Spoliation; sanctions; CPLR § 3216; duty to preserve.
By Michael Vandermark | Senior Staff Writer
Plaintiff was a servicer and calculating agent for mortgage loans owned by the ABFS Trust (the “Trust”). As servicer, Plaintiff was responsible for collecting mortgage payments and foreclosing on delinquent mortgages. As calculating agent, Plaintiff administered monthly distributions from the interest and principal payments of said mortgages to trust certificateholders. There were five classes of certificate holders and each would receive payment based on their allotted priority. For several years, Plaintiff miscalculated the order of priority, which resulted in overpayments of monthly distributions to certain classes and corresponding underpayments to lower classes. After the error was brought to Plaintiff’s attention, Plaintiff requested the relevant certificate holder classes return the overpaid amounts. Defendant refused to return the money and Plaintiff launched this action soon after.
Plaintiff commenced this action to recover roughly $5 million on behalf of the Trust from Defendant on the grounds that Defendant mistakenly received principal distributions to which it was not entitled.
During court-ordered discovery, several documents deemed important to Plaintiff were “accidently” purged by defendant. Plaintiff thereafter sought spoliation sanctions against Defendant. Defendant argued that it preserved, collected, and produced documents in accordance with its obligation under New York law and therefore, Plaintiff’s motion should be denied. In addition, Plaintiff asked the court to strike Defendant’s sixth affirmative defense asserting detrimental reliance or, alternatively, to issue a preclusion sanction or adverse inference against Defendant.
Spoliation sanctions, pursuant to CPLR § 3216, may be permitted “[i]f any party refuses to obey an order for disclosure or willfully fails to disclose information which the court finds out go have been disclosed.” The punishment for such a finding may range from an order prohibiting the disobedient party from supporting or opposing designated claims or defenses, an order to strike out pleadings or parts thereof, or possible dismissal of the offending party’s case. The court went on to explain that in New York, a party seeking such sanction must prove: (1) that the party with control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind; and (3) 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 that claim or defense.
During its examination of element one, the Court held that such an obligation is trigged when a party reasonably anticipates litigation and said party must take active steps to halt any accidental deletion of relevant information. The Court found that Defendant, under the circumstances, had reason to anticipate litigation with Plaintiff and thus was on notice. Moving on to element two, the Court noted that because Defendant had failed to take any steps to prevent the information deletion, it had acted with a culpable state of mind. Finally, the Court held that though some information was lost, it was difficult to determine how relevant the information would be to Plaintiff’s case, specifically rebutting Defendant’s affirmative defense of reliance. Because the lost information was not proven to be fatal to Plaintiff, the court, using its lawful discretion, decided not to strike Defendant’s affirmative defense, but to impose a lesser sanction of an adverse inference charge.
Ocwen Loan Servicing, LLC v. Ohio Pub. Empls. Retirement Sys., 2015 NY Slip Op 51775(U) 12/07/15 (Bransten, J.).