A recent ruling out of the Southern District of New York illustrates that failure to timely implement a litigation hold can have serious consequences, including substantial fines.

The Ruling

The Honorable Peter K. Leisure, U.S. District Judge for the Southern District of New York, recently addressed a plaintiff’s spoliation and fraud on the court claims in an April 27, 2010 ruling and fined the defendant $10,000 as a sanction for spoliation of evidence.1 During the course of a lawsuit, the plaintiff accused one of the principals of the defendant of committing fraud on the court by sending the plaintiff anonymous emails in order to procure a better settlement offer from the plaintiff, cause the plaintiff commercial harm, and obtain third-party discovery. The defendant’s principal claimed that his IP address had been “spoofed;” in other words, that former employees of the plaintiff had doctored their IP addresses to appear to be that of the  defendant’s principal and sent the anonymous emails to the plaintiff.

The plaintiff accused the defendant and one of its principals of spoliation of three categories of evidence related to the fraud on the court claim. The defendant admitted that it failed to implement a litigation hold notice, and that it continued to delete emails and text messages regularly. The plaintiff requested three types of relief: (1) that an adverse inference be drawn that the deleted documents would be harmful to the defendant; (2) that the  defendant be precluded from making arguments implicating the deleted documents; and (3) that the defendant be responsible for the costs of the plaintiff’s investigation into the anonymous emails.

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