By Michael Hoenig - New York Law
Journal - September 9, 2013
A decade after
issuing her famous
Zubulake line of opinions regarding the scope of a
litigant's duty to preserve electronic documents and the perils
of noncompliance,1 U.S. Southern District of New York
Judge Shira A. Scheindlin is back at the blackboard teaching
litigators about the appropriate penalty for intentional and
permanent destruction of email files despite knowledge of the
likelihood of litigation. The Aug. 15 decision, already creating
a buzz, is
Sekisui American v. Hart,2 which resulted
in the plaintiffs being sanctioned by the grant of an "adverse
inference" jury instruction on spoliation of evidence and,
additionally, by an award to the defendant of reasonable costs,
including attorney fees, associated with the motion for
What conduct triggered such
penalties? And what additional glosses over and above
established e-discovery practices prompted Scheindlin to reject
that part of U.S. Magistrate Judge Frank Maas' decision in
Sekisui that declined to issue sanctions? In order to answer
these questions at least a thumbnail sketch of the facts is
needed. The dates are important. In 2008 the Sekisui companies
expressed interest in acquiring America Diagnostica Inc. (ADI),
a medical diagnostic products manufacturer whose CEO was Richard
The stock purchase agreement
contained representations and warranties by ADI. But, suspecting
noncompliance with the representations, Sekisui fired Hart and
sent him a Notice of Claim on Oct. 14, 2010, evidencing intent
to file a lawsuit. Sekisui's complaint against Hart for breach
of contract was filed on May 2, 2012. During litigation, on Feb.
8, 2013, Sekisui's counsel revealed to Hart's defense team that
Hart's email files were deleted in March 2011. That was five
months after Hart received the Notice of Claim. Sekisui also
revealed, in response to questioning, that a litigation hold was
first put in place in January 2012, some 15 months after the
Notice of Claim was sent to Hart.
Further, Sekisui had an
outside vendor in charge of managing its information technology
systems named Northeast Computer Services (NCS). But Sekisui did
not notify NCS of the duty to preserve electronic documents
until July 2012, three months after the complaint was filed. In
the interim, Hart's email folder was permanently deleted by NCS
at the directive of a former ADI employee named Taylor, despite
recommendations to the contrary by NCS personnel. Later, Sekisui
maintained that Taylor had made a unilateral decision to delete
Hart's email "in order to free up space on the ADI server after
determining that Hart was no longer receiving work-related
email." But before that deletion, Taylor "identified and printed
any emails that she deemed pertinent to the company." These were
produced to Hart. However, because Taylor had them merely
printed in hard copy, the "metadata" were destroyed. More about
that aspect later.
One of the custodians of
ADI's email folders was a former employee, Leigh Ayres,
responsible for ensuring ADI's compliance with federal
regulations. Ayres' electronically stored information (ESI) also
was deleted by NCS upon Taylor's instruction in October 2011,
one year after Sekisui sent its Notice of Claim. This deletion
was carried out with the approval of ADI's president since Ayres
was no longer an employee and had only been receiving junk mail.
All in all, despite the foregoing deletions, Sekisui produced to
the Hart defendants about 36,000 emails to and from Hart and
nearly 7,000 emails and attachments from Ayres' archived email
files plus several thousand more Ayres emails from other
Hart's counsel moved for
sanctions. The dispute was referred to Magistrate Judge Maas
who, although concluding that the destruction of Hart's ESI "may
well rise to the level of gross negligence," declined to issue
sanctions because the Hart defendants had made no showing of
prejudice. As to the destroyed Ayres ESI, no determination of
Sekisui's culpability was made because of defendant's failure to
Scheindlin reversed the
magistrate's decision not to award sanctions. She noted that
controlling Second Circuit law regarding adverse inference
instructions is reflected in the Residential Funding
decision.3 There the court held that the party
seeking an adverse inference instruction must establish (1) an
obligation by the party having control over the evidence 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 claim or defense such
that a reasonable trier of fact could find that it would support
that claim or defense.
