2nd Circuit adopts nuanced approach to discovery sanctions

New approach considers relevance of lost evidence and attempt to preserve

In 2001, 11 Asian-American police officers filed an Equal Employment Opportunity Commission (EEOC) complaint against the Port Authority of New York and New Jersey claiming that they were passed over for promotions based on their race. After litigating the case for 11 years, seven of the plaintiffs prevailed at trial in the Southern District of New York. Both the Port Authority and the losing plaintiffs appealed to the 2nd Circuit.

The losing plaintiffs argued that the district judge erred in not instructing the jury that the Port Authority had destroyed evidence and that it should assume that the evidence would have been unfavorable. At issue were folders that contained information that supervisors used to make decisions about promotions of police officers in the late 1990s. The Port Authority failed to implement a litigation hold at the outset of the litigation, and as a result, at least 32 folders were lost or destroyed.

The plaintiffs sought sanctions. The district court denied their motion, finding that the plaintiffs had sufficient alternative evidence to prove their claims and that the Port Authority’s destruction of the documents was not grossly negligent.

Big Departure

The 2nd Circuit upheld Chin v. Port Authority of New York and New Jersey in July. In doing so, the court announced a nuanced approach to discovery sanctions that takes into account whether the lost evidence was relevant, to what extent other evidence was available and whether the party acted in good faith to preserve records—a departure from previous case law.

“We reject the notion that a failure to institute a litigation hold constitutes gross negligence per se,” Judge Debra Ann Livingston wrote for a unanimous three-judge panel. “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 ... [A] case-by-case approach to the failure to produce relevant evidence, at the discretion of the district court, is appropriate.”

Inflexible Standard

Chin comes as a huge relief to corporate litigants, which have been living in fear of making a mistake in discovery. Under the influential 2005 decision in Zubulake v. UBS Warburg and 2010 decision in Pension Committee v. Banc of America Securities, both authored by Southern District of New York Judge Shira Scheindlin, failure to issue a written litigation hold—a document informing record keepers of the litigation and instructing them to stop routine destruction of documents—was considered per se gross negligence. A party that failed to issue a hold was subject to automatic discovery sanctions, including an adverse inference instruction that the jury should assume that the records would have been unfavorable to the party that destroyed them.

For a large, complex or geographically diffuse organization, it can be difficult to immediately halt the operation of routine document destruction schedules, despite its best efforts. Under Pension Committee, courts automatically imposed sanctions regardless of whether the party acted in good faith to preserve documents. For instance, a party would be sanctioned for failure to send a written litigation hold even if it met in person with records custodians to inform them of the need to preserve data.

“Under the rules of procedure, an adverse inference is imposed where the party destroyed relevant information in bad faith and some prejudice resulted to the opposing party,” says John Jablonski, a partner at Goldberg Segalla. “Pension Committee had eliminated those requirements and made the adverse inference automatic.”

Likewise, a party could be sanctioned even if the opposing party had another way to get the exact same evidence. Indeed, in Pension Committee, the defendant was sanctioned for deleting an email, which the plaintiff had already obtained from another source.

Chin says that if you act to preserve documents reasonably, competently and in good faith, you should not be subject to dire sanctions,” says Robert Owen, a partner at Sutherland Asbill & Brennan. “It recognizes that there are a lot of different ways to reach a good result.”

Cost Management

However, the relief Chin provides is not complete. Most companies will still err on the side of caution when preserving documents.

“It’s a fact-specific analysis, and there’s still a lot of risk in failing to meet your discovery obligations,” says Karen King, counsel at Paul, Weiss, Rifkind, Wharton & Garrison. King represented the plaintiffs in Chin. “I don’t think it will set off a wave of litigants failing to take discovery obligations seriously.”

Those discovery obligations impose significant costs on companies. In a letter submitted to the Federal Rules Advisory Committee encouraging adoption of a model rule to address the burdens of electronic document preservation, Microsoft Corp. estimated that for every 2.3 megabytes of data that are actually used in litigation, it preserves 787.5 gigabytes of data—a ratio of 340,000 to one.
“It amounts to a huge tax on corporations,” Jablonski says. “Some judges think companies should just be able to push a button and everything gets preserved.”

Unless a uniform federal rule is imposed, companies will continue to preserve huge amounts of data to avoid the risk of sanctions.

“The best practices aren’t changing,” Jablonski says. “Many courts have adopted the Pension Committee approach. There’s no uniform standard, so you must tailor your approach to the most strict judge.”

Lawyers for the Port Authority in Chin did not return requests for comment.

Adele Nicholas

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