Reino DE ESPANA, Plaintiff, v. AMERICAN BUREAU OF SHIPPING, et al., Defendants No. 03 Civ.3573(LTS)RLE United States District Court, S.D. New York June 06, 2007 Ellis, Ronald L., United States Magistrate Judge OPINION AND ORDER I. INTRODUCTION *1 Reino de Espana (“Spain”) brings this action, arising from the casualty of the Prestige off the coast of Spain on November 19, 2002, against American Bureau of Shipping, ABS Group of Companies, Inc., and ABS Consulting, Inc. (collectively, “ABS”). ABS is seeking sanctions for Spain's alleged spoliation of material evidence in the form of dismissal of Spain's claims; alternatively, dismissal of Spain's claims for damage resulting from oil released after Spain ordered that the vessel's engines be started on November 14, 2002; or in the further alternative, that the Court order an appropriate adverse inference to be drawn against Spain; and that ABS be awarded attorneys' fees and costs. Defendants' Memorandum of Law in Support of Motion for Sanctions (“ABS Mem.”) at 3. Spain opposes sanctions arguing that the conclusion that it breached a duty to preserve electronic discovery is based on an incomplete record, email was only used to a limited extent, forensic searching for emails would not be futile, and there is no evidence that Spain has acted with the requisite culpability in observing its discovery obligations. Plaintiff Reino de Espana's Memorandum in Opposition to ABS's Motion for Sanctions (“Spain Mem.”). For the reasons set forth below, ABS's motion for sanctions is GRANTED, in part, and DENIED, in. II. BACKGROUND On November 13, 2002, the oil tanker Prestige suffered structural failure, and eventually sank on November 19, 2002, off the northwest coast of Spain. Spain Mem. at 1-2. The period of November 13 to November 19, 2002 is referred to as the Casualty Period, during which Spain responded to the release of the Prestige's cargo fuel. Id. On May 5, 2003, Spain asked Holland & Knight (“H & K”) to prepare a draft complaint against ABS. Id. at 4. On May 14, 2003, Spain formally retained H & K as United States counsel. Id. On January 6, 2004, ABS served Spain with a document request (“ABS Doc. Req.”), seeking, among other things, the production of email communications and other electronic records concerning the handling of the Prestige casualty. Spain made no objection to the production of electronic documents, and disclosed some responsive documents. On July 16, 2004, ABS notified Spain that its discovery production was deficient, and clarified that it sought electronic records from approximately thirteen different government ministries. On August 6, 2004, Spain objected to ABS's clarification as overbroad and unduly burdensome, and maintained that it had already produced all non-privileged responsive records. Nevertheless, ABS renewed its request for responsive emails and electronic records on August 31, 2004. At that time, Spain represented that it would ensure that all non-privileged responsive records were produced. On January 3, 2005, ABS narrowed its discovery request by asking Spain to limit its search of responsive emails and electronic records to approximately ninety-eight names and fifteen government email addresses. Spain rejected this request on the grounds that it constituted a fishing expedition, and that the computers of government officials are subject to Spanish privacy laws and government privileges, and cannot be searched without the individual user's consent. On October 25, 2005, ABS moved to compel further production of electronic discovery. After a two-day evidentiary hearing held on February 9-10, 2006 (the “Hearing”), this Court issued the November 2, 2006 Opinion and Order (“Nov. 2 Order”) granting ABS's motion to compel and directing ABS to apply for any relief, remedy, or sanction it deems appropriate. Subsequently, Spain moved for reconsideration of the Nov. 2 Order, which was denied on January 24, 2007. III. DISCUSSION A. Standard *2 Under Federal Rule of Civil Procedure 37, the Court may impose broad sanctions for discovery-related abuses. The Court may also impose sanctions based on its “inherent power to manage its own affairs.” Residential Funding Corp. v. Degeorge Fin. Corp., 306 F.3d 99, 106-07 (2d Cir.2002). A finding of bad faith, however, is required to impose sanctions based on the Court's inherent powers. Compare DLC Mgmt. Corp. v. Town of Hyde Park, 163 F.3d 124, 136 (2d