For plaintiff’s willful spoliation of electronic evidence, the First Department awarded defendant an adverse inference charge at trial plus a $10,000 discovery sanction but did not dismiss plaintiff’s complaint.

Plaintiff/former client sued defendant/former attorney for legal malpractice regarding defendant’s representation of plaintiff in negotiating a construction loan to Developer/Borrower.  The loan closed on May 8, 2007 and Developer/Borrower defaulted in July of 2008.  In June of 2008, plaintiff retained counsel to sue defendant for legal malpractice.  Plaintiff commenced suit in 2011 alleging alleged that in 2007 defendant misadvised plaintiff about zoning issues that led to the revocation of building permits after a crane collapsed at the site, causing Developer to default.  Defendant countered the suit with defenses that plaintiff would have issued the loan regardless of any zoning issues and that plaintiff later assigned the loans and/or failed to mitigate its damages.

The decision states that plaintiff’s obligation to preserve evidence arose at least as early as June 2008 when it retained counsel to pursue defendant for legal malpractice.  But plaintiff waited until May of 2010 to issue a formal litigation hold, so that until May of 2010, plaintiff’s internal electronic record destruction policies continued the recycling of backup tapes, the deletion of employees’ emails stored in their inboxes and sent items folder, and the erasure of departing employees’ hard drives and emails accounts after the employees left the firm.  In addition, plaintiff’s CEO deleted his emails on regular basis during the pertinent time period so that only one of his emails from the relevant period was produced, and plaintiff produced no emails from its executive vice president of structured finance, who was involved in the transaction.

In June of 2014, on defendant’s original motion for sanctions for spoliation, defendant moved to dismiss plaintiff’s complaint.  Supreme Court ruled that plaintiff’s failure to preserve that evidence was ordinary negligence and granted defendant an adverse inference charge at trial under PJI 1:77.  Plaintiff did not appeal that order.

Six weeks later, plaintiff belatedly produced meeting minutes that identified eight more employees who were involved in the transaction and which further revealed the extent to which plaintiff failed to identify all of the key players in the transaction and failed to preserve their electronic records. Plaintiff claimed that its tardy disclosure of those meeting minutes was inadvertent.  Defendant renewed its spoliation motion via the motion at issue on this appeal as to the eight additional witnesses whose electronic evidence had likewise been destroyed either due to plaintiff’s failure to institute a timely litigation hold, or because of plaintiff’s deliberate destruction of the evidence.  Supreme Court held that plaintiff’s destruction of this additional evidence was at a minimum gross negligence, so the evidence was properly presumed to have been intentionally lost or destroyed, and Supreme Court dismissed plaintiff’s complaint as a sanction.

The First Department held that dismissal of the complaint was too drastic, stating that the sanction must reflect “an appropriate balancing under the circumstances” and that 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 where defendant is rendered “prejudicially bereft” of its ability to defend as a result of the spoliation.

Here, defendant’s motion to renew did not support such a finding because of the massive amount of documents that had been produced and the availability of the fourteen key witnesses, including the additional eight upon whom defendant had yet to serve interrogatories and deposition notices.  Therefore the adverse-inference charge in favor of defendant on its defenses plus the monetary discovery sanction of $10,000 against plaintiff was sufficient.  But the First Department noted that this decision was without prejudice to defendant’s seeking dismissal or other sanctions should there be further revelations of plaintiff’s spoliation.

Arbor Realty Funding, LLC v. Herrick, Feinstein LLP, 2016 NY Slip Op 05065 (1st Dep’t June 28, 2016) http://www.courts.state.ny.us/reporter/3dseries/2016/2016_05065.htm.

About Eileen Buholtz

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