A Manhattan real estate company was sanctioned an estimated $100,000.00 for its failure to implement a litigation hold and misrepresentations to the court about missing e-mails. The case of Einstein v. 357 LLC, N.Y. Sup. Ct. Manhattan Co., No. 604199/07, 11/4/09 is significant because it is the first time that a New York State court has weighed in on the need to implement a litigation hold. Citing a host of well known cases from the Southern District of New York, the judge took defendants' to task for defendant's failure to take any steps to preserve e-mail following the initiation of litigation.
The court held that:
"[T]he failure to implement any litigation hold, not only after the commencement of litigation, but also after this court's repeated warnings that counsel should 'read [their] client the riot act', was grossly negligent and rises to the level of 'culpable conduct' required for a finding of spoliation."
Factually, the case is straightforward, plaintiffs purchased a condominium in New York City. Shortly after moving in they discovered water was leaking into their condo. An expert hired by the plaintiffs found mold growing as a result of the problem and told the plaintiffs that the condo was unsafe for plaintiffs and their children. Plaintiffs sued the real estate brokers and others for deceptive marketing of the condo.
Following the filing of their lawsuit, plaintiffs made a series of discovery demands and ultimately filed a motion to compel discovery. The court initially order defendants to turn over hard drives of their brokers. Defendants failed to identify the hard drives to be turned over (claiming they did not have such a list) and plaintiffs again moved to compel discovery. In response to the second motion, defendants turned over two hard drives. During the course of this discovery dispute defendants' IT Director provided two affidavits and later testified at a hearing.
In his first affidavit, the IT Director generally described defendants' computer system including e-mail protocol. In a second affidavit the IT Director said defendants "had an e-mail deletion policy as a result of limited server space. If an individual deleted an e-mail from a local computer prior to a scheduled month-end backup, the file was not recoverable." At the hearing he testified "that he had never spoken to the individual brokers about their e-mail deletion policies, did not investigate what types of electronic communication devices they used, and failed to advise anyone that a possibility existed that e-mails relevant to the litigation were being deleted." Needless to say the court was not happy about waiting 18 months to learn that e-mails were being destroyed pursuant to defendants' e-mail policy.
The court held that the IT Director’s affidavits “were materially incomplete, particularly with respect to the [broker’s] email deletion policy.” Although the IT Director was to blame for the failure to communicate with anyone about the deletion policy, the court held that “counsel for the [broker] is also to blame for failing to investigate.” The court also characterized the deletion of e-mails as selective in light of the fact that some relevant e-mails were known to be missing. This failure was the direct result of a failure to implement a litigation hold.
In a line similar to the one we reported on in Synventive Molding Solutions v. Husky Injection Molding Systems, the court held that
“The [Civil Practice Laws and Rules] and New York case law are silent on the obligations of parties and their counsel to effectuate a ‘litigation hold,’ but “the utter failure to establish any form of litigation hold at the outset of litigation is grossly negligent.... While the deletion of emails is not per se improper, particularly when such deletions occur in the ordinary course of business, the matter is quite different when litigation has commenced or is reasonably anticipated. At that point, a party must take additional steps to preserve potentially relevant emails.”
The court completed its analysis holding that the "failure to suspend the deletion policy or to investigate the basic ways in which e-mails were stored and deleted constitutes a serious discovery default on the part of [defendants] and their counsel rising to the level of gross negligence or willfulness."
The conduct of defendants resulted in sanctions in the form of plaintiffs' costs to analyze two hard drives, and costs associated with discovery and motion practice. The court completed its analysis holding that the "failure to suspend the deletion policy or to investigate the basic ways in which e-mails were stored and deleted constitutes a serious discovery default on the part of [defendants] and their counsel rising to the level of gross negligence or willfulness."nduct of defendants resulted in sanctions in the form of plaintiffs' costs to analyze two hard drives, and costs associated with discovery and motion practice.
Law.com reports that plaintiffs' counsel estimates the total cost of the sanction as approximately $100,00.00. Beyond the obvious lesson of being upfront with the court about your computer system, this case is yet another example of a growing body of case law requiring parties to implement a litigation hold at the time of litigation or when litigation is reasonably anticipated.
To read the Law.com article, click here.