Plaintiff in Diaper Lawsuit Hit with Adverse Inference to Remedy Spoliation from Failure to Issue Legal Hold
A U.S. Magistrate Judge Robert M. Levy in the Eastern District of New York ordered an adverse inference sanction and payment of attorneys’ fees for the plaintiff in a case due to spoliation of evidence after the court learned that no litigation hold was issued. The court deemed the plaintiff’s actions to constitute gross negligence because of its “failure to take the most basic document preservation steps” including never issuing a “formal litigation hold to ensure preservation of electronic information, despite admitting familiarity with its obligations to preserve documents.” (*6-7)
SJS Distribution Systems v. Sam’s East, Inc. (E.D.N.Y. Oct. 11, 2013) was the result of a diaper order that got all messed up. SJS had sourced nearly $3 million in diapers from Sam’s Club, but when the order was received some of the packaging was incorrect which meant SJS couldn’t sell the product to the intended seller. In February 2011, SJS filed a breach of contract lawsuit. (*1) What ensued has been a two-year odyssey of motion after motion by the defendant to compel production by the plaintiff, a journey that is documented in a blow-by-blow account by Judge Levy over the first few pages of his opinion – possibly a signal of the court’s impatience with the course of events.
The court found that the plaintiff had a duty to preserve and was culpable, finding it “particularly inexcusable given that SJS is the plaintiff in this action and, as such, had full knowledge of the possibility of future litigation. As a result, defendant has met its burden of showing that plaintiff was culpable” (*6 citing Judge Shira A. Scheindlin’s recent Sekisui v. Hart opinion). In testing the relevance, the court wrote, “Because the emails would certainly have aided defendant in gaining additional information about the circumstances surrounding the sale and attempted re-sale of the goods, it is appropriate to impose a sanction on plaintiff for its spoliation of the records.” (*8)
Having found that a sanction was appropriate, Judge Levy carefully weighed what he felt to be an appropriate sanction. He concluded that an adverse inference was the right remedy. “One of the purposes of an adverse inference is to restore the prejudiced party to the same position it would have been in absent the wrongful destruction of evidence by the opposing party. In this case, an adverse inference would restore defendant to such a position.” (*10)
SJS Distribution Systems v. Sam’s East reiterates the need for sound preservation practices, and it is particularly important for plaintiffs to get it right. With the opinion coming out of the Eastern District of New York, the court liberally referenced much of the notable case law emanating from its neighbor in the Southern District of New York, including one of the first cites of Sekisui, which will continue to cement these standards for determining appropriate sanctions for spoliation as a reference point within the Second Circuit, and likely beyond.