E-discovery: 2nd Circuit creates some breathing room on litigation holds

Court disagreed with Shira Scheindlin, ruling that failure to issue a litigation hold does not always constitute gross negligence per se

Since 2010, Pension Committee v. Banc of America Securities  has been a premier decision on the availability of adverse inference sanctions where a party fails to issue a litigation hold. U.S. District Judge Shira A. Scheindlin held that a party’s failure to institute a written hold was “gross negligence” per se, permitting a presumption that relevant and prejudicial documents were destroyed and triggering the dreaded adverse inference against the erring party. Recognizing Judge Scheindlin’s expertise and reputation in e-discovery, extending from her multiple decisions in the famous Zubulake v. Warburg cases through her five opinions in National Day Laborer Organization Network v. Immigration and Customs Enforcement, which applied e-discovery standards to FOIA requests, Pension Committee became the benchmark on litigation hold sanctions. According to a recent Westlaw search, courts have cited it in 91 cases, with only two directly criticizing its holding.

On July 10, the 2nd Circuit took only one page of an opinion otherwise devoted to the elements of an employment discrimination case and its statute of limitations to reverse that simple, bright-line test. In Chin v. Port Authority, Judge Livingston, writing for the three-judge panel, “rejected the notion that a failure to institute a ‘litigation hold’ constitutes gross negligence per se.” Rather, the panel supported the approach taken in a less well-known case, Orbit Comm’ns, Inc. v. Numerex Corp., that the failure to adopt good preservation practices is just one of the elements to be considered in determining whether to issue discovery sanctions. Probably in recognition of Pension Committee’s prominence, the court even took the unusual step of referencing Judge Scheindlin’s opinion as “contra” to its holding, thus alerting the e-discovery world to this sea change.

The facts in Chin, while demonstrating a surprisingly long delay in issuing a litigation hold, are not unusual in the world of e-discovery, where documents, unless specifically preserved, disappear as hard drives are overwritten, computers crash and autodelete functions remove old files from memory. In January 2001, the Asian Jade Society, representing a group of Asian-American police officers, filed a discrimination charge against the Port Authority of New York and New Jersey with the Equal Employment Opportunity Commission (EEOC). In 2003, the EEOC found probable cause to believe that the Port Authority had violated Title VII and, two years later, the Department of Justice issued a right-to-sue letter. The action was brought in April 2005. However, no litigation hold was put into effect until 2007, six years after the EEOC charges were filed, by which time at least 32 promotion folders involving decisions from 1999 to 2002 had been destroyed. The plaintiffs moved for an adverse inference sanction. The district court denied the motion, finding that the plaintiffs had ample alternative evidence regarding their comparative qualifications and that, although the Port Authority’s conduct was “negligent,” it was not “grossly so.”

Faced with an opportunity to add circuit court gravitas to Pension Committee’s per se standard, the court of appeals chose, rather, to bring litigation hold letter failures under the same umbrella as any other e-discovery delinquency. It reiterated the sanction standard established in Residential Funding Corp. v. DeGeorge Fin. Corp.: Did the party with control of the documents have an obligation to preserve them at the time of destruction? Was there a “culpable” state of mind, and was the destroyed evidence relevant to the requesting party’s claims or defenses? It also reaffirmed that the trial court must review whether the sanction would serve its appropriate purpose—deterring parties from destroying evidence, placing the risks of destroying relevant on the destroying party and restoring the party harmed by the loss of evidence to the position it would have held absent the spoliation. Since the district court, after applying that test, found that the destroyed folders played a “limited role in the promotion process” and that other evidence testified to plaintiffs’ qualifications, the court affirmed denial of the adverse inference request.

Chin is clearly important. Although the case is only two months old, U.S. district courts have already cited it at least twice in denying sanctions (in Meyer Corp. v. Alfay Designs, Inc. and Curcio v. Roosevelt Union Free School District). But, while the 2nd Circuit’s refusal to adopt a per se rule affords a better night’s sleep to counsel who discover that their inside or outside client failed to issue a litigation hold, it should not become an excuse to delay the institution of that process. One need only look at the procedural posture of Chin to recognize the limits on the comfort it affords: “Our review of a district court’s decision on a motion for discovery sanctions is limited to abuse of discretion, which includes errors of law and clearly erroneous assessments of the evidence.” In other words, if you fail to issue a litigation hold and the district judge is less understanding than Judge Cedarbaum in Chin, you may still be facing an adverse inference and all the problems that entails. A strong and timely litigation hold letter, adequately policed, still provides the best protection against a case resolved, not on the merits, but on the side issue of discovery.

Contributing Author

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David Reif

David Reif is a trial lawyer and partner in the Business and Financial Services Litigation Group at McCarter & English, LLP. He is a member...

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