On July 10, 2012, the Second Circuit rejected the Southern District of New York’s January 2010 holding in Pension Committee v. Banc of America that the failure to issue a written litigation hold is gross negligence, per se, and may give rise to an adverse inference. It held instead, in Chin v. Port Authority of New York and New Jersey, that the better approach is to consider the failure to adopt good preservation practices as one factor in the determination of whether discovery sanctions should issue.

Although this holding is a welcome relief to litigants who for whatever reason did not issue a timely, comprehensive, written litigation hold, there remains no doubt that the best practice is still to issue such a hold as soon as a preservation obligation is triggered, and then to monitor, enforce and amend the hold as necessary.

Anyone with even a passing familiarity with the duty to preserve and produce electronically stored information (ESI) in U.S. litigation is well aware of the pivotal series of decisions written by U.S. District Court Judge Shira A. Scheindlin of the Southern District of New York beginning in 2003 and 2004 with Zubulake v. UBS and culminating with Pension Committee in 2010. Pension Committee held, among other things, that “The failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.”

Like Zubulake, Chin is an employment discrimination case. It involves eleven Asian Americans currently or formerly employed as police officers by the Port Authority who alleged that they were passed over for promotions because of their race. In Chin, the plaintiffs asserted that the Port Authority had failed to issue a written litigation hold for certain “promotion folders,” resulting in the destruction of potentially beneficial documents. The district court refused to issue an adverse inference instruction for spoliation of evidence, however, finding that there was “ample alternative evidence” concerning the qualifications of the plaintiffs and the Port Authority’s destruction of the folders was “negligent, but not grossly so.” Plaintiffs appealed the Court’s decision and the Second Circuit affirmed.

While the litigation hold/spoliation issues in Chin are not central to the Second Circuit’s holding, they are nonetheless significant. In Chin the Second Circuit noted that the Port Authority knew it had an obligation to preserve the promotion folders “yet failed to do so.” Despite this, the Court found that it was not an abuse of discretion to deny issuing an adverse inference charge. In so doing the Court held:

  • “We reject the notion that a failure to institute a “litigation hold” constitutes gross negligence per se. Contra Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC.”
  • “[W]e agree that “the better approach is to consider [the failure to adopt good preservation practices] as one factor” in the determination of whether discovery sanctions should issue. Orbit Comm’ns, Inc. v. Numerex Corp.”
  • “Moreover, as the district court recognized, see Port Auth. I, 601 F.Supp.2d at 570, a finding of gross negligence merely permits, rather than requires, a district court to give an adverse inference instruction. See Residential Funding Corp.”
  • “Even if we assume arguendo both that the Port Authority was grossly negligent and that the documents here were 'relevant,' we have repeatedly held that a 'case-by-case approach to the failure to produce relevant evidence,' at the discretion of the district court, is appropriate. Residential Funding Corp.”

The Court went on to reaffirm its established three-part adverse inference standard:

“[A] party seeking an adverse inference instruction based on the destruction of evidence must establish:

(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed;

(2) that the records were destroyed with a culpable state of mind; and

(3) that the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.”

Residential Funding Corp. v. DeGeorge Fin. Corp.

If these elements are established, a district court may, at its discretion, grant an adverse inference jury instruction insofar as such a sanction would “serve[ ][the] threefold purpose of:

(1) deterring parties from destroying evidence;

(2) placing the risk of an erroneous evaluation of the content of the destroyed evidence on the party responsible for its destruction; and

(3) restoring the party harmed by the loss of evidence helpful to its case to where the party would have been in the absence of spoliation.”

Byrnie v. Town of Cromwell, 243 F.3d 93, 107 (2d Cir.2001).

Impact of the Second Circuit’s Holding

In the past two-and-a-half years, Pension Committee has been the basis for countless motions for sanctions for the failure to issue written litigation holds. Despite the reputation of the court and that of the jurist who wrote the opinion, however, many courts have declined to follow the line-in-the-sand requirement as to written litigation holds and the presumption of prejudice. Instead, the prevailing approach has been to delve into the context of individual situations, including questions as to the clarity of the preservation obligation and any motive or bad faith, closely followed by whether there was any evidence that documents were lost and, if so, their potential relevance and any prejudice.

On July 10, the Second Circuit dealt with the issue head-on in Chin, firmly rejecting this portion of the Pension Committee holding. Henceforth, in the Second Circuit, and likely elsewhere, the failure to issue a written litigation hold is no longer per se gross negligence sanctionable by itself, with no need to prove prejudice or even the relevance of the missing evidence.

As noted earlier, there remains no doubt that the best practice is still to issue a comprehensive, written litigation hold as soon as a preservation obligation is triggered. This will not only increase the likelihood that relevant documents will not be lost but also memorialize your efforts to preserve them.