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Failing to Cooperate in Preservation Disputes May Bear a Hefty Price Tag

In Pippins v. KPMG LLP, No. 11 Civ. 377 (CM) (JLC), 2012 WL 370321 (S.D.N.Y. Feb. 3, 2012), the court ordered KPMG to preserve approximately 2,500 computer hard drives from former employees who might be included in a Fair Labor Standards Act class at an estimated cost of $1,500,000. Given the growing concerns about the scope of companies’ preservation obligations, and the rising costs of electronic discovery, at first blush the decision is disconcerting. However, a deeper read makes clear that the decision is not a mandate to over-preserve, but more an admonition to litigants to cooperate in discovery, or face the consequences.

Although Plaintiffs conceded that they did not know precisely what was on the hard drives, they argued that the drives might contain usage information and other contents showing when the employees worked and the substance of their work. This type of information would help prove whether individual employees were exempt or entitled to overtime pay. KPMG argued that the burden of preserving this information far outweighed the benefit. KPMG also stated that the information on the hard drives was duplicative of other information that KPMG had preserved. KPMG, however, offered no evidence to support its contentions and steadfastly refused to provide Plaintiffs with even a sampling of the hard drives so that Plaintiffs could determine for themselves “whether the issue [wa]s even worth fighting about.” Id. at *5. Ultimately, KPMG’s failure to cooperate resulted in its undoing.

As the Court explained in ordering the preservation of these hard drives: “I cannot conclude that the cost of preserving the hard drives outweighs its benefit, as KPMG urges, because the record before me is devoid of information necessary to conduct such an analysis . . . I cannot possibly balance the costs and benefits of preservations when I’m missing one side of the scale (the benefits).” Id. at *12. KPMG’s refusal to cooperate left the Court with no alternative options. “In short, KPMG [wa]s hoist on its own petard.” Id.

The court also addressed the role of proportionality in shaping a party’s preservation obligations. Although the court stated that “proportionality is necessarily a factor in determining a party’s preservation obligations,” it also noted that proportionality is a “highly elastic concept” and that prudence may favor “retaining all relevant materials … or swiftly moving for a protective order.” Id. at *11. In conclusion, the court held that, at the very least, proportionality is relevant to a decision on a motion for protective order to limit the scope of preservation.

The Pippins decision reinforces the importance of cooperation and reasonableness in electronic discovery. Indeed, had KPMG been willing to work with the Plaintiffs or otherwise provided actual evidence (perhaps based on sampling) that the tapes did not contain unique information that was not otherwise being preserved, the result likely would have been different. In addition, although companies need to take a broad view of preservation at the outset of a dispute, they should discuss narrowing the scope of preservation at the Rule 26(f) conference, or raise it with the Court if an adversary is unreasonable. Options could include discussing limiting preservation to a set number of custodians or releasing the preservation hold after discovery concludes or after judgment (as opposed to continuing to preserve through appeal). Indeed, the Pippins court stated that if summary judgment was granted, KPMG would no longer need to preserve the hard drives, or the court would be receptive to an application to transfer the costs of preserving the drives to Plaintiffs pending any appeal. Id. at *10.

Please do not hesitate to contact David Lender at or at (212) 310-8153 if you would like to discuss this decision or any other electronic discovery issues.