By Jeffrey Basso, Esq.
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Published in The Suffolk Lawyer, April 2017

A crucial issue for any business named in a lawsuit or that is on notice that it will be named in a lawsuit is the preservation of evidence, specifically electronically stored information (“ESI”).  Attorneys will typically send “litigation hold” letters to their own clients or opposing parties in litigation to ensure that all steps are taken to preserve all documents and ESI that could be relevant to the litigation.  Essentially, businesses are instructed that nothing should be deleted, removed, modified, etc. by anyone within the company while the litigation is pending.  When a client destroys evidence or is negligent in preserving evidence, it is considered “spoliation” of evidence and can lead to sanctions imposed by the Court against the party that is guilty of spoliation including, but not limited to, dismissal or striking of a pleading, monetary penalties, or a negative inference at trial.  The negative inference at trial can be incredibly damaging to a party because it permits a jury to infer that any missing evidence is missing because it negatively impacted that party’s case or defense.

The Commercial Division in Queens County recently dealt with this spoliation of evidence issue in Ferrara Bros. Bldg. Materials Corp. & Best Concrete Mix Corp. (“Ferrara”) v. FMC Constr. LLC, et al. (Dufficy, J.).  Plaintiff Ferrara commenced the lawsuit against FMC Construction LLC (“FMC”) and Casa Redimix Concrete Corp (“Casa”) claiming that Casa interfered with the contract Ferrara had with FMC to provide cement for a construction project.    Casa’s defense was that it did not know about the contract between Ferrara and FMC at the time it entered into its contract with FMC.  However, Ferrara alleged that Casa purposely backdated its contract with FMC to give the impression that it was entered into prior to Ferrara’s contract rather than after Casa’s principals became aware of Ferrara’s contract.

Given the issue with the timing of the contract between Casa and FMC, Ferrara sought in discovery (over seven years after the case had been commenced) the electronic data, specifically metadata that would reveal the true dates that the contract between Casa and FMC was prepared, modified, and executed.  In response to the request, an IT specialist submitted an Affidavit on behalf of Casa claiming that two years after this litigation was commenced, the computers on which the native information was stored had been replaced and discarded due to a need to update Casa’s computer system.  The Court made a point to note that this computer system replacement was not done through an automatic process but rather was a conscious decision by Casa to update its computer system in the midst of litigation.

As a result of the discarding of the information by Casa, Ferrara brought a motion seeking sanctions against Casa for spoliation of evidence.  The Court noted that a party seeking sanctions based on spoliation of evidence must show the following: (1) the party having control over the evidence possessed an obligation to preserve it at the time of its destruction; (2) the evidence was destroyed with a “culpable state of mind”; and (3) the destroyed evidence was relevant to the party’s claim or defense such that the trier of fact could find that the evidence would support that claim or defense.  VOOM HD Holdings LLC v EchoStar Satellite L.L.C., 93 AD3d 33, 45 (1st Dep’t 2012), quoting Zubulake v UBS Warburg LLC, 220 FRD 212, 220 (S.D.N.Y. 2003)

Considering that the timing of the contract between Casa and FMC was at the heart of Casa’s defense in the case regarding its knowledge of the contract between Ferrara and FMC, the Court found that the metadata Ferrara sought was relevant to the case.  The Court also found that, considering that the parties were in the midst of litigation at the time and Casa knew or should have known that the ESI regarding its contract with FMC would be relevant to the litigation, Casa had an obligation to preserve this ESI.  Lastly, the Court held that Casa had not presented any evidence to rebut the presumption that Casa was negligent and possibly even grossly negligent in failing to suspend its destruction of the computer system containing ESI relevant to the litigation.   As such, the Court found that Ferrara had established the factors necessary to prove spoliation and turned to the issue of sanctions.

In reviewing sanctions to be imposed against Casa, the Court noted that spoliation sanctions are often based on the degree of willfulness with respect to the refusal or failure to disclose information which ought to have been disclosed.  Hameroff & Sons, LLC v. Plank, LLC, 108 A.D.3d 908 (3d Dep’t 2013).  Further, when the party seeking sanctions is still able to prove its case or defense, less severe sanctions are generally appropriate.  De Los Santos v. Polanco, 21 A.D.3d 397, 398 (2d Dep’t 2005).

After reviewing the facts of this case and based on the fact that the Court believed that Ferrara could still prove its case even without the missing evidence, the Court determined that the appropriate sanction would be a negative inference at trial to the jury.  Essentially, what this means is that if the case goes to trial, the jury will be permitted to infer that the reason the metadata was not disclosed is because it would act against Casa’s defense that it was unaware of Ferrara’s contract with FMC prior to its own contract with FMC.

The importance of preserving evidence in anticipation of litigation cannot be stressed enough.  While it is entirely possible that Casa simply needed a computer system upgrade and did not realize it would be destroying evidence pertinent to the pending litigation, as seen here, courts will impose a duty on the business and its employees to have those holds in place to ensure that everything is preserved.  The fact that Casa was already two years into the litigation at the time of the computer system replacement made the discarding of ESI even more egregious and should serve as an important lesson to business owners as well as attorneys counseling their clients at the start of and throughout litigation.