309 F.R.D. 167
S.D.N.Y.2015Background
- Plaintiffs moved for sanctions under Fed. R. Civ. P. 37 after defendant Deepak Kavadia (and Nice Gems) failed to comply with a December 2, 2014 discovery order requiring additional searches, production of emails, and production of documents relating to Pratik Diamonds.
- Forensic analysis (Capelli) revealed installation and use of the file-deletion program “Eraser” on Kavadia’s laptop shortly after plaintiffs sought leave to move to compel; the report showed no signs of third‑party corruption of the laptop.
- Plaintiffs produced emails that Defendants did not; Kavadia gave shifting explanations (viruses, reformatting, hacking) and submitted inconsistent affidavits; counsel Bluestone prepared several of those submissions.
- The magistrate judge held an evidentiary hearing, found Kavadia’s testimony not credible, concluded Kavadia intentionally deleted relevant emails and willfully withheld Pratik Diamonds documents that were within his control, and recommended: (1) an adverse-inference jury instruction and (2) attorneys’ fees and costs (75% charged to Defendants, 25% to counsel Bluestone).
- District Judge Torres reviewed objections de novo to the R&R and adopted it in full: adverse-inference instruction to be given at trial and reasonable fees/costs to be awarded (amount to be set by the magistrate judge).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Kavadia intentionally deleted relevant emails and misled the court | Kavadia installed and ran a deletion program and made false statements; deletion was intentional spoliation | Deletion/hacking/virus explanations; counsel argues compliance efforts and lack of proof of willfulness | Court found Capelli report and testimony show intentional use of Eraser and that Kavadia’s explanations were not credible; willful spoliation established |
| Whether Pratik Diamonds documents (bank records, communications) were within Kavadia’s control | Plaintiffs: government records show Kavadia majority shareholder/director; documents thus under his control and were withheld | Kavadia/Pratik: deny control, assert resignation/forfeited shares, inability to obtain records from India | Court credited public/government records and plaintiffs’ evidence; found Kavadia’s contrary assertions evasive and noncredible and that documents were within his control and withheld willfully |
| Appropriateness and scope of sanctions (adverse inference; dismissal/default vs lesser sanctions) | Seek severe, potentially dispositive sanctions (striking answer, default) due to prejudice and bad faith | Defendants argue sanctions unwarranted or that they produced what they could; rely on cases saying you need possession or control to be sanctioned | Court declined litigation‑ending sanctions; imposed adverse-inference instruction informing jury of misconduct and allowing (but not directing) adverse inference; found lesser sanction sufficient |
| Award of attorneys’ fees and apportionment between client and counsel | Plaintiffs seek fees/costs for motion practice and hearing attributable to defendants’ noncompliance | Defendants contend fees already awarded for an earlier order or that failures were justified | Court ordered reasonable fees/costs for sanctions motion and hearing; apportioned 75% to Defendants (jointly & severally) and 25% to counsel Bluestone as contributing to misconduct and misleading submissions |
Key Cases Cited
- Thomas E. Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522 (2d Cir.) (standard of review for magistrate non‑dispositive orders)
- Mali v. Federal Ins. Co., 720 F.3d 387 (2d Cir.) (distinguishing types of adverse-inference instructions and requirements for sanctions)
- Residential Funding Co. v. DeGeorge Fin. Corp., 306 F.3d 99 (2d Cir.) (three‑part test for adverse inference for spoliation and nonproduction)
- Byrnie v. Town of Cromwell, Bd. of Educ., 243 F.3d 93 (2d Cir.) (evidentiary standard for proving relevance of destroyed evidence and jury’s role)
- Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y.) (spoliation, adverse inference, and remedy discussion)
- Kronisch v. United States, 150 F.3d 112 (2d Cir.) (rationales for adverse-inference instruction: deterrence and placing risk on spoliator)
- Reilly v. NatWest Markets Group, Inc., 181 F.3d 253 (2d Cir.) (broad discretion in tailoring sanctions for discovery abuses)
- West v. Goodyear Tire & Rubber Co., 167 F.3d 776 (2d Cir.) (dismissal for spoliation is extreme; courts should consider lesser sanctions)
- Shcherbakovskiy v. Da Capo Al Fine, Ltd., 490 F.3d 130 (2d Cir.) (party’s claimed lack of control over corporate documents can still lead to severe sanctions where evidence shows obstruction)