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FIRST DEPARTMENT REVERSES SPOLIATION SANCTIONS

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  • Posted on: May 22 2020

Discovery, an important part of litigation, is designed to assist litigants in the prosecution or the defense of the claims being asserted in the action.  For the litigation process to yield fair results, it is imperative that the parties exchange necessary information. See CPLR 3101 (“There shall be full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof…”).  Accordingly, there is a duty to preserve evidence that may be useful during litigation and there is a consequence for failing to preserve evidence – whether the failure is willful, negligent, or anywhere in between.  This BLOG previously discussed spoliation of evidence. [HERE]

“To obtain sanctions for spoliation, a party must establish that the non-moving party had an obligation to preserve the item in question, that the item was destroyed with a ‘culpable state of mind,’ and that the destroyed item was relevant to the party’s claim or defense.”  Rossi v. Doka USA, Ltd., 181 A.D.3d 523, 526 (1st Dep’t 2020) (quoting, Voom HD Holdings LLC v. EchoStar Satellite LLC, 93 A.D.3d 33, 45 (1st Dep’t 2012).  A “culpable state of mind” for the purposes of spoliation analysis can include “ordinary negligence.”  Voom, 93 A.D.3d at 45.  Further, “[f]ailures 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, when appropriate; (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.”  Voom, 93 A.D.3d at 36 (citations omitted).

When it is determined that evidence was “intentionally or willfully” destroyed the documents will be presumed to be relevant, but in circumstances where evidence is destroyed through negligence, “the party seeking spoliation sanctions must establish that the destroyed documents were relevant to the party’s claim or defense.”  Pegasus Aviation I, Inc. v. Varig Logistica S.A., 26 N.Y.3d 543, 547-548 (2015) (citing Zubulake, infra); see also, Arbor Realty Funding, LLC v. Herrick Feinstein LLP, 140 A.D.3d 607, 609 (1st Dep’t 2016).  

The First Department in Voom, adopting the preservation standard set forth in Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003), stated that “’[o]nce 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.’”  Voom, 93 A.D.3d at 36 (quoting, Zubulake, 220 F.R.D. at 218).  

Often litigation holds must be put in place before litigation is commenced.  In Voom, the Court determined that while the action was commenced on January 31, 2008, defendant should have “reasonably anticipated litigation no later than June 20, 2007” (Voom, 93 A.D.3d at 39) because on that date defendant “sent a letter to Voom demanding an audit and threatening termination of the contract based on allegations that Voom [failed to meet a contractual milestone]”  (Voom, 93 A.D.3d at 43).

In Voom, the Court imposed the sanction of an adverse inference based on defendant’s destruction of evidence and its failure to timely implement a litigation hold – particularly since defendant “was well aware of its preservation obligation” because it had been sanctioned before.  Voom, 93 A.D.3d at 46.  Conversely, in Arbor, the Court reversed the motion court’s dismissal of the complaint as a sanction for spoliation.  The Arbor Court reasoned that “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.”  Arbor, 140 A.D.3d at 609-610 (citations omitted).  Because witnesses were available to testify and because plaintiff made a “massive document production,” the Arbor Court determined that an adverse inference charge was a sufficient sanction for plaintiff’s spoliation of evidence.  Arbor, 140 A.D.3d at 610 (citations omitted).  

On May 21, 2020, the First Department decided China Development Industrial Bank v. Morgan Stanley & Co., Inc.  The motion court in China, denied defendant’s motion to dismiss the complaint as a sanction for spoliation of evidence, but did sanction plaintiff for spoliation “to the extent of precluding plaintiff from introducing any e-mails or audio recordings in its or defendants’ files to support its claims at trial.”  The China Court modified the motion court’s ruling by denying sanctions.  The Court noted that while Plaintiff did not “impose a litigation hold until July 2010,” the “record does not support the [motion] court’s conclusion that plaintiff was obligated to preserve documents relevant to the transaction between the parties as early as October 2007.” There was no evidence “that plaintiff ‘reasonably anticipated’ litigating against defendants [in October of 2007], but shows rather that a credible probability of litigation against defendants arose only significantly later.”  

In light of the above, the China Court stated:

Since plaintiff had no duty to preserve evidence in 2007 and reasonably implemented a litigation hold in 2010 upon notice, there is no issue regarding the destruction of records neither intentionally, willfully nor negligently.  Accordingly, a spoliation sanction is not triggered and a culpable state of mind analysis is not reached.

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