While magistrate judges supervising electronic discovery often have their recommendations subjected to review by district court judges, the federal circuit courts of appeal are rarely a source of electronic discovery precedent. An exception is a recent opinion by the 2nd Circuit Court of Appeals in Chin v. Port Authority of New York & New Jersey, --- F.3d ---, 2012 WL 2760776 (2d Cir. July 10, 2012).
In Chin, the plaintiffs alleged racial discrimination against their employer. The issues addressed in the opinion include whether the failure to follow best practices in implementing litigation holds is gross negligence per se, warranting an adverse inference instruction for spoliation. In this rare case where judicial expectations regarding electronic discovery are addressed by federal courts of appeal, the 2nd Circuit effectively overruled the holding in Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 685 F.Supp.2d 456, 464–65 (S.D.N.Y.2010), that a failure to issue a litigation hold is gross negligence per se, warranting in evaluating compliance with the duty to preserve ESI. In Chin, the 2nd Circuit held that the district court did not abuse its discretion in denying the plaintiffs’ motion for an adverse inference, despite the defendant’s loss of data and failure to implement a litigation hold process.
The 2nd Circuit has long been identified with a strict view on litigation holds, beginning with the decision in Residential Funding Corp., 306 F.3d 99 (2d Cir. 2002), holding that negligence in failing to preserve relevant data is sufficient to warrant the severe sanction of an adverse inference. Pension Comm. built on this holding and ruled that failure to institute a litigation hold constitutes gross negligence per se. The Chin court rejected this holding, instead deciding that in determining whether discovery sanctions should issue, courts should consider the failure to adopt good preservation practices as one factor—not as dispositive.
In this holding, Chin is in accord with another Southern District of New York opinion from 2010, which stated 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., 271 F.R.D. 429, 441 (S.D.N.Y.2010). In addition, Chin recognizes the importance of looking at the likely impact, or lack thereof, of the lost data:
A finding of gross negligence merely permits, rather than requires, a district court to give an adverse inference instruction. See Residential Funding Corp., 306 F.3d at 109; Byrnie, 243 F.3d at 108. 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., 306 F.3d at 108 (quoting Reilly v. Natwest Mkts. Grp., 181 F.3d 253, 267 (2d Cir.1999)). In this case, 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. See Port Auth. I, 601 F.Supp.2d at 570–71. At trial, Howard Chin was able to establish his service record and honors, and Chief Charles Torres testified that Howard Chin was very smart and a good employee. Under these circumstances, the district court did not abuse its discretion in concluding that an adverse inference instruction was inappropriate.
The 2nd Circuit is still stricter in its view on spoliation than other circuits. Other circuits tend to require a finding of intentional destruction of harmful documents, or bad faith, in order to warrant severe sanctions such as an adverse inference. See, for example, Rimkus Consulting Group, Inc. v. Cammarata, 2010 U.S. Dist. LEXIS 14573 (S.D. Tex. Feb. 19, 2010). Moreover, while the Chin ruling may provide counsel with more flexibility in arguing against spoliation sanctions, it does not suggest that it is prudent to ignore best practices as articulated by many authoritative sources. These sources consistently indicate that having written litigation hold procedures is an essential element of a sound approach to electronic discovery. See Best Practices in E-Discovery in State and Federal Courts, Report of the E-Discovery Committee of the Commercial and Federal Litigation Section of the New York State Bar Association, July 2011.
Chin is a good development for corporate counsel in that it takes into account the overall circumstances of a preservation scenario as opposed to elevating one fact to a dispositive position. Nevertheless, it is hardly an indication that courts in general are lowering standards when it comes to electronic discovery.
In sum, as a rare precedential opinion in the abundant electronic discovery jurisprudence, Chin is highly significant. However, counsel should be cautious in overstating its significance. While in some cases it may mean additional breathing room where spoliation has occurred and sanctions are at stake, it should not impact your practices for litigation holds.