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New S.D.N.Y. Ruling in Pippins v. KPMG Focuses on Proportionality in Preservation

By Brad Harris

Pippins v KPMG, 2011 WL 4701849 (S.D.N.Y.) October 7, 2011

U.S. Magistrate Judge James L. Cott from the influential Southern District of New York (S.D.N.Y.) released an interesting opinion in early October that reflects on an emerging question: Should the principles of proportionality as articulated in FRCP Rule 26(b)(2)(c) apply to a litigant’s obligation to preserve potentially relevant information in anticipation of discovery? I appreciate Maura Grossman at Wachtell Lipton for bringing this case to my attention.

Pippins v. KPMG involves the treatment of exempt employees under the Federal Fair Labor Standards Act and New York State Labor Law.  The defendant sought a protective order limiting the scope of its preservation efforts by advocating a proportionality test as outlined in FRCP Rule 26(b)(2).  The two parties had failed to reach agreement as to what was reasonable to preserve, and the KPMG’s legal team had sought a protective order to limit the burden of preserving computer hard drives for thousands of former employees who might fall within a potential nationwide FLSA collective.

Judge Cott denied the motion based on the following three factors:

1. Was the material to be preserved relevant? — The Court opted to consider relevance in the context of discovery as “an extremely broad concept” (citing Condit v Dunne).
2. Was the material to be preserved created by or for “key players” in the litigation? — Citing Zubulake and others that materials created and/or retained by parties to the litigation could be considered as key players
3. And finally, would the ongoing preservation be duplicative of other discovery materials being preserved? — The Court did reference the defendant’s “broad efforts to preserve ESI and other relevant documents” and arguments that other materials being preserved would be more than adequate.  However, it did not find sufficient information for ruling on probative value, and deferred addressing the issue of proportionality to another day.

Despite reported considerable expense and risk associated with preserving the hard drives (KPMG claimed it has spent more than $1.5M on hard drive preservation so far), the Court concluded that “until discovery proceeds and the parties can resolve what materials are contained on the hard drives and whether those materials are responsive to Plaintiffs’ document requests, it would be premature to permit the destruction of any hard drives.” (*3)

As litigants struggle to balance the increasing costs of preservation due to the exponential increase in ESI coupled with the increasing risk of spoliation sanctions, stakeholders in the U.S. legal system are searching for a solution founded on the principles of both reasonableness and proportionality.

FRCP Rule 26(b)(2)(C) exists to limit the frequency and extent of discovery where the burden and expense outweigh its likely benefit.  It will be interesting to see if this case helps or hinders a litigant’s need to apply the same principles when evaluating the reasonableness of actions taken to preserve information.

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