NY State Court Imposes E-discovery Sanctions

Lawyers practicing in federal court have been dealing with e-discovery issues for a number of years pursuant to changes in the Federal Rules of Civil Procedure. But recently, in Einstein v. 357 LLC, a New York State Supreme Court justice decided those rules also applied in state court litigation.

Plaintiffs filed suit against the defendants, including the Corcoran Group, a prominent real estate broker, in connection with the sale of allegedly defective condominium units. Plaintiffs allege they were fraudulently induced to purchase the condos, in part, by a series of e-mail communications made by the Corcoran defendants, and they served discovery demands for the production of the e-mails. Plaintiffs later moved to strike Corcoran’s pleading when defendants failed to make a complete production, including specific e-mails plaintiffs already had in their possession. Citing the obvious existence of those e-mails, the Court ordered defendants to produce their hard drives for inspection and file recovery.

Defendants produced the relevant hard drives but the missing e-mails could not be retrieved. The Court conducted a hearing with Corcoran’s IT rep, who admitted he had not been consulted about e-mail production until long after the litigation commenced and that Corcoran made no effort to preserve any e-mails after litigation had begun. The Court also found that statements made by Corcoran’s attorney regarding Corcoran’s deletion policy was not properly represented.

The Court recognized that New York law was silent on the issue, and turned to the Federal Rules and resultant case law for guidance. The Court held that the failure to implement a litigation hold and to monitor the production of that discovery was a grossly negligent destruction of evidence, warranting sanctions for spoliation. The Court held plaintiffs were entitled to an adverse inference against Corcoran that the destroyed e-mails would have been unfavorable to the defendants — essentially establishing the necessary elements of plaintiffs’ claims. The Court also awarded plaintiffs attorney’s fees for the e-mail review.

It will be very interesting to see how this issue is dealt with on an appellate level. Although this was an extreme case that resulted in an extreme ruling, corporations should be careful to make sure certain protocols are in place to avoid deleting e-mails when involved in litigation.

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