The Ultimate Price–New York Court Dismisses Case as Spoliation Sanction

 

The Supreme Court in New York County recently dismissed a $20 million suit in a sanctioning order in response to the Plaintiff’s destruction of electronically stored information (“ESI”). In 915 Broadway Associates LLC v. Paul, Hastings, Janofsky & Walker, LLP, 34 Misc. 3d 1229A (N.Y. Sup. Ct. 2012), the court made clear that it would not tolerate spoliation of evidence and that it was willing to impose even the severest of sanctions.

The Plaintiff was initially a party to a separate action involving a failed real estate deal, as a result of which a litigation hold letter was issued in April, 2008. Broadway settled the real estate action and brought this malpractice suit against its former attorneys in August of 2008. The attorneys were allegedly responsible for failing to advise Broadway that the letter of credit provided to it in connection with the real estate deal expired during negotiations, in spite of evidence that Broadway was at least in partly responsible.

By 2008, it was well-established law, consistent with the Zubulake decisions, that once a party reasonable anticipates litigation, it must suspend its routine document retention and destruction policy and put in place a litigation hold to ensure the preservation of relevant documents. See Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D. N.Y. 2003). However, even though the litigation hold letter from April 2008 was sent to the primary custodians, at least one principal actively deleted relevant emails. Further, the company made no effort to suspend the automatic destruction policy of emails, which resulted in the permanent destruction of every email intentionally deleted. Additionally, the court found that nine of fourteen key custodians had deleted relevant documents. Perhaps the worst violation, however, occurred after the Defendant had raised its spoliation concerns with the court, when Broadway decommissioned and discarded an email served without preserving any of the relevant ESI.

The court reiterated that circulation of a litigation hold alone is not sufficient to meet a party’s discovery obligations. Instead, a party must take affirmative steps to ensure potentially relevant evidence is identified and preserved. This includes not only avoiding affirmative acts of destruction, but also taking active steps, if required, to stop automatic deletion features. When evidence is destroyed, even mere negligence is sufficient to warrant sanctions. And when documents are destroyed as the result of, at a minimum, gross negligence, the court will presume the destroyed documents were relevant.

In this instance, the court determined that dismissal was the only remedy capable of addressing the prejudice caused by the intentional and reckless destruction of ESI. In addition to dismissing the Plaintiff’s $20 million suit, the court also awarded attorney’s fees and costs.

This case reinforces the need to not only issue a litigation hold, but to monitor compliance with it and take affirmative steps to ensure that potentially relevant information is collected and preserved. Even negligence in document preservation can result in sanctions.

About The Author

Thomas M. Jones joined Cozen O’Connor in 1986. He is vice chair of the firm’s Global Insurance Department and serves as co-chair of Cozen O’Connor’s Electronic Discovery Practice Group. Tom has a national practice representing insurers in complex litigation, and is frequently retained as national coordinating counsel in high-profile insurance coverage disputes.

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