Commercial Division Blog

Posted: July 12, 2016 / Categories Commercial, Discovery/Disclosure, Spoliation

Dismissing Complaint Warranted Only if Spoliated Evidence Was Sole Means of Establishing Defense

On June 28, 2016, the First Department issued a decision in Arbor Realty Funding, LLC v. Herrick, Feinstein LLP, 2016 NY Slip Op. 05065, reversing a decision dismissing a complaint as a sanction for spoliation of evidence, explaining:

In or about June 2014, [the defendant] filed a motion seeking dismissal of the complaint as a sanction for [the plaintiff's] failure to preserve evidence, including the electronic records of six key witnesses. The court found that [the plaintiff's] failure to preserve evidence constituted ordinary negligence, and granted [the defendant's] motion only to the extent of directing that [the defendant] be entitled to an adverse inference at trial. [The plaintiff] did not appeal that order. Approximately six weeks later, [the plaintiff] produced to [the defendant] the minutes from a May 10, 2007 structured loan committee meeting, which identified eight additional [plaintiff] employees who were involved in the loan transaction. [The plaintiff] claims that its failure to produce the minutes earlier was inadvertent. In or about January 2015, [the defendant] moved to renew its spoliation motion, based on the new information in the minutes, including the identification of additional witnesses, much of whose electronic records had been destroyed by [the plaintiff], either due to its failure to timely institute a litigation hold, or deliberately, and [the plaintiff] cross moved for sanctions.

Although the motion court properly granted renewal based on the new facts presented in defendant's renewal motion, the court improvidently exercised its discretion in, upon renewal, dismissing the complaint as a spoliation sanction. As this court has previously stated,

Failures which support a finding of gross negligence, when the duty to preserve electronic data has been triggered, include: (1) the failure to issue a written litigation hold; (2) the failure to identify all of the key players and to ensure that their electronic and other records are preserved; and (3) the failure to cease the deletion of e-mail.

Here, the motion court correctly determined that [the plaintiff's] destruction of evidence was, at a minimum, gross negligence, since [the plaintiff] failed to institute a formal litigation hold until approximately two years after even [the plaintiff] admits it had an obligation to do so. The minutes further reveal the extent to which [the plaintiff] failed to identify all of the key players in the loan transaction, and failed to preserve their electronic records. Where, as here, the spoliation is the result of the plaintiff's intentional destruction or gross negligence, the relevance of the evidence lost or destroyed is presumed. Plaintiff failed to rebut this presumption. Accordingly, the motion court properly determined an appropriate sanction should be imposed on plaintiff. However, the sanction must reflect an appropriate balancing under the circumstances. Generally, dismissal of the complaint is warranted only where the spoliated evidence constitutes the sole means by which the defendant can establish its defense, or where the defense was otherwise fatally compromised or defendant is rendered prejudicially bereft of its ability to defend as a result of the spoliation. The record upon renewal does not support such a finding, given the massive document production and the key witnesses that are available to testify, including the eight additional persons identified in the minutes, on whom [the defendant] had not yet served interrogatories or deposition notices at the time it filed its renewal motion. Accordingly, an adverse inference charge is an appropriate sanction under the circumstances, since it will permit the jury to: (1) find that the missing emails and other electronic records would not have supported Arbor's position, and would not have contradicted evidence offered by [the defendant], and (2) draw the strongest inference against [the plaintiff] on the issues of whether [the plaintiff] would have made the loans regardless of any potential zoning issues, and the measure of [the plaintiff's] damages taking into account its assignment of the loans and/or failure to mitigate its damages.

(Internal quotations and citations omitted) (emphasis added).