Avoid Spoliation Motions by Ensuring Continued Compliance with Litigation Holds

Attorneys and clients must collaborate to ensure compliance with litigation holds and evidence-preservation orders. In Marcone APW, LLC v. Servall Company (Sup. Ct., Erie Cnty., Index No. 2010-7257), Phillips Lytle successfully represented plaintiff Marcone APW, LLC (“Marcone”) in a matter involving Servall Company’s (“Servall”) alleged misappropriation of trade secrets and confidential information. During discovery, Servall delayed or failed to produce relevant electronic documents that existed around the time litigation commenced. Marcone filed a spoliation motion and ultimately demonstrated that Servall had not preserved all electronically stored information (“ESI”) relevant to the case.

Generally, spoliation is the “intentional destruction, mutilation, alteration or concealment of evidence, [usually] a document.” Metlife Auto & Home v. Basil Chevrolet, 303 A.D.2d 30, 33-34 (4th Dep’t 2002). In the context of ESI spoliation, the party seeking sanctions “must demonstrate that (1) the party with 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 finally, (3) that the destroyed evidence was relevant to the party’s claim.” Voom HD Holdings LLC v. Echostar Satellite L.L.C., 93 A.D.3d 33, 45 (1st Dep’t 2012) (citing Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 220 (S.D.N.Y. 2003)). Despite the widespread use of ESI, New York courts have noted the “paucity of New York case law specifically addressing issues arising from the alleged destruction of electronic evidence.” Ahroner v. Israel Discount Bank of NY, No. 602192/03, 2009 N.Y. Slip. Op. 31526(U) (Sup. Ct. N.Y. Cnty. 2009), aff’d, 79 A.D.3d 481, 482 (1st Dep’t 2010). By illustrating the grounds of the spoliation argument against Servall, the following discussion provides insight into how New York courts currently apply spoliation law.

Servall’s Spoliation

On July 20, 2010, soon after litigation began, the Erie County Supreme Court ordered Servall to preserve certain documents, including emails and other ESI, on backup tapes. On the same day that the Court issued the preservation order, Servall’s attorney and its chief operating officer discussed the need to immediately take steps to secure and protect any evidence related to the matter. Servall’s attorney also forwarded a copy of the Court’s order and explained what steps Servall would need to take to comply with the order. Servall’s chief operating officer informed the attorney that Servall’s director of information technology would immediately begin making copies from Servall’s ESI backup tapes. This and other conversations on July 20, 2010 led Servall’s attorney to believe that Servall had done what was necessary to comply with the preservation order. Evidence indicated, however, that Servall knew at the time that its ESI backup process had been failing. To compound this problem, evidence indicated that Servall did not verify that the copies made from the ESI backup process were successful or complete. Servall’s counsel remained unaware of these problems in obtaining the Court-ordered backup tapes.

Apart from the problems with obtaining backup tapes, Marcone argued that Servall did not make sufficient efforts to preserve relevant evidence. Although Servall’s chief operating officer testified that he had multiple conversations with Servall employees regarding the preservation order, Servall employees never received a written litigation hold letter containing instructions to preserve evidence. Paradoxically, Servall management’s only written instruction directed certain Servall employees to delete ESI from Servall’s system, notwithstanding the Court’s preservation order.

The evidence elicited during the spoliation hearing also demonstrated that Servall employees continued their normal email deletion practices, even after learning about the litigation. Certain employees continued to “double delete” their emails (i.e., delete emails from their inbox and from their deleted items box), which erased these emails from the server hosting the email service and that server’s backup systems.

These emails’ content, however, was not entirely lost. Phillips Lytle’s forensic computer analysis recovered emails demonstrating that certain deleted or unproduced emails involved Servall’s misappropriation and use of Marcone’s confidential information. These emails indicated that other relevant documents likely were not preserved, all to Marcone’s detriment.

Conclusion

A finding of spoliation may have significant consequences, such as the striking of a pleading, resolution of issues in favor of the prejudiced parties, precluding proof favorable to the spoliator, or employing an adverse-inference instruction to a jury. Ortega v. City of New York, 9 N.Y.3d 69, 76 (2007). Here, resolution of the spoliation motion in Marcone’s favor proved instrumental to Phillips Lytle’s favorable resolution of the case.

Litigants and counsel are advised to take appropriate steps to preserve evidence, utilize litigation holds when litigation is anticipated or commenced, and fully comply with court rules and preservation orders.

Topics:  Discovery, Document Retention Policies, Electronically Stored Information, Litigation Hold, Record Preservation, Spoliation

Published In: Civil Procedure Updates, Electronic Discovery Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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