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Federal Deposit Insurance Corporation As Receiver For Amtrust Bank v. Pankaj Malik

March 26, 2012

FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER FOR AMTRUST BANK, PLAINTIFF,
v.
PANKAJ MALIK, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Azrack, United States Magistrate Judge:

ORDER

Plaintiff Federal Deposit Insurance Corporation ("plaintiff"), as Receiver for AmTrust Bank ("AmTrust"), has filed a motion seeking sanctions, including an adverse inference, against defendants Pankaj Malik ("Malik") and the Malik Firm (collectively, the "Malik defendants") based on the Malik defendants' alleged destruction of evidence.

The Malik defendants have filed a cross-motion alleging that AmTrust destroyed evidence. The Malik defendants' cross-motion seeks attorneys' fees and unspecified sanctions.

For the reasons stated below: (1) on April 24, 2012, at 12:30 PM, a hearing on plaintiff's motion will be held before me at which Malik must testify regarding the issues specified herein; and (2) the Malik defendants' cross-motion is denied.

Standard for Obtaining an Adverse Inference Instruction "[A] party seeking an adverse inference instruction based on the destruction of evidence must establish (1) that the party having control over the evidence had an obligation 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 party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense." Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002) (quoting Byrnie v. Town of Cromwell, 243 F.3d 93, 107--12 (2d Cir. 2001)).

Plaintiff's Motion

Plaintiff has established the first and third elements for obtaining an adverse inference instruction. However, before ruling on the second element, I will hold a hearing at which Malik will testify.

The Malik defendants' preservation obligation attached in 2008 when they represented AmTrust in the loan transactions at issue.*fn1 That obligation was violated when employees of the Malik Firm were permitted to delete emails that were neither preserved in hard copy nor backed-up electronically. The fact that the Malik defendants were only able to produce 89 emails concerning the 26 loans at issue strongly suggests that additional emails related to those loans were created, but not preserved. Decl. of Sunny H. Kim ("Kim Decl.") ¶ 16, ECF No. 107-3; see also Kim Decl. ¶ 22 (attesting that a July 1, 2008, email forwarded by Kushu Malik was not produced by the Malik defendants). Thus, plaintiff has satisfied the first element.

Plaintiff has easily met the third element of its spoliation claim based on the July 1, 2008, email forwarded by Kushu Malik. See Kim Decl., Ex. 17 (July 1, 2008, email evidencing flip transaction, the Malik Firm's role as attorney for both AmTrust and the buyer, and Kushu Malik's attempts to obtain a seller's attorney for the transaction). That email strongly supports plaintiff's attorney malpractice claims.

The Malik defendants contend that plaintiff cannot establish the second element of its claim. The Malik defendants maintain that the firm's emails were not preserved because the firm's technology vendor failed to install a back-up system as requested by Malik and then subsequently misrepresented to Malik that such a system had, in fact, been installed. Malik claims to have only discovered that there was no back-up system in late 2009 or January 2010. Plaintiff, however, has offered testimony from Malik suggesting that she and her employees must have known about the absence of a back-up system prior to late 2009/January 2010. See Kim Decl., Ex. 1, Dep. of Pankaj Malik ("Malik Dep.") 196-97. In light of that testimony, Malik is directed to testify at a hearing about this issue, including, but not limited to:

1. the back-up system allegedly installed in 2003 by Ikramuddin Khan;

2. her and her employees' communications with Khan regarding the back-up system;

3. her and her employees' discovery that no back-up system had, in fact, been installed;

4. attempts by her, her employees and the Malik Firm's technology vendors to retrieve deleted, lost or otherwise inaccessible emails and other electronic documents prior to Thomas Jacoberger's installation of a ...


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