United States District Court, S.D. New York
GEOFFREY OSBERG, on behalf of himself and on behalf of all others similarly situated, Plaintiff,
FOOT LOCKER, INC., et al., Defendants.
CORRECTED OPINION 
KATHERINE B. FORREST, District Judge.
On February 23, 2007, plaintiff Geoffrey Osberg initiated this action against his former employer, Foot Locker, claiming that it violated the Employee Retirement Income Security Act ("ERISA") through converting its "defined benefit" pension plan to a "cash balance" retirement plan by (1) issuing false and misleading plan descriptions in violation of Section 102(a) of ERISA, (2) breaching its fiduciary duties in violation of Section 404(a) of ERISA, and (3) failing to give plan participants notice in violation of Section 204(h) of ERISA.
Before the Court is plaintiff's motion for spoliation sanctions. (ECF No. 126.) For the reasons set forth below, that motion is GRANTED.
A. Factual Background
Prior to this lawsuit, two other lawsuits relating to similar subject matter regarding the Foot Locker Retirement Plan were filed on June 23, 2006 and November 30, 2006. Despite these pending lawsuits, defendants did not issue a litigation hold on the relevant subject until October 8, 2009. In short, two to three years passed between the filing of the first lawsuit and the third before a litigation hold relating to the relevant subject matter was put in place. During this period, relevant documents were destroyed.
On June 23, 2006, defendants were sued in Patino v. Foot Locker, 06-cv-4879 (LBS). As in this case, plaintiff alleged that Foot Locker had misled its employees concerning the conversion of the company's retirement plan from a defined-benefit plan into a cash-balance plan. (Compl., Patino v. Foot Locker, No. 06-cv-04879 ¶¶ 2, 6, 18, ECF No. 1.) As in this case, plaintiff alleged that Foot Locker violated ERISA through concealing the "wear-away" effect caused by the conversion, by which certain older plan participants would have their retirement benefits frozen and would accrue no new benefits unless and until their cash balance caught up to and exceeded their frozen benefits. (See id. ¶ 44.) Plaintiff voluntarily dismissed that lawsuit on September 25, 2006. (Shapiro Decl. Ex. 2, ECF No. 130.) No litigation hold was put into place with regard to the Patino suit.
This Court has previously stated that, based on the Patino lawsuit, defendants should have issued a litigation hold in June or July 2006. (ECF No. 90.) At the time of the 2006 lawsuit, Foot Locker had in place a set of document retention guidelines that compelled its 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." (June 8, 2012 Gottesdiener Decl. ("June 2012 Gottesdiener Decl.") Ex. 1 (Eichberger Decl.), at Ex. C, at FL-OSB 009770, ECF No. 78.) On July 6, 2006, Proskauer Rose LLP, defendants' outside legal counsel, stated on a "To Do List" that defendants should issue a "[d]ocument preservation memo." (Sept. 13, 2012 Gottesdiener Decl. ("Sept. 2012 Gottesdiener Decl.") Ex. 3, at FL-PRIV 000163, ECF No. 128.) In addition, defense counsel discussed with Foot Locker the need to collect documents from Foot Locker personnel, issue a litigation hold memorandum, and notify third parties of the litigation. (Shapiro Decl. Ex. 5 (Sheehan Dep.), at 236:23-238:15.) Foot Locker did notify certain third parties of the lawsuit and collected certain relevant documents from Foot Locker personnel. ( Id. Ex. 8.) However, defendants did not implement a litigation hold when the Patino case was filed in 2006. (Sept. 2012 Gottesdiener Decl. Ex. 4 (Sheehan Dep.), at 180:23-181:08.)
On November 20, 2006, plaintiff in the instant case sued defendants claiming that Foot Locker had miscalculated his pension benefit under the cash-balance plan. Osberg v. Foot Locker, Inc., et al., No. 06-cv-6620 (N.D. Ill. Nov. 30, 2006). On February 12, 2007, plaintiff voluntarily dismissed that complaint. (Shapiro Decl. Ex. 4.)
On February 23, 2007, plaintiff initiated the instant litigation, claiming that the converted plan's "wear-away" effect effectively "froze" certain employees' benefits, and that defendants' adoption of the plan thereby violated ERISA. (ECF No. 1.) Again, defendants collected relevant documents and notified third parties of the lawsuit. (Shapiro Decl. Exs. 8-10.) However, defendants did not issue a litigation hold until October 8, 2009. (Eichberger Decl. ¶ 15.)
