Sekisui American Corp. v. Hart

Brief Fact Summary.

Plaintiff sued Defendant for breach of contract. During discovery, Plaintiff informed Defendant that Plaintiff had not implemented a litigation hold until more than fifteen months after sending Defendant a Notice of Claim and did not notify its IT vendor of the litigation hold until about six months after it was put in place. Plaintiff had deleted ESI, which included emails of Defendant and someone involved in Defendant’s FDA compliance, which was in dispute in the breach of contract claim. Defendant requested that a magistrate judge impose sanctions on Plaintiff in the form of an adverse-inference jury instruction. The magistrate denied Defendant’s request for sanctions, because it found that Defendant had not proven prejudice. Defendant appealed.

Synopsis of Rule of Law.

A party seeking an adverse inference jury instruction based on the destruction of evidence must establish: (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) the records were destroyed knowingly or negligently; and (3) the destroyed evidence was relevant to the party’s claim or defense.

Facts.

Sekisui America Corp. (Plaintiff) signed a contract to buy American Diagnostica, Inc. (ADI) from Richard Hart (Defendant). Before closing, Plaintiff claimed that ADI was not complying with certain representations in the contract involving FDA compliance. Plaintiff sent a Notice of Claim to Defendant, indicating that Plaintiff planned to file suit for breach of contract. The suit was filed several months later. During discovery, Plaintiff informed Defendant that Plaintiff had not implemented a litigation hold until more than fifteen months after sending the Notice of Claim. In addition, Plaintiff had not notified its information technology (IT) vendor of the litigation hold until about six months after it was put in place. In the interim, Plaintiff had deleted the electronically stored information (ESI), including emails, of Defendant and Leigh Ayres, an ADI employee. Ayres was involved in ADI’s Food and Drug Administration (FDA) compliance, a subject matter that was in dispute in Plaintiff’s breach of contract claim. As a result of the destruction of evidence, Defendant requested that a magistrate judge impose sanctions on Plaintiff in the form of an adverse-inference jury instruction. The magistrate denied Defendant’s request for sanctions, because it found that Defendant had not proven prejudice. Defendant appealed.

Issue.

Whether a party is entitled to an adverse inference jury instruction based on the other party’s destruction of evidence.

Held.

Yes. The magistrate judge’s ruling is reversed. A party seeking an adverse inference jury instruction based on the destruction of evidence must establish: (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) the records were destroyed knowingly or negligently; and (3) the destroyed evidence was relevant to the party’s claim or defense.

Discussion.

Parties anticipating litigation have a duty to preserve ESI that may be relevant to the litigation. When such ESI is destroyed, a party seeking an adverse-inference jury instruction based on the destruction must establish: (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind, i.e., knowingly or negligently; and (3) that the destroyed evidence was relevant to the party’s claim or defense. Intentional destruction of evidence is sufficient to presume relevance and prejudice to the aggrieved party. In the present case, an adverse-inference jury instruction is appropriate. First, Plaintiff had a duty to preserve the ESI at the time it was destroyed. Second, Plaintiff’s destruction of the ESI was willful. Although the ESI may not have been destroyed in bad faith, this element of the adverse-inference standard only requires that the destruction be willful or negligent once the duty to preserve has attached. Moreover, Plaintiff’s failure to properly retain the documents constitutes gross negligence, because a litigation hold was not placed until 15 months after Plaintiff knew it would be involved in litigation. Even after the hold was placed, it took six months for Plaintiff to inform its IT vendor. Third, the destroyed ESI is clearly relevant to Defendant’s defense, because Ayres was directly involved in the subject matter that gave rise to Plaintiff’s claim. Intentional destruction of ESI is sufficient evidence to adduce that the ESI was unfavorable to the destroying party. In other words, if evidence is destroyed intentionally, prejudice against the aggrieved party is presumed. The magistrate’s reason for denying Defendant’s request for sanctions was thus clearly erroneous. The court will instruct the jury that it may make an adverse inference from Plaintiff’s destruction of the ESI.