United States: (No "Litigation Hold") + Spoliation = Sanctions

"Litigation hold" is a notice requiring the preservation of all data that may relate to a claim or lawsuit.  "Spoliation" is the loss or destruction of evidence relative to a legal proceeding.

The failure to send or implement a "litigation hold" may result in loss of evidence resulting in a claim of "spoliation" – the sanctions for which run the gamut from an adverse inference charge that the lost evidence was damaging in nature or, in the extreme, to the striking of a pleading.

Pegasus Aviation I, Inc. v. Varig Logistica S.A., 26 N.Y.3d 543 (Court of Appeals) [decided on December 15, 2015]

Supreme Court imposed a spoliation sanction on the defendants.  The Appellate Division reversed.  The Court of Appeals remanded "for a determination as to whether the evidence, which the Appellate Division found to be negligently destroyed, was relevant to the claims asserted against defendants and for the imposition of an appropriate sanction[.]".

The Court outlined the facts:

In 2005 and 2006, plaintiffs Pegasus Aviation I, Inc., Pegasus Aviation IV, Inc. and Pegasus Aviation V, Inc. (collectively, Pegasus) leased cargo planes to defendant Varig Logistica S.A. (VarigLog), a Brazilian air cargo company. Shortly thereafter, the MP defendants purchased VarigLog out of a Brazilian bankruptcy. In early 2007, a dispute arose between one of the MP defendants (MP Volo) and its Brazilian shareholders concerning the distribution of proceeds from the sale of one of VarigLog's wholly-owned subsidiaries. In July 2007, the Brazilian shareholders denied the MP defendants access to VarigLog's offices, and shareholder litigation ensued. The end result was that the MP defendants were, in effect, "frozen out" of VarigLog's affairs from July 2007 until April 1, 2008, when a Brazilian court removed the three Brazilian shareholders and appointed MP Volo to "take over the administration and management" of VarigLog under the supervision of a judicial oversight committee.

The prior proceedings in Supreme Court:

During the shareholder litigation, and while the MP defendants were "frozen out" of VarigLog, VarigLog defaulted on its leases with Pegasus. In February 2008, Pegasus commenced litigation against only VarigLog in Florida state court for, among other things, breach of the lease agreements. Later, Pegasus voluntarily discontinued the Florida action and filed suit against both VarigLog and the MP defendants in New York County Supreme Court in October 2008. As relevant here, Pegasus sued VarigLog for breach of contract and conversion, and sought to hold the MP defendants liable for VarigLog's conduct on an alter ego theory. In March 2009, VarigLog filed for bankruptcy. At all relevant times, VarigLog and the MP defendants were represented by separate counsel.

Pegasus served a notice to produce documents pursuant to CPLR 3120 that, as relevant here, sought electronically stored information (ESI) concerning Pegasus's claims and VarigLog's relationship with the MP defendants. VarigLog produced some documents in response, but that production was unsatisfactory to Pegasus, particularly with regard to the ESI.

Supreme Court appointed a discovery referee to assist Pegasus and VarigLog in resolving the dispute. During the first conference, which occurred in January 2010, counsel for VarigLog reported that VarigLog had experienced one or more computer "crashes" that impaired its ability to provide the requested ESI. VarigLog's counsel later explained that between 2000 and 2008, VarigLog did not have a system of preserving emails, that emails were routinely stored on the computers of individual employees and that employee computers were returned empty when an employee left the company. Counsel also explained that beginning in March 2008, VarigLog had established a system whereby VarigLog's ESI was backed up on a daily, weekly and monthly basis, but that computer crashes that occurred in February and March 2009 resulted in the loss of much of the ESI, and that data recovery efforts had proven unsuccessful.

The motion for the imposition of sanctions:

Pegasus then moved for the imposition of sanctions against VarigLog and the MP defendants. It sought an order holding VarigLog in contempt for failing to comply with court orders, striking VarigLog's answer, and imposing a trial adverse inference against the MP defendants for their failure to properly preserve electronic and paper records relevant to the action and within their control, albeit in the possession of their subsidiary, VarigLog. Pegasus argued that the MP defendants controlled VarigLog and therefore had a duty to impose a "litigation hold" to preserve certain VarigLog paper documents but failed to do so.

The decision by the Supreme Court:

Supreme Court granted Pegasus's motion, holding that VarigLog's failure to issue a "litigation hold" amounted to gross negligence as a matter of law, such that the relevance of the missing ESI was presumed.  Supreme Court also found that the MP defendants, having been charged by the Brazilian court with the duty to "manage" and "administer" VarigLog, were in "control" of VarigLog for purposes of putting a "litigation hold" into place to preserve the ESI, and their failure to do so amounted to gross negligence. The court therefore struck the answer of VarigLog and imposed a trial adverse inference sanction against the MP defendants with regard to ESI and paper records relevant to the action and within the MP defendants' control[.]

