A third revisit to purposeful evidence destruction—even when found to be “not malevolent”—was not a charm for the party doing the damage, according to a recent decision by Honorable Shira A. Scheindlin, who practically invented the “spoliation of evidence” sanction in New York’s federal district court for the Southern District about 10 years ago.
On August 15, 2013 the court ruled again, this time that knowing destruction of evidence alone is enough to warrant an adverse inference instruction. Judge Scheindlin reversed a ruling by Magistrate Judge Frank Maas that declined to issue sanctions against a plaintiff who destroyed emails but where defendant failed to demonstrate prejudice. Judge Scheindlin reversed, holding that “[p]rejudice is presumed for the purposes of determining whether to give an adverse inference instruction when, as here, evidence is willfully destroyed by the spoliating party.”
Sekisui Am. Corp. v. Hart, 12-CV-3479, 2013 U.S. Dist. LEXIS 115533 (S.D.N.Y. 2013), deals with a breach of contract claim brought by purchaser of a medical diagnostics products manufacturer against the former owners, one of whom was also the former president and CEO. It was revealed during pre-trial discovery that Sekisui had destroyed certain electronically stored information (ESI) of the former president and CEO (now defendant) as well as that of another fact witness. Defendants sought an adverse inference jury instruction for the evidence destruction (spoliation). Magistrate Judge Maas issued a June 10 order declining sanctions. Among other things, the magistrate focused on defendants’ failure to produce any relevant emails that plaintiff also failed to produce. In the past such a finding could prove fatal spoliation sanctions where evidence is due to the wrongdoer’s conduct.
In reversing, Judge Scheindlin relied on Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 107 (2d Cir. 2002), where the Second Circuit held:
“[A] party seeking an adverse inference instruction based on the destruction of evidence must establish (1) that the party having 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 (3) that the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.”
Finding it clear that plaintiff abused its email preservation duty, the district court addressed culpability and prejudice to the innocent party.
Referring to “culpable state of mind,” the court rejected plaintiff’s argument that destruction was here caused by a single employee acting for unrelated reasons and without direction from the company. The court observed that evidence “was destroyed at the direct request of an employee after the duty to preserve had attached and the law does not require a finding of malevolence to constitute willfulness in the context of spoliation.” (Emphasis supplied.)
Significantly, Judge Scheindlin ruled “[i]n the context of an adverse inference analysis, there is no analytical distinction between destroying evidence in bad faith, i.e., with a malevolent purpose, and destroying it willfully.”
Last week’s ruling offers significant new guidance on the degree of culpability needed to justify sanctions, at least in the Southern District of New York, a court having significant influence on other federal courts in developing modern ediscovery law.
The court criticized plaintiff—finding the company to be grossly negligent—for failing to preserve relevant evidence in the absence of a document preservation hold. Indeed, no hold was created until 15 months after notice of the claim. The court found such delay to be purposeful and inexcusable given plaintiff’s awareness of the possibility of future litigation. The court was particularly displeased with plaintiff’s failure to notify its IT vendor of the preservation duty for six more months after finally placing a litigation hold.
Given findings of relevant evidence and its willful destruction, the court presumed prejudice. “When evidence is destroyed intentionally, such destruction is sufficient evidence from which to conclude that the missing evidence was unfavorable to that party. As such, once willfulness is established, no burden is imposed on the innocent party to point to now-destroyed evidence which is no longer available because the other party destroyed it.” The court determined, however, that “prejudice is only presumed when determining whether an adverse inference instruction will be given” and “[t]he jury may still determine that [Defendants] were not prejudiced by [Plaintiff’s] willful destruction of ESI and decline to draw any adverse inference.”
Preservation of ESI is —especially emails— a hot topic for business litigators and their clients involved in federal and state court lawsuits. Judge Scheindlin’s latest decision creates additional culpability and potential traps the unwary. It is more important than ever to holistically plan for ESI preservation through litigation holds before any action is commenced.
As with many of Judge Scheindlin’s earlier ESI opinions, Sekisui provides key guidance on counsel’s digital preservation obligation and need to preserve digital evidence and avoid spoliation. Lawyers and their clients would do well to read the entire opinion at the link here. To review the ediscovery implications – subtle and less-so – raised by Judge Scheindlin’s Sekisui decision, please feel free to contact Richard E. Weltman or Michael L. Moskowitz.
About Weltman & Moskowitz, LLP: 
Michael L. Moskowitz and Richard E. Weltman are co-founders of Weltman & Moskowitz, LLP, a business law firm serving New York, New Jersey and Long Island. They concentrate on creditor’s rights, bankruptcy, commercial litigation, business divorce, partnership dissolution, and alternate dispute resolution, as well as on limited liability companies and corporations, including counseling, structure, governance, and preparing and negotiating many types of secured lending, leasing, shareholder, buy-sell, technology, and joint venture agreements. Michael or Richard may be reached at 212.684.7800 or 201.794.7500 and at mlm@weltmosk.com or rew@weltmosk.com.
