Rolling the Dice on Legal Hold: Still Not Worth the Risk

Daniel Lim

On July 10, 2012, the Second Circuit issued an opinion in Howard Chin v. The Port Authority of New York & New Jersey, 2012 WL 2760776 (C.A.2, 2012), addressing the legal standard for failure to issue a legal hold notice for relevant evidence. The opinion limits the often-cited standard for legal holds announced in Pension Committee by Judge Schiendlin in 2010.

The Chin case is an appellate opinion that addresses the alleged failure to institute a legal hold for relevant files. The case involved a group of Asian American police officers alleging violations of Title VII by the New York and New Jersey Port Authority based on being passed over for promotions. Charges of discrimination were filed in January of 2001. During discovery, the plaintiffs learned that the Port Authority had failed to issue a legal hold to preserve at least thirty-two promotion folders used to make decisions between August 1999 and August 2002. Plaintiffs sought an adverse inference instruction for the spoliation. The district court denied the motion, finding ample alternative evidence regarding the relative qualifications of the plaintiffs. The district court found that the defendant’s destruction of relevant documents was “negligent, but not grossly so.”

Upon review of the district court’s denial of an adverse inference instruction, the Second Circuit rejected the notion that failure to issue a litigation hold constitutes gross negligence per se as Judge Schiendlin had announced in her Pension Committee case from 2010. Rather, the court stated, “’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” (citing Orbit Comm'ns, Inc. v. Numerex Corp., 271 F.R.D. 429, 441 (S.D.N.Y., 2010)). Under an abuse of discretion standard, the appellate court affirmed the trial court’s denial of the adverse inference instruction given the limited role of the destroyed folders in the promotion process and the ample evidence plaintiffs were able to present as to their relative qualifications for promotion over those who were promoted.

Some attention has been given to the change in the culpability standard for failure to issue a legal hold announced for the Second Circuit. The question remains as to how much of a practical effect this should have on an organization’s decision to issue a legal hold. In Chin, the result turned into a general “no harm, no foul” scenario, as most of the plaintiffs succeeded on their Title VII claims.

Nonetheless, organizations are going to be hard pressed to rely on the Chin decision to justify a failure to issue a legal hold. Discretion being the greater part of valor, ensuring a comprehensive legal hold for preserving relevant documents remains the best practice to avoid providing fodder for opposing litigants to call into question whether more should made about relevant evidence that was not placed on hold.

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