The decision by the Appellate Division:

A divided Appellate Division reversed insofar as appealed from on the law and the facts and denied Pegasus's motion for a trial adverse inference instruction...The majority held that the record supported Supreme Court's finding that the MP defendants had sufficient control over VarigLog so as to trigger a duty on their part to preserve the ESI, but that it could not be said that their "failure to discharge this duty was so egregious as to rise to the level of gross negligence"...It rejected Supreme Court's holding that the MP defendants' failure to institute a litigation hold amounted to gross negligence per se, and held that the facts of the case supported, at most, a finding of simple negligence...Further, according to the majority, because Pegasus failed to prove that the lost ESI would have supported Pegasus's claims, a trial adverse inference sanction could not stand[.]

The options for relief with respect to spoliation:

Our state trial courts possess broad discretion to provide proportionate relief to a party deprived of lost or destroyed evidence, including the preclusion of proof favorable to the spoliator to restore balance to the litigation, requiring the spoliator to pay costs to the injured party associated with the development of replacement evidence, or employing an adverse inference instruction at the trial of the action[.]

Analyzed the decision of Supreme Court:

The trial court found that it was the lack of a litigation hold, and not the computer crashes themselves, that resulted in the destruction of the requested documents. However, the trial court incorrectly stated that the MP defendants were part of the Florida litigation, and that once they were, they were required to ensure that a litigation hold was in place, pointing to the fact that because the MP defendants were ordered by the Brazilian court to "manage and administer" VarigLog, the MP defendants were running VarigLog and therefore had the means of implementing a litigation hold. However, in this instance, the failure to institute a litigation hold did not amount to gross negligence per se, as the trial court held. Rather, a party's failure to institute a litigation hold is but one factor that a trial court can consider in making a determination as to the alleged spoliator's culpable state of mind.

And the Appellate Division:

In contrast to the trial court's reasoning, the Appellate Division majority noted that Pegasus did not adduce evidence that any steps were taken to defeat the computer backup system in the months leading up to the crashes, nor did Pegasus claim that the MP defendants themselves caused the crashes. The Appellate Division majority considered a number of factors in reaching its ultimate holding that the MP defendants' conduct in failing to preserve the ESI was not grossly negligent. Pertinent to that finding was the fact that VarigLog was represented by its own counsel when the MP defendants were brought into the litigation in April 2008, and there was no evidence that the MP defendants had reason to believe that VarigLog's counsel was not providing VarigLog adequate advice concerning ESI preservation. Another factor relied on by the majority was that the MP defendants adequately responded to all of Pegasus's discovery demands directed at them, thus negating any inference that the MP defendants were reckless concerning Pegasus's demands made on them. Finally, the majority found that notwithstanding the fact that the MP defendants had exercised practical control over VarigLog, the record evidence indicated that VarigLog and the MP defendants were separate entities, with each possessing their own offices, staff, operations and computer systems.

Concluding that:

On this record, we see no reason to disturb the unanimous finding of the lower courts that the MP defendants had sufficient control over VarigLog to trigger a duty on its part to preserve the ESI. Nor is there any basis to disturb the findings of fact by the Appellate Division that the MP defendants were negligent in failing to discharge that duty. The Appellate Division majority erred, however, to the extent that it determined that Pegasus had not attempted to make a showing of relevance...and chose to conduct its own analysis of the relevance issue without taking into account Pegasus's arguments in that regard, which were contained in its appellate brief.  Thus, although the Appellate Division possesses the authority to make findings of fact that is as broad as the trial court, in this instance, where it all but ignored Pegasus's arguments concerning the relevance of the documents, we conclude that the prudent course of action is to remit the matter to Supreme Court for a determination as to whether the negligently destroyed ESI was relevant to Pegasus's claims against the MP defendants and, if so, what sanction, if any, is warranted.

Finally, the Appellate Division erroneously stated that a trial adverse inference charge in an alter ego case such as this one would be "tantamount to granting [Pegasus] summary judgment"...Such adverse inference charges have been found to be appropriate even in situations where the evidence has been found to have been negligently destroyed[.]

Ahroner v. Israel Discount Bank of New York, 2010 NY Slip Op 09013 (App. Div. First Department) [decided on December 7, 2010]

The Appellate Division summarized the law:

On a motion for spoliation sanctions involving the destruction of electronic evidence, the party seeking sanctions must establish that (1) the party with control over the evidence had an obligation to preserve it at the time it was destroyed; (2) the records were destroyed with a "culpable state of mind," and (3) the destroyed evidence was "relevant" to the moving party's claim or defense. A "culpable state of mind," for purposes of a spoliation inference, includes ordinary negligence (Zubulake v UBS Warburg LLC, 220 FRD 212, 220 [SD NY 2003]).

And applied the law to the facts of the case:

Spoliation sanctions were properly granted. The record evidence demonstrated that defendants controlled Bastante's hard drive, were aware of their obligation to preserve it, and were subsequently directed by the court to do so. Defendants informed the court that they would comply with their obligations and would produce the hard drive for inspection by a forensic expert. However, the hard drive was erased before plaintiff was able to inspect it. More specifically, one day before the scheduled inspection, plaintiff was informed that the hard drive had been erased and an image of it had been taken. However, the forensic expert later learned that no image of the hard drive had in fact been taken, leaving him nothing to inspect.

