United States District Court, S.D. New York
SEKISUI AMERICAN CORPORATION and SEKISUI MEDICAL CO. LTD., Plaintiffs,
RICHARD HART and MARIE LOUISE TRUDEL-HART, Defendants
[Copyrighted Material Omitted]
For Sekisui America Corp. and Sekisui Medical Co. Ltd., Plaintiffs: Karen L. Hagberg, Esq., Craig B. Whitney, Esq., Morrison & Foerster LLP, New York, NY.
For Richard Hart and Marie Louise Trudel-Hart, Defendants: Franklin B. Velie, Esq., Jonathan G. Kortmansky, Esq., Siobhan Briley, Esq., Sullivan & Worcester LLP, New York, NY.
OPINION AND ORDER
SHIRA A. SCHEINDLIN, U.S.D.J.
A decade ago, I issued a series of opinions regarding the scope of a litigant's duty to preserve electronic documents and the consequences of a failure to preserve such documents falling within the scope of that duty. At its simplest, that duty requires a party anticipating litigation to refrain from deleting electronically stored information (" ESI" ) that may be relevant to that litigation. Such obligation should, at this point, be quite clear -- especially to the party planning to sue. Here, I consider the appropriate penalty for a party that -- with full knowledge of the likelihood of litigation -- intentionally and permanently destroyed the email files of several key players in this action. I also consider how to determine an appropriate remedy for the injured party when it remains unclear whether the destroyed evidence would, in fact, be favorable to that party.
Sekisui America Corporation (" Sekisui" ) and Sekisui Medical Co., Ltd. bring this
action for breach of contract against Richard Hart (" Hart" ) and Marie Louise Trudel-Hart (collectively, " the Harts" ) in relation to Sekisui's acquisition of America Diagnostica, Inc. (" ADI" ), a medical diagnostic products manufacturer of which Hart was president. During discovery, Sekisui revealed that ESI in the form of email files belonging to certain ADI employees -- including Hart -- had been deleted or were otherwise missing. In March 2013, it became clear that Sekisui did not institute a litigation hold until more than fifteen months after sending a Notice of Claim to the Harts. In the meantime, Sekisui permanently deleted the ESI of Hart and former ADI employee Leigh Ayres. In light of these developments, the Harts requested that this Court impose sanctions on Sekisui for the spoliation of evidence. Specifically, the Harts requested: (1) an adverse inference jury instruction based on the destruction of Hart's and Ayres' ESI;  and (2) sanctions for spoliation based on the alleged or actual loss of the email folders of several other ADI employees.
I referred this dispute to Magistrate Judge Maas. After extensive letter briefing and oral argument, the Magistrate Judge issued a written decision on June 10, 2013, in which he declined to issue any sanctions, finding that the Harts failed to show any prejudice resulting from the destruction of the ESI. The Harts filed objections to the portions of the Memorandum Decision declining to impose sanctions for the destruction of ESI. For the reasons set forth below, the Memorandum Decision of the Magistrate Judge is reversed to the extent it denied the Harts' request for a sanction based on Sekisui's destruction of ESI.
A. The Present Action
Sekisui expressed interest in acquiring ADI from the Harts in late 2008. Shortly
before the closing in 2009, Hart -- acting as chief executive officer -- apparently instructed ADI employees to delete all emails that no longer required action. The stock purchase agreement (" SPA" ) governing the sale of ADI to Sekisui contained a number of representations and warranties (" Representations" ), including: (1) that ADI complied with all relevant federal regulations; (2) that its facilities were sufficient to conduct its business activities; and (3) that ADI's products contained no material defects. Not satisfied that ADI was complying with the Representations, Sekisui fired Hart and sent the Harts a Notice of Claim on October 14, 2010, evidencing Sekisui's intent to file a lawsuit. Sekisui then filed its Complaint on May 2, 2012, alleging that the Harts breached the contract of sale by violating the Representations in the SPA.
B. The Destruction of Hart's ESI
On February 8, 2013, counsel for Sekisui revealed to the Harts that Hart's email files were deleted in March 2011, five months after the Harts received the Notice of Claim. In response to questioning by the Harts, Sekisui revealed that a litigation hold was put into place in January 2012, about fifteen months after the Notice of Claim was sent to the Harts. Sekisui did not notify Northeast Computer Services (" NCS" ) -- the vendor in charge of managing Sekisui's information technology systems -- of the duty to preserve until July 2012, three months after the Complaint was filed. In the interim, Hart's email folder was permanently deleted by NCS at the directive of former ADI employee Dicey Taylor, who was ADI's head of Human Resources. Sekisui initially
represented that no other ESI was missing besides Hart's and that of a few other former ADI employees, none of whom were considered relevant custodians.
Further investigation by the Harts revealed that days before filing the Complaint, the NCS employee who deleted Hart's ESI emailed another NCS employee regarding Taylor's directive. According to the email:
Several months ago, maybe in the summer, [Taylor] told me to delete [Hart's] mailbox. I followed this by " are you sure? are you sure? are you sure?" She was very certain that she wanted it deleted, apparently she thought that there wasn't any more useful information or whatever they needed they captured. I would have personally archived it. . . . This is not 100% certain, but I thought I heard that [Hart's] email had been combed through by the Sekisui lawyers before [Taylor] told me to delete it.
In June 2012, Doug LeMasurier -- the NCS employee in charge of the ADI account -- confirmed that Hart's email was permanently deleted and irretrievable. LeMasurier stated: " [T]here is no backup of this file. We recommended that it not be deleted, but we were instructed by [an ADI] employee to delete the file." 
By way of explanation, Sekisui maintains that the destruction of Hart's ESI was " largely due to the actions of a single former employee acting without direction from Sekisui," i.e., Taylor. Sekisui further asserts that Taylor made the unilateral decision to delete Hart's email in order to free up space on the ADI server after determining that Hart was no longer receiving work-related email. Before directing NCS to permanently delete Hart's ESI, Taylor apparently " identified and printed any emails that she deemed pertinent to the company," which emails have been produced to the Harts. Even those emails deemed " pertinent to the company" do not appear to have been backed up before being deleted by NCS; they were merely printed by Taylor in hard copy. Sekisui searched several alternative sources and eventually produced about 36,000 emails to and from Hart. Sekisui also maintains that, according to current and former ADI employees, Hart " used email sparingly," often used his personal email account, and took a work computer from ADI on which he retained copies of his work email, and which he never returned. It is impossible to say how many emails were permanently deleted and remain unrecoverable. Because of a cognitive disorder,
Hart cannot testify or be deposed in this ...