As most of those reading this are aware, companies/entities/agencies doing business in the US generally are not required to indefinitely preserve business records and information. However, those companies/entities/agencies must preserve relevant information when a lawsuit or an investigation is reasonably anticipated. This duty stems from both the common law duty to prevent spoliation of evidence and certain state and federal statutes and regulations. *
A “litigation hold” or “hold notice” is an instruction within a business organization directing employees to preserve (i.e., refrain from destroying or modifying) certain paper and electronic information that may be relevant to the pending or anticipated lawsuit or investigation.
The importance of complying with one’s obligation to issue and abide by a litigation hold was recently the subject of a decision in the Southern District of New York. In early December, Judge Sweet denied New York City’s request to unseal 850,000 criminal court records for putative class members in a civil rights class action against the City of New York (“City”). The complaint, originally filed in 2010, alleged that the City and the NYPD had engaged in a pattern of stopping, seizing, and issuing summonses to individuals without probable cause – thus violating the class members’ civil rights by requiring officers to meet quotas of summonses issued irrespective of whether a crime had occurred or probable cause existed. The records were sealed pursuant to a privilege codified in New York’s Penal Law. The City argued that the records should be unsealed so that defendants could identify potential class members and then seek discovery from them in order to challenge class membership. Judge Sweet found that the privacy interests for the absent class members far outweighed the City’s request on the eve of the close of discovery.
Barely a month later, in early January, Judge Sweet granted in part a motion for sanctions against the City and the NYPD for spoliation of evidence. Calling upon Second Circuit case law, Judge Sweet noted that spoliation is defined as “the destruction or significant alternation of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.” Judge Sweet found that the City failed to implement timely a litigation hold (FN) which, when combined with the NYPD’s existing document destruction policies, resulted in the destruction of critical information and evidence. Specifically, the lack of preservation resulted in few, if any documents being produced for key custodians.
Notably, Judge Sweet did not find that the City and the NYPD had acted in bad faith, but instead concluded that both the City and NYPD acted with gross negligence in failing to implement a litigation hold:
The failure to circulate a litigation hold, and to ensure that it was properly implemented, was particularly damaging in the context of the NYPD’s standing document retention policies, which ensured that inaction on the part of the City would result in the destruction of evidence . . . . The NYPD cannot credibly argue that, despite setting guidelines for document destruction and providing an industrial shredding truck for that purpose, it did not know or intend that documents would be destroyed.
Judge Sweet noted that he is vested with “broad discretion” in crafting a proper sanction for spoliation but should focus on three priorities when fashioning a sanction: (1) deterring parties from engaging in spoliation; (2) placing the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restoring the prejudiced party to the same position s/he would have been absent the wrongful destruction of evidence. Against this backdrop, Judge Sweet granted a permissive inference in response to his findings, and indicated that he will instruct the jury that the absence of documentary and email evidence does not establish in this case the absence of a summons quota policy at the NYPD.
* Although see blog posts of Aaron Zerykier on January 6, 2016 and January 21, 2016 discussing relevant standard in NY and federal courts triggering preservation.
** The City did not issue any litigation hold until August 2013 – more than three years after the filing of the Complaint in this case. Moreover, the evidence indicated that the litigation hold was not effectively communicated and that none of the officers named in the City’s initial disclosure ever acknowledged receiving the hold.