The record evidence is unclear as to when the hard drive was erased or whether it was preserved, and defendants never explained what happened. The motion court was understandably "deeply disturbed," and fairly inferred that defendants either intentionally erased the drive or that the drive was destroyed as the result of gross negligence. Furthermore, since the drive was destroyed either intentionally or as the result of gross negligence, the court properly drew an inference as to the relevance of the e-mails stored on the drive[.]

Noting that:

The court also properly exercised its discretion in limiting its sanction against defendants to an adverse inference charge...Furthermore, we find the sanction to be proportionate as it did not permit the jury to infer that any e-mails on the drive would support plaintiff's claims, but only that any e-mails would not support defendants' defense or contradict plaintiff's claims.

There was no evidence presented regarding the hard drives of the other individual defendants, and plaintiff never sought to inspect them. Nor did defendants admit that they destroyed these other hard drives. Similarly, there was no evidence regarding the data on defendants' servers. Supreme Court thus correctly declined to grant a sanction regarding these drives.

The issue of employee lists containing descriptions of the duties of the employees in the Bookkeeping Department was properly deferred to trial. While there was some evidence that these lists were used in determining which employees would be terminated, there was no evidence regarding whether the lists were destroyed in the ordinary course of business or after defendants had received notice of plaintiff's claims. Therefore, there was insufficient information regarding these lists to warrant a sanction.

Roberts v. Corwin, Slip Op. 04563 (App. Div. 1st Dept.) [decided on June 19, 2014]

In an action for legal malpractice against attorneys, Supreme Court denied defendants' motion to dismiss the complaint or to disqualify plaintiff's counsel and for discovery sanctions.

As to the spoliation claim, the Appellate Division stated:

The motion court also properly denied spoliation sanctions. There is no showing on this record that plaintiff's failure to place a litigation hold on electronic data resulted in the destruction of any evidence, let alone key evidence necessary for the defense of this action...Plaintiff testified that he maintained a folder containing all the electronic documentation and that he had produced over 2,800 documents during discovery. Moreover, he has no history of willful noncompliance with discovery, and his attorneys subsequently produced additional emails in response to a subpoena that, inter alia, was different in scope from the demand served on him.

Sanctions were also properly denied in connection with plaintiff's failure to disclose a file maintained by his former counsel, who counseled him after the alleged acts of malpractice had occurred, since defendants failed to establish that the file contained discoverable documents that could affect their defense.

VOOM HD Holdings LLC v. Echostar Satellite, 2012 NY Slip Op 00658 (App. Div. 1st Dept.) [decided on January 31, 2012]

The Appellate Division was required "to determine the scope of a party's duties in the electronic discovery context, and the appropriate sanction for failure to preserve electronically stored information (ESI)".

Holding that:

We hold that in deciding these questions, the motion court properly invoked the standard for preservation set forth in Zubulake v UBS Warburg LLC...which has been widely adopted by federal and state courts. In Zubulake, the federal district court stated, "Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold' to ensure the preservation of relevant documents"...The Zubulake standard is harmonious with New York precedent in the traditional discovery context, and provides litigants with sufficient certainty as to the nature of their obligations in the electronic discovery context and when those obligations are triggered.

Explaining that:

[A]s has been stated, "[I]n the world of electronic data, the preservation obligation is not limited simply to avoiding affirmative acts of destruction. Since computer systems generally have automatic deletion features that periodically purge electronic documents such as e-mail, it is necessary for a party facing litigation to take active steps to halt that process"...Once a party reasonably anticipates litigation, it must, at a minimum, institute an appropriate litigation hold to prevent the routine destruction of electronic data...Regardless of its nature, a hold must direct appropriate employees to preserve all relevant records, electronic or otherwise, and create a mechanism for collecting the preserved records so they might be searched by someone other than the employee. The hold should, with as much specificity as possible, describe the ESI at issue, direct that routine destruction policies such as auto-delete functions and rewriting over e-mails cease, and describe the consequences for failure to so preserve electronically stored evidence. In certain circumstances, like those here, where a party is a large company, it is insufficient, in implementing such a litigation hold, to vest total discretion in the employee to search and select what the employee deems relevant without the guidance and supervision of counsel[.]

Harry Weiss, Inc. v. Moskowitz, N.Y. Slip Op. 03927 (App. Div. 1st Dept.) [decided on May 30, 2013]

Supreme Court "granted defendants-respondents' motion for spoliation sanctions to the extent of precluding plaintiff from offering any evidence and/or testimony at trial in opposition to defendants' defenses and counterclaims"[.]

The Appellate Division described the action:

In this action, plaintiff diamond dealer alleges, among other things, that its broker, defendant Mendez Moskowitz and his company defendant BMW Diamonds, Inc., never intended to pay for diamonds it acquired from plaintiff. Defendants counterclaimed, alleging, among other things, that plaintiff failed to pay commissions to defendants.

