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.

Plaintiff is entitled to an adverse-inference charge to the jury for defendant’s failure to preserve security video, which defendant had consented to a court order to preserve, but defendant’s answer and affirmative defenses would not be stricken.

Plaintiff slipped and fell on ice in defendant bank’s parking lot.  Before commencement of his action, plaintiff sought an order for pre-action disclosure and preservation of evidence. Defendant opposed the motion but represented to the motion judge that defendant had voluntarily preserved evidence including accident reports, photographs, and surveillance videotapes.  Defendant also consented to an order of preservation of those items.  During discovery after the action was commenced, plaintiff requested surveillance films related to the subject accident, and defendant responded that those materials had not been preserved.  (The dissenting opinion reveals that defendant’s business practice was to automatically overwrite the video footage after 90 days, and plaintiff’s motion and the resulting consent order were made more than a year after the accident).

The motion court granted plaintiff’s motion to strike defendant’s answer on the prong of CPLR 3126 that defendant had violated the court’s order of preservation.  The Fourth Department modified the sanction, holding under the alternate prong of CPLR 3126 that defendant’s failure to disclose was willful, but held that the motion court abused its discretion in striking defendant’s answer and affirmative defenses.  The Fourth Department instead gave plaintiff an adverse inference charge at trial with respect to the unavailable security surveillance footage.

The Hon. John M. Curran in dissent argued that willful failure to disclose was not raised below and further that the Fourth Department has excused alleged spoliation of evidence in other circumstances when the evidence was destroyed in good faith before litigation was pending, pursuant to normal business practices, and therefore could not have preserved it.  Justice Curran felt that defendant, however, had negligently destroyed the video because defendant was on notice of plaintiff’s claim before the tape was overwritten.  Justice Curran would have precluded defendant from introducing at trial evidence of the video’s content as part of its direct case.

Sarach v. M&T Bank Corp. 2016 NY Slip Op. 04820 (4th Dep’t June 17, 2016)

http://www.courts.state.ny.us/reporter/3dseries/2016/2016_04820.htm

Parties cannot stipulate to force the courts to resolve factual issues on cross motions for summary judgment in order to avoid a trial.

In Friends of Thayer Lake LLC v. Brown (May 10, 2016) http://bit.ly/1U3pzcf, plaintiffs own land abutting the state-owned William C. Whitney Wilderness Area in the Adirondacks.  The Wilderness Area encompasses in pertinent part a network of lakes, ponds, streams and canoe carries known as the Lila Traverse which permits canoe travel between Little Tupper Lake and Lake Lila.  More specifically, the Lila Traverse includes the Mud Pond Waterway, which is a two-mile-long system of ponds and streams that crosses plaintiffs’ property.  The State Department of Environmental Conservation created an eight-tenth-of-a-mile canoe carry to avoid the Mud Pond Waterway, but defendants maintain that the Mud Pond Waterway is “navigable in fact” and therefore a public highway freely accessible by the boating public.

[Per a N.Y. Attorney General press release dated February 24, 2011 (http://on.ny.gov/1ycl9cq), plaintiffs initially sued defendant Phil Brown for trespass for paddling the waterway in 2009.  The State of New York moved to intervene and counterclaimed against plaintiffs to require plaintiffs to remove intimidating signs, cameras, and steel cables that plaintiffs had placed across the waterway to prevent kayakers, canoeists, and other boaters from traveling across their property.]

The parties cross-moved for summary judgment seeking a ruling as a matter of law on whether the Mud Pond Waterway is navigable in fact and therefore open to public use.  The parties did not want a trial and jointly requested that Supreme Court rule as a matter of law on their respective motions, contending that the material facts were fully and accurately presented in the record and not significantly in dispute.   Both Supreme Court and the Third Department granted the parties’ request to resolve the dispute as a matter of law, stating that the parties in a civil dispute may chart their own course in litigation and may agree on the factual basis for the resolution of their controversy.

But the Court of Appeals ruled otherwise stating that the parties’ freedom to chart their own course in litigation must yield to certain practicalities, to wit, unresolved questions of fact: a motion for summary judgment requires the movant to demonstrate the absence of any material issues of facts.  Noting the absence of a stipulated statement of facts and an voluminous, detailed and expansive record (which included documents, maps, photographs, letters, articles, guidebooks, video footage, diaries, testimony, and affidavits), the Court of Appeals found conflicting or inconclusive evidence regarding many material facts including the waterway’s historical and prospective commercial utility, its historical accessibility to the public, the relative ease of passage by canoe, and the volume of historical and prospective travel on it.  Because of these questions of fact, the Court of Appeals denied summary judgment to all parties, expressly requiring a trier of fact to weigh the competing evidence, assess the credibility of witnesses, and reach the ultimate conclusion of navigability in fact.