Cir.1998) (inherent power), with JSC Foreign Econ. Assoc. Technostroyexport v. Int'l Dev. and Trade Servs., Inc., 2005 WL 1958361, at *12 (S.D.N.Y. Aug. 16, 2005) (Rule 37). To demonstrate that sanctions for spoliation of evidence are warranted, ABS must establish that (1) Spain had an obligation to preserve the evidence; (2) it acted culpably in destroying or failing to preserve the evidence; and (3) the evidence would have been relevant to ABS's case, in that a reasonable jury could find that the evidence would have been favorable to ABS. Golia v. Leslie Fay Co., Inc., 2003 WL 21878788, *9 (S.D.N.Y. Aug. 7, 2003) (citingResidential Funding Corp., 306 F.3d at 107). B. Spoliation Analysis 1. Duty to Preserve Evidence Sanctions for spoliation are only appropriate against a party who had a duty to preserve evidence. Kronisch v. United States, 150 F.3d 112, 126 (2d Cir.1998). Such a duty arises when a party has notice that the evidence is relevant to litigation, or should have known that the evidence might be relevant to future litigation. Fujitsu Ltd. v. Federal Exp. Corp., 247 F.3d 423, 436 (2d Cir.2001). ABS argues that Spain had a obligation to timely produce electronic discovery, and has repeatedly and falsely represented that discovery had been produced. ABS Mem. at 19. ABS's argument relies on this Court's findings that Spain failed to place a timely and adequate litigation hold. Nov. 2 Order at 14. Spain maintains that this conclusion is unsupported by the record because the earliest date to trigger the duty to preserve evidence is May 5, 2003, the day Spain instructed H & K to prepare a complaint against ABS, and that evidence lost prior to that date cannot be treated as a violation. Spain Mem. at 4. Spain further contends that prior to May 5, 2003, it acted reasonably and fairly in preserving evidence, demonstrated by the fact that they have produced at least 11,400 pages of documents from the Casualty Period, including 134 emails. Id. This Court has found that Spain failed to placed a timely and adequate litigation hold on its agencies and ministries. Nov. 2 Order at 14. Specifically, this Court found that Spain failed to conduct adequate and timely searches for electronic discovery within the Merchant Marine, SASEMAR and the Ministry of Development. Id. at 7-9. Spain argues that this Court has made no specific finding on when the duty to preserve evidence under the FRCP arose, even though Spain is a foreign country not generally governed by United States discovery rules. Spain Mem. at 4. However, as this Court indicated in its Opinion and Order denying reconsideration (“Jan. 24 Order”),[1] Spain's breach of its duty to preserve evidence is supported by the record regardless of an exact litigation hold date. Jan 24 Order at 8. Specifically, this Court found that notices to preserve documents at both the Merchant Marine and SASEMAR were issued in early 2004, more than a year after the casualty, and six months after Spain commenced suit. Id. at 8-9. This finding is sufficient to warrant a determination that Spain has breached its duty to preserve evidence. 2. Culpability *3 After a court has found that a party had a duty to preserve the evidence that was destroyed, it must consider whether the party acted culpably in destroying the evidence. Fujitsu Ltd., 247 F.3d at 436. The degree of culpability bears on the severity of sanctions that are warranted. Severe sanctions for discovery violations, including dismissal, may be imposed for intentional conduct, such as bad faith or gross negligence. Metropolitan Opera Ass'n, Inc. v. Local 100. Hotel Employees and Restaurant Employees Intern. Union, 212 F.R.D. 178, 219 (S.D.N.Y.2003). However, dismissal of the action as a sanction for breach of discovery obligations is “a drastic penalty” only for “extreme circumstances.” Salahuddin v. Harris, 782 F.2d 1127, 1132 (2d Cir.1986). Lesser sanctions, such as an adverse inference instruction, may be imposed where a party has breached a discovery obligation through ordinary negligence. Metropolitan Opera, 212 F.R.D. at 219. a. Willfulness or Bad Faith ABS argues that dismissal of this action is warranted under the factors set forth in Metropolitan Opera Ass'n, Inc: “(a) willfulness or bad faith of the noncompliant party; (b) the history, if any, of noncompliance; (c) the effectiveness of lesser sanctions; (d) whether the noncompliant party had been warned about the possibility of