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The Regulatory Fundamentals Group LLC v. Governance Risk Management Compliance, LLC

United States District Court, S.D. New York

August 5, 2014




A party to a lawsuit may not destroy relevant evidence without consequence. The nature and magnitude of the consequence follows from the level of culpability. Was, for instance, the destruction of evidence inadvertent and the result of an oversight? Or was it the product of a plan?

The individual defendant in this lawsuit destroyed a large number of highly relevant documents - preventing plaintiff and any finder of fact from ever knowing the full truth of what occurred. Following discovery, lengthy briefing, and an evidentiary hearing, the Court has found that defendant's destruction was planned, repeated, and comprehensive. It was malicious. This finding is particularly unfortunate in light of the plain fact that the spoliation has turned what was a straightforward commercial dispute into a far more serious issue.

The spoliator here - defendant Gregory V. Wood - is a graduate of Cornell Law School and a member of the bar of the State of New York. His conduct has resulted in entry of judgment against him.

The Court's Opinion and Order is set forth below.

On April 15, 2013, The Regulatory Fundamentals Group LLC ("RFG") sued Wood and two of Wood's corporate entities, Governance Risk Management Compliance, LLC ("GRMC") d/b/a Manhattan Advisers ("MA") and Manhattan Advisers, LLC ("MAL"), for copyright infringement. On several occasions after a preservation obligation had attached, Wood deleted a large number of relevant emails from his computer; he separately took steps on two different occasions to terminate his contract with a web hosting service that stored additional relevant emails and electronic documents, and took affirmative steps to ensure that these materials were permanently destroyed. Then, following RFG's discovery of the spoliation and unwillingness to overlook it, Wood took steps to create a false record of mere negligence. The steps were insufficient and his culpability is clear. Indeed, there is no room for doubt.


RFG is a three-year-old company that provides "consulting services and business solutions to investment funds, advisors, investors, and their service providers." (First Amended Complaint ("FAC") ¶ 1, July 12, 2013, ECF No. 21.) As part of the services it provides to clients and prospective clients, RFG generates "a substantial amount of original material that is protected under copyright" about evolving financial regulations. (Id. ¶ 13.)

RFG distributes its original, copyrighted material in the following ways: (1) through "its web-based RFG Pathfinder® knowledge management system, " which is a password-protected, fee-for-subscription database; (2) through a blog on its website; and (3) through various email communications. (Id. ¶¶ 14-16.) In its email communications, "RFG offers the RFG Watch® service, an interactive regulatory alert system that informs RFG's subscribers of relevant and recent regulatory requirements and proposes responses to regulatory events. Also as part of the RFG Watch service, RFG provides email updates to its customers and potential customers through RFG Deep Dives™ and RFG Weekly Roundup™ newsletters." (Id. ¶ 16.)

Wood's businesses, GRMC and MAL, worked in concert to help financial institutions comply with regulatory requirements.[1] (Id. ¶ 22.)

On October 30, 2012, RFG and GRMC entered into a services agreement ("the Agreement"). (Id. ¶ 23.) Pursuant to the Agreement, "GRMC was responsible for obtaining customers whom RFG would then provide with access to RFG Pathfinder® and RFG Watch®... through a white-label website created by RFG." (Id. ¶ 24 (emphasis added).) "In other words, the website would contain RFG's copyrighted content, but would display GRMC's name and marks" and "would also include the phrase Powered by RFG Pathfinder®' or a substantially similar phrase." (Id. ¶ 22.) Put simply, RFG would create the website and it would populate that site with its own copyrighted content. In connection with the Agreement, RFG emailed to Wood copyrighted content contained in RFG Pathfinder® and RFG Watch®. (Id. ¶ 25.)

RFG alleges that defendants breached the Agreement almost immediately. (Memorandum in Support of Plaintiff's Motion for Spoliation Sanctions ("Pl.'s Mem.") at 3, May 2, 2014, ECF No. 96.) RFG contends: "The [] Agreement did not grant any right to GRMC to copy, modify, and/or distribute the works, and it expressly stated that the license did not give GRMC the right to use [RFG's] works for its own internal purposes." (Id.) Yet, according to RFG, defendants improperly "copied [p]laintiff's works; modified the works by stripping [p]laintiff's copyright management information and replacing it with MAL's copyright notice; and posted the modified version on MAL's website and distributed them via email to hundreds of third parties." (Id.) Wood does not dispute that he distributed RFG's content via emails he sent to third parties. (Wood Aff. ¶¶ 17-18.) Wood contends that his conduct was in accordance with the Agreement.

On March 19, 2013, RFG sent Wood a cease-and-desist demand. (See Declaration of Benjamin T. Alden in Support of Plaintiff's Motion for Spoliation Sanctions ("Alden Decl."), Ex. D, May 2, 2014, ECF No. 97.) On April 15, 2013, RFG commenced this litigation (ECF No. 1), and on May 31, 2013, it served a document request on each defendant. (Pl.'s Mem. at 4; ECF No. 8.) These requests included, inter alia, demands for the following:

- Any and all documents or communications referring or relating to, or including, RFG's Copyright-Protected Materials in any form, whether or not the document or communication contains any reference to RFG and/or whether or not RFG's Copyright-Protected Materials have been modified, altered, edited, or excerpted in any way.
- Any and all documents or communications referring or relating to any entity or individual to whom Defendant[s] provided RFG's Copyright-Protected Materials in any form, whether or not the document or communication contains any reference to RFG and/or whether or not RFG's Copyright-Protected Materials have been modified, altered, edited, or excerpted in any way.
- Any and all content published on Defendants' Website during the relevant time period, whether currently accessible to the public or not.

