Introduction

In the almost two years since Judge Shira Scheindlin’s landmark Pension Committee decision, other judges in the Second Circuit have been reluctant to fully embrace Pension Committee’s stringent standards. Magistrate Judge Francis of the Southern District was the first to differ with the Pension Committee analysis in his decision Orbit One Commc’ns v. Numerex, Corp., 272 F.R.D. 429 (S.D.N.Y. 2010). More recently, an opinion from Judge Foschio of the Western District of New York — Steuben Foods, Inc. v. Country Gourmet Foods, LLC, 2011 WL 1549450 (W.D.N.Y. Apr. 21, 2011) — similarly has questioned the stringent requirements found in the Pension Committee decision. Steuben Foods disagreed with two central holdings: 1) that litigation holds must always be issued in written form; and 2) that where a grossly negligent state of mind has been found, relevance will be assumed. There are also signs, apart from case law, that the tide may be turning — at least to a degree — against Pension Committee’s strict regime. A group of e-discovery experts from The Sedona Conference Working Group on Electronic Document Retention & Production has, in a published commentary, suggested that a per se rule regarding written litigation hold notices is inappropriate. See The Sedona Conference Commentary on Legal Holds: The Trigger and the Process, 11 SEDONA CONF. J. 267, 280 (2010).

Pension Committee Sets Stringent Standards

In Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 685 F. Supp. 2d 456 (S.D.N.Y. Jan. 15, 2010 as amended May 28, 2010), Judge Scheindlin wrote at length regarding the spoliation of electronically stored information (“ESI”). Though acknowledging from the outset that “courts cannot and do not expect that any party can meet a standard of perfection,” id. at 461, Pension Committee is notable for the strict preservation rules that it set forth. Judge Scheindlin listed four preservation failures that “support a finding of gross negligence” when litigation is reasonably foreseeable. Id. at 471. Among the enumerated preservation failures, Judge Scheindlin was most explicit regarding written litigation holds, announcing a per se rule: “the failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.” Id. at 465 (emphasis in original). The announcement of a bright-line rule necessitating written litigation holds has generated a significant amount of controversy. See, e.g., William K. Dodds et al., ‘Pension Committee,’ One Year Later, N.Y.L.J., Mar. 21, 2011 (discussing criticism of bright-line rule requiring written litigation hold); Monica Bay, Judicial Panel Captivates Crowd at Georgetown Conference, Law Technology News, Nov. 19, 2010 (same).

Furthermore, the Pension Committee decision indicated that where gross negligence has been established — as in the case of a failure to issue a written hold — the relevancy of the destroyed documents to the claims of the adversely affected party should be assumed. Pension Comm., 685 F. Supp. 2d at 467. Under Second Circuit law, a party claiming that spoliation has occurred must establish, in addition to showing that a preservation obligation had arisen when documents were destroyed and that those documents were destroyed with a “culpable state of mind,” that the destroyed evidence was relevant to its legal claims. See, e.g., Byrnie v. Town of Cromwell, 243 F.3d 93, 107-11 (2d Cir. 2001). According to Pension Committee, a finding of a grossly negligent state of mind would create two presumptions: first, that the documents are relevant, and second, that the lost evidence was favorable to the party requesting the documents. Pension Comm., 685 F. Supp. 2d at 478, 480, 496.

Background: Orbit One’s Departure from Pension Committee

In October 2010, Magistrate Judge Francis, who, like Judge Scheindlin, sits in the Southern District of New York, issued an opinion expressly disagreeing with Pension Committee’s analytical framework. The court’s decision in Orbit One rejected Pension Committee’s rule that gross negligence created a presumption of relevancy and disagreed with the conclusion that failure to institute a written hold would per se create a finding of gross negligence. Orbit One Commc’ns v. Numerex Corp., 271 F.R.D. 429 (S.D.N.Y. 2010).

Orbit One concerned an employment dispute arising out of Numerex’s acquisition of Orbit One. The court found five ways in which Orbit One failed to adequately implement preservation procedures. Id. at 441-42. The court even described some of Orbit One’s preservation failures as “ill-advised” and “cavalier.” Id. at 442-43. Nonetheless, no sanctions were imposed because relevancy had not been shown. In its reasoning, the court “respectfully disagree[d]” with Pension Committee’s “implication” that sanctions could ever be warranted without an affirmative showing of “discovery relevance.” Id. at 440. Judge Francis stated that relevancy of a lost document will not be presumed “merely because it has been destroyed as a result of a party’s failure to abide by recommended preservation practices.” Id. at 440-41. Thus, although Orbit One had clearly failed to institute adequate procedures in several ways, no sanctions were imposed because there was “insufficient evidence of any loss of discovery-relevant information.” Id. at 442.

The Orbit One court also disagreed with Pension Committee’s suggestion that failure to issue a written litigation hold in itself necessarily constitutes gross negligence. Indeed, the court wrote that “depending upon the circumstances of an individual case,” the failure to issue a written hold may not even rise to the level of ordinary negligence. Id. at 441. The court explained that in small organizations, written holds might even be “counterproductive” since they would be less specific to individual employees than oral communication would be. Id.

Steuben Foods: The Facts and Posture

Relying extensively on Orbit One, an April 2011 opinion from the Western District of New York also refused to impose sanctions without an affirmative showing of relevancy. In Steuben Foods, Inc. v. Country Gourmet Foods, LLC, 2011 WL 1549450 (W.D.N.Y. Apr. 21, 2011), Steuben Foods alleged that defendant Country Gourmet had breached an exclusive supply contract by selling almost all of its assets to Campbell Soup, the co-defendant. Though no written hold had been circulated, Steuben implemented an oral litigation hold: the company’s corporate counsel had conversations with “senior management officers” and “six other managers and officers” of the company. Id. at *1. During pretrial proceedings, Campbell moved to compel and for spoliation sanctions because, even though the company instituted an oral litigation hold, relevant documents were lost when the company failed to issue a written litigation hold “at the earliest time when it became aware of the likelihood of future litigation” against the defendants. Id.