The prior proceedings:

More than two years into this litigation, plaintiff's bookkeeper revealed at his deposition for the first time that certain electronic files that were created to track defendants' commissions were either "lost" or "deleted" at the end of 2007 and 2008, after a copy of the file had been printed. The bookkeeper further testified that he created and kept all of plaintiff's records on one computer, which had been in use for the last ten years. A month later, when defendants' attorney sought to forensically examine the computer to determine if any of the deleted files could be restored, plaintiff's bookkeeper claimed, for the first time, that the computer was "broken" and had been thrown away in late 2009 or early 2010, after the commencement of this action. Thereafter, the bookkeeper testified that numerous documents supporting plaintiff's claim that defendants were not entitled to commissions could not be produced because they were stored only on the discarded computer.

Concluding that:

Spoliation sanctions were appropriate based on plaintiff's disposal of the computer. Plaintiff was put on notice of its obligation to "preserve all relevant records, electronic or otherwise," at the very latest, in July 2009, when it received defendants' answer asserting counterclaims for commissions[.]

Plaintiff's conduct evinces a higher degree of culpability than mere negligence...Indeed, the record shows that, despite numerous court orders and the court's assignment of a special referee to supervise discovery, plaintiff delayed discovery and did not disclose to defendants that it had discarded the subject computer for almost two years, notwithstanding that such disclosure was specifically requested by defendants. Further, the testimony of plaintiff's bookkeeper that a litigation hold, either written or oral, was never issued directing him to preserve electronic data, supports a finding that plaintiff's disposal of the subject computer was, at the very least, grossly negligent[.]

Defendants established that plaintiff's spoliation of critical evidence compromised defendants' ability to prosecute their counterclaims...Accordingly, the court did not abuse its discretion in determining that preclusion was an appropriate spoliation sanction.

Plaintiff's contention that its disposal of the subject computer did not cause defendants any prejudice because many of the files were printed prior to its disposal and had subsequently been produced to defendants is contradicted by the deposition testimony of its own bookkeeper. Moreover, converting the files from their native format to hard-copy form would have resulted in the loss of discoverable metadata...In addition, by discarding the computer after its duty to preserve had attached without giving notice to defendants, plaintiff deprived defendants of the opportunity to have their own expert examine the computer to determine if the deleted files could be restored[.]

Chan v. Cheung, Slip Op. 02731 (App. Div. 1st Dept.) [decided on April 12, 2016]

The Court discussed the requirement of a "litigation hold":

In this defamation action, plaintiffs allege that, on or about July 9, 2009, defendant published a defamatory affidavit via an email. Upon receipt of correspondence, dated July 13, 2009, threatening litigation, and certainly upon service of the complaint herein, defendant should have placed a litigation hold on relevant electronic data in order to preserve it...However, defendant failed to preserve the email, and any other emails that may have been sent contemporaneously, and destroyed evidence of their existence, as plaintiffs proved conclusively at the hearing on these motions. Plaintiffs' computer forensic expert concluded that defendant had installed new operating systems on the subject computers after the July 13, 2009 notice and the August 26, 2009 complaint, resulting in the irrevocable destruction of evidence critical to the litigation. On three of the compromised systems, the expert was able to retrieve the exact dates of the destructive reinstall. The reinstall caused gigabytes of space on the allegedly preserved hard drives to be overwritten. At least one of the computers contained traces of [relevant] files that no longer exist named "Rowena Archive Folder." In light of the warnings concerning potential loss of data and the prompts to reboot the machine that defendant would have received during the reinstallation process, the deletion of files containing defendant's archived email (like the reinstallation itself) could not be said to have been inadvertent. Plaintiffs did not rely on their computer forensic expert to establish the existence of the communications as defendant admitted sending the email to at least one vendor; and plaintiffs recovered that email and another from third-party recipients of those emails. Although plaintiffs have recovered one or two of the allegedly defamatory emails, it is impossible to determine the universe of recipients of the subject affidavit, and thus to determine the extent of damage to plaintiffs. The spoliation of the evidence is therefore highly prejudicial to plaintiffs.

The affirmative course of action resulting in the destruction of evidence:

Defendant undertook an affirmative course of action resulting in destruction of relevant emails, though she represented otherwise during sworn testimony. As the documents received from third-party recipients confirm, the files defendant destroyed are highly relevant and tend to substantiate plaintiffs' claims. Evidence of defendant's willful and prejudicial destruction of evidence warrants the sanction of striking her pleadings...Where a party disposes of evidence without moving for a protective order, a negative inference may be drawn that the destruction was willful...Willfulness may also be inferred from a party's repeated failure to comply with discovery directives...It should also be noted that this Court has upheld the striking of pleadings where the destruction of critical evidence occurs through ordinary negligence[.]

And "grant[ed] plaintiffs' motion to the extent that directing defendants' answer to be stricken[.]".

Arbor Realty Funding, LLC v. Herrick, Feinstein LLP, 2016 NY Slip Op 05065 (App. Div. 1st Dept.) [decided on June 28, 2016]

The Appellate Division affirmed Supreme Court's "original determination awarding defendant an adverse inference charge at trial as to the spoliated evidence [and] awarding monetary discovery sanctions in the amount of $10,000[.]".

