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Best Payphones, Inc. v. Dobrin

United States District Court, E.D. New York

July 26, 2018

ALLAN DOBRIN, former Department of Information Technology and Telecommunications DoITT Commissioner, BRUCE REGAL, former DoITT Acting Deputy Commissioner, STANLEY SHOR, DoITT Assistant Commissioner, AGOSTINO CANGEMI, DoITT Deputy Commissioner, DEBRA SAMUELSON, DoITT Deputy General Counsel, and THE CITY OF NEW YORK, Defendants.



         Plaintiff Best Payphones, Inc. appeals Magistrate Judge Vera Scanlon's February 26, 2016 order denying Defendants Allan Dobrin, Bruce Regal, Stanley Shor, Agostino Cangemi, Debra Samuelson, and the City of New York's (collectively “Defendants”) motion for spoliation sanctions, except to the extent that Defendants were awarded reasonable attorneys' fees and costs incurred in connection with the motion. (See Pl.'s Appeal of Mag. J. Dec., ECF No. 515; Order, Feb. 26, 2016 (“Mag. J. Scanlon's Order”), ECF No. 466.) Plaintiff also appeals Magistrate Judge Steven Tiscione's June 27, 2017 order, which set the amount of attorneys' fees and costs for the spoliation motion at $12, 350.[1] (Order (“Mag. J. Tiscione's Order”), ECF No. 509.) For the reasons set forth herein, Magistrate Judge Scanlon's Order is affirmed, and Magistrate Judge Tiscione's Order is affirmed, as modified below.


         The Court assumes the parties' familiarity with this case. In brief, Plaintiff brings this action against Defendants alleging that Defendants violated Plaintiff's rights under the First and Fourteenth Amendments to the United States Constitution pursuant to 42 U.S.C. § 1983. Specifically, Plaintiff alleges that Defendants retaliated and discriminated against it in Defendants' administration of a regulatory framework requiring franchises and permits to operate public pay telephones[2] (“PPTs”) on public rights-of-way. (See generally Third Am. Compl., ECF No. 261.) Plaintiff seeks compensatory damages for alleged loss of business, loss of asset value, loss of business opportunities, costs of litigation, and punitive damages. (Id.)

         On May 8, 2015, Defendants filed a motion for discovery sanctions based on Plaintiff's alleged spoliation of evidence. (Defs.' Mot. for Sanctions, ECF No. 447-1.) Specifically, Defendants argued that Plaintiff failed to preserve relevant evidence, which Defendants sought but did not receive, namely: emails between Plaintiff and third parties, particularly third parties that sought to buy Plaintiff's business; revenue information including daily activity reports from each payphone, missing bank statements; and contracts and agreements between Plaintiff and various service providers. (Id. at 2-4.) Defendants argued that this evidence was necessary to defend against Plaintiff's damages claim and without it Defendants “are greatly hampered from showing that [Plaintiff] was not damaged by [Defendants'] acts or omissions, but instead, it was [P]laintiff's business practices that led to the decline in the value of its PPT business and its persistent inability to find a suitable buyer of its assets.” (Id. at 11.) Defendants sought the following sanctions: the preclusion of Plaintiff “from offering any evidence as to the value of its business or its monetary losses or contesting [D]efendants' contention that any such monetary losses stemmed from [P]laintiff's own business conduct”; an “adverse inference instruction directing the jury to presume that the lost emails and revenue data were both relevant and favorable to the [D]efendants' claim that the value of [Plaintiff's] phones declined as a result of [P]laintiff's own actions and business practice”; the striking of “[P]laintiff's [Fed. R. Civ. P.] 26(a)(1) calculation of damages for ‘loss related to closing price'”; the preclusion of Plaintiff from offering any evidence or testimony to support such a damages calculation; and/or awarding monetary fines. (Id. at 11-12.)

         On February 26, 2016, Magistrate Judge Scanlon issued an order finding that Plaintiff “was under a duty to preserve the evidence and that Plaintiff acted negligently in failing to preserve the evidence, but Defendant was not prejudiced by the destruction of the evidence.” (Mag. J. Scanlon's Order at 7.) Accordingly, Magistrate Judge Scanlon denied Defendants' requests to preclude Plaintiff from proving its damages case and for an adverse inference jury instruction, but found Plaintiff responsible for Defendants' attorneys' fees in bringing the spoliation motion. (Id.) Defendants requested an award of $54, 600 in connection with the motion for sanctions and the application for attorneys' fees. (Mag. J. Tiscione Order at 2.) In response, Plaintiff requested that no fees be awarded or alternatively that Defendants receive ten percent of the amount of fees Defendants sought. (Id.) On April 7, 2016, this matter was reassigned to Magistrate Judge Tiscione, who subsequently awarded Defendants $12, 350 in fees, which represented a seventy-percent reduction of Defendants' requested award. (Id.)