The "culpable state of mind"
factor is satisfied by showing that the evidence was destroyed
knowingly. The sanction may be appropriate in some cases
involving only negligent destruction of evidence, not because of
moral culpability, but because the adverse inference is a
mechanism for "restoring the evidentiary balance." Gross
negligence also satisfies the culpability requirement. A
"case-by-case approach" is used by the courts because failures
to produce relevant evidence "occur along a continuum of
fault—ranging from innocence through the degrees of negligence
"Relevance" of the destroyed
evidence means a sufficient showing that it would have been
helpful to the party moving for the adverse inference sanction.
The proof standard, however, should not be "too strict."
Otherwise, the purposes of the adverse inference would be
subverted. Parties who destroyed evidence would then be allowed
to profit from that destruction. When the destruction is
"willful," i.e., intentional, the destruction alone is
sufficient circumstantial evidence for a reasonable fact finder
to conclude that the missing evidence was unfavorable to the
destroyer. Similarly, a showing of gross negligence, standing
alone, will sometimes suffice. Indeed, frequently, the same
evidence that satisfies the "culpable state of mind" factor also
will be sufficient to satisfy the "relevance" factor.
The "prejudice" factor may be
"presumed" when evidence is destroyed willfully or via gross
negligence. When the destruction is merely negligent, however,
the "burden falls on the innocent party to prove prejudice." The
failure to adopt good preservation practices is "one factor in
the determination of whether discovery sanctions should issue."
Scheindlin proceeded to apply
the foregoing standards to the facts in Sekisui. That the
plaintiff provided a good faith explanation for destruction of
Hart's ESI (to save space on the server) does not change the
fact that the ESI was willfully destroyed. Taylor directed NCS
to permanently delete Hart's emails despite a recommendation by
the IT vendor against such action. Indeed, no back-up tapes were
made and even the Hart emails that Taylor did print were devoid
of their metadata rendering them of "less evidentiary value." In
footnote 71, the court observes that the MIT Media Lab recently
developed a tool demonstrating the significance of email
metadata. "The tool analyzes the metadata from the user's Gmail
account and visualizes that data, revealing who the user talked
to, how often, and when, among other things. See immersion: a
people-centric view of your email life,
http://immersion.media.mit.edu (last visited July 31, 2013).
Printing paper copies of emails and permanently deleting the
electronic data, then, deprives those emails of a significant
amount of their evidentiary value."
The "good faith" explanation
for the willful destruction of Ayres' ESI when the duty to
preserve has attached does not alter the finding of willfulness.
The deletion was intentional. It was done at the behest of an
ADI employee with at least the knowledge, if not outright
approval, of ADI's then-president.
The failure of Sekisui to
implement appropriate document retention practices constitutes
gross negligence. The "facts here are egregious." First, the
failure to institute a litigation hold until 15 months after the
Notice of Claim was gross negligence. That failure was
"inexcusable" since Sekisui had full knowledge of the
possibility of future litigation. Second, it took another six
months to notify its IT vendor of the duty to preserve. In the
meantime, the ESI of at least two significant former ADI
employees was destroyed.
Moreover, there is no
question that the deleted ESI is relevant. Sekisui's breach of
contract action claimed violation of representations and
warranties ADI made in the stock purchase agreement. One of
those was that ADI complied with all relevant federal
regulations. Another was that its facilities were sufficient to
conduct its business activities. A third was that ADI's products
contained no material defects. Clearly, CEO Hart's incoming and
outgoing emails might be relevant. Further, Ayres had been ADI's
employee responsible for compliance with Food and Drug
Administration regulations. Her emails would be relevant on that
The adverse inference
analysis also includes the "prejudice" factor, i.e., that the
destroyed evidence would have supported the party's claim or
defense. Sometimes, this is quite difficult to prove. After all,
the permanent deletion creates a void. In Sekisui, the
situation was further compromised because the defendant, Hart,
was unable to testify on his own behalf due to a cognitive
disorder. Could the "prejudice" factor be presumed from the
circumstances of an intentional destruction of evidence?
Scheindlin says "yes,"
weighing in mightily. The imposition of a burden upon the
innocent party to show that relevant information potentially
helpful to them is missing is "contrary to law." The intentional
destruction "is sufficient evidence from which to conclude that
the missing evidence was unfavorable to that party." 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." Rather,
the risk the evidence was detrimental to the spoliator should
fall on the party responsible for its loss.
