April 29, 2013 Articles

Written Litigation Holds and Per Se Negligence: An Evolving Law

Since the Pension Committee decision, the rules governing document preservation and spoliation have been in flux

by Paul M. Kessimian and Travis J. McDermott

"In an era where vast amounts of electronic information is available for review, discovery in certain cases has become increasingly complex and expensive.  Courts cannot and do not expect that any party can meet a standard of perfection.  Nonetheless, the courts have a right to expect that litigants and counsel will take the necessary steps to ensure that relevant records are preserved when litigation is reasonably anticipated, and that such records are collected, reviewed, and produced to the opposing party."   Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 685 F. Supp. 2d 456, 456 (S.D.N.Y. 2010) (Scheindlin, J.).

Since 2010's Pension Committee decision holding that a failure to issue a written litigation hold constitutes negligence per se to give rise to sanctions, the rules and best practices governing document preservation and spoliation have been in flux. The decisions of Judge Shira Scheindlin of the Southern District of New York, including Pension Committee and the multiple Zublake decisions have been at the center of the development of U.S. law on electronic discovery and associated preservation obligations. See Zubulake v. UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2013) (Zubulake I) (addressing the legal standard for determining the cost allocation for producing e-mails contained on backup tapes); Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243, 2003 WL 21087136, 230 F.R.D. 290 (S.D.N.Y. May 13, 2003) (Zubulake II) (addressing Zubulake's reporting obligations); Zubulake v. UBS Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003) (Zubulake III) (allocating backup tape restoration costs between Zubulake and UBS); Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) (Zubulake IV) (ordering sanctions against UBS for violating its duty to preserve evidence); Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) (Zubulake V) (ordering sanctions against UBS for willful destruction of emails and for tardy production of other emails). Thus the per se gross negligence rule of Pension Committee had a drastic impact on the document preservation efforts and associated spoliation claims of litigants far beyond the Southern District of New York.

2011 brought further discord in the form of Steuben Foods, Inc. v. Country Gourmet Foods, LLC, 2011 WL 1549450 (W.D.N.Y. 2011), in which a magistrate judge declined to impose sanctions or presume spoliation as a result of a failure to issue a written litigation hold.  Steuben Foods seemed to indicate that Pension Committee's strict rule, that the mere failure to issue a written litigation hold at the outset of litigation constituted per se gross negligence, was far from universally accepted, even in New York federal courts.  Despite the importance of litigation holds to discovery disputes and despite the risk of harsh sanctions under the rule in Pension Committee, few appellate courts had addressed a party's failure to do so prior to 2012.

In 2012, the Second Circuit Court of Appeals addressed the issue in Chin v. Port Authority of New York & New Jersey, 685 F.3d 135 (2d Cir. 2012).  In Chin, plaintiff Howard Chin sought spoliation sanctions, specifically an adverse inference instruction, due to defendant Port Authority's failure to issue a written litigation hold.  In what appeared to be a response to the Southern District's Pension Committee decision, spoliation sanctions were denied.  The Second Circuit's ruling on the issue was as clear as such a ruling could be:  "[w]e reject the notion that a failure to institute a 'litigation hold' constitutes gross negligence per se."  Id. at 162.

The Chin case was an employment discrimination claim, first filed in 2001, in which a group of Asian- American police offers sued the Port Authority of New York & New Jersey after they were passed over for promotions. They claimed they had not been promoted due to their race. Four of the eleven plaintiffs did not prevail at trial and on appeal one of them, Howard Chin, argued that the district court had mistakenly denied his motion for spoliation sanctions, specifically his request for an adverse inference instruction, as a result of the Port Authority's destruction of promotion records. According to Chin, the Port Authority, upon learning of the claims in 2001, had an "obligation to preserve the promotion folders yet failed to do so." Chin, 685 F.3d at 161. On appeal, the Second Circuit was not strictly weighing Chin's spoliation claims but rather assessing whether the district court, in denying sanctions, abused its discretion. The Second Circuit affirmed the district court's determination that despite the Port Authority's failure to preserve certain documents, the plaintiffs were able to produce "ample evidence regarding their relative qualifications." Id. at 162.

The Court of Appeals further held that any failure to issue a litigation hold is but "one factor in the determination of whether discovery sanctions should issue."  Id. at 162 (citing Orbit Comm'ns, Inc. v. Numerex Corp., 271 F.R.D. 429, 441 (S.D.N.Y.2010)). Thus, the Second Circuit re-emphasized a case-by-case approach to the question of sanctions for failure to preserve evidence, in contrast to the bright-line rule advocated in Pension Committee. The Second Circuit court even went so far as to posit that even if Port Authority were grossly negligent and the documents were relevant, a "case-by-case approach to the failure to produce relevant evidence," at the discretion of the district court, was appropriate.  Id. at 162 (citing Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 108 (2d Cir. 2002)).

The Second Circuit's decision to avoid bright-line rules regarding spoliation sanctions in this context may have been influenced by the fear that, under Pension Committee, litigation in the electronic discovery age could become bogged down in the minutia of each party's preservation efforts rather than a substantive airing of the merits of a case. After all, under the Pension Committee standard, the spectre of gross negligence could haunt all litigated matters. Gross negligence eliminates a critical and generally difficult step necessary in seeking sanctions, because when gross negligence is established the party seeking sanctions need not establish the relevance of the "missing" evidence. This can be a frightening proposition to any organization, particularly considering that this per se gross negligencemay be merely the organization's failure to circulate a piece of paper.

Despite its rejection of a bright-line rule, the Chin decision should bring clarity to an unsettled area of the law. As Steuben Foods showed in 2011, the Pension Committee decision was far from universally adopted, even within the New York federal courts.  The new clarity provided by Chin is particularly important for those concerned with the potential for harsh sanctions imposed upon those who in good faith make preservation efforts without a written hold letter.

However, the Chin decision does not relieve litigants of their responsibilities to preserve evidence. The written litigation hold, while not required by the Second Circuit, remains an effective way to preserve relevant evidence, and equally important, it remains the best way to document preservation efforts in anticipation of a later claim of spoliation by an opposing party. The Chin decision is best understood as affirming a trial court's discretion to fashion remedies for the destruction of relevant evidence in the manner most appropriate to the specific dispute.

Keywords: litigation, commercial, business, written litigation hold, document preservation, spoliation, evidence, Pension Committee, Zublake

Copyright © 2013, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).