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New York Commercial Division Case Compendium A Searchable Database of Court Decisions Issued by New York’s Commercial Division

A 21st Century Litigant’s Credo: I Shall Preserve ESI, or Sanctions Will Follow – Court Strikes Affirmative Defense and Awards Costs and Fees for Defendant’s Grossly Negligent Failure to Preserve ESI

Posted in Attorneys' Fees, Bransten, Eileen, Discovery, Financial services

In a December 7, 2015 Commercial Division decision by Justice Bransten, the court granted the plaintiff’s motion for spoliation sanctions due to the defendant’s failure to preserve electronically stored information (“ESI”). In this action, the plaintiff (Ocwen), a trust receiver, sought to recover some $5 million on behalf of the represented trust from the defendant public employees retirement system (“OPERS”) on the grounds that OPERS mistakenly received principal distributions to which it was not entitled. On the motion before the court, Ocwen asserted that OPERS failed to preserve relevant ESI, without which Ocwen would be unable to disprove OPERS’ affirmative defense of detrimental reliance.

The court explained that the three-part test of the seminal VOOM HD Holdings case was satisfied, warranting the imposition of spoliation sanctions. First, OPERS had access to the ESI, which OPERS claimed was mistakenly purged, before the litigation was commenced, but at a time when it was contemplated, thereby triggering its duty to preserve the ESI. Second, OPERS had the requiste culpable state of mind due to the court’s finding of gross negligence by OPERS regarding its implementation of a litigation hold and document preservation procedures related to the anticipated litigation with Ocwen. Finally, the court found that the particular ESI pointed to by Ocwen was relevant with respect to OPERS’ detrimental reliance defense. The court, therefore, granted an adverse inference instruction be read at trial in connection with the detrimental reliance defense and further ordered OPERS to pay Ocwen’s attorney’s fees and costs incurred in preparing its spoliation motion.

Ocwen Loan Servicing, LLC v Ohio Pub. Empls. Retirement Sys., New York County, December 7, 2015, Bransten, J., Index No. 654586/2012