NEW YORK — A federal magistrate judge on Jan. 30 ordered the imposition of an adverse inference and ordered a company to pay attorney fees for its failure to preserve electronically stored information and e-mails despite an agreement the company had with a nonparty subsidiary that allowed for unfettered access to documents (In re: NTL Inc. Securities Litigation, No. 02 Civ. 3013; Gordon Partners, et al. v. George S. Blumenthal, et al., No. 02 Civ. 7377, S.D. N.Y.; 2007 U.S. Dist. LEXIS 6198).
U.S. Magistrate Judge Andrew J. Peck of the Southern District of New York held that NTL Europe Inc.’s failure to inform the court until Feb. 2, 2006, about its January 2003 demerger agreement with NTL Inc. was grossly negligent and that NTL Europe had a duty to ensure that documents were not destroyed though they were not in its possession.
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The underlying litigation involves NTL Inc.’s alleged violation of federal securities laws. NTL and several of its subsidiaries entered into Chapter 11 bankruptcy in September 2002, and two companies emerged from the bankruptcy: NTL Europe Inc. and NTL Inc., which is not named as a party in this litigation. In April 2002, a class action suit was filed against NTL Europe, and the Gordon plaintiffs filed suit in September 2002. The cases have since been consolidated.
The Gordon plaintiffs moved for sanctions in the form of an adverse inference and payment of attorney fees, arguing that NTL Europe and NTL Inc. hindered and delayed document discovery and allowed for the destruction of numerous documents and electronically stored information. Specifically, the plaintiffs noted that NTL failed to preserve the e-mails of approximately 44 of the defendant’s “key players.”
Magistrate Judge Peck concluded that an adverse inference was warranted because the defendant’s and nonparty’s duty to preserve began as early as March 2002, when old NTL initiated a document hold alerting employees that the company could encounter “a heightened risk of litigious activity.” The parties’ failure to properly preserve evidence allowed for the destruction of e-mails among directors, officers, managers and employees regarding the company’s financial condition.
Moreover, Magistrate Judge Peck held that an adverse inference and ordering the defendant to pay attorney fees was necessary because NTL Europe was in a culpable state of mind and destroyed documents were relevant to the litigation.
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