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Plaintiff Sanctioned After its "Failure to Take the Most Basic Document Preservation Steps" – eDiscovery Case Law

In SJS Distribution Systems, Inc. v. Sam’s East, Inc., No. 11 CV 1229 (WFK)(RML), 2013 U.S. Dist. (E.D.N.Y. Oct. 11, 2013), New York Magistrate Judge Robert M. Levy found the plaintiff’s failure to take “the most basic document preservation steps”, including issuing a litigation hold – “even after it discovered the packaging nonconformities and filed this action” – constituted gross negligence. As a result, an adverse inference instruction sanction was issued against the plaintiff and the defendant was awarded its costs and attorney’s fees associated with its motion to compel.

This breach of contract dispute arose out of the plaintiff’s purchase of almost $3 million worth of diapers from the defendant where the plaintiff contended that it discovered a discrepancy between the packaging of the diapers that it ordered and some of the diaper shipments defendant delivered in the fall of 2010 and claimed that it was unable to resell those diapers to the intended buyer and incurred damages as a result.

During discovery, the defendant asked for documents from the plaintiff relating to the purchase, sale, delivery, and attempts to resell the diapers. When the plaintiff certified that it had produced all responsive documents, the defendant advised the plaintiff of deficiencies in its document production, but the plaintiff reaffirmed that it had produced all responsive documents in its possession. After an additional document request, the plaintiff produced three additional pages along with amended responses and objections. The plaintiff’s president also asserted that his company “does not normally save copies of all emails sent or received, that it ‘did not anticipate’ litigation with defendant or the need to save all email communication with defendant, and that plaintiff has no internal emails since it is primarily a one-person entity”.

Judge Levy asked the parties to meet and confer in an attempt to resolve the dispute after the defendant asked for permission to file a motion to compel. Plaintiff’s counsel then announced it had discovered 181 additional hard-copy documents addressing the sale and storage of the diapers, which it turned over to the defendant, which, nonetheless, continued to claim that the plaintiff had still not produced all relevant electronically stored information (ESI).  When the defendant subsequently obtained discovery from a third-party, it included 334 pages of emails from the plaintiff to third parties that the plaintiff had not produced, leading to the defendant eventually filing a motion for spoliation sanctions.

Judge Levy used the Zubulake test to determine the applicability of sanctions, as follows:

(1) the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) the records were destroyed with a culpable state of mind; and (3) 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.

Judge Levy found that all three components of the test were applicable, noting “the facts here establish that SJS’s failure to take the most basic document preservation steps, even after it discovered the packaging nonconformities and filed this action, constitutes gross negligence.”  As a result, the defendant’s motion was granted in part and denied in part, with an adverse inference sanction imposed as well as awarding the defendant its costs and attorney’s fees associated with its motion to compel.  Judge Levy refused to preclude the plaintiff from offering evidence from mid-November 2010 forward, refusing to apply such a “drastic remedy” because there was no evidence of bad faith and other evidence was still available to the defendant.

So, what do you think?  Should sanctions have been issued?   Please share any comments you might have or if you’d like to know more about a particular topic.

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