Discovery can be an expensive and messy process, particularly for companies with large or complex operations. But in-house counsel can breathe a little easier following the 2nd Circuit’s ruling in Chin v. Port Authority of New York and New Jersey, which found that the failure to issue a written litigation hold does not constitute gross negligence per se. In InsideCounsel’s October issue, we examine the impact of the decision, which reverses the long-standing precedent established in Zubulake v. Warburg.
What are the facts?
The case dates back to 2001, when 11 Asian-American police officers filed an Equal Employment Opportunity Commission (EEOC) complaint against the Port Authority of New York and New Jersey, alleging that they were passed over for promotions because of their race. In the ensuing 11 years, the case wended its way through the courts, eventually resulting in a victory for seven of the plaintiffs.
The losing plaintiffs appealed the case to the 2nd Circuit, however, arguing that the district judge erred by not telling the jury that the Port Authority had destroyed 32 files containing information that supervisors used to make promotion decisions. The files were lost after the Port Authority did not implement a litigation hold instructing record-keepers to stop routine destruction of documents.
What did the 2nd Circuit rule?
The 2nd Circuit unanimously upheld the trial court’s ruling and denied the plaintiffs’ request for sanctions, ruling that they had alternative evidence with which to prove their claims. Perhaps most significantly, the court found that failure to institute a litigation hold does not constitute gross negligence per se.
Writing for the court, Judge Debra Ann Livingston outlined a different approach for courts ruling on discovery sanctions. “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,” she said.
Why was this ruling significant?
The Chin ruling upended the precedent District Judge Shira Scheindlin set in her rulings on Zubulake v. UBS Warburg (2005) and Pension Committee v. Banc of America Securities (2010). In those decisions, Scheindlin ruled that failure to issue a litigation hold was per se gross negligence and that parties that did not issue written holds could face automatic discovery sanctions. Among those sanctions was the threat of an adverse inference instruction, meaning that the jury should assume that lost records would have been unfavorable to the destroying party.
What does the decision mean for general counsel?
The 2nd Circuit’s ruling makes life easier for in-house counsel, who previously had to fear sanctions even if their organizations had tried to preserve all relevant documents. “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.”
But general counsel shouldn’t overlook the duty to preserve. Despite the high costs of discovery—Microsoft Corp. recently estimated that the ratio of the data it preserves to the data that it uses in litigation is 340,000 to one—there is still no guarantee that all courts will follow the approach outlined in Chin. “The best practices aren’t changing,” says Goldberg Segalla Partner John Jablonski. “Many courts have adopted the Pension Committee approach. There’s no uniform standard, so you must tailor your approach to the most strict judge.”