni Labs v. Eden Energy. The defendants’ “11th Hour” disclosure application was rejected given the discovery efforts the claimant had already undertaken and the nominal relevance of the requested materials (in contrast to the KPMG case). Accordingly, “it is not proportionate to require anything more to happen. Otherwise it simply becomes a fishing expedition.”

    Viewed in this light, the opinion from KPMG appears reasonable and consistent with the developing body of case law on this issue.

    • Chris Dale says:

      Thanks, Philip. This is the first time I have released a Comment – I usually wrap good comments (as this one is) in a fresh post of my own, but there is a queue at the moment following my recent multi-conference trip. I will come back to this. Chris Dale

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