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January 31, 2012 Articles

Must Legal Holds Be Written to Avoid Spoliation Sanctions?

Steuben Foods shows that Pension Committee's rule of per se gross negligence and associated inference of spoliation will not necessarily be followed

by Paul M. Kessimian and Travis J. McDermott

In today's e-everything world and its concomitant terabytes of reproducing data, the timing and nature of the litigation hold is of critical importance. A fundamental question in this area is whether or not a litigation hold must be in writing to avoid spoliation sanctions. In 2010, Judge Scheindlin of New York's Southern District held that a party's failure to issue a written litigation hold notice was tantamount to per se gross negligence. See Pension Committee of the Univ. of Montreal Pension Plan v. Banc of America Securities, LLC, 685 F. Supp. 2d 456 (S.D.N.Y. 2010). As gross negligence, such failure justified an inference that relevant evidence was destroyed and that the opposing party was prejudiced—and, consequently, sanctions were appropriate, unless the party could rebut the presumption. Though the decision provided greater clarity in an opaque area of law, it has been far from universally accepted, even within the very district that issued the opinion. See, e.g., Orbit One Communications, Inc. v. Numerex Corp., 271 F.R.D. 429, 440–41 (S.D.N.Y. 2010) (rejecting a presumption that relevant and prejudicial material was destroyed absent the issuance of a written litigation hold and requiring some showing that relevant information was lost).

2011's Steuben Foods and Centrifugal Force decisions brought further murkiness to the issue. In Steuben Foods, Inc. v. Country Gourmet Foods, LLC, No. 08-CV-561S(F), 2011 WL 1549450, at *4 (W.D.N.Y. Apr. 21, 2011) (Foschio, Mag. J.), the court declined to impose sanctions or to presume spoliation based on plaintiff's failure to issue a written legal hold notice. "[The p]laintiff has produced a substantial number of documents and there is no reason to presume that important documents have been lost as a result of [the p]laintiff's negligence." See also Centrifugal Force, Inc. v. Softnet Commc'n, Inc., No. 08 Civ. 5463(CM)(GWG), 2011 WL 1792047, at *11 (S.D.N.Y. May 11, 2011) (Gorenstein, Mag. J.) (declining to sanction a defendant that issued an oral litigation hold shortly after the duty to preserve attached when only a single, nonrelevant email was shown to be lost).

In Steuben Foods, the plaintiff's corporate counsel implemented a hold orally through conversations with several company officers. Steuben Foods, 2011 WL 1549450, at *1. No companion written hold was issued. The court rejected the defendant's argument that nonproduced, relevant documents should be presumed lost and sanctions imposed. Rejecting Pension Committee's holding, the Steuben Foods court held that the Second Circuit has no requirement for written hold and that "the decisions of district courts, even those located within the same district, are not binding upon other district courts." Id. at *5 (citing Arculeo v. On–Site Sales & Marketing, LLC, 321 F.Supp.2d 604, 609 (S.D.N.Y.2004)).

The Steuben Foods court also distinguished its facts from those of Pension Committee, where the plaintiffs had been under a fiduciary duty to conduct due diligence on their investments, and therefore documents "surely must have existed," yet the "paucity" of documents produced led "inexorably to the conclusion that relevant records ha[d] been lost or destroyed." Steuben Foods, 2011 WL 1549450, at *5 (quoting Pension Committee, 685 F. Supp. 2d at 476). In Steuben Foods, the plaintiff had produced nearly 12,000 pages of documents, and the defendant made no showing that any data had been lost or destroyed. See id. at **1, 4–5. There was only evidence of three missing emails, one of which was later produced, and the court found that the two others were of questionable relevance.

Steuben Foods may be best understood as bolstering an alternative to Pension Committee previously articulated in other Southern District cases, namely that "[r]ather than declaring that the failure to adopt good preservation practices is categorically sanctionable, the better approach is to consider such conduct as one factor and consider the imposition of sanctions only if some discovery-relevant data has been destroyed." Orbit One, 271 F.R.D. at 441.

The Steuben Foods court looked to several factors in reaching this result, including the plaintiff's modest size (400 employees), the limited issues in the case, and the limited number of custodians. The court noted that such a scenario "len[t] itself to a direct oral communication of the need to preserve documents" and that "[s]uch considerations have been found persuasive as reasons why a written legal hold is not essential to avoid potential sanctions for spoliation." Id. Steuben Foods suggests that—depending on case-specific facts—an oral hold notice may be perfectly adequate even against claims of spoliation and even after the Pension Committee decision. Nevertheless, issuing a written legal hold notice is regarded as a best practice and a bar to challenges like those in Steuben Foods. It also avoids the risk that some judges may follow the Pension Committee decision and find that failure to issue a written hold constitutes per se gross negligence.

In most cases, the issuance of a written legal hold notice should remain an important part of a company's reasonable and good-faith efforts to preserve relevant information when a duty to preserve has been triggered. In any event, Steuben Foods shows that Pension Committee's rule of per se gross negligence and associated inference of spoliation will not necessarily be followed. Ultimately, given the inherently conflicted and discretionary nature of spoliation findings, one is best served by doing the following as soon as one reasonably anticipates litigation:

  • issuing a litigation hold (preferably in writing);
  • identifying all of the key players and ensuring that their electronic and paper records are preserved;
  • preserving the records of former employees (and ceasing deletion of the same); and
  • preserving backup tapes (in case they end up being the sole source of information of materials that are otherwise unavailable).

See Pension Committee, 685 F. Supp. 2d at 471.

Keywords: litigation, commercial, business, litigation holds, spoliation

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