While magistrate judges supervising electronic discovery often have their recommendations subjected to review by district court judges, the federal circuit courts of appeal are rarely a source of electronic discovery precedent. An exception is a recent opinion by the 2nd Circuit Court of Appeals in Chin v. Port Authority of New York & New Jersey, — F.3d —, 2012 WL 2760776 (2d Cir. July 10, 2012).

In Chin, the plaintiffs alleged racial discrimination against their employer. The issues addressed in the opinion include whether the failure to follow best practices in implementing litigation holds is gross negligence per se, warranting an adverse inference instruction for spoliation. In this rare case where judicial expectations regarding electronic discovery are addressed by federal courts of appeal, the 2nd Circuit effectively overruled the 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 litigation hold is gross negligence per se, warranting in evaluating compliance with the duty to preserve ESI. In Chin, the 2nd Circuit held that the district court did not abuse its discretion in denying the plaintiffs' motion for an adverse inference, despite the defendant's loss of data and failure to implement a litigation hold process.

The 2nd Circuit has long been identified with a strict view on litigation holds, beginning with the decision in Residential Funding Corp., 306 F.3d 99 (2d Cir. 2002), holding that negligence in failing to preserve relevant data is sufficient to warrant the severe sanction of an adverse inference. Pension Comm. built on this holding and ruled that failure to institute a litigation hold constitutes gross negligence per se. The Chin court rejected this holding, instead deciding that in determining whether discovery sanctions should issue, courts should consider the failure to adopt good preservation practices as one factor—not as dispositive.