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February 06, 2012

Pippins Demonstrates Need for Uniform Preservation Rules

In her Feb. 3, 2012 opinion in Pippins v. KPMG LLP, (S.D. N.Y. No. 11 Civ. 377), District Court Judge Colleen McMahon denied KPMG’s request for relief from its obligation to preserve more than 2,500 hard drives of its former Audit Associates in the overtime wage case, at a cost claimed by KPMG to be $1.5 million or more. The plaintiffs sought relief under the Fair Labor Standards Act and New York law.

KPMG’s failure to provide any information about or access to the drives doomed its argument that the value of the drives was disproportionate to the costs. Without any sense of what the value was of the information on the drives, the court could not undertake any balancing of burden vs. value. As stated by Judge McMahon, “KPMG is hoist on its own petard,” (Op. p. 20). In other words, traditional stonewalling tactics can backfire on a party trying to limit discovery by arguing proportionality; even the slightest cooperation would have put KPMG in a much better position.

If there was a silver lining for those who oppose burdensome preservation obligations, it was that the court stated that, “[P]roportionality is necessarily a factor in determining a party's preservation obligations” (Op. pp. 18-19), thereby siding against those who argue that proportionality governs production but not preservation.

However, when she discussed when KPMG might be relieved of its preservation obligations “as far as this Court is concerned,” (Op. p. 16, emphasis in original) she cautioned in footnote 3 that, “This Court is not the only court involved.” Even if the Southern District of New York permitted the destruction of some of the drives at some point in time — perhaps after an examination of a sample of the drives or after further determinations of who all would be plaintiffs in the action — some other court could reach a different conclusion on essentially the exact same facts. For example, in addition to New York, auditing associates were employed in Florida, Nebraska, New Jersey, Texas, and Washington.

This creates completely unpredictable and hence unreasonable risks and costs associated with preservation – there needs to be a uniform rule on this critical question as proposed by the Lawyers for Civil Justice and others.

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