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Dorchester Financial Holdings Corp. v. Banco Brj S.A.

United States District Court, S.D. New York

December 15, 2014

BANCO BRJ S.A., Defendant.


KIMBA M. WOOD, District Judge.

In his September 12, 2014 Memorandum and Order (the "Memorandum and Order" or "M & O"), Magistrate Judge Fox made two discovery-related determinations to which Plaintiff Dorchester Financial Holdings Corporation ("Dorchester") has objected. First, Judge Fox held that Dorchester committed spoliation when it destroyed a computer that contained documents relevant to Defendant Banco BRJ S.A.'s ("BRJ") defense. ( See M & O at 13-16 [ECF No. 158]). To sanction Dorchester's spoliation, Judge Fox precluded evidence derived solely from the computer and ordered Dorchester and its former counsel to pay BRJ's attorney's fees in connection with the spoliation dispute. ( See id. at 17-19). Second, Judge Fox held that Dorchester is obligated, under the parties' discovery stipulation, to produce Robert Cox for a live deposition in the United Kingdom. ( See id. at 19-20). Dorchester contends that both determinations were clearly erroneous or contrary to law, and that Judge Fox cannot impose the preclusion order in any event because it is tantamount to dismissal. ( See Dorchester's Objection [ECF No. 165]).

After reviewing the spoliation dispute de novo, the Court agrees with Judge Fox that Dorchester committed spoliation, but imposes a mandatory adverse inference instead of the preclusion order. And after review for clear error, the Court AFFIRMS Judge Fox's order compelling the Cox deposition.

I. Standard of Review

Several months ago, the Court referred general pretrial proceedings, including discovery and non-dispositive motions, to Judge Fox. ( See May 16, 2014 Order of Reference [ECF No. 73]). Pursuant to that referral, Judge Fox has the authority to impose sanctions for spoliation - including the preclusion of evidence - as long as those sanctions are non-dispositive. See, e.g., UBS Int'l Inc. v. Itete Brasil Instalacoes Telefonicas Ltd., No. 09-CV-10004, 2011 WL 1453797, at *1 n.2 (S.D.N.Y. Apr. 11, 2011) (Francis, M.J.) (explaining that a magistrate judge lacks authority to dismiss a case as a sanction for spoliation, but "has the authority to issue less severe sanctions, including preclusion orders, in the course of overseeing discovery"); R.F.M.A.S., Inc. v. So, 748 F.Supp.2d 244, 247-48 & n.1 (S.D.N.Y. 2010) (Marrero, J.) (holding that a magistrate judge had authority to preclude evidence as a sanction for spoliation). The Court must uphold Judge Fox's non-dispositive spoliation sanctions unless they are clearly erroneous or contrary to law. See Fed.R.Civ.P. 72(a).

Judge Fox can also recommend dispositive spoliation sanctions for the Court's consideration, although he cannot impose such sanctions unilaterally. See Fed.R.Civ.P. 72(b); see also Kiobel v. Millson, 592 F.3d 78, 101 (2d Cir. 2010) (Leval, J., concurring) (explaining that a magistrate judge has authority to impose only those discovery sanctions that are nondispositive). The Court can adopt a recommended dispositive sanction only after de novo review. See Fed.R.Civ.P. 72(b).

The parties dispute whether the preclusion of evidence derived from the computer is a dispositive sanction. Dorchester argues that preclusion is dispositive of its claims because documents derived from the computer constitute its " prima facie case, " and barring admission of those documents would be tantamount to dismissal. (Dorchester's Objection at 7). BRJ disagrees, emphasizing that Dorchester would still possess admissible evidence not derived from the computer. ( See BRJ's Response at 3 [ECF No. 167]). Nevertheless, BRJ concedes that preclusion may critically weaken Dorchester's claims, and so asks the Court - for the sake of "prudence" - to review at least a portion of Judge Fox's preclusion order de novo. ( Id. at 3-4).

In an abundance of caution, the Court will treat Judge Fox's decision regarding spoliation as a recommendation and review it de novo. Cf. 14 James Wm. Moore et al., Moore's Federal Practice ยง 72.08[1] (3d ed. 2014) ("If a magistrate judge erroneously enters an order purporting to determine a dispositive matter, a district judge reviewing the order may ignore the form of the decision and treat it as a recommendation."). But the Court reviews Judge Fox's decision to compel Cox's live deposition only for clear error.

II. Spoliation

A. Procedural Background

Dorchester first filed suit against BRJ, a Brazilian bank, in 2002. Dorchester claimed that BRJ had committed breach of contract and fraud by failing to honor a $250 million letter of credit it issued to Dorchester on October 16, 2001. See Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., No. 02-CV-7504 (S.D.N.Y. 2002) ( Dorchester I ). BRJ failed to appear, and the Court granted default judgment for Dorchester. See Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., No. 11-CV-1529, 2012 WL 231567, at *3 (S.D.N.Y. Jan. 24, 2012). That judgment, however, proved unenforceable in Brazilian court because Dorchester had not served BRJ using letters rogatory. Dorchester then moved to vacate the default judgment without prejudice so that it could pursue, using letters rogatory, a new judgment that would be enforceable in Brazil. The Court vacated the default judgment on February 24, 2011. See Order, Dorchester I [ECF No. 73].

Dorchester refiled on March 7, 2011, again claiming that BRJ had committed breach of contract and fraud by failing to honor the $250 million letter of credit. ( See Complaint [ECF No. 1]). This time, BRJ appeared to defend the action. On August 10, 2011, BRJ moved to dismiss the Complaint on several grounds, including lack of personal jurisdiction. ( See BRJ's Mem. to Dismiss the Compl. at 10-19 [ECF No. 11]). BRJ argued that it had insufficient contacts with New York because it had never transacted business with Dorchester; the letter of credit, according to BRJ, was counterfeit. ( See id. at 14-18).

On August 19, 2011, Dorchester filed its brief opposing BRJ's motion to dismiss (the "Opposition Brief"). The brief argued that the letter of credit was authentic and made several new allegations about its provenance. ( See Opp. Brief [ECF No. 14]). In particular, Dorchester claimed, for the first time, that Dorchester and BRJ had executed an October 3, 2001 contract obligating BRJ to provide the letter of credit. ( See id. at 3-5). According to Dorchester, the contract included a choice of law provision that required BRJ to adjudicate all disputes related to the letter of credit in New York, which provided an additional ground for personal jurisdiction. ( See id. at 4). Dorchester attached a copy of the purported contract to the Opposition Brief. ( See id. Ex. G). In reply, BRJ argued that the contract was also counterfeit, and suggested that its "sudden emergence" after BRJ's challenge to personal jurisdiction was "extremely suspicious." (BRJ's Reply Brief at 3 [ECF No. 20]).

On August 31, 2011, Dorchester filed its First Amended Complaint ("FAC"), which contained new allegations that BRJ had breached the purported October 3, 2001 contract. ( See FAC [ECF No. 24]). BRJ again moved to dismiss for lack of personal jurisdiction, among other reasons, reiterating its claims that the contract, the letter of credit, and related documents were counterfeit. ( See BRJ's Mem. to Dismiss the FAC [ECF No. 28]). On January 24, 2012, the Court dismissed the FAC for lack of personal jurisdiction. A ...

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