The First Department summarized the nature of the action:

In this action, plaintiff Arbor Realty Funding, LLC (Arbor) seeks damages for legal malpractice from defendant Herrick, Feinstein LLP (Herrick) in connection with Herrick's representation of Arbor in negotiating a high rise construction loan with a developer. The loan closed on May 8, 2007 and the developer defaulted on the loan in or about July 2008. Arbor contends, inter alia, that Herrick gave it faulty advice in 2007 in connection with zoning issues, the existence of which led to the revocation of building permits following a crane collapse at the site, and the borrower's default. Herrick argues, inter alia, that Arbor would have issued the loans regardless of any potential zoning issues and that Arbor later assigned the loans and/or failed to mitigate its damages.

The prior "spoliation" proceedings:

The instant motion concerns Arbor's alleged spoliation of evidence. It is undisputed that Arbor's obligation to preserve evidence arose at least as early as June 2008, when Arbor retained counsel in connection with its claims against Herrick. However, Arbor did not issue a formal litigation hold until May 2010. As a consequence, Arbor's internal electronic record destruction policies, including recycling of backup tapes, deletion of employees' emails stored in their inboxes or sent items folders for 189 days, and erasure of employee hard drives and email accounts upon the employee's departure from the firm, were not suspended until May 2010. In addition, Arbor's CEO deleted his emails on a regular basis between June 2007 and June 2010, with the result that only one of his emails from the relevant period was produced. Arbor produced no emails from the relevant period from its Executive Vice President of Structured Finance, who was involved in the transaction.

The decision by Supreme Court:

Arbor commenced this action in 2011. In or about June 2014, Herrick filed a motion seeking dismissal of the complaint as a sanction for Arbor's failure to preserve evidence, including the electronic records of six key witnesses. The court found that Arbor's failure to preserve evidence constituted ordinary negligence, and granted Herrick's motion only to the extent of directing that Herrick be entitled to an adverse inference at trial...Arbor did not appeal that order. Approximately six weeks later, Arbor produced to Herrick the minutes from a May 10, 2007 structured loan committee meeting, which identified eight additional Arbor employees who were involved in the loan transaction. Arbor claims that its failure to produce the minutes earlier was inadvertent. In or about January 2015, Herrick moved to renew its spoliation motion, based on the new information in the minutes, including the identification of additional witnesses, much of whose electronic records had been destroyed by Arbor, either due to its failure to timely institute a litigation hold, or deliberately[.]

The controlling standard:

"Failures which support a finding of gross negligence, when the duty to preserve electronic data has been triggered, include: (1) the failure to issue a written litigation hold; (2) the failure to identify all of the key players and to ensure that their electronic and other records are preserved; and (3) the failure to cease the deletion of e-mail"

And applied the law to the facts:

Here, the motion court correctly determined that Arbor's destruction of evidence was, at a minimum, gross negligence, since Arbor failed to institute a formal litigation hold until approximately two years after even Arbor admits it had an obligation to do so. The minutes further reveal the extent to which Arbor failed to identify all of the key players in the loan transaction, and failed to preserve their electronic records. Where, as here, the spoliation is the result of the plaintiff's intentional destruction or gross negligence, the relevance of the evidence lost or destroyed is presumed...Plaintiff failed to rebut this presumption. Accordingly, the motion court properly determined an appropriate sanction should be imposed on plaintiff. However, the sanction must reflect "an appropriate balancing under the circumstances,"...Generally, dismissal of the complaint is warranted only where the spoliated evidence constitutes "the sole means" by which the defendant can establish its defense...or where the defense was otherwise "fatally compromised"...or defendant is rendered "prejudicially bereft" of its ability to defend as a result of the spoliation[.]

Concluding that:

The record upon renewal does not support [the required] finding, given the massive document production and the key witnesses that are available to testify, including the eight additional persons identified in the minutes, on whom Herrick had not yet served interrogatories or deposition notices at the time it filed its renewal motion. Accordingly, an adverse inference charge is an appropriate sanction under the circumstances...since it will permit the jury to: (1) find that the missing emails and other electronic records would not have supported Arbor's position, and would not have contradicted evidence offered by Herrick, and (2) draw the strongest inference against Arbor on the issues of whether Arbor would have made the loans regardless of any potential zoning issues, and the measure of Arbor's damages taking into account its assignment of the loans and/or failure to mitigate its damages...In addition, plaintiff shall be required to pay discovery sanctions of $10,000 to defendant Herrick, Feinstein, LLP for its failure to produce the loan committee meeting minutes until after the motion court had decided the initial spoliation motion[.]

Atiles v. Golub Corp., 2016 NY Slip Op 05684 (Court of Appeals) [decided on July 28, 2016]

Supreme Court denied plaintiff's motion to compel discovery.

The Appellate Division summarized the prior proceedings:

Plaintiff Glorimar Atiles fell in one of defendants' stores. Atiles and her spouse, derivatively, thereafter commenced this negligence action against defendants seeking damages based on Atiles' injuries. Following joinder of issue and plaintiffs' discovery demands, defendants provided certain video surveillance that included footage prior to, during and after Atiles' accident, but which did not contain footage covering the full 24-hour period after the accident, as plaintiffs had requested. Thereafter, plaintiffs moved, pursuant to CPLR 3124, to compel defendants to produce, among other evidence, video surveillance of the two hours following Atiles' fall or, in the alternative, for Supreme Court to issue an adverse inference charge. Defendants cross-moved for a protective order and to compel other discovery. The court, among other things, denied plaintiffs' motion to the extent that it sought to compel production of the additional video surveillance or, in the alternative, for an adverse inference charge and denied defendants' cross motion. Plaintiffs appeal.

