Does “Less Accessible” Information Amount to Spoliation?
We often discuss spoliation in the sense that a party’s actions are overt, willful, and egregious during the process of discovery. However, an equally important question is whether a party that merely creates less accessible information has engaged in spoliation? The court took up this question in Mazzei v. The Money Store, et al., No. 01cv5694 (JGK) (RLE) (S.D.N.Y. July 18, 2014).
The sanctions issue in the case stems from a class action lawsuit in which Defendants entered into a Master Service Agreement “MSA” with Fidelity National Foreclosure Solutions (“Fidelity”), under which Defendants would send foreclosure and bankruptcy matters involving borrowers to Fidelity and Fidelity would then refer those matters to law firms that Fidelity retained for that purpose. In return for this, Fidelity was paid a portion of the attorneys’ fees charged to borrowers, and the payments were tracked through an electronic billing system (“New Invoice System,”) which was created by Fidelity.
Lender Processing Services (“LPS”) now performs the foreclosure and bankruptcy outsourcing services for Defendants previously done by Fidelity.
LPS informed Plaintiffs:
1. It has information for the New Invoice System in electronic format, but the information is not readable;
2. It will cost a minimum of $10,000 to determine if the information is searchable; and
3. Costs will be incurred in extracting and converting the information into a readable format, at $85 per hour.
Plaintiff asserted that defendants failed to preserve the information relating to foreclosure and bankruptcy services provided to Defendants by Fidelity.
The court provided rational commentary, stating:
1. Defendants had a practical ability to obtain the information in the New Invoice System;
2. A party need not actually possess the documents or information, as long as the party has the practical ability to possess the documents not available to the party seeking them, production may be required; and
3. LPS currently possesses the New Invoice System information and the information is not presently in a readable format. As such, the information is less accessible than it was when Defendants had access to it, and spoliation is an issue in the case.
Accordingly, the court found that Plaintiffs were prejudiced by Defendants’ failure to preserve the fee-related information in the New Invoice System and Defendants should be sanctioned.
For the foregoing reasons, among others, Defendants were ordered to obtain all the relevant information formerly in the New Invoice System from LPS at their own expense.