A Mistaken Belief Does Not Warrant Sanctions for the Failure to Preserve

Best Payphones, Inc. v. The City of New York, Nos. 1-CV-3924 (JG) (VMS), 1-CV-8506 (JG) (VMS), 3-CV-0192 (JG) (VMS) 2016 WL 792396 (E.D.N.Y. Feb. 26, 2016).

In this case, the court took a bifurcated approach to analyzing the loss of tangible and electronic evidence under common law and the recently amended Federal Rule of Civil Procedure 37(e), finding that monetary sanctions were the appropriate cure for the negligent loss of evidence.

The plaintiff, Best Payphones, Inc., sued the City of New York and several individuals, claiming they discriminated and retaliated against it in the way they administered the regulations that apply to public pay telephones. During discovery, the defendants filed a motion seeking spoliation sanctions, claiming Best Payphones failed to preserve relevant evidence, namely e-mails with third parties, especially prospective buyers of its business; daily activity reports from each pay phone; bank statements; and contracts with various service providers. As a remedy, the defendants asked the court for an adverse inference instruction, an order precluding Best Payphones from offering evidence regarding the value of its business and the source of its monetary losses, an order striking its damages calculation, and monetary relief.

Although the duty to preserve arose when Best Payphones filed a related lawsuit in July 2000, it did not institute a legal hold or instruct its principal, Michael Chaite, to preserve any records, including his e-mail. Chaite said his attorney told him to save relevant records, but he did not keep the daily activity reports. Further, Best Payphones maintained that it had produced all relevant tangible documents to the defendants; any other evidence either was irrelevant or was available from third parties. Although Chaite said he did not use e-mail between 1998 and 2004, Best Payphones also argued that “the litigation hold requirement was not established through case law until mid-2004,” referring to the Zubulake series of opinions, and thus the defendants could not show it acted unreasonably in not preserving evidence.

The court found that Best Payphones had a duty to preserve the evidence, because the duty to preserve had existed for years before the lawsuit was filed and long before Zubulake. But the defendants failed to rebut Chaite’s testimony that he “believed he was satisfying his burden to retain all relevant records and was not acting willfully in his failure to preserve the evidence.” The court adopted a forgiving posture, given that “preservation standards and practices for e-mail retention were in flux” at the time, and did not find it unreasonable for Chaite to believe keeping messages as “new” equaled preserving them.

However, after analyzing the facts under the common law and the amendments to Rule 37(e), the court determined any failure to preserve ESI was the result of mere negligence, not the willfulness or gross negligence required for an adverse inference. Curative measures were not appropriate either, as the ESI could be “restored or replaced through additional discovery,” and the defendants could not show any prejudice. The defendants failed “to pursue obvious non-party discovery leads” and could have obtained many documents from third parties or from the company’s public bankruptcy records. Further, the defendants had adequate records to make their case regarding damages and could not show that the allegedly missing e-mails contained substantive information. As a result, attorneys’ fees and costs were an appropriate sanction.

Best Payphones, Inc. v. The City of New York, Nos. 1-CV-3924 (JG) (VMS), 1-CV-8506 (JG) (VMS), 3-CV-0192 (JG) (VMS) 2016 WL 792396 (E.D.N.Y. Feb. 26, 2016).


 Here, both parties failed to take steps that would have shored up their case. Counsel should always take an active role in advising their clients of the duty to preserve and ensure they fully understand it. Here, Chaite offered no “excuse, other than that he incorrectly determined that the evidence was irrelevant and did not understand his AOL account functions, for why the evidence was not preserved.” Chaite should have spoken with his attorneys before deleting any evidence; likewise, his attorneys should have advised him not to destroy any records.

Similarly, there is no excuse for the defendants’ failure to avail themselves of other options that would have yielded responsive documents, such as subpoenaing records from third parties. As a result of their omissions, they were precluded from arguing that they suffered prejudice.