Opinion
Index No. 652907/2012
02-22-2016
TIAA GLOBAL INVESTMENTS LLC and TCAM CORE PROPERTY FUND OPERATING LP, Plaintiffs, v. ONE ASTORIA SQUARE LLC, SHIBBER KHAN, NYRON HALL ENGINEERING SERVICES LLC, NYRON HALL, LEVIEN-RICH ASSOCIATES, INC. and THE CRITERION GROUP, LLC, Defendants.
DECISION AND ORDER :
Plaintiffs move for an order: a) pursuant to CPLR 3124 compelling defendants One Astoria Square LLC, Shibber Khan, and the Criterion Group, LLC (the "Criterion defendants") to produce all electronic documents and emails in their possession, custody or control, including those in the possession of Yahoo! Small Business, as demanded in plaintiffs' July 10, 2013 Notice for Discovery and Inspection; and b) pursuant to CPLR 3126: a) striking the Criterion defendants answer due to the spoliation of critical evidence; b) precluding the Criterion defendants from offering any testimony or evidence in opposition to plaintiffs' causes of action; c) permitting an adverse inference charge at the time of trial due to the Criterion defendants' spoliation of evidence; and d) awarding plaintiff attorneys' fees in making the present motion, contending that the Criterion defendants failed to put a litigation hold in place at any time and destroyed critical emails. The Criterion defendants oppose the motion.
Factual Background
TIAA is a Delaware limited liability company. TCAM is a Delaware limited partnership. One Astoria is a New York limited liability company sharing an office with Criterion, a New York limited liability company. Mr. Khan is the managing member of One Astoria.
TIAA and One Astoria entered into a purchase and sale agreement with respect to One Astoria Square, located at 26-38 21st Street, Astoria, New York for a purchase price of $43,000,000 in January 2011. In March 2011, TIAA assigned all of its rights under the agreement to TCAM. The closing of the sale took place in March 2011.
In addition to breach of contract, plaintiffs allege fraud by the Criterion defendants involving concerted efforts to conceal a massive problem with the air infiltration system resulting from latent deficiencies in the property. Plaintiffs allege two aspects of this scheme to defraud: 1) the active concealment of latent building conditions and widespread tenant complaints related to the outside air infiltration issue; and 2) intentional misrepresentations made by the defendants to thwart plaintiffs' ability to discover the latent deficiencies of the property.
Plaintiffs allege that after the sale, upon inhabiting and managing the property, numerous complaints from tenants led plaintiffs to discover the deficient air infiltration system. Plaintiffs further allege that defendants actively concealed the existence of a tenant campaign protesting the untenable living conditions resulting from the construction deficiencies. Subsequent to the sale, plaintiffs learned of emails from tenants to Criterion and Mr. Khan complaining of the uninhabitable conditions and threatening legal action, as well as responses from Criterion and Mr. Khan agreeing to concessions, including rent abatement, lease termination and payment of utility bills. Such emails were allegedly absent from the files that were required to be turned over pursuant to the purchase and sale agreement between One Astoria and TIAA for purchase of the property. Plaintiffs allege that such emails are the tip of the iceberg and discovery will reveal documentation concerning these issues, which were intentionally purged from the files required to be turned over. Finally, plaintiffs contend that the allegedly fraudulent concealment of these documents is critical as such records contradict representations made by One Astoria in the agreement and, once discovered by plaintiffs after the closing, provided them with an indication of the latent deficiencies and code violations at the property.
Discussion
The Court of Appeals recently addressed the spoliation of electronically stored information in Pegasus Aviation I, Inc. v. Varig Logistica S.A., ___ N.Y.3d ___, 2015 WL 8676955. There, the Court stated:
A party that seeks sanctions for spoliation of evidence must show that the party having control over the evidence possessed an obligation to preserve it at the time of its destruction, that the evidence was destroyed with a culpable state of mind, and that the destroyed evidence was relevant to the party's claim or defense such that the trier of fact could find that the evidence would support the claim or defense.(internal quotation marks and citations omitted).
. . .
Our state trial courts possess broad discretion to provide proportionate relief to a party deprived of lost or destroyed evidence, including the preclusion of proof favorable to the spoliator to restore balance to the litigation, requiring the spoliator to pay costs to the injured party, or employing an adverse inference instruction at the trial of the action.
. . .
A party's failure to institute a litigation hold is but one factor that a trial court can consider in making a determination as to the spoliator's culpable state of mind.
In general, the decision whether to impose sanctions, as well as the nature and severity of any sanctions to be imposed, are matters within the discretion of the trial court (Hartford Fire Ins. Co. v. Regenerative Bldg. Constr., 271 A.D.2d 862 [3rd Dept., 2000]). The nature and severity of the sanction depends upon a number of factors, including the knowledge and intent of the spoliator, the existence of proof of an innocent explanation for the loss of the evidence and the degree of prejudice to the opposing party (Coleman v. Putnam Hosp. Ctr., 74 A.D.3d 1009 [2nd Dept., 2010]).
The drastic remedy of striking a pleading generally is not warranted unless the evidence is crucial and the spoliator's conduct evinces some higher degree of culpability (Melcher v. Apollo Med. Fund Mgt. L.L.C., 105 A.D.3d 15 [1st Dept., 2013]).
