Two Failures to Preserve, Two Starkly Different Results in New York
Two recent spoliation decisions, both out of the same New York Court and issued within a week of each other, demonstrate the potential for starkly different sanctions results depending on the level of culpability of the spoliator.
AJ Holdings Group, LLC, v. IP Holdings, LLC, Index No. 600530/2009 (Sup. Ct. N.Y. County, September 19, 2014) and L&L Painting Co., Inc. v. Odyssey Contracting Corp., 2014 N.Y. Misc. LEXIS 4300 (Sup. Ct. N.Y. County, September 25, 2014) are both breach of contract actions in which plaintiffs were accused of spoliating evidence. In both cases, plaintiffs failed to issue litigation holds after the duty to preserve was triggered and emails from key players were destroyed. That is where the similarities end.
In AJ Holdings, plaintiff had been repeatedly advised by its counsel of the need to preserve evidence and yet issued no litigation hold and took no steps to back-up, collect or preserve emails on corporate email servers. To make matters worse, the company replaced and discarded all desktop computers used by its principals during the relevant time frame, without taking any steps to preserve data on the hard drives. Not surprisingly, the Court found plaintiff’s conduct to be grossly negligent and ordered both adverse inference and monetary sanctions.
Contrast this with L&L Painting, where there was no finding of any egregious conduct. Although emails had been destroyed, plaintiff maintained they were available from other sources and had been provided to defendant. Following precedent established by the Second Circuit in Chin v. Port Auth. of NY and NJ, 685 F.3d 135, 162 (2d Cir. 2012) and adopted by New York’s Appellate Division, First Department in Pegasus Aviation I, Inc. v. Varig Logistica, S.A., 118 A.D.3d 428, 432 (1st Dep’t 2014) that failure to implement a litigation hold does not constitute gross negligence per se, the Court found that plaintiff was merely negligent in failing to issue a litigation hold and, thus, was not subject to a presumption that the destroyed emails were relevant. Because the defendant could neither demonstrate relevance of the emails nor prejudice resulting from their destruction, the Court refused to sanction plaintiff.
Two failures to institute litigation holds, but only one resulting in sanctions. Although there are multiple takeaways from these decisions, most importantly both serve as a reminder that taking the basic step of issuing a proper litigation hold and taking reasonable steps to preserve data is essential to avoid becoming entangled in side-litigation over spoliation sanctions.