“No Matter How Inadequate a Party’s Preservation Efforts May Be … Sanctions are Not Warranted Unless there is Proof that Some Information of Significance has Actually Been Lost”

Orbit One Commc’ns, Inc. v. Numerex Corp., 271 F.R.D. 429 (S.D.N.Y. 2010)

Addressing defendant’s motion for sanctions, the court found that although “plaintiffs did not engage in model preservation of electronically stored information in this case,” they were not subject to sanctions absent evidence that any relevant information had actually been destroyed.  Significantly, in reaching this decision, the court took issue with certain aspects of the often-cited Pension Committee decision issued in the same jurisdiction earlier this year as well as with the discovery standard of “reasonableness and proportionality” set forth in another cited opinion, Rimkus v. Cammarata.

This litigation arose from disputes surrounding Numerex’s acquisition of Orbit One Communications, including the claims of Orbit One’s executives-turned Numerex employees, such as claims that the covenants not to compete signed by those executives were overbroad.

Without purporting to provide a full exposition of the salient facts, the following details illustrate plaintiff’s alleged activities:

• Despite receipt of a preservation request in an unrelated case (prior to the filing of the present litigation) and the subsequent issuance of a litigation hold (albeit somewhat lacking), plaintiff Ronsen complied with a request from Orbit One’s information technology administrator (who was unaware of the litigation hold) to remove certain information from the servers and archived approximately six gigabytes of data onto an external hard drive.  He then deleted certain personal items from the server and perhaps deleted some business e-mails, although he insisted they were preserved.  However, the external drive was not lost and was later provided to plaintiff’s counsel in response to a request from Numerex.

• Complying with another request from the IT administrator (who remained unaware of the litigation hold), Ronsen removed his desktop from the network and eventually allowed the computer to be cannibalized to build another computer.  However, that drive was not lost and was provided by Ronsen to his counsel “when the preservation of information became an issue in this case.”

• Following filing of the underlying lawsuit but before his resignation from Numerex, Ronsen reported difficulties with his laptop and requested the hard drive be replaced – which it was.  However, efforts were made to preserve the data thereon before the replacement.

Other acts of spoliation or deficiencies in Orbit One’s preservation procedures were also alleged (or noted in the court’s analysis) and Numerex sought an adverse inference instruction.

Beginning its analysis, the court noted the necessary showing to obtain an adverse inference, namely the accusing party’s need to show the alleged spoliator’s control and obligation to preserve, that records were nonetheless destroyed with “a culpable state of mind” and that the destroyed evidence was relevant to the party’s claim or defense.  In its discussion of the boundaries of preservation and how to practically uphold the obligation, the court recited the familiar language that such a duty arises when a party reasonably anticipates litigation but took issue with prior courts’ pronouncements that the determination of what to preserve was subject to principles of “reasonableness and proportionality” stating that such a standard “may prove too amorphous to provide much comfort to a party deciding what files it may delete or backup tapes it may recycle” and that “until a more precise definition is created by rule, a party is well-advised to ‘retain all relevant documents (but not multiple identical copies) in existence at the time the duty to preserve attaches.’”  The court clarified it statement in footnote:

FN10. Reasonableness and proportionality are surely good guiding principles for a court that is considering imposing a preservation order or evaluating the sufficiency of a party’s efforts at preservation after the fact. Because these concepts are highly elastic, however, they cannot be assumed to create a safe harbor for a party that is obligated to preserve evidence but is not operating under a court-imposed preservation order. Proportionality is particularly tricky in the context of preservation. It seems unlikely, for example, that a court would excuse the destruction of evidence merely because the monetary value of anticipated litigation was low.

Continuing its analysis, the court outlined the “how” of preservation, including the acceptability of “downgrading” data from active to archived, the “who” of preservation, namely that client and counsel must work together to ensure compliance, and the question of culpability i.e., that a “culpable state of mind” includes ordinary negligence.  The court then turned to the question of relevance – the factor upon which its ultimate determination turned.  Summarizing broadly:  the court concluded that absent evidence of bad faith or other sufficiently egregious conduct, “it cannot be inferred from the conduct of the spoliator that the evidence would even have been harmful to him.”  The court went on to state that in such cases, a party must “affirmatively demonstrate that a reasonable trier of fact could find that the missing evidence would support [his] claims” and that “[i]t is not sufficient for the moving party to merely point to the fact that the opposing party has failed to produce requested information.”

The court concluded that:

Prior to assessing whether a party has breached a preservation obligation, whether it did so with a culpable state of mind, and whether the lost information would have been helpful to the innocent party, a court considering a sanctions motion must make a threshold determination whether any material that has been destroyed is likely relevant for purposes of discovery.

The court went on to note that “some decisions appear to omit such a requirement” and specifically highlighted the recent Pension Committee decision stating, “the implication of Pension Committee, then, appears to be that at least some sanctions are warranted as long as any information was lost through the failure to follow proper preservation practices, even if there has been no showing of discovery relevance” and concluded, “[i]f this is a fair reading of Pension Committee, then I respectfully disagree.”  Indeed, the court stated, “[i]t is difficult to see why even a party who destroys information purposefully or is grossly negligent should be sanctioned where there has been no showing that the information was at least minimally relevant.”  Continuing its analysis, the court stated that sanctions are not warranted by a mere showing that a party’s preservation efforts were inadequate and, again noting the holdings of Pension Committee, namely its identification of grossly negligent failures, including failing to issue a written litigation hold and failing to identifying all key players to ensure preservation, among others, reasoned that “depending on the circumstances … the failure to abide by such standards does not necessarily constitute negligence, and certainly does not warrant sanctions if no relevant information is lost.”  The court went on to note that “under some circumstances, a formal litigation hold may not be necessary at all.”

The court ended its lengthy discussion of relevance by concluding that “[r]ather than declaring that the failure to adopt good preservation practices is generally sanctionable, the better approach is to consider such conduct as one factor … and consider the imposition of sanctions only if some discovery-relevant data has been destroyed.”

Applying its analysis to the facts of this case, the court determined that no sanctions were warranted where, despite plaintiffs’ failure to “engage in model preservation of electronically stored information,” there was insufficient evidence that any relevant information had been destroyed.  In so holding, the court specifically noted, for example, that the information removed from the servers had been preserved on an external drive, that the hard drive from the desktop at issue was ultimately produced, and that there was no evidence indicating that the need to replace the drive was fabricated and when the laptop’s hard drive was replaced, it was synched to the servers so that the information stored thereon would be preserved.  The court further pointed out that “no witness has identified any significant document that has not been produced in discovery.”