Careless Preservers Breathe Huge Sigh of Relief when Court Finds no Relevant Information Destroyed

May 31, 2011

Authored By: Michael Tucker Jr.

Citation: Orbit One Communs. V. Numerex Corp., 2010 U.S. Dist. LEXIS 123633 (S.D.N.Y. 2010)

Employee/Employer Implicated: Information Technology Administrator; Outside Counsel; Owner/Executive

e-Lesson Learned: Mere inadequacy of preservation efforts does not warrant sanctions unless it can be shown that discovery-relevant evidence has been lost. Despite that, it is better to adequately prepare for and execute a proper litigation hold than rely on dumb luck and coincidence to avoid sanctions.

Twitter This: Plaintiff not sanctioned for ESI preservation failures when comprehensive failures did not actually result in lost evidence.

In 2006, Numerex, a satellite communications company, began attempts to acquire Orbit One, which was owned by David Rosen, Scott Rosenzweig and Gary Naden. These negotiations resulted in an asset purchase agreement signed in July 2007, under whose terms Rosen, Rosenzweig, and Naden would continue on with Numerex, with Rosen becoming president of the new division. Around the same time Naden’s former company, Axxon initiated suit against Orbit One and Orbit’s attorneys ordered a litigation hold to ensure preservation of information relating to that controversy.

Things took a turn for the worse in Fall 2007 as Orbit One’s sales were poor and failed to meet projections. Rosen believed Numerex was violating the terms of the agreement and met with attorneys in early December 2007 to discuss his legal options. He filed suit against Numerex in early January 2008 and Numerex demanded a litigation hold. In response to the hold demand, Orbit’s IT administrator, Christopher Dingman took certain backup disks out of rotation and gave them to Mr. Rosen who took them home. Dingman had never been told about the litigation hold relating to the Axxon suit. Dingman had previously asked Rosen to remove older information from Orbit’s servers and remove his personal desktop from the network.

Numerex sought an adverse inference instruction on the grounds that Orbit One and Rosen were responsible for the spoliation of ESI.

The Court pointed out the numerous ways the plaintiff failed to adopt appropriate preservation procedures. 1) Formal litigation holds were not imposed in either case, 2) IT professionals were not informed of the pendency of litigation when archiving or deleting data, 3) Responsibility for safeguarding information remained with Mr. Rosen who had the greatest incentive to destroy it, 4) Rosen treated the information cavalierly and did not document his archiving practices and, 5) The initial litigation hold lacked detail and oversight and was created without consulting those with knowledge of Orbit’s computer systems.

With a rap sheet like the one detailed by the court, one could assume that Orbit and Mr. Rosen were in for tough sanctions: i.e…an adverse inference instruction, fee shifting, or other unpleasantness. However, the court found no evidence that any discovery-relevant information had been lost under the circumstances.

For example, the court found that purging data from servers when litigation was anticipated did not result in spoliation because the data was archived and not lost; Mr. Rosen’s removal of his desktop did not constitute spoliation because the data had been preserved elsewhere and never destroyed; and Mr. Rosen’s request for a new hard drive for his laptop did not constitute spoliation even when the information previously contained was lost because the information was contained on backup disks, had likely been produced, and the damage to the hard drive that necessitated replacement was real.

In short, the only reason that Orbit One and Mr. Rosen were not subject to sanctions was dumb luck. The court’s thorough review of applicable law demonstrated that mere inadequacy of preservation efforts does not warrant sanctions unless it can be shown that discovery-relevant evidence has been lost. If a party acts willfully, recklessly, or in bad-faith sanctions may be appropriate even without certainty that relevant information has been lost. In this case plaintiff acted inadequately and carelessly, but no harm no foul.

Michael Tucker Jr. received his B.A. in Political Science from The College of New Jersey. He will receive his J.D. from Seton Hall University School of Law in 2011. After graduation, Michael will be clerking for a trial judge in the Superior Court of New Jersey.

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Article posted on May 31, 2011 at 6:11 AM |