Legal Hold Pro

‘Small Corporation’ Gets $10,000 Sanction for Spoliation Resulting from Lack of Written Hold

By Brad Harris

Passlogix, Inc.v.2FA Technology LLC, et al., 2010 WL 1702216 (S.D.N.Y., April 27, 2010)

An interesting case appeared from New York’s Southern District that saw some egregious behavior by the defendant to purposefully undermine the discovery process. In fact, the court characterized the defendant’s outrageous tactics were undertaken ”in an effort to expand discovery, cause Passlogix competitive harm, and garner a favorable settlement.”

The defendant, a small start-up technology company, tried to get a better outcome in the breach of contract litigation by sending anonymous emails that were tantamount to discovery fraud. The court focuses on this tactic and the perpetrators attempts to cover his tracks.

Ultimately, the bad behavior by the defendant was deemed spoliation resulting from the lack of legal hold, which the court observed that the ”failure to preserve these written communications, in addition to 2FA’s overall failure to issue a written litigation holds notice, constitutes gross negligence.”

Despite the intentional spoliation by the defendant, the court denied issuing an adverse inference instruction and went for a $10,000 monetary penalty. Since the company is small, with only two principals, and both of whom were bad actors, the sanction was designed to punish them directly.

This proves once again that spoliation is a very bad idea in the Southern District of New York.

Reference:

Electronic Discovery Law Blog, “Court Orders Monetary Fine for Gross Negligence and Intentional Spoliation of ESI, Including Emails, Text-Messages, and Skype Messages,” K&L Gates, May 11, 2010.

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