In the context of a Title VII dispute in which individual plaintiffs alleged that the Port Authority of New York & New Jersey (the “Port Authority”) failed to promote Asian officers, the Second Circuit has waded into the protracted and sometimes polarized debate regarding sanctions and discovery preservation obligations, holding that a party’s failure to issue a litigation hold – timely or otherwise – is not gross negligence per se. Chin v. Port Authority of New York & New Jersey, 685 F.3d 135 (2d Cir. 2012) (“Chin II”).

The Trial Court

The issue was first addressed by the trial court, S.D.N.Y. District Judge Miriam Goldman Cederbaum, on a motion for sanctions in which certain plaintiffs argued that the Port Authority had spoliated performance evaluation paper documents contained in individual “promotion folders” by its admitted failure to preserve them. Port Authority Police Asian Jade Soc’y of New York & New Jersey Inc. v. Port Authority of New York & New Jersey, 601 F. Supp. 2d 566 (S.D.N.Y. 2009) (“Chin I”). According to the decision in Chin II, the Port Authority had failed to issue a litigation hold at any point between 2001 and 2007. Plaintiffs sought an adverse inference instruction sanction. Chin I, 601 F. Supp. 2d at 569.

In evaluating the spoliation motion, Judge Cederbaum looked at whether: (1) the alleged spoliator was under “an obligation to preserve the evidence”; (2) destruction was done with “a culpable state of mind”; and (3) the destroyed evidence was “relevant” to a claim or defense. Id. With regard to the first prong, she held that the Port Authority’s obligation had arisen no later than February 2001, when the plaintiff’s EEOC charge was served. Id. The Port Authority admitted that sometime thereafter no fewer than 32 promotion folders were destroyed. Id. However, the Port Authority defended that this was due, in some part, to the September 11, 2001 attacks on the World Trade Center, “which destroyed [their] executive offices and killed many of [their] employees.” Id. at 570. This fact was emphasized in Judge Cederbaum’s consideration of the second factor, whether the alleged spoliator had a “culpable state of mind,” weighing in favor of the Port Authority. Id. With regard to the third prong – relevancy – Judge Cederbaum noted that there were many other documents and types of information in plaintiffs’ possession to support their allegations at trial. Id. at 571. “The plaintiffs possess ample evidence to permit the jury to draw conclusions on the relative qualifications of the plaintiffs and their non-Asian colleagues.” Id. Putting great weight on the third prong, she held that “an adverse inference instruction [was] not warranted” under the circumstances. Id.

Of note, Chin I was issued almost a year before Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 685 F. Supp. 2d 456 (S.D.N.Y. Jan. 15 2010 as amended May 28, 2010), in which Judge Shira A. Scheindlin, also of the S.D.N.Y., wrote at length regarding ESI spoliation, and perhaps most notably that the “the failure to issue a written litigation hold [upon the reasonable anticipation of litigation] constitutes gross negligence because that failure is likely to result in the destruction of relevant information.” Id. at 465. Many courts have declined to adopt this strict, bright-line test. See, e.g., Orbit One Comm. v. Numerex, Corp., 271 F.R.D. 429 (S.D.N.Y. 2010) (“Orbit One”). Under Pension Committee’s strict standard, the outcome of the Chin spoliation motion might have been different, given the Port Authority’s admitted failure to implement a litigation hold well after litigation was reasonably anticipated.

The Second Circuit

More than two years after Judge Cederbaum’s ruling denying the sanctions motion for an adverse inference instruction, and after a nine day trial, in which some plaintiffs did not prevail, the issue was presented to the Second Circuit. Chin II, 685 F.3d at 161-62. One individual plaintiff, Howard Chin, appealed Judge Cederbaum’s ruling denying an adverse inference instruction sanction.

Looking to the same three prong test employed by Judge Cederbaum, and applying an abuse-of-discretion review standard, the Second Circuit affirmed the denial of the sanctions motion, writing: “We reject the notion that a failure to institute a ‘litigation hold’ constitutes gross negligence per se. Rather, we 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.” Id. at 162 (internal citations omitted). In support of this conclusion, the Second Circuit cited Orbit One and included a “contra” citation to Pension Committee. Id. This appears to be a rejection of the strict standard articulated in that decision.

The Second Circuit also stated that even if the Port Authority were deemed grossly negligent and the lost documents were considered 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.” Id. Here,  

the district court concluded that an adverse inference instruction was inappropriate in light of the limited role of the destroyed folders in the promotion process and the plaintiffs’ ample evidence regarding their relative qualifications when compared with the officers who were actually promoted. At trial, [plaintiff] was able to establish his service record and honors . . . . Under these circumstances, the district court did not abuse its discretion in concluding that an adverse inference instruction was inappropriate.  

Id.

Conclusion

The Second Circuit’s decision in Chin II appears to turn largely on the availability of ample alternative evidence to establish the relevant facts. Moreover, the emphasis on the case-by-case approach to sanctions motions (and the deferential review standard applied at the appellate level) may not wholly rule out the application on a sanctions motion of Pension Committee, in a case where the facts of the alleged spoliation — and specifically the failure to issue a litigation hold — support a finding of gross negligence. Thus, the consequences of any particular preservation failure remain unpredictable and potentially very serious.

While Chin II appears to rule out a per se negligence rule in the Second Circuit, parties should nevertheless exercise caution and care in implementing a litigation hold upon the reasonable anticipation of litigation, in consultation with counsel. Notably, the Chin cases concern the loss of paper files after the calamity of September 11, and it remains unclear whether a similar analysis would apply to the loss of relevant electronically stored information, which is susceptible to various modes of backup and destruction.

Summer Associates Daniel Lennard, David Mayo, Anna Schoenfelder, and Alexander Traum.