United States: Can Tests For Spoliation In NY State, Federal Courts Be Reconciled?

For many years the sanctions available for the spoliation of electronically stored information (ESI) were largely similar in both the New York federal and state courts. New York state court decisions frequently tracked the federal common law spoliation analysis, most notably set out in the Southern District of New York's Zubulake v. UBS Warburg and Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Secs. line of cases.1 This analysis allowed for severe— and sometimes case-terminating— sanctions, such as adverse inference instructions, dismissal of claims or counterclaims, or outright dismissal of actions, for both grossly negligent or intentional spoliation. However, in the past year, with the passage of the December 2015 amendments to the Federal Rules of Civil Procedure (the Rules), the measure for spoliation and accompanying sanctions in New York state and federal courts has diverged.

Under the Federal Rules

Among the December 2015 amendments to the Rules was a significant rewrite of Rule 37(e), which addresses sanctions available for the failure to preserve ESI. Under the revised rule, sanctions are only available if ESI "that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery[.]" The amendment's most notable departure from certain jurisprudence developed within the Second Circuit concerns remedies available for negligent spoliation, in contrast to the remedies available only for intentional spoliation. Neither set of remedies can be reached now unless the ESI is actually lost—entirely irretrievable from another source or party.

If the preservation obligation and loss requirements are satisfied, negligent spoliation requires a further finding of prejudice. If those criteria are satisfied, the court may deploy a host of sanctions, but none can be case-terminating. The committee notes list the sanctions appropriate for nonintentional spoliation, which include evidence preclusion to offset prejudice; presentation of evidence or argument to the jury regarding the loss of information; and/or jury instructions that would assist in evaluation of that evidence or argument (distinguishable from an adverse inference instruction). Monetary sanctions such as costs and legal fees are also available.

If, however, the court finds that a party "acted with the intent to deprive another party of the information's use in the litigation," prejudice is presumed and the court may choose among more severe sanctions, which include a presumption that lost information was unfavorable (in the context of a dispositive motion or bench trial); instruction to the jury that it may or must presume the information was unfavorable; or dismissal of the action or entering of a default judgment. The latter remedy has been utilized to dismiss or bar specific claims and counterclaims, as well. The committee notes emphasize that Rule 37(e) bars these sanctions where the requisite intent is lacking. This is a direct change from pre-amendment common law that allowed for adverse inference sanctions upon finding gross negligence.2 Moreover, the notes indicate that if the sanctions described in the Rule are too extreme for the situation, lesser sanctions may be awarded, noting that the "remedy should fit the wrong."

In the year following the amendment, the published decisions from the New York federal district courts addressing ESI spoliation under the revised Rule 37(e) were relatively few in number. Some courts continued to look to the common law instead, where the matter or motion was pending prior to the amendment.3 Others proceeded under the revised rule, even where the litigation pre-dated the amendment—in part because the amendment could be viewed as more lenient toward the spoliator.4 Those courts that proceeded under the revised Rule have hewn closely to its instructions concerning "loss" and the availability of sanctions for differing levels of culpability, at times even imposing more lenient sanctions in the face of intentional conduct.

The Second Circuit applied amended Rule 37(e) in Mazzei v. Money Store and affirmed the trial court's decision not to give an adverse inference instruction where the loss of relevant ESI was not intentional. 656 F. App'x 558 (2d Cir. 2016). And, in Best Payphones v. City of New York, the court closely analyzed whether the ESI was "lost," holding that since the movants "did not attempt to retrieve copies of the emails, or the information that was in the emails," from third parties, "which would have cured any violation under Rule 37(e)," there could be no finding of loss and therefore no sanctions, despite negligent failure to preserve ESI. Only reasonable attorney fees and costs were awarded because some responsive documents were later produced as a result of the spoliation motion. 2016 WL 792396, at *5 (S.D.N.Y. Feb. 26, 2016). In Cat3 v. Black Lineage, the first decision in the Southern District to interpret and apply Rule 37(e), the court closely applied each of the Rule's requirements and held that relevant ESI, subject to preservation obligations, had been altered intentionally in such a way as to render it "lost," making Rule 37(e)(2) sanctions available. But the court rejected the "drastic sanctions" of dismissal or adverse inference instruction, and instead precluded the spoliator from relying on altered versions of ESI and awarded costs and reasonable attorney fees.5 Finally, in Feist v. Paxfire, the court found that the plaintiff had not intentionally spoliated browser history because she routinely cleaned the hard-drive and the computer had crashed (although the court noted that routine cleaning should have been suspended as part of ongoing preservation obligations); without intent, the court refused to award the extreme sanction of dismissal. The court instead precluded plaintiff from arguing for an award of certain types of damages, for which ESI relevant to the damages analysis had been lost. 2016 WL 4540830 (S.D.N.Y. Aug. 29, 2016).

