In Star Direct Telecom, Inc. v. Global Crossing Bandwidth, Inc. [pdf], No. 05-CV-6734T (W.D.N.Y. Mar. 22, 2012), U.S. Magistrate Judge Marian W. Payson, granted, in part, plaintiff U.S. Telesis Inc.’s Motion for Spoliation Sanctions holding that the defendant failed to preserve the email and  computers of key custodians after the commencement of litigation.  The court found the defendant’s conduct grossly negligent, but awarded only monetary sanctions in the absence of bad faith or a showing by the plaintiff of prejudice.

In this case, plaintiffs Star Direct and U.S. Telesis have alleged breach of contract and a variety of tort claims against the defendant.  The dispute arose between January 2005 and May 2005 with the parties working toward a negotiated solution until the complaint was filed in December 2005.  The court previously ordered the defendant to search its archived databases and produce its internal emails related to the parties’ Concurrence Agreement.  To comply with the court’s order, the defendant agreed that it would search seven key employees’ email accounts using sixteen search terms.  The defendant produced a total of 275 pages of emails from the 2004 time frame.  The defendant blamed their low response rate on the loss of electronically stored information and records during the defendant’s storage tape to disk migration in 2005.

Plaintiff U.S. Telesis moved for spoliation sanctions arguing that the defendant had an obligation to preserve and not destroy emails from the 2004 time frame.  The defendant countered that it was not under a duty to preserve until the complaint was filed in December 2005.  The defendant argued that they could not have anticipated litigation earlier based on the plaintiff’s grievances, particularly where in the same time period the defendant received 2,218 billing disputes and only the plaintiff’s case resulted in litigation. Similarly, in 2006, the defendant had more than 1,600 billing disputes and only two customers initiated litigation.

The court agreed holding that the defendant’s duty to preserve began, at the earliest, in December 2005 considering the parties continued negotiations and the fact that with nearly 4,000 billing disputes in a two-year period, the defendant was sued only three times. However, there was no evidence that the defendant issued a litigation hold notice at all.  Instead, the defendant’s general counsel instructed the Director of Wholesale Collections to gather relevant documents.  There was no evidence that the defendant took steps to monitor the collection or to confirm the adequacy of the effort.  The court further found that after the litigation commenced, the defendant failed to preserve the emails and computers for employees who were instrumental in drafting the contracts in dispute.  The court characterized the defendant’s culpability in this regard as grossly negligent.

The court held that severe sanctions were not warranted because U.S. Telesis could not demonstrate that the defendant’s failure to preserve was the result of bad faith or “egregious gross negligence” or that the plaintiff suffered any prejudice.  Instead, the court ordered the defendant to pay monetary sanctions to reimburse U.S. Telesis for the cost of its motions to compel, including attorneys’ fees.