2d Cir. rejects sanction for not implementing litigation hold

The Court of Appeals has provided guidance on "litigation holds," the mechanism by which organizations preserve potentially relevant evidence in anticipation that it will be sued. Litigation holds are a well-known procedure largely through Southern District rulings by Judge Scheindlin, including Zubulake v. UBS Warbug, 220 F.R.D. 212, 218 (S.D.N.Y. 2003), which said that "A party or anticipated party must retain all relevant documents (but not multiple identical copies) in existence at the time the duty to preserve attaches, and any relevant documents created thereafter." In addition, in Pension Comm. v. Banc of Am. Secs., 685 F. Supp. 2d 456, 465 (S.D.N.Y. 2010), the district court held that “the failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.” In particular, the court in Pension Committee suggested that after the duty to preserve has attached, it is gross negligence when the party has failed

to issue a written litigation hold: to identify all of the key players and to ensure that their electronic and paper records are preserved: to cease the deletion of email or to preserve the records of former employees that are in a party's possession, custody, or control; and to preserve backup tapes when they are the sole source of relevant information or when they relate to key players, if the relevant information maintained by those players is not obtainable from readily accessible sources.

In a recent decision, Southern District Judge Baer noted that "certain courts [around the country] have questioned the bright-line culpability rules that Judge Scheindlin promulgated in Pension Committee." GenOn Mid-Atl, LLC v. Stone & Webster, Inc., 2012 U.S. Dist. LEXIS 57712, at *38 (S.D.N.Y. Apr. 20, 2012). The Second Circuit agrees that the "gross negligence" standard is too harsh in determining whether to sanction the offending party.

The case is Chin v. Port Authority, decided on July 10. I wrote about other parts of the decision here. But Chin also discusses litigation holds. This discrimination case went to trial. While Port Authority appealed from the verdict, Chin cross-appealed over the district court's refusal to give the jury an adverse inference instruction after Port Authority destroyed the promotional folders used to make promotions decisions. Judge Livingston writes that "The Port Authority does not dispute that, upon receiving notice of the filing of plaintiffs' EEOC charge in February 2001, it had an obligation to preserve the promotion folders yet failed to do so." Yet, the Court of Appeals agrees that the district court did not abuse its discretion in declining to give an adverse inference charge to the jury. The Second Circuit writes:

Howard Chin argues that the Port Authority's failure even to issue a litigation hold regarding the promotion folders at any point between 2001 and 2007 amounted to gross, rather than simple, negligence. We reject the notion that a failure to institute a "litigation hold" constitutes gross negligence per se. Contra 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). 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. Moreover, as the district court recognized, a finding of gross negligence merely permits, rather than requires, a district court to give an adverse inference instruction. 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. 

 Applying this new standard to the case at hand, the Court of Appeals writes:

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. 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.