While the developing case law in the Second Circuit suggests that litigants who negligently or inadvertently spoliate relevant ESI may take comfort that the most severe sanctions will not be available to their adversaries, the same cannot necessarily be said in New York state courts.

Under New York Common Law

Just days after the federal Rule 37(e) amendment took effect, the New York Court of Appeals handed down a seminal decision on spoliation in Pegasus Aviation v. Varig Logistica S.A., 26 N.Y. 3d 543 (2015). The court held that the appellate division had erred in reversing a sanction order imposed by the trial court for the loss of ESI as a result of the failure to implement a litigation hold and multiple computer crashes. The trial court had held that the failure to issue a hold amounted to gross negligence, presumed relevance of the irretrievable ESI, and awarded sanctions in the form of an adverse inference instruction and striking of defendant's answer. In endorsing the trial court's order, the Court of Appeals reiterated the existing New York standard that "adverse inference charges have been found to be appropriate even in situations where the evidence has been found to have been negligently destroyed," implicitly rejecting any incorporation of or movement toward the delineation between sanctions options based on intentional and non-intentional spoliation in the then-two-week-old amendment to Rule 37(e).

The trial and appellate courts in the state accordingly have continued to award more severe sanctions than would be available in federal court in the absence of intentional spoliation. For example, in Arbor Realty Funding v. Herrick, Feinstein, the First Department modified the sanction of dismissal, replacing it with an adverse inference instruction and monetary sanctions instead, for the grossly negligent spoliation of ESI as a result of the failure to issue a timely litigation hold, preserve additional relevant custodians' ESI, and suspend routine data destruction, including back-up tape recycling. 140 A.D.3d 607 (1st Dep't 2016). Similarly, in Cioffi v. S.M. Foods, the Second Department affirmed the sanction of an adverse inference instruction for the spoliation of ESI even though plaintiffs had not demonstrated the spoliation was "willful rather than merely negligent." 142 A.D. 3d 520, 526 (2d Dep't 2016). In Ferrara Bros. Bldg. Materials v. FMC Constr., the trial court awarded an adverse inference instruction at trial for the loss of ESI as a result of the replacement of certain of defendants' computers during the pendency of litigation, holding that the sanction was "sufficient to strike a balance between the need to ameliorate any prejudice [arising] from the destruction" and "the absence of demonstrable willfulness on the defendants' part." 2016 WL 6583995, at *4 (Sup. Ct. Queens Cty. March 30, 2016). In modifying a trial court decision to provide for an adverse inference instruction in lieu of striking an answer, the Second Department noted in Peters v. Hernandez that "striking a pleading is a drastic sanction to impose in the absence of willful or contumacious conduct." 142 A.D. 3d 980, 981 (2d Dep't 2016). These decisions suggest that outright dismissal of a complaint or the striking of an answer for gross negligence alone is not a readily available remedy in New York state court; however, the severe sanction of an adverse inference instruction may be.

Conclusion

Intentional spoliators are likely to face similarly extreme and potentially case-terminating sanctions in both New York state and federal courts. However, litigants should be aware that negligent spoliators are subject to different standards, which may result in less certainty concerning what exposure a non-intentional spoliator may face if ESI is lost.

Footnotes

1. Zubulake v. UBS Warburg, 229 F.R.D. 422 (S.D.N.Y. 2004); Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Secs., 685 F. Supp. 2d 456, 469-70, 496-97 (S.D.N.Y. 2010).

2. See Pension Comm., 685 F. Supp. 2d 456; Residential Funding v. DeGeorge Fin., 306 F.3d 99 (2d Cir. 2002).

3. See, e.g., Stinson v. City of New York, 2016 WL 54684 (S.D.N.Y. Jan. 5, 2016) (applying common law, grossly negligent spoliation resulted in sanction of permissive adverse inference instruction).

4. See, e.g., Cat3 v. Black Lineage, 164 F. Supp. 3d 488 at 496 (S.D.N.Y. 2016) (amended rule "is much more comprehensive" and "in some respects more lenient as to the sanctions that can be imposed for violation of the preservation obligation"); Best Payphones, v. City of New York, 2016 WL 792396, at *3 n.2 (E.D.N.Y. Feb. 26, 2016) (since "the application of the new rule does not create issues of feasibility or injustice, the Court will apply the new rule with respect to the electronic evidence at issue here").

5. Cat3, 164 F. Supp. at 501-02. Evidence was subsequently submitted to the court demonstrating that there had been no intentional discovery misconduct, and the sanctions motion was withdrawn. See Cat3 v. Black Lineage, 2016 WL 1584011 (S.D.N.Y. April 6, 2016).

Previously published in New York Law Journal, Feb. 6, 2017.

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