Best Payphones, Inc. v. City of N.Y.

• Decision Date: 26 February 2016
• Docket Number: 1-CV-8506 (JG) (VMS),3-CV-0192 (JG) (VMS),1-CV-3924 (JG) (VMS)
• Parties: BEST PAYPHONES, INC., Plaintiff, v. THE CITY OF NEW YORK, DEBRA SAMUELSON, AGOSTINO CANGEMI, STANLEY SHOR, BRUCE REGAL, ELAINE REISS, LAWRENCE ALLISON, GINO MENCHINI, and ALLAN DOBRIN, Defendants.
• Court: U.S. District Court — Eastern District of New York

BEST PAYPHONES, INC., Plaintiff, v. THE CITY OF NEW YORK, DEBRA SAMUELSON,AGOSTINO CANGEMI, STANLEY SHOR, BRUCE REGAL,ELAINE REISS, LAWRENCE ALLISON, GINO MENCHINI,and ALLAN DOBRIN, Defendants.

1-CV-3924 (JG) (VMS)

1-CV-8506 (JG) (VMS)

3-CV-0192 (JG) (VMS)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

February 26, 2016

ORDER

Scanlon, Vera M., United States Magistrate Judge:

Plaintiff Best Payphones, Inc. ("Plaintiff") brings this action against Defendants the City of New York, Debra Samuelson, Agostino Cangemi, Stanley Shor, Bruce Regal, Elaine Reiss, Lawrence Allison, Gino Menchini and Allan Dobrin (collectively "Defendants"), alleging that Defendants violated Plaintiff's rights under the First and Fourteenth Amendments to the United States Constitution pursuant to 42 U.S.C. § 1983 when Defendants, in their administration of a regulatory framework requiring franchises and permits to operate public pay telephones ("PPTs") on public rights-of-way, retaliated and discriminated against Plaintiff. See generally Third Amended Compl.; ECF No. 261. Plaintiff demands compensatory damages against Defendants for the alleged loss of business, loss of asset value, loss of business opportunities and costs of litigation and punitive damages for violating its rights under color of state law and local law. Id. ¶ (n).

Before this Court is Defendants' motion for discovery sanctions due to Plaintiff's alleged spoliation of evidence, which Plaintiff opposes. See generally Defendants' Motion for Discovery Sanctions ("Defs.' Mot."), ECF No. 447; Plaintiff's Opposition attached as Exhibit 11 to Defs.' Mot (Pl.'s Opp'n). For the foregoing reasons, Defendants' spoliation motion is denied except to the extent that Defendants are awarded reasonable attorneys' fees and costs incurred in connection with the motion.

I. Background

The Court assumes familiarity with this case. A detailed recitation of the facts and procedural posture of the case is described in the Court's previous Report and Recommendations ("R&R") on Plaintiff's motion to amend its Third Amended Complaint. See R&R, ECF No. 417. Since the issuance of the Court's R&R, Plaintiff's motion to amend its Third Amended Complaint was denied by the District Judge when he adopted the R&R, and this Court separately denied Plaintiff's motion for reconsideration of the R&R. See generally 9/18/2015 Order Adopting R&R Order on Mot. for Reconsideration, ECF No. 448. The parties also submitted a letter certifying that discovery was complete, subject to the outcome of this spoliation motion. Letter, ECF No. 452. The parties are presently briefing a summary judgment motion, which is to be submitted to the Court by April 28, 2016.

Defendants filed this spoliation motion asserting that Plaintiff failed in its obligation to preserve relevant evidence, an obligation that Defendants' argue arose when Plaintiff commenced related litigation against Defendants in New York State Supreme Court on July 11, 2000. Defs.' Mot. at 1-2, 6. Specifically, Defendants seek, but did not receive from Plaintiff: emails between Plaintiff and third parties, particularly those third parties that allegedly sought to buy Plaintiff's business; revenue information including daily activity reports from each payphone and missing bank statements; and contracts and agreements between Plaintiff and various service providers. Id. at 2, 4. Defendants argue that this evidence is necessary to defend against Plaintiff's damages claim by reasonably assessing the value of Plaintiff's business atvarious points in time and by "ascertain[ing] the basis for the purchase prices offered by prospective buyers of [Plaintiff's] business." Id. at 11. Without these documents, Defendants contend that they "are greatly hampered from showing that [Plaintiff] was not damaged by [Defendants'] acts or omissions, but instead, it was [P]laintiff's business practices that led to the decline in the value of its PPT business and its persistent inability to find a suitable buyer of its assets." Id. Defendants request that the Court order sanctions including: precluding Plaintiff "from offering any evidence as to the value of its business or its monetary losses or contesting [D]efendants' contention that any such monetary losses stemmed from [P]laintiff's own business conduct"; an "adverse inference instruction directing the jury to presume that the lost emails and revenue data were both relevant and favorable to the [D]efendants' claim that the value of [Plaintiff's] phones declined as a result of [P]laintiff's own actions and business practices"; "striking [ ] [P]laintiff's [Fed. R. Civ. P.] 26(a)(1) calculation of damages for 'loss related to closing price'"; precluding Plaintiff from offering any evidence or testimony to support such a damage calculation; and/or awarding monetary fines. Id. at 11-12.