Plaintiffs' contention:

Plaintiffs' sole contention properly before this Court is that Supreme Court erred in denying an adverse inference charge based on defendants' failure to produce a video of the full two-hour period after the accident. "[T]rial courts possess broad discretion to provide proportionate relief to a party deprived of lost or destroyed evidence"..."A party that seeks sanctions for spoliation of evidence must show that the party having control over the evidence possessed an obligation to preserve it at the time of its destruction, that the evidence was destroyed with a 'culpable state of mind,' and 'that the destroyed evidence was relevant to the party's claim or defense such that the trier of fact could find that the evidence would support that claim or defense'"...When the party seeking sanctions establishes that the evidence was "intentionally or wil[l]fully destroyed, the relevancy of the destroyed documents is presumed"[.]

Analyzed plaintiffs' argument:

Plaintiffs failed to establish a prima facie case for entitlement to sanctions. Although it is uncontested that defendants are not in possession of any video of the scene of the accident for the full two-hour period after the accident, plaintiffs failed to put forth any evidence establishing why the video was not preserved. More specifically, the record contains no evidence related to the maintenance, or lack thereof, of any video related to the security cameras and explanation for how the disputed video came to be lost or destroyed. Therefore, plaintiffs failed to prove that defendants intentionally or willfully destroyed the video while under obligation to preserve it...Accordingly, and regardless of whether plaintiffs proved some lesser culpable mental state, they retained the burden of proving the relevancy of the portion of the video that they did not receive[.]

Noting that:

Plaintiffs' sole argument as to the relevancy of the disputed footage is that "the video is relevant as there is no depiction or disclosure of who cleaned up the spill, therefore there was no opportunity to depose, question or otherwise obtain the observations of the people in the best position to testify to [the] size, consistency or appearance of the substance on the floor." Plaintiffs' contention, however, is contradicted by the video evidence that defendants provided, which depicts the scene of the fall from approximately 24 hours before the accident until approximately eight minutes after Atiles' fall. The video depicts that, after Atiles fell, two employees stooped down and proceeded to wipe the floor in the area of the accident. Thereafter, the employees who were gathered at the scene of the accident removed Atiles' cart and then dispersed, leaving the area open to customer traffic. The deposition testimony of the co-manager of the store on the day in question, who responded to the accident, confirmed what is apparent from the video itself — that the "spill was already cleaned up" at the point at which the disclosed video concludes. Accordingly, no reasonable view of the evidence supports plaintiffs' contention that the video that defendants provided did not depict who cleaned up the substance on the floor or that plaintiffs were deprived of a full opportunity to depose witnesses who observed the substance upon which Atiles allegedly fell.

Further, given the cleaning efforts depicted, even if a later video depicted additional employees who arrived at or passed by the scene of the accident, those employees would not have personal knowledge about the condition of the floor at the time of Atiles' fall... [destroyed security footage relevant where it would have depicted the events during the time period in which the plaintiff claimed to have been illegally searched and detained]). As the video that defendants provided unambiguously contradicts plaintiffs' contention that later video footage would be relevant to their trial preparation, we find that this evidence was not "relevant to [plaintiffs'] claim...such that the trier of fact could find that the evidence would support that claim"[.]

TIAA Global Invs. LLC v. One Astoria Sq. LLC, 2016 NY Slip Op 31240(U) (Sup. Ct. N.Y. Co.) [decided on February 22, 2016]

Before the court was a motion for an Order:

"[P]ursuant to CPLR 3124 compelling defendants One Astoria Square LLC, Shibber Khan, and the Criterion Group, LLC (the "Criterion defendants") to produce all electronic documents and emails in their possession, custody or control, including those in the possession of Yahoo! Small Business, as demanded in plaintiffs' July 10, 2013 Notice for Discovery and Inspection; and b) pursuant to CPLR 3126: a) striking the Criterion defendants answer due to the' spoliation of critical evidence; b) precluding the Criterion defendants from offering any testimony or evidence in opposition to plaintiffs' causes of action; c) permitting an adverse inference charge at the time of trial due to the Criterion defendants' spoliation of evidence; and d) awarding plaintiff attorneys' fees in making the present motion, contending that the Criterion defendants failed to put a litigation hold in place at any time and destroyed critical emails."

The Court outlined the facts:

TIAA is a Delaware limited liability company. TCAM is a Delaware limited partnership. One Astoria is a New York limited liability company sharing an office with Criterion, a New York limited liability company. Mr. Khan is the managing member of One Astoria.

TIAA and One Astoria entered into a purchase and sale agreement with respect to One Astoria Square, located at 26-38 21st Street, Astoria, New York for a purchase price of $43,000,000 in January 2011. In March 2011, TIAA assigned all of its rights under the agreement to TCAM. The closing of the sale took place in March 2011.