Facts missing from a complaint were supplied by affidavit and should have been considered before dismissing the complaint.

Facts missing from a complaint that were supplied by affidavit in opposition to defendant carrier’s motion to dismiss cured the defect and should have been considered before dismissing the complaint. 

Plaintiff medical provider sued defendant no-fault carrier for treatments plaintiff had rendered to injured auto-accident victims, but the complaint failed to identify the patients treated or the policies under which plaintiff submitted claims for payment.  Defendant moved to dismiss the complaint for failure to state a cause of action under CPLR 3211(a)(7).  In opposition, plaintiff submitted an affidavit of its principal which supplied the missing information.  The First Department reversed the complaint’s dismissal and reinstated the complaint.

The First Department acknowledged that CPLR 3013 requires that a complaint be sufficiently particular to give the court and the parties notice of the transactions, occurrences, or series of transactions that form the basis of the complaint and the material elements of each cause of action.  The court further acknowledged the black-letter law that the factual allegations of the complaint are accepted as true and are afforded every possible favorable inference.  But it held, based on prior case law, that a court may freely consider plaintiff’s affidavits to remedy defects in the complaint.  The test is whether plaintiff has a cause of action, not whether plaintiff has stated one.  When such affidavits are considered, dismissal is appropriate only where a material fact claimed by the pleader is not a fact at all and there is no significant dispute regarding that fact.

The First Department further held that plaintiff sufficiently alleged that plaintiff was the assignee of claims and that a question of fact existed as to whether plaintiff failed to appear for examinations under oath, which was a condition precedent to coverage.

High Definition MRI, P.C. v Travelers Cos., Inc., 2016 NY Slip Op 02027, 1st Dept 3-22-16

Insurer’s interpretation was the only reasonable interpretation of an otherwise unambiguous deductible clause in a commercial property insurance policy.

Plaintiff insured owned a fuel oil terminal on the East River in Port Morris, Bronx County. Defendant insurer issued a commercial property insurance policy to plaintiff which covered in pertinent part the Port Morris facility up to a policy limit of $2,500,000.

The policy provided that “2% of the total insurable values at risk per location subject to a minimum of $250,000” would be deducted from each adjusted claim arising out a flood “occurrence”. At issue in the case was the interpretation of the phrase “total insurable values at risk per location”.

The total value for the Port Morris facility was listed on the policy’s “Schedule of Locations Endorsement” as being $124,701,000. A note at the bottom of that endorsement stated that the values listed on the endorsement were for premium purposes only. A separate endorsement confirmed that plaintiff had provided the values listed on the “Schedule of Locations Endorsement”.

In October 2012, flooding from Superstorm Sandy damaged the Port Morris Terminal and plaintiff submitted a claim to defendant for $2,284.239.95. Defendant denied plaintiff’s claim as being less than the amount of the deductible of $2,494,020.

Plaintiff moved for summary judgment contending that the deductible was $250,000, being two percent of the $2.5 million dollar policy limit. Defendant opposed plaintiff’s motion and cross-moved for summary judgment dismissing the complaint, contending that the deductible was $2,494,020, i.e., 2% of the $124,701,000 valuation for the Port Morris terminal listed on the Schedule of Locations Endorsement. Under defendant’s calculation, there was only $5,980 of coverage between the amount of the deductible and the policy limit for the Port Morris facility. The Second Department granted defendant’s motion.
Applying standard rules of contract construction, the Second Department stated that it agreed with the parties that the deductible clause was unambiguous and held that defendant’s interpretation of the phrase ‘”total insurable value” was the only reasonable one. The Second Department stated that to an average insured , “risk” in the phrase “total insurable values at risk per location” means “risk of loss”. In deciding how much coverage to buy, the average insured is concerned with the value of what is at risk and takes into account the likelihood of significant loss and the cost of insurance. The amount of insurance that the average insured chooses to buy is not the same as the “total insurable values at risk”, so the average insured could not reasonably conclude that the “total insurable values at risk” referred to a limit of coverage that was less than the total amount at risk. Therefore, the only reasonable expectation as to the meaning of the phrase “total insurable values at risk” was the insured’s own risk of loss and damage.
The Second Department held that plaintiff’s interpretation was unreasonable, because it rendered the $250,000 minimum deductible superfluous, and likewise rejected plaintiff’s contention that the note on the Schedule (which stated that the listed values were for “premium purposes only”) precluded those values from being used as “total insurable values”. The Second Department stated that the reasonable interpretation of that note was that the values were being used only to determine the premiums, not to set policy limits. Therefore, the listed values could be used to calculate the applicable flood deductible (the deductible being relevant in determining the amount of the premium).
Castle Oil Corp. v ACE Am. Ins. Co., 2016 NY Slip Op 01632, 2nd Dept March 9, 2016

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