Court Conducts Separate Analyses for Loss of Tangible Things and ESI, Declines to Impose Sanctions

Best Payphones, Inc. v. City of New York, Nos. 1-CV-3924 (JG) (VMS), 1-CV-8506 (JG) (VMS), 3-CV-0192 (JG) (VMS); 2016 WL 792396 (E.D.N.Y. Feb. 26, 2016)

In this case, the court addressed Defendants’ motion for sanctions for Plaintiff’s failure to preserve hard copy documents and electronically stored information and therefore conducted simultaneous but separate analyses of the alleged spoliation under the common law (tangible items/hard copy) and recently-amended Fed. R. Civ. P. 37(e) (ESI). Ultimately, the court determined that Plaintiff was negligent in its failure to preserve relevant information but that the lack of prejudice precluded imposition of the serious sanctions requested.  Instead, Plaintiff was ordered to pay Defendants’ attorneys’ fees and costs related to the motion.

Defendants sought sanctions for Plaintiff’s alleged failure to preserve both ESI and hard copy information, including emails between Plaintiff and third parties allegedly seeking to purchase Plaintiff’s business. Defendants claimed that Plaintiff’s duty to preserve arose in the summer of 2000, when Plaintiff “commenced related litigation against Defendants in New York State Supreme Court.”  Defendants further claimed that the information was lost as the result of Plaintiff’s failure to institute a litigation hold or to follow up with its principal to ensure preservation.

In response to Defendants’ motion, Plaintiff claimed that a litigation hold requirement was not established in case law until 2004, that Defendants had not established that Plaintiff acted unreasonably as to its preservation obligations, that Defendants could have—but did not—seek the information from third parties, that the missing documents were not relevant to proving Defendants’ case because of other available evidence, and that Defendants suffered no “demonstrable prejudice in light of the documents they ha[d] received” among other things.

Turning to its analysis, the court acknowledged that “as the law currently exists in the Second Circuit, there are separate legal analyses governing the spoliation of tangible evidence versus electronic evidence.” Specifically, the failure to preserve electronically stored evidence is subject to new Fed. R. Civ. P. 37(e), while the loss of hard copy and/or tangible items remains subject to the common law.

Addressing the question of a duty to preserve, the court reasoned that the “the duty to preserve was well-developed in th[e] Court’s jurisprudence years before Plaintiff filed its lawsuit” and held that Plaintiff had a duty to preserve “once it commenced its first action against Defendants” in July 2000.

Regarding whether Plaintiff had a “culpable state of mind” the court noted it was required to analyze Plaintiff’s culpability separately as to tangible things and electronic evidence with the common law requiring mere negligence to justify an adverse inference and Fed. R. Civ. P. 37(e) requiring a finding that Plaintiff acted “with the intent to deprive Defendants of that information.”  Ultimately, as to both categories of evidence, the court found that “Plaintiff’s conduct amounted to mere negligence.”  In so finding, the court rejected arguments in support of a finding of willfulness, noting Plaintiff’s willingness to supplement its production in response to Defendants’ motion (thus precluding a finding that Plaintiff acted willfully or was grossly negligent in its failure to produce that information) and Defendants’ own failure to seek the discovery from non-parties. (“Although this may have significantly increased Defendants’ discovery burdens, Defendants cannot properly complain that the documents . . . are not available when Defendants have not shown that they sought these documents from non-parties.”)  The court also noted that Plaintiff’s principal “believed he was satisfying his burden to retain all relevant records and was not acting willfully in his failure to preserve evidence” and further noted that “at the time in issue,” “preservation standards and practices for email retention were in flux.” Thus, for example, where the principal “labored under the mistaken belief that by keeping his emails as ‘new,’ he was saving them,” “the Court [could] not find that [the principal] acted unreasonably as is required for the Court to issue sanctions under Rule 37(e).” Finally, the court acknowledged the principal’s explanation for his failure to save certain at-issue activity reports that he believed were inaccurate, and therefore irrelevant.

Ultimately, the court found that although the missing information was relevant, Defendants did not show that they were prejudiced by its destruction. “[T]herefore, there [was] no spoliation under Second Circuit case law or under Rule 37(e).”

Accordingly, the court denied Defendants’ request for serious sanctions, including an adverse inference, and instead found that Plaintiff was responsible for Defendants’ attorneys’ fees incurred in bringing the motion for sanctions.

A copy of the court’s order is available here.