Where independent evidence exists that permits the affected party to adequately prepare its case, striking the spoliator's pleading is unwarranted, and a less drastic sanction, such as imposition of costs, an adverse inference charge or a spoliation charge, is appropriate (Merrill v. Elmira Hgts. Cent. School Dist., 77 A.D.3d 1165 [3rd Dept., 2010]).
A court may be reluctant to impose sanctions were the destruction of evidence, although intentional, was undertaken in good faith in the course of the defendant's normal business practices (Raymond v. State of New York, 294 A.D.2d 854 [4th Dept., 2002]).
Here, plaintiffs demanded the production of all documents relating to the construction, management and sale of the property. Plaintiffs' demands included requests for electronic communications in the Criterion defendants' possession, custody and control relating to various states of the property, including, inter alia, all correspondence to or from any tenants of the property, including communications relating to tenant complaints, demands for rent abatement, claims of offset or other requests for concessions, and requests to terminate leases.
Defendant Shibber Khan, the Managing Principal of the Criterion Group, LLC, submitted sworn affidavits to explain why defendants failed to produce the emails sought by the plaintiffs and why the defendants did not put a litigation hold in place.
In the first sworn affidavit, Mr. Khan states, "It is, and has been, the standard policy of the Criterion Group, LLC that all emails are deleted immediately upon receipt and review" (NYSCEF Doc. No. 120).
In the second sworn affidavit, Mr. Khan contends that the Criterion defendants' prior counsel never told the defendants that they had any obligation to preserve documents at any time prior to the receipt of the instant motion to compel and for sanctions. Further, he asserts that plaintiffs never sent any notice of an anticipated litigation or hold notice prior to the commencement of this action (NYSCEF Doc. No. 155, p. 3, para. 11).
The Court notes that the Criterion defendants made an effort to obtain backup copies of deleted emails from defendants' Yahoo! small business account.
Defendants exhibit the sworn affidavit of Collin Bentley, who states that he is a Director of Digital Forensics for Omnivere, LLC, an e-discovery consulting and litigation support company (NYSCEF Doc. No. 143). Mr. Bentley states that he was retained by counsel for the Criterion defendants to assist with the collection of emails and other documents electronically stored by the Criterion defendants. He states that he contacted Yahoo! Small Business Customer Support by telephone and was told by a Yahoo! representative that they only allow for the recovery of deleted e-mail within seven days of deletion. Mr. Bentley describes in detail the efforts made to assist defendants' counsel with the collection of emails and to obtain other documents electronically stored by defendants.
The first issue is whether the defendants had an obligation to preserve the emails at the time of destruction.
Plaintiffs' assert that the limited documentary evidence obtained by plaintiffs shows that the defendants should have reasonably anticipated litigation with regards to the insufficient insulation and cold air infiltration no later than January 2011. Plaintiffs exhibit a copy of a letter dated January 26, 2011, from thirty-five tenants of the building providing defendants with notice of widespread complaints regarding cold air blowing into the apartments at various locations and improper insulation throughout the property (the "tenants' letter") (NYSCEF Doc. No. 104). In addition, plaintiffs exhibits some emails from multiple tenants explaining that they repeatedly complained to Criterion about the insulation and gas costs at the property (NYSCEF Doc. No. 105).
Plaintiffs contend that the tenant letter and the tenants' email complaints show that the Criterion defendants should have reasonably anticipated litigation in January 2011 regarding the heating and insulation issues at the property, and they should have preserved and prevented the destruction of all documents, including emails, at that time.
Based upon the tenants' letter and the exhibited emails, the Court finds that the defendants had an obligation to preserve the deleted emails.
The second issue is whether the evidence was destroyed with a culpable state of mind. For three reasons, the Court finds that the failure to institute a litigation hold does not amount to recklessness or gross negligence, but only to simple negligence.
First, plaintiffs have submitted no evidence whatsoever showing that defendants destroyed the emails to maliciously thwart the plaintiffs. Second, although the destruction of the emails was intentional, Khan stated in his sworn affidavit that the emails were deleted in the course of the defendant's normal business practices. Third, Khan contended in his affidavit that defendants' prior counsel never told the defendants that they had any obligation to preserve documents at any time prior to the receipt of the instant motion to compel.
Based on these circumstances, we conclude that defendants' state of mind did not rise to a level of recklessness or gross negligence.
The third issue is whether the destroyed evidence was relevant to the plaintiffs' claim such that the evidence would support the claim. Based on this record, the Court finds that the evidence would indeed be relevant.
Plaintiffs have not demonstrated significant prejudice. The missing emails do not deprive the plaintiffs of the ability to establish their case, for plaintiffs' have the tenants' letter and some emails. The deleted emails would merely be cumulative.
Based on these circumstances, an adverse inference charge is appropriate. Accordingly, it is
ORDERED that the motion is granted to the extent that plaintiffs shall be permitted to an adverse inference charge at the time of trial pursuant to PJI 1:77.1.
The foregoing constitutes the decision and order of the court. Date: February 22, 2016
New York, New York
/s/_________
Anil C. Singh