Sekisui American Corporation v. Hart

945 F. Supp. 2d 494 (S.D.N.Y. 2013)

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Nature of the Case

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Facts

P expressed interest in acquiring ADI from D. Shortly before the closing in 2009, D - acting as chief executive officer - instructed ADI employees to delete all emails that no longer required action. The stock purchase agreement contained a number of representations and warranties: (1) that ADI complied with all relevant federal regulations; (2) that its facilities were sufficient to conduct its business activities; and (3) that ADI's products contained no material defects. P fired D and sent notice on October 14, 2010, evidencing P's intent to file a lawsuit. P filed its Complaint on May 2, 2012, alleging that D breached the contract of sale by violating the representations in the agreement. During discovery, P revealed that email files belonging to certain ADI employees - including D - had been deleted or were otherwise missing. P maintains that the destruction was largely due to the actions of a single former employee acting without direction from P. Apparently, this employee 'identified and printed any emails that she deemed pertinent to the company,' which emails have been produced to D. P searched several alternative sources and eventually produced about 36,000 emails to and from D. According to current and former ADI employees, D 'used email sparingly,' often used his personal email account, and took a work computer from ADI on which he retained copies of his work email, and which he never returned. It is impossible to say how many emails were permanently deleted and remain unrecoverable. P did not institute a litigation hold until more than fifteen months after sending a Notice of Claim to the D. More than a year after the duty to preserve arose, the employee ordered the permanent destruction of Ayres' ESI with apparent permission from (and at least awareness of) of ADI's then-President. P was able to produce nearly 7,000 emails and attachments 'from Ms. Ayres's archived email files, plus several thousand more Ayres emails from other custodians' files.' There is no way to determine how much ESI was deleted permanently and remains unrecoverable. Ds have requested sanctions on P for the spoliation of evidence. Ds requested an adverse inference jury instruction based on the destruction. The Magistrate Judge concluded that the destruction of D's ESI 'may well rise to the level of gross negligence' and that the emails destroyed may well have been relevant to the breach of contract claim, but that no sanctions should be imposed as a result of such destruction because D failed to make a showing of prejudice. The Magistrate Judge issued a written decision finding that Ds failed to show any prejudice resulting from the destruction. Ds filed objections to the Memorandum Decision declining to impose sanctions for the destruction of ESI.