A Binary S.D.N.Y. Ruling on Failure to Issue Written Legal Holds Superseded By An Analog 2nd Circuit Holding?

The 2^nd Circuit Rejects Judge Scheindlin’s Position That A Failure To Issue A Written Legal Hold Is Gross Negligence Per Se

In Chin v. Port Auth. of NY, 685 F.3d 135, 162 (2nd Cir. 2012), the court held, contrary to the well publicized and oft-lauded holding in 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), that a failure to issue a written legal hold is not gross negligence per se and does not result in a requirement that a court issue an adverse inference instruction against the offending party. What does this mean for staunch, die-hard advocates of the position that Judge Scheindlin took in Pension Committee? Arguably, while rejecting the gross negligence per se standard and some of its implications, the Chin holding does not throw the baby out with the bath water. Rather than make the failure to issue a written litigation hold dispositive of a gross negligence per se finding, the Chin holding stands for the proposition that a failure to issue a written legal hold is but one of a number of factors that may be considered by a court in determining whether an adverse inference instruction is warranted. This softening of the S.D.N.Y.’s position on legal hold issuance does not as a standard preclude a court from arriving at the conclusion that an adverse inference instruction is warranted where written legal hold instructions were not issued. The Chin decision most significantly provides greater judicial latitude and discretion to consider the effect of other variables and factors before which either individually or collectively may or may not be ultimately dispositive of gross negligence per se.

The implications of a failure to act in a fashion consistent with the duty to preserve potentially relevant information remains the same and opposed to adopting a bright line approach, it seems that some courts might be willing to afford counsel more opportunities to argue the evidentiary impact issues that the actions or inaction of a party has on case before imposing significant sanctions. The operative question that seems to be distilled with increasing frequency is, “was the information that was not properly preserved demonstrably or likely to be relevant?” The 2^nd circuit ruling should in no way be construed as a holding that weakens or undermines this duty in any way.

One message that this holding has for litigants is that courts have evolved in their level of sophistication and understanding of the substantive issues of evidence that result from the failure to use best practices to preserve relevant data. It also suggests that they have the bandwidth look at the issues on a case-by-case basis before levying a high caliber sanction on a party who has for one reason or another failed to properly issue a written legal hold. 

Richard E. Davis is the Chief Discovery Solutions Architect for the U.S.’s premier managed review company, DW Legal Solutions. He works with corporations and there outside counsel to develop, implement and manage defensible, scalable and cost effective data solutions management solutions for litigation, compliance, merger and acquisition related activities.