Spoliation Sanctions Not Justified When Party Preserved Documents When it Became Aware That Litigation Was Probable

On May 21, 2020, the First Department issued a decision in China Dev. Indus. Bank v. Morgan Stanley & Co. Inc., 2020 NY Slip Op. 02987, holding that spoliation sanctions were not appropriate when a party preserved evidence as soon as it became aware that litigation was probable, explaining:

Spoliation sanctions are available regardless of whether evidence was destroyed intentionally, willfully or negligently. We see no basis for spoliation sanctions on this record. A party who seeks sanctions for spoliation of evidence must show that the party having control over the evidence possessed an obligation to preserve it when it was destroyed, the evidence was destroyed with a culpable state of mind, and 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. If determined that evidence was intentionally or willfully destroyed, the relevancy of the destroyed evidence is presumed. If determined that evidence was negligently destroyed, the party seeking sanctions must establish that the destroyed evidence was relevant to the party's claim or defense.

Plaintiff did not impose a litigation hold until July 2010. However, the record does not support the court's conclusion that plaintiff was obligated to preserve documents relevant to the transaction between the parties as early as October 2007. The evidence does not show that plaintiff reasonably anticipated litigating against defendants at that time, but shows rather that a credible probability of litigation against defendants arose only significantly later. Nor does the record support either the finding that plaintiff selectively preserved certain beneficial documents and recordings related to the transaction for purposes of supporting its legal claims against defendants or the finding that plaintiff refused to produce key witnesses or prevented defendants from deposing them.

Since plaintiff had no duty to preserve evidence in 2007 and reasonably implemented a litigation hold in 2010 upon notice, there is no issue regarding the destruction of records neither intentionally, willfully nor negligently. Accordingly, a spoliation sanction is not triggered and a culpable state of mind analysis is not reached.

(Internal quotations and citations omitted).

A big part of complex commercial litigation is giving, receiving and evaluating evidence (this is called "discovery"). This decision discusses the problem of litigants not performing their discovery obligations and what can happen to them if they do not. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client has a question regarding discovery obligations (and what to do if a litigant is not honoring those obligations).