         On appeal of a magistrate judge's order regarding non-dispositive pretrial matters, such as matters concerning discovery, the district court must “modify or set aside any part of the order that is clearly erroneous or is contrary to law.” Fed.R.Civ.P. 72(a); 28 U.S.C. 636(b)(1)(A); see also Thomas E. Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522, 525 (2d Cir. 1990) (“Matters concerning discovery generally are considered ‘nondispositive' of the litigation.”). An order is “clearly erroneous” when upon review of the evidence, the district court is “left with the definite and firm conviction that a mistake has been committed.” United States v. Isiofia, 370 F.3d 226, 232 (2d Cir. 2004) (quoting Anderson v. Bessemer City, 470 U.S. 564, 573 (1985)). Further, an order is “contrary to law” when it “fails to apply or misapplies relevant statutes, case law or rules of procedure.” Weiner v. McKeefery, No. 11-CV-2254, 2014 WL 2048381, at *3 (E.D.N.Y. May 19, 2014).

         This standard is highly deferential, as magistrate judges are “afforded broad discretion in resolving discovery disputes and reversal is appropriate only if their discretion is abused.” McNamee v. Clemens, No. 9-CV-1647, 2014 WL 1338720, at *2 (E.D.N.Y. Apr. 2, 2014). “A court abuses its discretion when its decision rests on an error of law or on a clearly erroneous factual finding, or when its decision-though not necessarily the product of a legal error or a clearly erroneous factual finding-cannot be located within the range of permissible decisions.” Arista Records, LLC v. Doe 3, 604 F.3d 110, 117 (2d Cir. 2010). Thus, on appeal, the “party seeking to overturn a discovery ruling generally bears a heavy burden.” Com-Tech Associates v. Computer Associates Inter., Inc., 753 F.Supp. 1078, 1099 (E.D.N.Y.1990), aff'd, 938 F.2d 1574 (2d Cir.1991).


         I. Magistrate Judge Scanlon's Order

         Plaintiff appeals Magistrate Judge Scanlon's Order, arguing that Magistrate Judge Scanlon erred in finding that the information alleged to have been lost was relevant. (Defs.' Appeal of Mag. J. Dec. at 2, ECF No. 518.) Plaintiff argues further that Rule 37(a)(5)(A) was not applicable, did not permit Magistrate Judge Scanlon to award attorneys' fees, and, even if Rule 37(a)(5)(A) was applicable, Plaintiff was not provided notice and an opportunity to be heard. Plaintiff also argues that Magistrate Judge Scanlon erred in awarding Defendants attorneys' fees pursuant to the court's discretion. (Pl.'s Rep. Br. at 2-5, ECF No. 519.)

         The Court finds no clear error in Magistrate Judge Scanlon's determination regarding the relevance of the alleged lost evidence, or that Magistrate Judge Scanlon's findings were contrary to law. “[W]hen the destruction [of evidence] is negligent, relevance must be proven by the party seeking the sanctions.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 220 (S.D.N.Y. 2003). In this context, the word “relevant . . . means something more than sufficiently probative to satisfy Rule 401 of the Federal Rules of Evidence. Rather, the party seeking [sanctions] must adduce sufficient evidence from which a reasonable trier of fact could infer that the ‘destroyed . . . evidence would have been of the nature alleged by the party affected by its destruction.'” Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 108-109 (2d Cir. 2002) (quoting Krosnich v. United States, 150 F.3d 112, 127 (2d Cir. 1998)).

         Here, Defendants presented sufficient evidence demonstrating that the spoliated evidence was relevant to the valuation of Plaintiff's business; an issue related to damages. For example, Defendants argued that there were email communications between Mr. Chaite and prospective buyers which included documents “that the buyers would have used to evaluate Plaintiff's business.” (Mag. J. Scanlon's Order at 14.) Indeed, Plaintiff admitted that “it gave prospective buyers its tax returns, bank statements and telephone bills to help value its business.” (Id.) Yet, the email communications containing these documents were not provided to Defendants. These documents, as well as other documents sought by Defendants, would have assisted them in assessing the value of Plaintiff's business at various points in time. Magistrate Judge Scanlon ultimately found that Plaintiff “offered no excuse . . . for why the evidence was not preserved” and Mr. Chaite's attorneys failed to advise him “not to destroy any records relating to his business.” (Id. at 18.) Magistrate Judge Scanlon's finding was neither clear error nor contrary to law. Learning Care Grp., Inc. v. Armetta, 315 F.R.D. 433, 438 (D. Conn. 2016) (finding laptop negligently destroyed was relevant where the defendants argued that the laptop's owner ...

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