Court Acknowledges Calls for Caution when Applying “Proportionality Test” to Preservation, Denies Motion for Protective Order

Pippins v. KPMG LLP, No. 11 Civ. 0377 (CM)(JLC), 2011 WL 4701849 (S.D.N.Y. Oct. 7, 2011)

KPMG sought a protective order to limit the scope of its preservation obligation or to shift a portion of its preservation costs to plaintiffs.  At the time, the parties awaited ruling on plaintiffs’ Motion to Certify and KPMG was preserving more than 2,500 hard drives at a cost of more than $1,500,000.  Following the court’s analysis, the motion was denied.

In this case, the plaintiffs, potential members of a nationwide FLSA collective and/or a putative New York State class, “challenge[d] KPMG’s treatment of certain accountants in its audit practice . . . .” Discovery was stayed pending determination of plaintiffs’ Motion to Certify.  KPMG sought a protective order to narrow the scope of its preservation obligation as to the hard drives of former and departing associates.  Specifically, KPMG sought an order that would require the preservation of only a random sample of 100 hard drives from among those it had already preserved for this and other litigation.  Alternatively, KPMG sought to shift the cost of any preservation beyond the scope it had suggested.  At the time of the motion, KPMG had already preserved more than 2,500 hard drives of Audit Associates at a cost of more than $1,500,000.  Moreover, KPMG indicated that there were more than 7,500 potential opt-in plaintiffs to the FLSA collective nationwide and more than 1,500 putative class members in New York.

Plaintiffs responded that they were amenable to using sampling as a means to limit the scope of preservation but opposed KPMG’s methodology.  Prior to the motion, the parties had engaged in extensive negotiations and mediation in an effort to reach agreement to no avail.

The court’s analysis considered whether the information on the hard drives was relevant, whether the information to be preserved was “created by or for the ‘key players’ in the litigation,” and whether the ongoing preservation was duplicative of other preservation efforts.  Sparing the details, the court found that KPMG “failed to establish that the contents of the disputed hard drives were not relevant,” “failed to establish that the hard drives do not relate to ‘key players’ in the litigation” (reasoning that any of the individual Audit Associates could be a “key player” in “any one of many potential actions” if the Motion to Certify was denied), and that “KPMG ha[d] not demonstrated that the materials it [sought] to dispose of [were] duplicative of materials that are already subject to its preservation efforts.”

Considering the applicability of the principle of proportionality, the court indicated its reticence to apply the principle in the context of preservation:

However, courts have recognized that in the context of preservation, "this [proportionality] standard may prove too amorphous to provide much comfort to a party deciding what files it may delete or backup tapes it may recycle."  Orbit One Commc’ns, Inc. v. Numerex Corp., 271 F.R.D. 429, 436 (S.D.N.Y.2010) (considering numerous preservation failures in the context of sanctions).  Accordingly, "[u]ntil a more precise definition is created by rule," prudence favors retaining all relevant materials.  Id. (citing Zubulake IV, 220 F.R.D. at 218).

The court later reiterated that “courts in this district have cautioned against the application of a proportionality test as it relates to preservation.”

The court further reasoned that it would be premature to permit the destruction of any hard drives without knowing what they contained and indicated its belief that KPMG’s burden was “self inflicted to a large extent” because of its own “reluctance to work with Plaintiffs to generate a reasonable sample. . . .”  Specifically, the court indicated that the record suggested that “KPMG did not provide Plaintiffs with the opportunity to learn of the hard drive’s contents—such as by reviewing a handful of hard drives that counsel had vetted for privilege or created a log of contents—that might have enabled them to ‘propound targeted requests . . . . at lesser cost.’”  Accordingly, the court encouraged the parties to continue to meet and confer to reach agreement on sampling but declined to grant plaintiffs’ request for the production of five hard drives for inspection.

The court also denied KPMG’s request to shift a portion of its preservation costs.