(Pl.'s Mem. at 4.) On June 3, 2013, RFG deposed Wood and "asked him repeatedly about electronic files he had created and/or disseminated that contained [RFG's] copyrighted materials." (Id.)

On June 19, 2013, the Court held an initial pretrial conference. During the conference, the parties raised a document production issue; the Court Ordered defendants to provide a limited number of materials as an initial production, pending certain motion practice. (Id. at 5.) Defendants then filed a motion to dismiss and subsequently, a motion for summary judgment - both of which were denied. The parties also engaged in unsuccessful settlement discussions. On February 6, 2014, the Court set a schedule to govern the remainder of the litigation, including full-blown document discovery.

During a telephonic conference between RFG and defendants' counsel on February 24, 2014, defendants' counsel informed RFG's counsel that defendants "might be missing certain emails.'" (Id. at 6; see also Alden Decl. ¶ 11.) RFG's counsel "expressed concern and pressed for more information." (Pl.'s Mem. at 6; see also Alden Decl. ¶ 11.) On March 5, 2014, RFG and defendants' counsel had another telephonic conference. (Pl.'s Mem. at 6.) During that conference, defendants' counsel informed RFG's counsel that Wood had terminated his account with a third-party vendor ("MacHighway") which had hosted the corporate defendants' websites and email domains. (Alden Decl. ¶ 12.) Defendants' counsel indicated that, although Wood had been "under the impression" that the emails stored by MacHighway had been downloaded onto his computer, they in fact had not been. (Id.) Accordingly, once Wood terminated his MacHighway account, the emails maintained by MacHighway were destroyed. Defendants' counsel further informed RFG's counsel that once Wood discovered the issue, he had contacted MacHighway but was told that the electronic files were not recoverable. (Id.)

Later that day, RFG's counsel and defendants' counsel had another conversation regarding the "missing" emails. (Id. ¶ 12.) On March 5, 2014, defendants' counsel further conceded that certain emails had been destroyed. RFG immediately noticed defendants for a March 12, 2014 deposition so it could obtain more information regarding what had happened to the electronic files; defendants failed to appear. (Id.)

On March 14, 2014, defendants' counsel, Linda Mandel Gates, filed a motion to withdraw as counsel.[2] (ECF No. 66.) That same day, RFG sought leave to file an expedited motion to compel defendants to appear for a deposition on the issue of the deleted electronic files, which the Court granted. (ECF No. 76; Pl.'s Mem. at 7.) The Court also granted Gates' request to withdraw, subject to a certain conditions. (See ECF No. 70.) On March 18, 2014, in accordance with a Court Order, Gates reported the following regarding the deletion of the electronic files:

[A]s a result of the fact that the Corporate Defendants shut down and ceased business operations in - and Mr. Wood is unemployed, Mr. Wood could no longer afford to pay the [vendor] for the monthly hosting services. The Corporate Defendants did not have a computer server. Therefore, apparently as a result of the cancellation of the [vendor]'s services, when the [vendor] shut down the Defendants' websites and email service the emails on those websites were not saved.

(Id.; see also ECF No. 72.)

Following additional discovery regarding the deletion of the electronic files, on May 2, 2014, RFG filed the now-pending motion for a finding of spoliation and the imposition of sanctions. (ECF No. 95.) This motion became fully briefed on May 23, 2014. (ECF No. 112.)

On June 10, 2014, the Court held an evidentiary hearing on the spoliation motion. At that hearing, Gates and Wood testified both in open court and in camera.[3] On June 25, 2014, the Court held oral argument. At the conclusion of that argument, the Court ruled from the bench that Wood had engaged in willful and malicious spoliation. (6/25 Tr.[4] 64.) This Opinion & Order provides the Court's rationale, as well as an Order concerning sanctions.[5]


Based on the Court's assessment of the record - comprised of both live testimony and documentary evidence - the Court finds by far more than a preponderance of the evidence (indeed, the evidence is clear and convincing) that Wood engaged in serial spoliation in connection with this litigation. The Court finds that Wood engaged in such conduct in an attempt to reduce his liability exposure. When he realized the spoliation would not go unnoticed or be easily overlooked, Wood created a fictitious record and engaged in additional misconduct in an attempt to cover his tracks.[6]

The Court finds, again by more than a preponderance of the evidence (and again, the evidence on this point is clear and convincing), that Wood's knowing and intentional spoliation was done in bad faith. This determination is based on the chronology of events and relies heavily on the Court's abiding belief that Wood lied during his testimony at the evidentiary hearing.

A. Context

Wood earned a J.D., L.L.M., and M.B.A. from Cornell University. (Alden Decl., Ex. F at 16.) He is admitted to practice law in New York and was a practicing attorney for a number of years. ( Id., Ex. C; Wood Aff. ¶¶ 5-7.)

Wood spent most of his legal career as a structured finance and derivatives attorney. (Wood Aff. ¶¶ 5-7.) Incredibly, Wood claimed that, until recently, he was unaware of his obligation not to destroy documents relevant to pending litigation. (Id. ¶ 3.) While it is true that the attorney who represented Wood at the outset of the litigation did not explicitly instruct him on specific document retention obligations, she did send him the document requests and believed that the implication was that he should not destroy documents responsive to those requests. (Tr.[7] 12 (Wood waived attorney-client privilege as to this portion of his prior attorney's in camera testimony).)

Wood concedes that he took civil procedure in law school (which of course discusses basic discovery obligations), passed both the Multistate Professional Responsibility Examination ("MPRE") and the New York State Bar Examination, and has worked as an attorney at large law firms during his career. While not a litigator, the Court finds that Wood had at least a basic understanding of the moral, ethical, and legal responsibilities of ...

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