The claims:

In addition to breach of contract, plaintiffs allege fraud by the Criterion defendants involving concerted efforts to conceal a massive problem with the air infiltration system resulting from latent deficiencies in the property. Plaintiffs allege two aspects of this scheme to defraud: l) the active concealment of latent building conditions and widespread tenant complaints related to the outside air infiltration issue; and 2) intentional misrepresentations made by the defendants to thwart plaintiffs' ability to discover the latent deficiencies of the property.

The emails:

Plaintiffs allege that after the sale, upon inhabiting and managing the property, numerous complaints from tenants led plaintiffs to discover the deficient air infiltration system. Plaintiffs further allege that defendants actively concealed the existence of a tenant campaign protesting the untenable living conditions resulting from the construction deficiencies. Subsequent to the sale, plaintiffs learned of emails from tenants to Criterion and Mr. Khan complaining of the uninhabitable conditions and threatening legal action, as well as responses from Criterion and Mr. Khan agreeing to concessions, including rent abatement, lease termination and payment of utility bills. Such emails were allegedly absent from the files that were required to be turned over pursuant to the purchase and sale agreement between One Astoria and TIAA for purchase of the property.  Plaintiffs allege that such emails are the tip of the iceberg and discovery will reveal documentation concerning these issues, which were intentionally purged from the files required to be turned over. Finally, plaintiffs contend that the allegedly fraudulent concealment of these documents is critical as such records contradict representations made by One Astoria in the agreement and, once discovered by plaintiffs after the closing, provided them with an indication of the latent deficiencies and code violations at the property.

The applicable law:

The Court of Appeals recently addressed the spoliation of electronically stored information in Pegasus Aviation I, Inc. v. Varig Logistica S.A.   There, the Court stated:

A party that seeks sanctions for spoliation of evidence must show that the party having control over the evidence possessed an obligation to preserve it at the time of its destruction, that the evidence was destroyed with a culpable state of mind, and that the destroyed evidence was relevant to the party's claim or defense such that the trier of fact could find that the evidence would support the claim or defense.

Our state trial courts possess broad discretion to provide proportionate relief to a party deprived of lost or destroyed evidence, including the preclusion of proof favorable to the spoliator to restore balance to the litigation, requiring the spoliator to pay costs to the injured party, or employing an adverse inference instruction at the trial of the action.

A party's failure to institute a litigation hold is but one factor that a trial court can consider in making a determination as to the spoliator's culpable state of mind.

*     *     *

In general, the decision whether to impose sanctions, as well as the nature and severity of any sanctions to be imposed, are matters within the discretion of the trial court...The nature and severity of the sanction depends upon a number of factors, including the knowledge and intent of the spoliator, the existence of proof of an innocent explanation for the loss of the evidence and the degree of prejudice to the opposing party[.]

The drastic remedy of striking a pleading generally is not warranted unless the evidence is crucial and the spoliator's conduct evinces some higher degree of culpability[.]

Where independent evidence exists that permits the affected party to adequately prepare its case, striking the spoliator's pleading is unwarranted, and a less drastic sanction, such as imposition of costs, an adverse inference charge or a spoliation charge, is appropriate[.]

A court may be reluctant to impose sanctions where the destruction of evidence, although intentional, was undertaken in good faith in the course of the defendant's normal business practices[.]

The application of the law to the facts:

Here, plaintiffs demanded the production of all documents relating to the construction, management and sale of the property. Plaintiffs' demands included requests for electronic communications in the Criterion defendants' possession, custody and control relating to various states of the property, including, inter alia, all correspondence to or from any tenants of the property, including communications relating to tenant complaints, demands for rent abatement, claims of offset or other requests for concessions, and requests to terminate leases.

Defendant Shibber Khan, the Managing Principal of the Criterion Group, LLC, submitted sworn affidavits to explain why defendants failed to produce the emails sought by the plaintiffs and why the defendants did not put a litigation hold in place.

In the first sworn affidavit, Mr. Khan states, "It is, and has been, the standard policy of the Criterion Group, LLC that all emails are deleted immediately upon receipt and review"[.]

In the second sworn affidavit, Mr. Khan contends that the Criterion defendants' prior counsel never told the defendants that they had any obligation to preserve documents at any time prior to the receipt of the instant motion to compel and for sanctions. Further, he asserts that plaintiffs never sent any notice of an anticipated litigation or hold notice prior to the commencement of this action[.]

The Court notes that the Criterion defendants made an effort to obtain backup copies of deleted emails from defendants' Yahoo! small business account.

Defendants exhibit the sworn affidavit of Collin Bentley, who states that he is a Director of Digital Forensics for Omnivere, LLC, an e-discovery consulting and litigation support company...Mr. Bentley states that he was retained by counsel for the Criterion defendants to assist with the collection of emails and other documents electronically stored by the Criterion defendants. He states that he contacted Yahoo! Small Business Customer Support by telephone and was told by a Yahoo! representative that they only allow for the recovery of deleted e-mail within seven days of deletion. Mr. Bentley describes in detail the efforts made to assist defendants' counsel with the collection of emails and to obtain other documents electronically stored by defendants.

