District Court Declines To Award Sanctions For Lost Evidence Where Both Parties Had Opportunity To Test The Evidence

CEDAR PETROCHEMICALS, INC., Plaintiff, v. DONGBU HANNONG CHEMICAL CO., LTD., 769 F.Supp. 2d 269 (2011)

In this case Cedar Petrochemicals sued Dongbu Hannong for breach of a contract for a quantity of phenol.  The Defendant moved for Rule 37 discovery sanctions on the ground that certain samples of the phenol had been lost (it claimed) by the defendant.  Defendant also sought to exclude Plaintiff’s experts under FRE 702.

Plaintiff entered into a contract for the delivery of 2000 metric tons of phenol from South Korea.  The phenol was tested at several times including when it arrived in the Netherlands.  The independent tests founds that the phenol had gone “substantially color.”

The Defendant argued that the plaintiff failed to preserve the samples of the phenol and that the case should be dismissed as a result.  The court writes: “Dongbu argues that Cedar’s failure to ensure the preservation of the physical samples of the phenol at issue in this case “requires the imposition of the sanction of dismissal.”

The samples were in the custody of a third party – a testing company.

The court reviewed the standard for Rule 37 sanctions for the spoliation of evidence:  ”

Where a party seeks sanctions based on the spoliation of evidence, it 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 (3) that the destroyed evidence was “relevant” to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.

Residential Funding, 306 F.3d at 107accord Acorn (New York Association of Community Organizations for Reform Now) v. County of Nassau, No. 05 CV 2301, 2009 WL 605859, at *2 (E.D.N.Y. March 9, 2009); Richard Green (Fine Paintings), 262 F.R.D. at 289Treppel v. Biovail Corp., 249 F.R.D. 111, 120 (S.D.N.Y.2008)Zubulake V, 229 F.R.D. at 430.”

The court concluded that Plaintiff had a duty to preserve the samples.  However, it found that there was no culpable state of mind because either party could have preserved the samples by writing to the testing company. It wrote: ”

Accordingly, Cedar acknowledges that it had effective control of the Ulsan Samples, but argues that Dongbu had control to an equal extent. (Sanctions Opp. Memo. at 13). Cedar contends that written instruction from either party would have sufficed to save the Ulsan Samples from destruction by SGS Korea irrespective of the fact that Cedar had actually appointed and paid SGS Korea to conduct sampling in this matter. (Sanctions Opp. Memo. at 13). Likewise, Cedar asserts that both Cedar and Dongbu had equal control over the Rotterdam Samples because SGS Netherlands, which was retained by the end buyer of the phenol, would have acted—and indeed did act—on instruction by any of the parties to this transaction. (Sanctions Opp. Memo. at 17-18).

To be sure, equal negligence by both parties to a litigation in allowing the destruction of evidence renders sanctions unwarranted. See In re WRT Energy Securities Litigation, 246 F.R.D. 185, 196 (S.D.N.Y.2007). But because, as I will discuss below, the factors just discussed indicate that Dongbu was not prejudiced by the spoliation of these samples, and thus that sanctions are inappropriate in this case, I need not decide whether the parties were equally culpable in failing to preserve the samples.”

The court noted that the Defendant had opportunities to inspect the samples, but chose not to.  “Here, the combination of the opportunities Dongbu had to inspect the samples and its failure to demonstrate the relevance of the samples to its defense according to the spoliation standard indicate that it was not prejudiced by the spoliation of the samples sufficient to justify the drastic sanctions it has requested”  Again, the Court writes: “Although the post-litigation window of opportunity was relatively brief, Dongbu had a year overall to undertake to inspect the samples. Under the circumstances of this case, this opportunity was adequate to render drastic sanctions inappropriate. Further, that Dongbu did not take advantage of the opportunity casts doubt on the relevance of further testing to its case.”

Comment: this is a carefully written and thoughtful decision that concludes that there should not be discovery sanctions where the complaining party had an opportunity to examine the evidence.

Edward X. Clinton, Jr.



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