Defendants claim that, after distributing the litigation hold memorandum, they worked with counsel to determine whether any information had been lost. This investigation revealed that certain electronic documents were not retained, and that certain hard-copy documents related to human resources ("HR") were stored at the HR File Room in Foot Locker's headquarters. (Shapiro Decl. Exs. 14-16.) Certain other HR-related documents, including those related to benefits for subsidiaries, wage-and-hour matters, and fair employment practices, were typically stored at an off-site facility at Camp Hill, Pennsylvania rather than in the HR File Room. (Shapiro Decl. Ex. 18 (Peck Dep.), at 143:24-144:17.) However, Dennis Sheehan, Foot Locker's vice president and deputy general counsel, testified that he could only "speculat[e]" as to whether any such investigation occurred. (Sept. 2012 Gottesdiener Decl. Ex. 4 (Sheehan Dep.), at 359:13-360:05.)
Documents subsequently produced during discovery demonstrate that certain potentially relevant documents were lost or destroyed between June 2006 and October 2009, the period during which no litigation hold was in place. Later discovery revealed two categories of documents that could not be recovered: (1) boxes stored at Foot Locker's long-term storage facility at Camp Hill and (2) handwritten notes and other documents kept by Carol Kanowicz, a Foot Locker manager.
On March 1, 2012, in response to plaintiff's discovery requests, defendants admitted that "some boxes that could have contained potentially relevant information were purged/destroyed, " and that "certain boxes of hard-copy documents sent off-site by various personnel in Defendants' Human Resources Department were destroyed in 2007 and 2008." (Eichberger Decl. ¶¶ 15, 18(c)-(d).) However, defense counsel also stated that they "reviewed the hard-copy box i.d. slips of those identified as destroyed in this period" at the Camp Hill facility "and ascertained that those boxes did not contain potentially relevant information." ( Id. ¶ 18(e).) Defense counsel also claimed that the untimely distribution of the litigation hold memorandum would not have affected electronic documents: 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." (Shapiro Decl. Ex. 30, at 2.)
Later in 2012, plaintiffs learned that defendants had destroyed documents other than those at Camp Hill. On March 29, 2012, Carol Kanowicz, a Foot Locker manager and member of the team that designed the cash-balance plan, testified that two or three large filing "cabinet drawers" of handwritten notes and other hard-copy documents that had been "generated during the design phase" were "definitely in the file room" when she retired in fall 2006. (June 2012 Gottesdiener Decl. Ex. 26 (Kanowicz Dep.), at 107:08-108:05.) She further testified that defense counsel were unable to locate all the materials that they expected to find and that they were "surprised not to find" them. ( Id. at 135:14-136:17.) Moreover, documents in the file room were at times destroyed due to "periodic" "spring cleanings." (Sept. 2012 Gottesdiener Decl. Ex. 23 (Peck Dep.), at 39:23-40:14.)
Then, on July 27, 2012, defendants produced an excerpt from the database of their off-site storage facility at Camp Hill that identified 29, 503 boxes that were destroyed at Camp Hill between June 2006 and October 2009. (Sept. 2012 Gottesdiener Decl. ¶ 2.) Of these 29, 503 boxes, 305 were labeled as originating from the "HR, " "HR/Benefits, " or "Benefits" department, and 675 as originating from the "Legal" department. ( Id. ¶ 3.) Plaintiff reviewed this database and determined that 141 potentially relevant boxes were destroyed between June 2006 and October 2009. (Id.) Plaintiff created a spreadsheet of these 141 boxes based on their database descriptions. ( Id. Exs. 1, 2.) According to the box ID slips for those boxes, they contained documents relating to, inter alia, a "Cash Balance Plan Presentation, " "Mercer CB 401(k), " "Video - the coolest number 401(k), " "Meeting H.R., " "Pension Plan R[etirement] I[nvestment] C[ommittee], " "Benefit Comparisons - 1999, " and "H.R. Confidential Info." (Id.)
Although those documents were apparently destroyed between 2006 and 2009, defendants produced other documents concerning the cash balance conversion in 1995 to 1996, including, inter alia, draft and completed presentation materials for management, draft and completed communications to participants, and notes of meetings discussing the contemplated cash-balance design, including the wear-away feature. (See, e.g., Shapiro Decl. Ex. 24.) Plaintiff has not argued that these notes show any intention to conceal information about the new retirement plan's wear-away feature. (See, e.g., id.)
B. Procedural History
On December 6, 2012, the Court granted defendants' motion for summary judgment on the basis that plaintiff failed to state a plausible Section 204(h) notice claim, that his Section 102(a) claim was time-barred, and that he failed to raise a genuine issue of material fact on his Section 102(a) and Section 404(a) claims. (See ECF No. 138.) The Court also denied plaintiff's motion for spoliation sanctions as moot, finding that, even if defendants had destroyed relevant documents, they would not ...