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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.