For those responsible for issuing litigation holds at their organization the Zubulake and Pension Committee decisions are well known. The duty to issue a litigation hold continues to shape the preservation and spoliation landscape, including giving birth to a cottage industry of written litigation hold software, books, white papers and seminars. Remarkably, as the duty to issue a litigation hold continues to spread across the United States, few appellate courts have addressed the consequences of failing to issue a written litigation hold. Even more remarkable, the Second Circuit has not addressed the duty to issue a litigation hold — until now. (The Second Circuit Court of Appeals is the appellate court that hears appeals from the federal district court where the duty to issue litigation holds was born — the Southern District of New York).

Much like the Zubulake series of decisions, no one was watching Chin v. The Port Authority, 10-1904 and 10-2031 (2nd Cir. July 10, 2012) as a much anticipated litigation hold or spoliation decision. Fittingly, Chin also involves an employment discrimination case – like Zubulake.  Yet, tucked at the end of its 55 page decision the Second Circuit addresses the question of whether the failure to issue a written litigation hold at the onset of litigation should result in sanctions.  The Second Circuit holds in Chin that the failure to issue a written litigation hold does not equal per se gross negligence.  It further held that the district court did not abuse its discretion by denying the motion for sanctions.  Has the Second Circuit handed spoliators a “get out of jail free” card?  No, but the decision will help the wary litigant that fails to issue a written litigation hold, yet preserves relevant evidence (whether by happenstance or through preservation efforts).

Some background: a problem for organizations trying to discharge their duty to preserve evidence has been the evolving requirement that a written litigation hold is necessary in the United States (in most federal courts and an increasing number of state courts). As a result, more and more cases involve the question of whether a written litigation hold was issued by either party. Many organizations in the United States have developed detailed litigation hold procedures to ensure that a written litigation hold is issued when litigation is suspected.  This results in costly over-preservation of a lot of evidence that is never exchanged in discovery and in many cases that never result in a lawsuit.  No one likes to see their name in the headlines as allegedly destroying evidence, so lots of money is spent ensuring that a written litigation hold is circulated at many organizations.

The need to issue a litigation hold as part of the proper preservation of evidence was driven home in the Pension Committee decision.  In Pension Committee the 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.” Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 685 F. Supp. 2d 456, 465 (S.D.N.Y. 2010).  In other words, the mere failure to issue a written litigation hold at the onset of litigation is gross negligence. This is known as per se gross negligence, because all an opponent has to do is prove that no litigation hold was issued.  Obviously a scary proposition for any organization that has failed to issue a written litigation hold.

A court holding that an organization is per se grossly negligent is a fast track to obtaining sanctions. Gross negligence eliminates a critical and often difficult step necessary to obtain spoliation sanctions. When gross negligence exists an opposing party no longer needs to prove that the missing evidence is relevant to obtain sanctions. Proving relevance can be difficult and eliminating this step – merely because a piece of paper is not circulated within an organization – is harsh.

While some courts around the country agree that sanctions stemming from failing to circulate a written litigation hold are harsh, no appellate court has directly addressed the issue. The Second Circuit now rejects the legal principle that the failure to issue a written litigation hold constitutes per se gross negligence. This is important because the court in Pension Committee ultimately sanctioned a few parties based, in part, on the failure to issue a written litigation hold.

Chin v. Port Authority

The Second Circuit’s decision in Chin v. Port Authority is long, but buried at the back of this employment discrimination case are a few paragraphs that directly address whether a written litigation hold is required in federal court.  The Second Circuit rejects the notion that a written litigation hold is required. Instead, the Court reaffirms its Residential Funding decision, requiring a case-by-case analysis of an alleged spoliators conduct before sanctions can be issued.  In short, the failure to issue a litigation hold is just one factor a court should look at.

In Chin, the court reviews a decision we first reported on back in 2009. A number of Asian police officers working for the Port Authority claim that they were discriminated against based on race.  In the 2009 decision, the district court denied Mr. Chin’s motion for sanctions requesting an adverse inference charge, because the Port Authority failed to issue a written litigation hold. Chin argued that this failure resulted in some relevant files being destroyed. The motion was denied. Following trial that resulted in a verdict for plaintiffs, Mr. Chin crossed appealed the district court’s denial of his motion for sanctions. Starting at p. 52 of the decision the Court revisited the 2009 decision. The paragraphs are short and important, so they are reproduced in their entirety below.  A copy of an excerpt of the decision or a copy of the entire decision can be obtained below.  We have bolded the important parts, if you want to skip right to the pertinent holding.

V. Sanctions for Spoliation

Finally, cross-appealing plaintiff Howard Chin argues that the district court erred in denying the plaintiffs’ motion requesting an adverse inference instruction due to the Port Authority’s destruction of the promotion folders used to make promotions off of the 1999 eligible list. See Port Auth. I, 601 F. Supp. 2d 566 (S.D.N.Y. 2009). 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. It argues, however, that the district court did not abuse its discretion in denying an adverse inference instruction. We agree.

“[A] party seeking an adverse inference instruction based on the destruction of evidence must establish (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind; and (3) that the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.” [p.53] Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002) (internal quotation marks omitted). If these elements are established, a district court may, at its discretion, grant an adverse inference jury instruction insofar as such a sanction would “serve[] [the] threefold purpose of (1) deterring parties from destroying evidence; (2) placing the risk of an erroneous evaluation of the content of the destroyed evidence on the party responsible for its destruction; and (3) restoring the party harmed by the loss of evidence helpful to its case to where the party would have been in the absence of spoliation.” Byrnie v. Town of Cromwell, 243 F.3d 93, 107 (2d Cir. 2001). Our review of a district court’s decision on a motion for discovery sanctions is limited to abuse of discretion, which includes errors of law and clearly erroneous assessments of evidence. See Residential Funding Corp., 306 F.3d at 107. “[A]bsent a showing of prejudice, the jury’s verdict should not be disturbed.” Id. at 112.

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. Orbit Comm’ns, Inc. v. Numerex Corp., 271 F.R.D. 429, 441 (S.D.N.Y. 2010). Moreover, as the district court recognized, see Port Auth. I, 601 F. Supp. 2d at 570, a finding of gross negligence merely permits, rather than requires, a district court to give an adverse inference instruction. See Residential Funding Corp., 306 F.3d at 109; Byrnie, 243 F.3d at 108. 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. Residential Funding Corp., 306 F.3d at 108 (quoting Reilly v. Natwest Mkts. Grp., 181 F.3d 253, 267 (2d Cir. 1999)).

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. See Port Auth. I, 601 F. Supp. 2d at 570–71. 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.

If you think that Pension Committee imposed harsh sanction on unwary litigants for failing to issue a written litigation hold notice then this decision is a step in the right direction.  Does the opinion mean that organizations can stop issuing written litigation holds? No. As discussed throughout Litigation Holds and Trigger Events a written litigation hold is the best way to begin documenting an organization’s preservation efforts in response to an event triggering the duty to preserve evidence. While Chin holds that the failure to issue a written litigation hold is not per se gross negligence, whether a written litigation hold was issued is still a factor.  As a result, despite the good news for those responsible for implementing litigation holds – for the rare case where a litigation hold is not issued – this decision simply does not go far enough to ease the preservation burden facing litigants in courts that follow the Pension Committee standard.

For a copy of an excerpt of the Second Circuit’s Chin decision click here,  Excerpt Chin v. Port_Authority  For a copy of the entire 55 page decision, click here, Chin v. Port Authority.