Electronic Discovery Law

Babaev v. Grossman, 2008 WL 4185703 (E.D.N.Y. Sept. 8, 2008)

In this case, plaintiffs claimed that they were fraudulently induced to invest in defendant’s catering businesses, and sought to inspect defendants’ business records.  Plaintiffs moved for an extension of time to complete their inspection, and also requested sanctions.  They claimed that defendants had engaged in spoliation of evidence and willful refusal to produce documents, and also noted defendants' “belated” claim that their computer had been lost or misplaced and that many reports and records were unavailable for that reason.  Defendants argued that the “lost” computer had been kept at defendant’s prior place of work, and that when it was retrieved the files had been corrupted and could not be accessed.  Defendants asserted that the computer had been discarded prior to the lawsuit.

The court held an evidentiary hearing to determine whether spoliation of evidence had occurred.  Plaintiffs presented several witnesses who presented testimony on the subject; defendants cross-examined plaintiffs’ witnesses, but presented no evidence of their own.  In post-hearing briefing, plaintiffs presented additional deposition testimony in support of the motion.  Defendants’ briefing presented no evidence but argued that plaintiffs had failed to establish the elements of spoliation.

Finding in favor of plaintiffs, the court explained:

The defendants set forth an argument they believe absolves them from a finding of spoliation and an adverse inference instruction, but the bottom line is that the court does not find the defendants' arguments credible, nor their evidence persuasive, on the fundamental issue of whether they engaged in spoliation of the evidence on the RSKC computer. The plaintiffs, on the other hand, have set forth credible arguments, witnesses and evidence. Although it is difficult to discern precise dates when evidence was corrupted or destroyed, the conclusion to be reached from the record is that the evidence on RSKC's computer should have been preserved, that it was destroyed with a culpable state of mind, and that it was relevant to the plaintiffs' claim that they were lied to by the defendants' about their financial situation when the relevant investments were made.

Accordingly, the court ruled that spoliation of evidence had occurred, and that plaintiffs were entitled to an adverse inference regarding that evidence, to the effect that the spoliated evidence would have supported plaintiffs' claims of falsity in defendants' representations about their fiscal soundness, which induced the plaintiffs to invest.  In addition, the court awarded plaintiffs $5,000 in costs and attorneys fees incurred in connection with the motion.