295 F.R.D. 77
S.D.N.Y.2013Background
- This is a spoliation-of-evidence dispute in an RMBS suit where U.S. Bank (Trustee) sues UBS (sponsor) over repurchase/representation-and-warranty claims arising from three MASTR trusts (2006-OA2, 2007-1, 2007-3).
- Assured Guaranty, the certificate insurer, made numerous repurchase demands beginning in 2010 and sued UBS in February 2012; Judge Baer later held that only the trustee (U.S. Bank) can enforce repurchase obligations.
- U.S. Bank did not issue a litigation hold until October 24, 2012 (eight months after the Assured suit); its email system auto-deleted mail after 90 days with limited backup retention.
- UBS moved for spoliation sanctions (including dismissal or an adverse inference), arguing the hold was late and inadequate and that relevant emails and documents were lost.
- U.S. Bank defended by showing (1) certain notice/repurchase documents were collected and centrally retained outside auto-delete, (2) it did not perform substantive loan reviews or possess underlying loan files, and (3) counsel supervised custodians and collected legal-hold folders.
- The magistrate denied sanctions, finding U.S. Bank was at least grossly negligent but that UBS failed to prove relevant, lost evidence existed or that prejudice resulted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When duty to preserve arose | Duty arose by late 2011 (mass repurchase demands) or at latest when Assured sued in Feb 2012 | No credible probability of litigation until U.S. Bank filed suit Sept 28, 2012 | Duty arose by Assured's suit in Feb 2012 (may have arisen earlier); hold instituted Oct 24, 2012 — too late but duty triggered at Assured filing |
| Adequacy of litigation hold | Hold was inadequate: delayed, did not suspend auto-delete, omitted key custodians, relied on custodians to self-select emails | Hold was reasonable: counsel/business guided custodians, key deal docs and Assured notices were retained centrally and printed, custodians’ files were transferred to successors | Hold was not so deficient as to demonstrate bad faith; implementation was reasonable under the circumstances |
| Culpability required for sanctions | UBS sought adverse-inference/dismissal arguing gross negligence or bad faith | U.S. Bank argued subjective belief it would not be required to litigate and acted in good faith | Court found negligence escalating to gross negligence after Judge Baer’s ruling; no evidence of bad faith |
| Lost evidence, relevance, and prejudice | UBS identified missing Assured notices and forensic-review communications as destroyed and prejudicial | U.S. Bank produced evidence those categories were retained or never existed because trustee did not possess substantive loan files | UBS met light burden to show discovery relevance, but U.S. Bank presented persuasive evidence that relevant materials were not destroyed; sanctions denied |
Key Cases Cited
- Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002) (three-part spoliation test and sanctioning principles)
- Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) (litigation-hold duties; monitoring compliance; spoliation framework)
- Orbit One Communications, Inc. v. Numerex Corp., 271 F.R.D. 429 (S.D.N.Y. 2010) (definitions and burden on spoliation motion; assistive relevance)
- Sekisui American Corp. v. Hart, 945 F. Supp. 2d 494 (S.D.N.Y. 2013) (gross negligence and prejudice analysis when e-mails destroyed)
- Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423 (2d Cir. 2001) (inherent power to manage discovery and spoliation sanctions)
- Kronisch v. United States, 150 F.3d 112 (2d Cir. 1998) (duty to preserve arises when evidence is relevant or litigation reasonably anticipated)
- Apple Inc. v. Samsung Electronics Co., 888 F. Supp. 2d 976 (N.D. Cal. 2012) (need to monitor litigation-hold compliance)