Company That Failed to Issue Litigation Hold for Three Years Suffers Adverse Inference
Osberg v. Foot Locker, No. 07-cv-1358 (KBF), 2014 U.S. Dist. LEXIS 95543 (S.D.N.Y. July 14, 2014)
In Osberg v. Foot Locker, an ERISA matter, the plaintiffs filed a motion seeking sanctions for spoliation alleging that the defendants had destroyed documents. Despite several pending lawsuits involving similar issues against the defendants that were filed as early as 2006, the defendants did not issue a litigation hold notice until at least two to three years later, in contravention of the company’s document retention guidelines, which required the general counsel “to immediately distribute a ‘document retention memorandum’ to individuals with control over documents ‘needed for a legal action in which the company is involved or expects to become’” involved; the defendants’ outside counsel similarly instructed them to collect documents and issue a “‘[d]ocument preservation memo.’” Although the company did collect some documents, it did not impose a litigation hold. This was true also in the instant case, which was initially filed in November 2006, then dismissed and refiled in February 2007. The defendants did not issue a litigation hold notice until October 2009.
The defendants attempted to argue that they investigated whether they had lost any information; however, Foot Locker’s vice president and deputy general counsel was unable to do more than “speculate” as to whether any investigation actually occurred. During discovery, the production of certain documents revealed that potentially relevant documents were destroyed during the period before the issuance of the litigation hold. In discovery, the defendants admitted destroying information but claimed that the boxes of information destroyed “‘did not contain potentially relevant information.’” Defense counsel also suggested that the late issuance of the litigation hold notice made no difference because “electronic documents created after 1998 were not subject to routine retention and destruction policies, and other electronic ‘materials on the Proskauer system are, as a practical matter, never destroyed.’”
However, these suggestions turned out to be false: in 2012, a former Foot Locker manager involved in designing the company’s ERISA plan testified that handwritten notes and other hard-copy documents about the plan were in a “file room” when she left the company and that defense counsel were “surprised” that they could not locate them. She also explained that the company sometimes destroyed documents in the file room during “‘periodic’ ‘spring cleanings.’” A subsequently produced document indicated that the company had destroyed 29,503 boxes of documents from its storage facility between June 2006 and October 2009; of these, 305 boxes were HR or benefits-related, while 675 were from the legal department. The plaintiff argued that at least 141 potentially relevant boxes were destroyed.
The trial court initially granted the defendants’ motion for summary judgment and denied the plaintiff’s motion for spoliation sanctions as moot: even had the defendants destroyed documents, they would not have affected the ultimate outcome of the case. Early in 2014, the Second Circuit overturned the district court’s ruling in part, remanding the case for further decision on one claim and allowing the plaintiff to renew his spoliation motion.
The plaintiff argued that the destruction of evidence was not inadvertent but in bad faith or grossly negligent given the defendants’ failure to follow their own policy. However, the court ruled that the company’s failure to do so was inadvertent because two vice presidents who served as deputy general counsel each believed the other person was taking care of the matter and because the company did take some steps to collect documents, including making a “good-faith attempt to determine whether any boxes had inadvertently been lost.” At most, the court concluded, the company acted with simple negligence.
Because the defendants’ actions did not rise to willfulness or bad faith, the plaintiff had to demonstrate that the destroyed evidence would have helped his case. The court ruled that the plaintiff satisfied this burden, especially given the loss of the contemporaneous notes of the manager who was involved in creating the ERISA plan.
In choosing the right sanction, the court had to choose a punishment that would (1) deter future spoliation, (2) “‘place the risk of an erroneous judgment on the party who wrongfully created the risk,’” and (3) restore the plaintiff to the position he would have been in absent the spoliation. Here, the court determined that an adverse jury instruction was proper.
Although the court found the company’s actions amounted to simple negligence, the company was lucky. The failure to issue a litigation hold notice despite multiple lawsuits on the same issue is one egregious problem, but coupled with the company’s policy to issue holds and a reminder from outside counsel to do so, it seems to create a distinct pattern of errors. Moreover, the fact that the lawyers responsible for these cases did not notice the lack of a hold for nearly three years means they most likely failed to follow up with custodians or to issue any reminders about the hold to those affected. These omissions amount to more than mere oversight.
- Hamblett, Mark, Failure to Issue Litigation Hold Leads to Sanction, New York Law Journal, July 16, 2014.