May 13, 2011
A central tenet of Judge Shira Scheindlin’s controversial 2010 Pension Committee decision about legal holds was that a party’s failure to issue a written legal hold notice constitutes gross negligence per se, supporting an inference that relevant evidence was destroyed and the opposing party was prejudiced, and justifying sanctions unless the party could rebut the presumption. See Pension Committee of the Univ. of Montreal Pension Plan v. Banc of America Securities, LLC, 685 F. Supp. 2d 456 (SDNY 2010). That bright-line holding was not universally accepted, including within Judge Scheindlin’s own district. See, e.g., Orbit One Communications, Inc. v. Numerex Corp., 271 F.R.D. 429, 440-41 (SDNY 2010) (rejecting presumption that relevant and prejudicial material was destroyed for failure to follow preferred practices, such as issuing a written legal hold notice, and instead requiring a showing that relevant information was lost).
Another court within the Second Circuit has now declined to follow Pension Committee‘s per se gross negligence and inference of spoliation rule. In Steuben Foods, Inc. v. Country Gourmet Foods, LLC, 2011 WL 1549450 (WDNY Apr. 21, 2011), the plaintiff’s corporate counsel implemented a litigation hold orally through conversations with the company’s President, Vice President of Business Development and six other managers and officers. Id. at *1. Relying on Pension Committee, and pointing to a mere three missing emails, the defendant argued that relevant documents that were not produced should be presumed lost and sanctions imposed. See id. at *1, *4-*5.
In an opinion by Magistrate Judge Leslie Foschio, the court denied the defendant’s request for sanctions because "in this case, the record fails to reveal any evidence that Plaintiff was responsible for the destruction or loss of any relevant evidence." Id. at *4. The court distinguished the facts 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." Id. (quoting Pension Committee, 685 F. Supp. 2d at 476).
The court found that the same inference could not be made in Steuben Foods because the defendant had produced nearly 12,000 pages of documents and there was no evidence that it had destroyed relevant materials. Id. The court also pointedly rejected any notion that spoliation should be presumed in the absence of a written hold notice. See id. at *5. The court noted that such a requirement had neither been adopted in the Western District of New York or in any Second Circuit case law, and that "in the absence of definitive guidance" from the Circuit Court, "the decisions of district courts, even those located within the same district, are not binding upon other district courts." Id.
Steuben Foods does not stand for the proposition that a written legal hold notice should be forgone. The court was careful to point out that the plaintiff’s relatively small size (400 employees)–not to mention the limited issues and custodians in the case–"lends 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 litigation hold is not essential to avoid potential sanctions for spoliation." Id. Moreover, it is notable that the plaintiffs in Steuben Foods presented evidence of only three missing emails, one of which was later produced and the others the court found were of questionable relevance. As in Orbit One, the decision in Steuben Foods is better understood as reflecting the view 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 (emphasis added).
In most cases, the issuance of a written legal hold notice will remain an important part of a company’s reasonable and good faith efforts to implement a legal hold and preserve relevant information when a duty to preserve has been triggered. Any decision to forego the issuance of a written legal hold notice should therefore be considered carefully. In any event, Steuben Foods shows once again that the per se gross negligence and inference of spoliation rule announced in Pension Committee will not necessarily be followed in all federal courts.
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