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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: December 28, 2015

Party Sanctioned for Spoliation of Evidence

On December 7, 2015, Justice Bransten of the New York County Commercial Division issued a decision in Ocwen Loan Servicing, LLC v. Ohio Public Employees Retirement System, 2015 NY Slip Op. 51775(U), sanctioning a party for spoliation of evidence.

In Ocwen Loan Servicing, the defendant took steps to preserve evidence, including issuing a litigation hold notice and taking “steps to preserve non-email ESI.” However, due to a technical error, some e-mails that had been preserved “were accidentally purged” and “[b]ecause of this error, [the defendant] lost the content of 101 emails that contained one of the forty-two search terms, but was able to recover and produce metadata from the lost emails. Thirty of the lost emails were produced in discovery by either hard copy or from a third-party.” Further, forensic analysis of the defendant’s computers revealed that other data was not preserved, including data on the hard drive of an employee involved in the parties’ dispute.

The plaintiff moved “for sanctions pursuant to CPLR ยง 3126.” The court granted the motion, explaining:

In New York, sanctions for spoliation may be available where a litigant intentionally or negligently, disposes of crucial items of evidence before the adversary has an opportunity to inspect them. A party seeking sanctions based on the spoliation of evidence must demonstrate: (1) that the party with control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind’; and finally, (3) that the destroyed evidence was relevant to the party’s claim or defense such that the trier of fact could find that the evidence would support that claim or defense.

The obligation to preserve relevant evidence is triggered when a party reasonably anticipates litigation. Thereafter, the party must suspend its routine document retention/destruction policy and put in place a litigation hold to ensure the preservation of relevant documents. In the context of electronic discovery, the obligation to preserve goes beyond putting an end to affirmative acts of destruction and includes taking active steps to halt any automatic purging or deletion of ESI, such as emails, that a party may have in place.

(Internal quotations and citations omitted). The court held that the defendant’s duty to preserve evidence began not when the lawsuit began, but rather when it first learned that the plaintiff was considering suing it.

As to whether the defendant had “a culpable state of mind,” the court explained that

once a party reasonably anticipates litigation, it must, at a minimum, institute an appropriate litigation hold to prevent the routine destruction of ESI. The litigation hold must direct appropriate employees to preserve all relevant records, electronic or otherwise, and create a mechanism for collecting the preserved records so they might be searched by someone other than the employee. As part of the litigation hold, it is well-settled that a party must suspend its automatic deletion function.

(Internal quotations and citations omitted). The court concluded that the defendant was grossly negligent in failing to preserve all relevant evidence. The court explained that “it is important to note that the finding of gross negligence is not wholly premised on [the defendant’s] failure to institute a litigation hold. [It] also failed to stop the automatic purging of emails in the ‘journal’ mailbox[, and] intentionally wiped [an employee’s] computer just one month after [the plaintiff] declined [the defendant’s] settlement offer and directed Bloomberg to terminate his account.” (Internal quotations and citations omitted).

Finally, the court held that “[w]here the destruction of ESI is a result of gross negligence, there is a presumption of relevance.” The court held that the defendant had rebutted the presumption with respect to the inadvertantly-deleted ESI, but not with respect to the wiped computer.

As to the appropriate sanction, the court held:

The determination of an appropriate sanction for spoliation, if any, is confined to the sound discretion of the court and is assessed on a case-by-case basis. In deciding whether to impose sanctions, courts look to the extent that the spoliation of evidence may prejudice a party, and whether a particular sanction is necessary as a matter of elementary fairness.

Here, [the plaintiff] has demonstrated prejudice as a result of [the defendant’s] failure to preserve France’s ESI and Bloomberg messages. However, the extreme sanction of striking [the defendant’s] affirmative defense is not appropriate in this case because [the plaintiff] was able to obtain some evidence to disprove detrimental reliance . . . . Since the loss of potentially relevant ESI is not fatal to [the plaintiff’s] rebuttal of [the defendant’s] sixth affirmative defense, the imposition of an adverse inference as to that charge is appropriate and “reflects an appropriate balancing under the circumstances.

(Internal quotations and citations omitted). Based on these conclusions, the court imposed the sanction of “an adverse inference instruction to be read at trial in connection with Defendant’s sixth affirmative defense.”

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