The obligation to preserve the emails at the time of destruction:

Plaintiffs' assert that the limited documentary evidence obtained by plaintiffs shows that the defendants should have reasonably anticipated litigation with regards to the insufficient insulation and cold air infiltration no later than January 2011.  Plaintiffs exhibit a copy of a letter dated January 26, 2011, from thirty-five tenants of the building providing defendants with notice of widespread complaints regarding cold air blowing into the apartments at various locations and improper insulation throughout the property...In addition, plaintiffs exhibits some emails from multiple tenants explaining that they repeatedly complained to Criterion about the insulation and gas costs at the property[.]

Plaintiffs contend that the tenant letter and the tenants' email complaints show that the Criterion defendants should have reasonably anticipated litigation in January 2011 regarding the heating and insulation issues at the property, and they should have preserved and prevented the destruction of all documents, including emails, at that time.

Based upon the tenants' letter and the exhibited emails, the Court finds that the defendants had an obligation to preserve the deleted emails.

And whether the failure to institute a litigation hold amounted to recklessness or gross negligence:

First, plaintiffs have submitted no evidence whatsoever showing that defendants destroyed the emails to maliciously thwart the plaintiffs. Second, although the destruction of the emails was intentional, Khan stated in his sworn affidavit that the emails were deleted in the course of the defendant's normal business practices. Third, Khan contended in his affidavit that defendants' prior counsel never told the defendants that they had any obligation to preserve documents at any time prior to the receipt of the instant motion to compel.

Based on these circumstances, we conclude that defendants' state of mind did not rise to a level of recklessness or gross negligence.

And whether the destroyed element was relevant to plaintiff's claim:

Based on this record, the Court finds that the evidence would indeed be relevant.

Plaintiffs have not demonstrated significant prejudice. The missing emails do not deprive the plaintiffs of the ability to establish their case, for plaintiffs' have the tenants' letter and some emails. The deleted emails would merely be cumulative.

Based on these circumstances, an adverse inference charge is appropriate.

Nagi v. Mario Broadway Deli Grocery Corp., 2016 NY Slip Op 31352(U) (Sup. Ct. Bronx Co.) [decided on June 29, 2016]

In a "slip and fall" personal injury action, the Court addressed plaintiff's cross-motion for an Order, pursuant to CPLR §3126, striking the answer on the ground of spoliation of evidence.  The spoliation claim was based upon the following:

In support of plaintiffs cross-motion to strike defendant's answer for alleged spoliation of evidence, plaintiff submits his affidavit, wherein he states, inter alia,  that a few days after the accident, the deli owner told him that plaintiffs accident was recorded by a video camera inside the deli. The deli owner had an employee show plaintiff the images that were captured at the time of his accident. The portion of the video he saw commenced with plaintiff behind the counter, getting up, taking a few steps, slipping on soapy water, and falling into the opened trap door, such that he was completely out of view of the camera.

Defendant's response:

In opposition to the cross-motion, defendant submits, inter alia,  the affidavit of its president, Essaedi Zaid...wherein he states that he was asked to perform a search to determine if there was any surveillance video of plaintiff's accident. After conducting a search, Zaid states that he can confirm that there was no surveillance video of plaintiff's alleged accident and that he never showed plaintiff any surveillance video in connection with plaintiff's alleged accident.

And the following analysis by the Court:

The affidavits submitted by plaintiff and Zaid, are bereft of relevant detail and create numerous factual issues as to whether or not there was spoliation of evidence, and if so, the extent of prejudice, if any.

*     *     *

At plaintiff's deposition, he was asked if anyone told him that they saw the accident.  Plaintiffs answer was "[n]o, no, no." Plaintiff further testified that he broke his leg as a result of the accident and remained in bed for approximately two months, as he could not move around and could not walk on it...Plaintiff's affidavit presents no time frame as to when he allegedly viewed the surveillance video. Further, plaintiffs supplemental/amended Bill of Particulars, dated April 21, 2014, alleges, inter alia,  "inadequate lighting," which brings into question what was observable (i.e.,  soapy water), on the surveillance video.

Zaid's affidavit, while stating that no surveillance video exists of plaintiffs alleged accident, does not specifically state that it never existed, does not state when he searched the surveillance videos, and more pointedly, does not state that he reviewed the surveillance video for the date and approximate time of plaintiffs alleged accident. While Zaid denies ever showing plaintiff any surveillance video of the alleged accident, he does not specifically state whether any of his employees had access to the surveillance videos and whether they showed them to plaintiff.

With the Court concluding:

Accordingly, plaintiff's cross-motion to dismiss defendant's answer on the ground of spoliation of evidence is denied. At trial, plaintiff may make an appropriate application, based upon the evidence submitted, to the Justice Presiding, as to whether a jury charge based upon defendant's alleged failure to produce physical evidence (an alleged surveillance video), or other sanction is warranted.

Lessons learned:

The failure to initiate a "litigation hold" proximate to when a dispute arises or a claim is asserted may expose a party to sanctions for "spoliation".  Best practice:  When in doubt:  "litigation hold".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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