e-Discovery and Information Governance
David J. Kessler
Preservation and discovery sanctions rarely reach appellate courts, but the Second Circuit addressed both in its July 10 opinion in Chin v. Port Authority of New York & New Jersey, --- F.3d ---, 2012 WL 2760776, Nos. 10-1904-cv(L), 10-2031-cv(XAP) (2d Cir. July 10, 2012), an appeal (and cross-appeal) in an employment discrimination case. Most significantly, the Second Circuit rejected the reasoning under the highly influential Pension Committee opinion by Judge Scheindlin, infra, that failure to issue a written litigation hold notice was per se gross negligence. Id. at *21. Instead, the Second Circuit adopted a less bright line rule and found that the culpability of an alleged spoliator should be determined by the totality of the circumstances given the context of the specific litigation. Id. (citing Orbit Comm'ns, Inc. v. Numerex Corp., 271 F.R.D. 429, 441 (S.D.N.Y.2010)). In essence, while a written litigation hold notice may be reasonable in most cases, it is not a hard and fast rule and, just as important, other preservation conduct may make the failure to issue a written litigation notice not negligent, much less grossly negligent.
In an EEOC claim against the Port Authority, one of the plaintiffs, Chin, sought an adverse inference instruction from the district court based on the fact that the Port Authority had failed to issue a preservation notice for certain "promotion folders," resulting in the destruction of documents potentially beneficial to Chin's case. The district court denied his motion for an adverse inference instruction for spoliation of evidence, finding that the plaintiffs had "ample alternative evidence" related to the qualifications of the plaintiffs and the Port Authority's destruction of the files was "negligent, but not grossly so." Chin, at *3. Relying on Pension Committee, Chin cross-appealed on this issue to the Second Circuit, arguing that because failure to issue a hold is grossly negligent, he was entitled to an adverse inference.
By way of background, Pension Committee v. Banc of America, 685 F. Supp. 2d 456 (S.D.N.Y. 2010), is a highly influential opinion from Southern District of New York Judge Scheindlin, who has authored many significant e-discovery opinions, including the Zubulake decisions and Anderson v. Sotheby Inc. Service Plan, 2005 U.S. Dist. LEXIS 23517 (S.D.N.Y. Oct. 11, 2005). In the main, Pension Committee addressed the plaintiffs' failure to undertake reasonable preservation steps during the stay under the PLSRA in their securities litigation. Pension Committee v. Banc of America, 685 F. Supp. 2d 456. Judge Scheindlin's analysis in Pension Committee adopted a tort-focused approach to the culpability prong of spoliation sanctions and provided guidance on which level of conduct corresponded to culpability for different sanctions: negligence, gross negligence, reckless, and intentional. Id. While e-discovery commentators raised concerns about different aspects of the opinion, one of the most controversial findings was that the court found the failure to issue a written litigation hold notice to be gross negligence per se. Id. at 465 ("the failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information"). For example, in Steuben Foods, Inc. v. Country Gourmet Foods, LLC, No. 08-CV-561S(F), 2011 WL 1549450 (W.D.N.Y. Apr. 21, 2011), the court did not follow the reasoning of Pension Committee, finding that the plaintiffs' failure to issue a written notice was only one factor in considering whether the conduct was unreasonable and if the defendants had actually been prejudiced.
The Second Circuit's Opinion and Analysis
Reviewing for abuse of discretion in Chin, the circuit court upheld the district court's decision. While the Port Authority admittedly failed in its obligation to preserve the promotions folders, the circuit court did not believe that such a failure constituted "gross negligence." Citing the requirements for an adverse jury instruction enumerated in Residential Funding Corp. v. DeGeorge Fin. Corp., the circuit court implied that the promotions folders "were not destroyed with a culpable state of mind." 306 F.3d 99, 107 (2d Cir. 2002). The circuit court "reject[ed] the notion that a failure to institute a 'litigation hold' constitutes gross negligence per se." It considered, however, a failure to institute good preservation practices as "one factor" in determining whether sanctions should apply (quoting Orbit Comm'ns, 271 F.R.D. at 441). While Pension Committee also found that culpability was only one factor in determining whether sanctions should issue – along with a duty to preserve, relevance, and prejudice – the Second Circuit's point is that a responding party's conduct must be evaluated under the totality of the circumstances and in the context of the litigation.
Moreover, the circuit court held that even if the Port Authority's actions were grossly negligent, the district court did not abuse its discretion by denying Chin's motion for an adverse inference instruction. First, "a finding of gross negligence merely permits, rather than requires, a district court to give an adverse inference instruction." (citing Residential Funding Corp., 306 F.3d at 109) (emphasis added). Second, in its determination, the district court considered the destruction of the documents relatively unimportant given the ample evidence available at trial supporting the same conclusions. The Second Circuit could not, therefore, find an abuse of discretion by the district court and upheld its decision.
The Second Circuit's decision in Chin does not change the best practice of issuing written litigation holds in most cases. Not only does is this a reasonable steps to notify key players and prevent the deletion of relevant information, but the notice simultaneously documents these efforts to be used as evidence of good conduct if necessary later in the litigation. Chin, however, focuses the law on the reasonableness of a party's conduct taken as a whole and rejects the premise that any one step is dispositive of a responding party's culpability if relevant data is lost. Preservation and discovery are complex and get more complex in large matters. The Second Circuit is right to focus on the overall preservation process and its practical effect on the information available for trial and not narrowly focus on any one step or the potentially relevant data lost in isolation. Nevertheless, parties would still be wise to remain focused on preservation and ensuring they do a reasonable job in preventing the deletion and modification of potentially relevant documents including through issuing written hold notices.
This article was prepared by David Kessler (firstname.lastname@example.org or 212 318 3382) of Fulbright's e-Discovery and Information Governance Practice.
David J. Kessler