Campbell’s spoliation allegation highlighted the issue with which all spoliation analyses must grapple: if documents have been destroyed, how can the adversely affected party prove their existence and relevance? In Steuben Foods, Campbell attempted to resolve this difficulty by pointing to emails it had received from Steuben Foods but that Steuben Foods had failed to produce in discovery. Thus, according to Campbell’s logic, because existing e-mails sent by Steuben Foods were not produced by the sender, the company’s inadequate preservation procedures surely had led to the destruction of documents. Id. at *2.

Under Second Circuit law, however, Campbell needed to show not only that documents had been destroyed but that they were relevant. Campbell only made a relevancy argument regarding one email. Id. at *4. According to the message sent by Steuben Foods and received by Campbell, on June 24, 2008 the companies’ meeting of June 23 had been “good, frank and open.” Id. at *2, *4. This language, Campbell claimed, went against Steuben Foods’ argument that Campbell had “engaged in threatening conduct” during that meeting. Id. at *4.

Steuben Foods, Like Orbit One, Departs from Pension Committee

In his analysis of Campbell’s spoliation motion, Judge Leslie Foschio, a Magistrate Judge for the Western District of New York, followed Orbit One’s framework and found that, while Steuben Foods had not issued a written litigation hold, the existence and relevance of allegedly destroyed documents had not been shown. Id. at *3-4. A finding of spoliation was thus not supported. Id. at *4. Explaining generally that courts have required “actual destruction or loss of relevant documents” for a finding of spoliation, the court quoted directly from Orbit One for the proposition that sanctions are inappropriate unless “the sought-after evidence actually existed and was destroyed . . . .” Id. (quoting Orbit One, 271 F.R.D. at 441)(emphasis added). Again citing to Orbit One, the court furthermore stated that parties claiming spoliation must also show that the destroyed evidence was relevant. Id. at *3. The court held there was no evidence that Steuben Foods was “responsible for the destruction or loss of any relevant evidence.” Id. at *4.

Further, the court stated that “the requirement of a written litigation hold notice, as stated in the Pension Committee case, as a ground to presume or infer loss of relevant documents, has not been adopted in this district.” Id. at *5. The court wrote that it “declines to hold that implementation of a written litigation hold notice is required in order to avoid an inference that relevant evidence has been presumptively destroyed by the party failing to implement such written litigation hold.” Id. The court also noted that since Campbell did not even attempt to explain the relevancy of two of the unproduced emails to which it pointed in its spoliation motion, it had clearly failed to make an affirmative showing of relevancy. Id. at *4.

To buttress its conclusion that Campbell had not successfully laid out a spoliation claim, the court in Steuben Foods distinguished the facts of Pension Committee. Steuben Foods explained that in Pension Committee, the finding that relevant documents had been lost or destroyed was necessitated by the “paucity” of document production compared with the trove that must have existed. Id. at *4. In Steuben Foods, on the other hand, “nearly 12,000 pages” of responsive documents had been produced. Id. at *4. The court, citing to Orbit One, also discussed company size as “persuasive” in indicating when a litigation hold must be written or oral. Id. at *5. Where, as in the case of Steuben Foods, the accused spoliator’s company consists of 400 employees, the size “lends itself to direct oral communication of the need to preserve documents relevant to the Plaintiff’s case.” Id.

The court concluded that the lack of a written litigation hold did not automatically result in a finding of gross negligence or a presumption of relevance. Id. at *4-5.

Sedona Conference Indicates Disagreement with Pension Committee’s Per Se Rule

The Sedona Conference’s Working Group on Electronic Document Retention & Production suggested that its view is in line with that of Orbit One and Steuben Foods in rejecting bright-line tests for e-discovery spoliation. In its “Commentary on Legal Holds,” the Working Group discussed the necessity of legal holds after a duty to preserve evidence has arisen. The Sedona Conference Commentary on Legal Holds: The Trigger and the Process, 11 SEDONA CONF. J. 267 (2010). The commentary rejected bright-line rules. Noting that a delay in implementation of a hold would not necessarily constitute a problem rising to the level of spoliation, the group directly addressed the per se rule found in Pension Committee and posited that the “test is what was reasonable under the circumstances, with an eye towards the ultimate end goal (e.g., whether relevant information was preserved). Thus, there is no per se negligence rule and if the organization otherwise preserved the information then there is no violation of the duty to preserve.” Id. at 280 (emphasis added).

When criticizing the propriety of a per se negligence rule, the court cited to Rimkus Consulting Grp. v. Cammarata, 688 F. Supp. 2d 598 (S.D. Tex. 2010), an opinion by Magistrate Judge Lee Rosenthal. In Rimkus, Judge Rosenthal had expressly addressed Pension Committee’s analytical framework and found it inapplicable in the Fifth Circuit. Id. at 614.

The Standards May Not Be as Strict as Once Seemed, But Caution Is Still Advised

In the wake of Orbit One and Steuben Foods, companies using ESI remain well-advised to issue written litigation holds. Though Steuben Foods illustrated an easing of Pension Committee’s strictures by rejecting any absolute requirement for a written litigation hold and refusing to assume relevancy without a showing, the court certainly did not suggest oral litigation holds would always suffice. Indeed, the court stated that the size of an organization would bear on the necessity of a written litigation hold. As such, larger corporations should not expect shelter in the Steuben Foods ruling. Moreover, a written litigation hold notice provides valuable documentary evidence of the steps taken to preserve documents in response to anticipated litigation and therefore remains a prudent choice for all litigants.