Defendant Sanctioned for Negligent Failure to Institute and Communicate Legal Hold

In re Old Banc One Shareholders Sec. Litig., 2005 WL 3372783 (N.D. Ill. Dec. 8, 2005)

In this opinion, the District Court adopted in full the Magistrate’s Report and Recommendation regarding plaintiffs’ motion for sanctions based upon the defendant’s failure to preserve relevant documents.

The court explained that, in securities cases, corporations have a duty to preserve documents pursuant to both the Federal Rules of Civil Procedure and the Public Securities Litigation Reform Act. “However, the duty to preserve potentially discoverable information does not require a party to keep every scrap of paper. Instead, a party is required to keep relevant evidence over which it had control and reasonably knew or could foresee was material to the litigation.” 2005 WL 3372783 at *3 (citations omitted).

The court found that the defendant was on notice and had a duty to preserve a variety of documents that had been requested by plaintiffs, including the underlying data for several calculations used in connection with a merger. The court noted the need for instituting a legal hold: “In order to meet its obligations, Bank One needed to create a comprehensive document retention policy to ensure that relevant documents were retained and needed to disseminate that policy to its employees.” Id. Because Bank One was unable to produce the requested documents, it concluded that Bank One had breached its duty to retain or preserve the documents. The court found that Bank One did not have a comprehensive document retention policy in place during the litigation. Further, “Bank One did not make a general dissemination in writing to all employees of the necessity of preserving documents relating to this litigation, nor did it take any steps to ensure that employees read the electronic version of the policy or that they followed it.” Id. at *4.

The court found, that although the loss of several categories of documents reflected “poor judgment,” and that the failure to create and disseminate a written litigation hold policy was negligent, there was no evidence that Bank One willfully destroyed any documents. Id.

The court denied plaintiffs’ request for sanctions in the form of default judgment, or, alternatively, the striking of affirmative defenses or the issuance of an adverse jury instruction. Instead, the court agreed with the Magistrate’s recommendation that a lesser sanction be imposed: that Bank One be prevented from cross-examining plaintiffs’ expert, and that the jury be instructed as to this limitation and the reason for it. The court denied without prejudice the plaintiffs’ request for attorneys’ fees, stating that the request may be renewed at the end of the case when the parties and the court would be in a better position to evaluate the impact of Bank One’s failure to preserve the documents at issue.

Full text of this decision can be found here.