Orbit One Communications, Inc. v. Numerex Corp., 2010 WL 4615547 (S.D.N.Y. Oct. 26, 2010) represents a dichotomy in jurisprudence on ESI preservation efforts and the imposition of automatic sanctions. In Orbit One, Magistrate Judge James C. Francis, IV found that regardless of how inadequate a litigant’s preservation efforts may be, sanctions are not appropriate without proof that “information of significance” has been lost. The court determined that the threshold determination must be “whether any material that has been destroyed was likely relevant even for purposes of discovery.” In so holding, the court discussed and diverged from Judge Shira A. Scheindlin’s decision in Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, which earlier held that sanctions may be warranted for inadequate preservation efforts even if no relevant evidence is lost. 685 F. Supp.2d 456, 465 (S.D.N.Y. 2010).
In Orbit One, defendant Numerex acquired substantially all of Orbit One’s assets through an asset purchase agreement. Numerex also entered into employment agreements with Orbit One principals and David Ronsen, the founder of Orbit One. Shortly thereafter, Orbit One’s sales became poor and revenues were not meeting projections. On January 7, 2008, Ronsen commenced litigation against Numerex. During discovery, Orbit One’s information technology (“IT”) administrator Christopher Dingman disclosed that he was not informed of the litigation hold regarding the Numerex litigation (or of a litigation hold regarding an earlier instituted matter) and that certain actions taken by him and at Ronsen’s direction resulted in the loss of ESI data from Ronsen’s desktop computer, laptop and email account. Upon discovery that information had been deleted and removed, Numerex sought an adverse jury instruction against Orbit One and Ronsen on the ground that these parties are responsible for the spoliation of electronically stored information.
Judge Francis itemized the instances where Orbit One and Ronsen failed to adopt and implement model preservation procedures, but also observed that the data on Ronsen’s laptop, hard drive, backup disks and email account either had been archived, was uncompromised, was otherwise still retrievable and/or had actually been previously produced. As such, the court concluded that sanctions, particularly the severe sanction of an adverse inference, was not appropriate because there was insufficient evidence that any of Orbit One and Ronsen’s actions resulted in the loss of any “discovery-relevant” information — information that is likely relevant even if only under the broad definition of the Federal Rules. The court noted that sanctions, particularly in the form of an adverse inference, are predicated on the loss of information that is “relevant” to a claim or defense and to “ameliorate any prejudice to the innocent party by filling the evidentiary gap created by the party that destroyed evidence.” Accordingly, the sanction of an adverse inference for inadequate preservation efforts must be tied to a showing of the loss of “discovery-relevant” materials and prejudice to the innocent party, not simply to the spoliating party’s gross negligence or bad faith. Magistrate Judge Francis took issue with Pension Committee for its omission of the discovery-relevance requirement and for the suggestion that sanctions are warranted by a mere showing that a party’s preservation efforts were inadequate. Under that standard, the court reasoned that litigation would become a “gotcha” game between the parties regarding lost information, however inconsequential, rather than a full and fair opportunity to address the merits of a dispute. Thus, Magistrate Judge Francis held that sanctions are only appropriate if the inadequate preservation efforts resulted in the destruction of “discovery-relevant” materials.
The law on sanctions, spoliation and preservation efforts favors a factored analysis approach to the imposition of sanctions, rather than a categorical approach that ignores culpability or the lack of any real damage to the innocent party. Thus, most courts have held that sanctions for the destruction of ESI data should be dictated by circumstances of individual cases and should only be imposed if discovery relevant material has been destroyed. Nonetheless, this contrast of opinions between two highly respected jurists and e-discovery specialists from the same jurisdiction highlights the controversial and constantly evolving nature of these principles, and cautions that the most prudent course is to always engage in broad, methodical and well-documented preservation practices.