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Spoliation Equals Case Dismissal for Plaintiffs in NY Case

Created on May 24, 2012


Vice President, E-Discovery

When people consider spoliation sanctions they most likely think of monetary penalties or, in extreme cases, adverse inference rulings. But a recent case out of New York might make one re-think how the spoliation of evidence can affect the outcome of a case. In 915 Broadway Associates, LLC v. Paul, Hastings, Janofsky & Walker, LLP (N.Y. Sup. Feb. 16, 2012), the plaintiffs were served by the New York Supreme Court with one of the most severe sanctions possible – CASE DISMISSAL.

CASE FACTS

In this convoluted legal malpractice case, the plaintiffs, 915 Broadway, sued its former counsel, Paul Hastings LLP, for legal malpractice. The plaintiffs alleged that the defendants failed to adequately instruct them during contract negotiations with a third party to draw on a $20 million line of credit before it expired. The defendants subsequently sought sanctions against the plaintiffs for spoliation of evidence. Read the full case details here.

RULES

Citing Voom and Zubulake, the court held that “once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold" as the standard for adequate preservation. To implement a sufficient legal hold, a party must ensure that affirmative steps are taken identify and preserve potentially relevant ESI, including overseeing organizational compliance with the legal hold.

If a party fails to preserve potentially relevant evidence, spoliation may occur if (1) in a culpable state of mind (2) the party had control and obligation to preserve when the evidence was destroyed (incl. modified, missing) and (3) the evidence destroyed was relevant to the case. Put another way, spoliation arises when a party (negligently / willfully) destroys relevant evidence when litigation can be reasonably anticipated.

COURT ANALYSIS

In coming to its ruling, the court recounted the plaintiff's actions after a legal hold had been put into place based on the following facts:

  • For two years, the plaintiff made no effort to preserve relevant documents from key custodians. It failed to instruct its IT department to suspend the company's routine document retention policy.
  • Emails were only backed up 14 days and then deleted per the company's routine email retention policy, leaving no trace of relevant emails for a two-year window.
  • The plaintiff failed to investigate the email retention policy to identify if emails were being backed up and preserved.
  • The plaintiff replaced its email servers after the defendant raised concerns about spoliation to the court, preventing any recovery of deleted emails.

Based on the fact that the plaintiff made “no effort to abide by its instructions," the court dismissed the case. In coming to this severe penalty, the court noted that the destruction of evidence prevented the defendant from defending itself and that it is “fundamentally unfair" for the case to proceed. On top of the case dismissal, the court also awarded attorney's fees.

THE E-DISCOVERY BEAT TAKE

Each time the court orders spoliation sanctions, it acts as a learning opportunity for legal teams to grasp how to prevent these penalties in the future. The key lesson to be learned from 951 Broadway is that without a clear process and a proactive mentality in addressing e-discovery obligations, courts will not hesitate to impose the ultimate sanction – case dismissal. Hopefully, this ruling will help promote two things: (A) Organizations will begin to treat e-discovery compliance with greater importance and urgency. (B) This will be a wake-up call to the corporate decision makers and risk managers that investing in a solid e-discovery infrastructure is now imperative for organizations because it will bring greatly needed visibility, cost savings and defensibility into the process. With the right technology and expertise organizations can have the ability to:

  • Issue a clearly understood legal hold,
  • Automatically communicate the requirements to IT so that routine email destruction policies can be suspended, and
  • Track and investigate custodian legal hold compliance, thus safeguarding against the outcome in 951 Broadway.

To learn more about how technology enables corporations and legal firms to establish consistent, repeatable business processes for managing e-discovery, click here.

Mike Hamilton, J.D. is a Sr. E-Discovery Analyst at Exterro, Inc., focusing on educating Exterro customers, prospects and industry experts on how to solve e-discovery issues proactively with technology. His e-discovery knowledge, legal acumen and practical experience give him a valuable perspective on bridging the gap between IT and legal teams. You can find him on Google+, Twitter and Linkedin.