Court of Appeals on Spoliation Issues

Pegasus Aviation I, Inc. v Varig Logistica S.A., ___ NY3d ___, ___ NYS3d ___, 2015 NY Slip Op 09187 [2015]

The Court of Appeals here endorsed the holding of VOOM HD Holdings LLC v EchoStar Satellite L.L.C., 93 A.D.3d 33, 939 N.Y.S.2d 321 [1^st Dept., 2012], concerning imposition of sanctions for spoliation of evidence. Imposition of a sanction for spoliation requires proof of three elements: (1) control over the evidence and an obligation to preserve it; (2) that the party destroyed or lost the evidence with a “culpable state of mind”; and (3) that the evidence was relevant to the claim or defense.  “Culpable state of mind” includes ordinary negligence. Relevance is established where the evidence is lost intentionally or willfully, so as to amount to gross negligence; but where the loss is merely negligent relevance must be shown by the proponent of sanctions. Gross negligence, such as to support a finding of relevance, may be shown by serious failings such as not issuing a written litigation hold to employees, failing to identify “key players” and ensure that their documents are preserved, or continuing to delete emails. The distinction between simple and gross negligence thus becomes highly important.

Here, the dispute centered primarily on just that distinction: whether the defendant Varig Logistica (“VarigLog”) had failed to preserve electronically stored information (“ESI”) due to ordinary negligence or gross negligence.

VarigLog had failed to preserve emails, had not instituted any sort of litigation “hold” to ensure that materials were preserved, did not even have a centralized storage system for emails but stored them on the computers of individual employees, and that such as it did have on a central system had been lost in a series of computer crashes. Supreme Court held that the failure to establish a litigation hold established gross negligence, struck VarigLog’s answer, and imposed a trial sanction of an adverse inference upon certain other defendants. The Appellate Division was divided on the issue, but the majority rejected the finding that the failure to establish a litigation hold amounted to gross negligence per se, and reviewing the facts found only simple negligence. The majority held that the plaintiff had failed to show that the missing information was relevant, and struck the trial adverse inference sanction. The majority also noted its view that the adverse inference charge was so strong as to amount to summary judgment.

The Court of Appeals held that the record supported the Appellate Division conclusion of simple negligence. Rejecting the idea that the failure to institute a litigation hold, or some other factor, would lead to a per se finding of gross negligence, the Court agreed with the Appellate Division majority that all of the facts led to a determination of simple negligence. It did not, however, agree with the Appellate Division as to the sanction. It found that the majority had ignored the plaintiff’s arguments as to relevance. The Court remitted the matter to Supreme Court for further findings as to relevance.

There was a two-judge dissent, which would have found gross negligence. The dissent noted that the Court’s opinion fails to define “gross negligence,” and would have adopted the standard of the failure to exercise even slight care.