In support of their allegations, Defendants contend that: (1) "Plaintiff never instituted a litigation hold or instructed Plaintiff's principal, Mr. Michael Chaite, to save his email communications or . . . any other relevant records," id. at 6; (2) "Mr. Chaite's assertion that he was not using email to communicate with [ ] [D]efendants, [his] counsel, or anyone else from 1998-2004 is belied by" Plaintiff's production, which included emails between Plaintiff and its attorneys and the Department of Information Technology and Telecommunications ("DoITT"), id. at 6-7; Mr. Chaite testified that Plaintiff received daily activity reports of the revenue generated by each of its PPTs, which were not included in Plaintiff's production, id. at 7-8; (3) Plaintiff, while producing pages from its check registry, failed to produce any document thatprovides definitions for the ledger codes, id. at 8; and (4) Plaintiff did not provide its contracts with its service providers, id. at 8-9.

According to Plaintiff, Plaintiff has provided Defendant copies of all contracts and agreements between Plaintiff and its service providers, which Plaintiff indicates were publicly available due to Plaintiff's bankruptcy case. Pl.'s Opp'n at 16. Plaintiff also provided Defendants with the key for its check registry codes. Decl. of Michael Chaite in Opp'n ("Chaite Decl.") attached as Exhibit 12 to Defs.' Mot. ¶ 17. Plaintiff, in its opposition to Defendants' motion, argues that: (1) the litigation hold requirement was not established through case law until mid-2004, id. at 6; (2) "Defendants have not demonstrated that Plaintiff did not act reasonably . . . with respect to the preservation of electronic information . . . or that the acts Plaintiff did take were not reasonable," id. at 7; (3) "Defendants speculate there were emails between Plaintiff and would-be buyers but they offer nothing to support a conclusion that relevant information was contained in the emails," id. at 8; (4) Defendants could have sought the documents from third parties but did not, id. at 8-9; (5) Defendants did not act with a culpable state of mind; id. at 10; (6) the missing documents are not relevant to proving Defendants' case because Plaintiff produced complete copies of its tax returns and monthly bank statements, many of its monthly telephone bills, its check registry, and signed letters of intent for the purchase of Plaintiff's PPTs, which go to the value of Plaintiff's PPTs, and Defendants have not explained why these documents are insufficient, id. at 12-13; (7) "virtually all of the value [of Plaintiff's PPTs i]s attributable to potential advertising revenue," rather than based on revenue from PPT use, id. at 12; (7) Defendants' allegations are "not supported by any witness with knowledge concerning the valuation of businesses," id.; (9) the daily activity reports were only used to determine "whether phones were working and . . . were not an accurate means of tracking revenue," id. at14; (10) Defendants have not shown that Plaintiff was under any obligation to retain the documents, id. at 15; (11) Defendants failed to question Mr. Chaite about the transactions in his bank statements at his deposition, id.; (12) the information in Plaintiff's check registry is irrelevant as prospective buyers were not concerned with Plaintiff's overhead and operation costs would have been absorbed into the prospective buyer's business, id. at 15; (13) Defendants have not shown that Plaintiff was deliberately or grossly negligent, therefore, an adverse inference jury instruction is not warranted, id. at 17-19; and (14) Defendants have not suffered any demonstrable prejudice in light of the documents they have received, id. at 20.

In their reply, Defendants argue that: (1) Mr. Chaite admitted in his declaration in opposition to Defendants' motion that he was instructed by his attorney to preserve relevant records, yet Plaintiff's counsel took no steps to ensure that Mr. Chaite complied with this instruction, Defendants' Mem. of Law in Reply to Pl.'s Opp'n ("Defs.' Reply") attached as Exhibit 16 to Defs.' Mem. at 3-4, Chaite Decl. ¶ 24; (2) the evidence was relevant and in particular, the activity reports would be useful to determine how many PPTs were working when Plaintiff decided to sell its business, Defs.' Reply at 4-5; and (3) Mr. Chaite admitted that he did not take steps to preserve the daily activity reports and, therefore, Plaintiff's actions were willful and should be considered grossly negligent, id. at 5, Chaite Decl. ¶ 10.¹

II. Analysis

a. The Law Of Spoliation

Spoliation is the "destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation." West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999). A party seeking sanctions for spoliation, including an adverse inference jury instruction, "must establish '(1) that the party having 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 ...