On August 15, the US District Court for the Southern District of New York imposed spoilation sanctions on Sekisui America Corporation ("Sekisui") and Sekisui Medical Co. Ltd for breaching the duty to preserve electronically stored information ("ESI"). In Sekisui American Co. v. Hart,1 Sekisui brought action for breach of contract against Richard Hart, the president of a company that Sekisui had acquired, and Hart's wife. Sekisui did not put a litigation hold on the destruction of electronic information until over 15 months after it sent a Notice of Claims to the Harts, and during that time, ESI belonging to certain employees of the acquired company had been deleted or was missing. After learning that the information was missing, the Harts requested (1) an adverse inference jury instruction for destruction of ESI and (2) sanctions for spoliation based on the alleged or actual loss of the employee email folders. The matter was initially referred to a Magistrate Judge who declined to issue sanctions, but the court reversed the Magistrate Judge's decision to the extent that it denied the Harts' request for a sanction based on the destruction of ESI.
The court addressed two issues: "the appropriate penalty for a party that—with full knowledge of the likelihood of litigation—intentionally and permanently destroyed the emails of several key players" and "how to determine an appropriate remedy for the injured party when it remains unclear whether the destroyed evidence would, in fact, be favorable to that party."2
To obtain adverse inference instructions for the destruction of evidence, a party "must establish (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind; and (3) that the destroyed evidence was relevant to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense."3 A party must show that evidence was destroyed knowingly or negligently to satisfy the requirement of a culpable state of mind but does not need to show intent to breach a duty and sufficient evidence that the destroyed evidence would have been helpful to the party seeking sanctions.4 Prejudice is presumed when evidence is destroyed willfully or through gross negligence, but the burden of proving prejudice falls on the party seeking sanctions when the destruction of evidence is simply negligent.
The court found that Hart's ESI was willfully destroyed because the head of human resources demanded that Hart's ESI be destroyed. The court stated "a good faith explanation for the willful destruction of ESI when the duty to preserve has attached does not alter the finding of willfulness."5 The court found that Sekisui's failure to implement an appropriate document retention policy rose to the level of gross negligence given Sekisui's knowledge of the possibility of future litigation and the fact that it took Sekisui six months to notify the company responsible for preserving its documents of the litigation hold once it had put one in place.6 After finding that the evidence lost was relevant, the court found that Sekisui had been unable to rebut the presumption of prejudice because "an unknowable amount of ESI . . . was permanently destroyed and remains irretrievable."7 Accordingly, the court granted the Hart's request for an adverse jury instruction. The court's decision is the latest reminder of the importance of instituting and enforcing litigation holds as soon as a reasonable probability of litigation arises.
Footnotes
1 Sekisui American Co. v. Hart, No. 1:12-cv-03479, slip. op. (SDNY filed Aug. 15, 2013).
2 Id. at 2.
3 Id. at 13 (citing Residential Funding Corp. v. DeGeorge Financial Corp., 39 F.3d 99 (2d Cir. 2002).
4 Id. at 14, 16.
5 Id. at 23.
6 Id.
7 Id. at 27-28.
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