Broken Record? Maybe, But Even Government Entities Cannot Escape the Failure to Preserve

Obtaining electronic discovery from a city or municipality in civil litigation can be a slow process. But, in DMAC LLC and Fourmen Construction, Inc. v. City of Peekskill, plaintiffs’ task was made impossible because of the City of Peekskill’s failure to implement a “formal e-mail retention policy,” leaving it up to the “sole discretion” of City staff and elected officials whether to retain or delete their e mails. When the City and other defendants were sued in 2009 for stopping a real estate development project that began back in 2007, allegedly for political reasons, that lack of any e-mail retention policy came back to haunt the defendants.

Plaintiffs in DMAC are the owners and developers of a townhouse project begun in January 2007. In March of that year, the City issued a stop work order. Plaintiffs commenced litigation against the City in 2009. During the course of that litigation, plaintiffs requested e-mails from the City to establish that political motivations were the underlying cause of the stop work order. The City maintained that it did not have the e-mails sought, explaining that at the relevant time (in 2007) it had no formal e-mail retention policy notwithstanding the fact that it did produce some e-mails among City employees. Plaintiffs were able to piece together some relevant correspondence between City officials and third parties; and thereafter moved for spoliation of evidence sanctions against the City for failing to preserve its e-mail records, including records about its decision-making process to stop the project.

In ruling on plaintiffs’ motion, Magistrate Judge Yanthis of the Southern District of New York set forth the now-familiar factors that must be examined when deciding a sanctions motion for spoliation of evidence, explaining that the movant must prove “1) that the spoliating party had control over the evidence in question and a duty to preserve it at the time it was destroyed, lost, or significantly altered; 2) that said evidence was destroyed, lost, or significantly altered with a culpable state of mind; and 3) that said evidence was relevant to the moving party’s claims or defenses.”

Judge Yanthis found the first prong clearly satisfied because the City was silent regarding its duty to preserve (focusing instead on only culpability and relevance). In beginning the analysis on culpability, the Court deemed the failure was “at least negligent.” Ultimately, it found the City to be grossly negligent because (1) relevant New York State law (federal discovery rules aside) independently required the City records sought in the case to have been maintained and (2) the City had commenced two actions against the plaintiffs two years earlier for alleged building violations, which triggered the City’s legal obligation under applicable federal discovery rules to preserve the data in question. Finally, the Court held that the destroyed e-mails were relevant, especially in light of other e-mails that plaintiffs were able to uncover from third party sources and which a reasonable trier of fact could conclude were favorable to plaintiffs’ case. Finding all of the salient factors satisfied, the Court next examined what sanctions were most appropriate, concluding that “an adverse inference instruction to the effect that the City negligently destroyed e-mails . . . and that said e-mail would have been favorable to plaintiffs’ case” was warranted. The Court also awarded “plaintiffs costs and fees arising from the instant motion.”

The case highlights a number of important points. First, a party does not need to be sued before its legal hold obligations are triggered. In fact, such obligations can be triggered in multiple ways, including by state action affirmatively instituting a regulatory or criminal proceeding that is related to the ultimate civil action against the government in question. Second, the failure to implement a document and e-mail retention policy can be viewed by courts as grossly negligent, at a minimum, and thus deemed to satisfy the “culpable state of mind” requirement for sanctions to issue. Third, municipalities and other state governmental entities involved in federal civil litigation will be held to the same discovery rules and standards as corporations and individuals. Finally, the costs of a successful spoliation sanctions motion, including attorneys fees, can be recovered, which provides additional incentives for such motions to be made where the evidence of spoliation is clear and where it can reasonably be inferred that the destroyed materials would have been favorable to the movant’s case.

Jeffrey L. Nagel is a Director in the Gibbons Business & Commercial Litigation Department and a member of the Gibbons E-Discovery Task Force.
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