HMS Holdings Corp. v. Arendt, 2015 N.Y. Slip Op. 50750(U) (Sup. Ct. May 19, 2015).
The court found that two licensed attorneys engaged in egregious misconduct that merited a mandatory adverse inference; it even reported one attorney’s flagrant conduct to the professional standards board. In this lawsuit, HMS alleged the defendants, its former employees, misappropriated confidential information, including trade secrets, on behalf of their new employer, Public Consulting Group (PCG). When the lawsuit began, PCG issued a legal hold to some of its employees, including two of the defendants, Sean Curtin and Danielle Lange.
The legal hold advised them to preserve electronically stored information (ESI) on their computers, devices, and storage media. If they had questions, they were to “err on the side of caution” and contact PCG’s Director of Legal & Compliance Services. During discovery, the parties entered a stipulation requiring the defendants to make forensic images of their computers and other sources of ESI. Curtin produced forensic images of his work and personal computers, and Lange produced images of her work laptop and personal iPhone. HMS’s computer expert inspected the forensic images and found that both Curtin and Lange destroyed relevant ESI.
The court agreed with HMS’s expert. Curtain destroyed evidence on his laptop and lost an external hard drive that contained HMS files. He used a data-wiping tool at least six times on his personal computer, allegedly to improve his computer’s performance after the lawsuit was filed. However, as the tool explained in on-screen warnings, it overwrote all unallocated space, ensuring that previously deleted files could not be recovered. The hard drive contained confidential HMS business materials he copied the day before he left his job with HMS. He accessed these files during the summer of 2014, but he failed to produce the drive and claimed he lost it when he moved. He only acknowledged its existence after HMS provided forensic proof of its existence.
As for Lange, HMS’s expert found that Lange intentionally destroyed data after the lawsuit was filed. Her computer contained “shadow copies,” or partial backups, created by the Windows operating system. One of these copies showed that she deleted a directory of files from her PCG laptop and removed information about what applications she had run on the computer. Lange also failed to produce any text messages prior to September 2014 from her iPhone, though records showed she sent and received numerous texts. She claimed she dropped her iPhone 4 and then replaced it with an iPhone 5 in August 2014, and the staff could not transfer any data to the new phone. However, a backup on her work computer belied her testimony, showing she had backed up her iPhone 4 a week after she allegedly discarded it.
The court found both lawyers “engaged in egregious misconduct for which they bear a high degree of culpability.” Their misconduct resulted in “substantial prejudice” to HMS. Under New York law, given the intentional and willful spoliation, the court presumed the lost evidence was relevant and would support HMS’s claims. Neither Curtin nor Lange could rebut this presumption.
Having established spoliation, the court turned to sanctions. The court decided that the case-terminating sanction of an order of preclusion would be too harsh because HMS could establish its claims through means other than the lost evidence. However, a mandatory adverse inference was appropriate given the defendants’ “willful and deliberate” misconduct. The court also ordered the defendants to pay HMS the attorneys’ fees, costs, and expenses stemming from their misconduct. Finally, the court forwarded its decision to the New York State Committee on Professional Standards for the Appellate Division, Third Department given the bearing of Lange’s misconduct on “her honesty, trustworthiness, and fitness to practice law.”
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In evaluating the proper sanction, the court weighed its effect against the prejudice that HMS suffered. Because HMS could still prove its case, preclusion was not warranted. However, because the level of misconduct was high, the court determined that a mandatory adverse inference was appropriate. Here, the court felt the “trier of fact should be permitted to draw the strongest possible adverse inference from defendants’ bad faith and intentional destruction, deletion and failure to produce relevant evidence.”