Shapiro, Lifschitz & Schram

"There is no one I’d rather have leading the fight when our financial future depends on winning."

Alan W. Slepian, Esq. – Formerly Assistant General Counsel of PG&E National Energy Group

Business litigant sanctioned for failing to properly preserve and produce audio data

With audio data becoming more prevalent through the ever-increasing use of voicemail messaging, IP phones, and now Apple’s latest iOS 8 Messages application upgrades, which include a bevy of “time-saving features” for sending audio and video messages, a party’s conduct in preserving such data in the event of litigation has taken on heightened importance. 
 
In the wrongful termination case of Novick v. AXA Network (S.D.N.Y. Oct. 22, 2014), the parties argued over the production of audio recordings and emails for several years. After a protracted discovery battle, the Defendants finally produced their audio data, but the recordings had an eight-week gap. The Plaintiff moved for sanctions under Rule 37(b)(2) and asked the Court to strike the Defendants’ answer and counterclaims, allow a negative inference as to data spoliation, and fine Defendants on account of Plaintiff’s “repeated attempts to obtain the at-issue discovery and failure to preserve the same.” Plaintiff Novick further alleged that the Defendants intentionally delayed the discovery process by producing mostly irrelevant emails, failing to preserve and produce relevant emails, improperly withholding emails that were deemed unfavorable to the Defendants, and failing to preserve about 10 weeks worth of audio recordings.
 
The Court found that the Defendants had, in fact, created audio recordings during the gap period, that those recordings were not produced, and there was no acceptable explanation for how the recordings were lost.  As the Court observed:  
 
The defendants’ repeated failure to search for properly, locate and produce audio recordings to the plaintiff, as noted in the October 3, 2013 order, as well as their inability to account for the audio recordings’ disappearance, suggests nothing other than deliberate conduct and a culpable state of mind. The Court finds that the defendants acted in bad faith because, after representing to the assigned district judge, during the June 27, 2012 conference, that the audio recordings exist, but “are not searchable,” the defendants represented to the plaintiff, on November 20, 2012, that they “have investigated and have not located any audio recordings of the trading desk (where the individuals identified by plaintiff were located) from 2006.” Thereafter, it was not until after the plaintiff made a motion for sanctions that the defendants searched for and located the existing audio recordings, and not until after the Court ordered their production on October 3, 2013, that the defendants admitted that the audio recordings, covering the period of time critical to the plaintiff’s claims, were missing. The defendants’ delay in properly searching for, locating and producing relevant audio recordings and their conflicting representations to the court and the plaintiff about the existence of audio recordings prejudiced the plaintiff by: (i) preventing him from discovering facts material to the adjudication of his claims; (ii) causing him to incur unnecessary costs making his motion for sanctions and the instant motion; and (iii) prolonging the litigation. 
 
Plaintiff’s motion for sanctions was granted in part (the Court did not strike the Defendants’ answer). Defendants were fined and the jury was allowed to infer that the lost recordings were indeed favorable to Plaintiff’s case. The Court reasoned that the adverse inference instructions were justified because the Defendants were obligated to preserve relevant data, including the audio recordings, and the data went missing because of Defendants’ bad faith. The Defendants further “acted in bad faith respecting their production of e-mail messages, employed delay tactics, caused substantial costs to be incurred by the plaintiff and wasted the Court’s time.”
 
This case is only the most recent example underscoring a litigant’s duty to preserve all forms of relevant information, especially in the electronic age in which litigants now find themselves. The courts have made it clear in this case – and repeatedly in other cases – that, once a litigant’s preservation duty arises, that party is on notice of its obligations and, if it decides to shirk them, it does so at its own peril.

Did You Know . . .

Members of the SLS trial group have tried in excess of 50 jury trials and 75 bench trials?

The SLS construction group has worked on sports stadiums across the country including Orioles Park in Baltimore and Paul Brown Stadium in Cincinnati?

The SLS construction group has worked on power plant projects across the country?

In 2007 SLS was selected for an Honorable Mention as one of the Best Places To Work in Washington DC?

Ron Shapiro, Steve Schram and Judd Lifschitz have all been selected as SuperLawyers by Law and Politics?

The SLS office building is an historic townhouse constructed in the late 1800s?

SLS has been selected by Martindale-Hubbell as a Preeminent Law Firm?

SLS trial lawyers have argued appeals in the U.S. Circuit Courts of Appeal for the 4th, 5th, 9th, D.C. and Federal Circuit?

SLS trial lawyers have been lead trial counsel in cases in Arizona, California, District of Columbia, Florida, Louisiana, Maryland, New Jersey, New York, North Carolina, Oregon, Texas, and Virginia, - to name just a few?

Virtually all the cases that SLS trial lawyers mediated have been favorably settled at mediation?

The transactional group at SLS was lead counsel on one of the largest, most complex mixed-use projects in downtown Washington, DC involving 4 lenders and 6 property owners?

In appreciation for the outstanding efforts of each of its employees during 2007, SLS gave everyone (attorneys, paralegals, and staff) a 4 day/3 night expense paid trip to Key West, Florida?

The transactional group at SLS has represented tenants in more than 200 retail leases in the Mid-Atlantic region?

Every attorney in the transactional group at SLS has at least 15 years experience?

The transactional group at SLS has represented developers in the purchase, construction, financing and/or sale of more than 75 multi-family apartment projects?

The transactional group at SLS has represented real estate investors and developers with respect to property in Pennsylvania, West Virginia, Delaware, Maryland, the District of Columbia, Virginia, North Carolina, South Carolina, Georgia, Florida, Texas, Tennessee, Michigan and the U.S. Virginia Islands?

Attorneys in the transactional group at SLS have represented eight national banks in commercial real estate loans?

Attorneys in the transactional group at SLS have represented the FDIC, the Resolution Trust Corporation and several banking institutions in loan workout transactions throughout the Mid-Atlantic region?

The transactional group at SLS has represented homebuilders and commercial real estate developers in work-outs of individual loans and also for work-outs of large portfolios involving dozens of properties in several states?

The trial lawyers of SLS have numerous reported decisions to their credit?