Details: The case entitled, Einstein v. 357 LLC, 604199/07 (October 21, 2009) can best be summed up by the following quote from the presiding judge, New York Supreme Court Justice Charles Ramos,

"[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."

This case is an example of severe sanctions being imposed upon a party for a failure to implement litigation hold procedures and take steps to preserve electronic mail that was prone to deletion. The court imposed sanctions in the form of an adverse inference instruction relating to the missing emails, and awarded attorneys’ fees as well as expert costs to the plaintiff.

The discovery dispute centers around the failure by defendants and its counsel to fully investigate the company’s  IT systems and institute a preservation plan to prevent the destruction of potentially relevant email.  Specifically, each of the company’s brokers were allocated 200 megabytes of space, and once that limit was reached, a broker could not send or receive email until that space was cleared for more email traffic.  As a result, brokers had to clear old email from the system.   Email was also forwarded through a central email server; however, the company’s email system was configured in such a way that once an email was deleted by an individual user from the user’s inbox, it was also deleted on the central server.  Since a litigation hold was never instituted, certain emails were never preserved.

Justice Ramos concluded that defendants engaged in spoliation by selectively deleting e-mails and failing to implement a "litigation hold." Justice Ramos observed that New York case law and the Civil Practice Law and Rules were "silent" on the obligations of parties to implement a litigation hold; however, he relied on cases from the Southern District of New York in concluding 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 the Corcoran Defendants and their counsel rising to the level of gross negligence or willfulness."

Justice Ramos also chided the Corcoran defendants’ counsel for making "numerous" materially false statements, such as representing to the court that all e-mail traffic had been produced. Justice Ramos wrote, "This Court repeatedly warned counsel for the Corcoran Defendants that the failure to make a complete production of e-mails caused the Court great concern and needed to be remedied properly. Yet the Plaintiffs, and this Court, only learned about the manual deletion policy in May 2009."

The fact that eighteen months after plaintiffs filed suit,  Justice Ramos learned that three of Corcoran's brokers were continuing to delete e-mails from their individual mailboxes did not help defendants either.  Justice Ramos ultimately found  that the Corcoran defendants "willfully and unnecessarily caused extensive motion practice and delay without any reasonable justification". 

How Does This Affect My Enterprise?

• This case suggests that both litigants and the New York state courts are becoming increasingly focused on parties’ preservations obligations  that arise at the onset of anticipated litigation and throughout the discovery process. 
• Companies and their counsel (both in-house and outside counsel) should conduct an early good-faith investigation into the relevant data systems’ structure and records retention policies to determine whether any relevant electronic information is in danger of deletion. If so, measures should be taken to suspend deletion policies, back up the data, and instruct relevant employees about the need to preserve data.
• This case is a good example of why legal counsel should investigate the IT policies of their clients.  The same holds true for in-house counsel with respect to understanding their company’s IT policies.  In Einstein, the broker’s IT Director revealed for the first time at a hearing held seven months after plaintiffs’ initial motion to compel and almost a year after plaintiff’s document demands were initially served that “emails were missing as a result of the normal individual email mailbox cleanup…” 
• Companies must institute documented preservation policies and automated technologies to preserve potentially relevant evidence in response to litigation or regulatory inquiry.  Furthermore, companies should educate their associates about the importance of preservation.  In this case the broker’s IT Director also testified about the absence of efforts to preserve relevant data. He also admitted that he never told anyone that there existed the possibility that relevant emails were being deleted.  This may have not occurred if the defendant had a documented policy.