Shifting such a burden to the
innocent party "is inappropriate because it incentivizes bad
behavior on the part of would-be spoliators." The destroyers of
evidence would profit from that destruction. Thus, "prejudice is
presumed" (for the purposes of determining whether to give an
adverse inference instruction) when the spoliating party
willfully destroys evidence.
Here, as a result of the
destruction of Hart's and Ayres' ESI, defendants "are left
without an untold amount of contemporaneous evidence of ADI's
operations prior to purchase by Sekisui." Despite Sekisui's
"real effort to minimize the harm," it is "unable to rebut the
presumption of prejudice" because an unknowable amount of ESI
was permanently destroyed and remains irretrievable. Scheindlin
emphasizes that the presumed prejudice affects only the question
whether the adverse inference instruction will be given. The
jury may still determine that Hart was not prejudiced by
Sekisui's willful ESI destruction. Thus, the jury can decline to
draw any adverse inference.
Sekisui (1) willfully and
permanently destroyed the ESI of at least two key players in
this litigation; (2) failed to impose a litigation hold for more
than a year after the duty to preserve arose (Sekisui was the
plaintiff so, irrefutably, it knew that litigation could ensue);
and (3) failed to advise its IT vendor of such litigation hold
for nearly six months after (belatedly) imposing such hold.
These facts justify granting the request for an adverse
inference instruction. Indeed, at the end of her opinion,
Scheindlin sets out the text of the jury charge she will give on
spoliation. Readers will see that it truly is an uncomfortable,
burdensome type of instruction for a litigant to bear.
In footnote 51 of the
opinion, Scheindlin acknowledges that the proposed amendment to
Federal Rule of Civil Procedure 37(e) (recently issued for
public comment by the U.S. Judicial Conference's Standing
Committee on Rules of Practice and Procedure), if adopted, would
"abrogate" Residential Funding insofar as it holds that
sanctions may be appropriate for negligent destruction of
The proposed amendment would
permit sanctions only if the destruction (1) caused substantial
prejudice and was willful or in bad faith, or (2) irreparably
deprived a party of any meaningful opportunity to present or
defend its claims. The Advisory Committee Note to the proposed
rule would require the innocent party to prove "substantial
prejudice" by the loss of relevant information, even where the
spoliator's destruction was willful or in bad faith.
Scheindlin disagrees that
such a burden in willful spoliation circumstances should fall on
the innocent party. This would create "perverse incentives" and
encourage "sloppy behavior." Further, under the proposed rule,
spoliating parties cannot be sanctioned even if they were
negligent, grossly negligent or reckless. In any event, since
the proposal has not yet undergone public comment and hearings,
it was "irrelevant" for the purposes of the motion in Sekisui.
continues to be an area of turmoil, particularly when litigants
fall below norms of recommended practices and procedures
regarding preservation of evidence or when excessive,
disproportionate discovery demands are made and bitter battles
to limit those demands ensue. For more than a decade,
Scheindlin's decisions regarding preservation of ESI have helped
refine litigant behavior. Sekisui is the latest wake-up
call that rules governing electronic discovery are to be taken
is a member of Herzfeld & Rubin.
1. See Zubulake v. UBS
Warburg, 217 F.R.D. 309 (S.D.N.Y. 2003) (Zubulake 1);
Zubulake v. UBS Warburg, No, 02 Civ. 1243,2003 WL
21087136 (S.D.N.Y. May 13, 2003) (Zubulake 11);
Zubulake v. UBS Warburg, 216 F.R.D. 280 (S.D.N.Y. 2003) (Zubulake
III); Zubulake v. UBS Warburg, 220 F.R.D. 212 (S.D.N.Y.
2003) (Zubulake IV); Zubulake v. UBS Warburg, 229
F.R.D. 422 (S.D.N.Y. 2004) (Zubulake V).
2. 2013 U.S. Dist. LEXIS
115533 (S.D.N.Y. Aug. 15, 2013); see B. Pierson, "Sanctions
Imposed for Non-Malevolent Destruction of Emails," New York Law
Journal, Aug. 19, 2013, p. 1.
3. Residential Funding v.
DeGeorge Financial, 30 F.3d 99 (2d Cir. 2002).
4. Quoting from
Residential Funding, 306 F.3d at 108.
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