KPMG Recieves an E-Discovery Smackdown

Above The Law - Christopher Danzig
February 6, 2012

I don’t always cover electronic discovery, but when I do, I prefer juicy court decisions.

And that’s what we have today. The United States District Court for the Southern District of New York released a blunt, controversial ruling last week, slamming down accounting firm KPMG for requesting a less intense preservation obligation. The case has unsettling implications for attorneys and corporations who have big hopes in the future of less costly and less invasive e-discovery standards.

In Pippins v. KPMG, several former KPMG auditors sued the company, saying they were owed overtime wages. In the course of the lawsuit, the company was ordered to preserve (a lot of) hard drives containing information about thousands of former employees.

Back in the fall, KPMG made a motion to limit the scope of its preservation obligations, which the court dismissed without prejudice. The Big Four accounting firm appealed. The court denied the appeal on Friday (PDF).

Judge Colleen McMahon (whose saucy rulings we have covered before) took the same stance, continuing to call shenanigans on KPMG’s attempt to preserve less information.

KPMG could have established [that producing all the drives was unnecessary] by producing several hard drives to Plaintiffs and Magistrate Judge Cott. … But KPMG has established nothing of the sort, ” McMahon stated.

McMahon added, Even assuming that KPMG’s preservation costs are both accurate and wholly attributable to this litigation which I cannot verify I cannot possibly balance the costs and benefits of preservations when I’m missing one side of the scale (the benefits). ”

I gather that KPMG takes the position that the only Audit Associates who are presently “parties’ are the named plaintiffs, and so only the named plaintiffs’ hard drives really need to be preserved. But that is nonsense, ” she continued. Under Zubulake IV, the duty to preserve all relevant information for “key players’ is triggered when a party “reasonably anticipates litigation.’ … At the present moment, KPMG should “reasonably anticipate’ that every Audit Associate who will be receiving opt-in notice is a potential plaintiff in this action. “