sanctions; (e) the client's complicity; and (f) prejudice to the moving party.” See ABS Mem. at 6 (quoting Metropolitan Opera Ass'n, Inc., 212 F.R.D. at 220). As for the first inquiry into willfulness or bad faith, ABS maintains that Spain has acted willfully and in bad faith by continually claiming to have produced all responsive, non-privileged emails, when, however, this Court found that Spain had failed to issue a timely litigation hold. ABS Mem. at 7. ABS relies on Metropolitan Opera to support its contention that Spain's misrepresentations constitute willfulness. ABS Mem. at 8 (quoting Metropolitan Opera, 212 F.R.D. at 225) (“the falsehoods uttered by individual defendants and by the Union counsel as to simple but material factual matters also constitute willfulness and bad faith requiring severe sanctions.”). At the very least, ABS argues Spain acted with gross negligence in failing to preserve electronic discovery. ABS Mem. at 20. Spain maintains that this Court has made no finding to support ABS's claims that Spain acted willfully, recklessly, or with gross negligence. Spain Mem. at 14. In support of its argument that there is no evidence of bad faith or willfulness, Spain points to the massive record of evidence that it has produced from the casualty period, the evidence that email was not the primary means of communication among the main responders to the casualty, and the good faith efforts to engage in forensic searching of emails once ordered to compel. Spain Mem. at 14. Spain further asserts that ABS has failed to point to any email, deposition transcripts, or representations by Spanish officials to support its claim that it intentionally destroyed evidence. Id. at 15. *4 ABS has failed to establish that Spain's conduct was intentional, willful or taken in bad faith. ABS's reliance on Metropolitan Opera is misplaced, as the conduct in that case included more than misrepresentations, but constituted egregious discovery misconduct (including violation of several court orders, falsehoods and contradictions made by defendants concerning the existence of certain reports) and intentional misrepresentations about the availability of a deponent. Metropolitan Opera, 212 F.R.D. at 224-226. While this Court found that Spain failed to issue a timely litigation hold on relevant government ministries, Spain's representations of compliance and production of all responsive non-privileged emails does not rise to the level of intentional, willful destruction of evidence. Nov. 2 Order at 2. ABS argues specifically that three misrepresentations constitute willfulness on behalf of Spain, which warrant severe sanctions. First, ABS relies on this Court's finding that David Alonso-Mencia's hearing testimony lacked credibility due to inconsistencies with his deposition testimony. ABS Mem. at 8. Second, ABS notes the Court's finding that Fernando Bregon's assertion that “records were preserved because SASEMAR officials know that they have an obligation to preserve records without being reminded or directed to do so ...” was unsupported by the record. Id. at 8-9. Finally, ABS points to this Court's finding that Alonso Prades' “demeanor changed noticeably when questioned about the destruction of documents generally in the Ministry of Development” although he testified that no documents were ever destroyed in his office. Id. at 9. These findings fail to establish that Spain willfully or intentionally destroyed evidence. The finding that a witness gave testimony that was not credible does not demonstrate that Spain deliberately destroyed emails. See Turner v. Hudson Transit Lines, Inc., et al., 142 F.R.D. 68, 76 (S.D.N.Y.1991) (deposition testimony “wholly incredible,” insufficient evidence of deliberate destruction). Similarly, the fact that testimony about preservation obligations was unsupported by the record does not show deliberate misrepresentations. Finally, a witness's change of demeanor does not mean deliberate destruction, but could result from knowledge of accidental or negligent behavior. ABS also claims that Spain's failure to comply with the July 6, 2005 Order (“July 6 Order”) constitutes willfulness and bad faith. ABS Mem. at 7. The events following the order, however, indicate that Spain made an effort to comply with the order. For example, it sought clarification of whether the order applied to production of emails to which it had objected. Spain Mem. at 17. Any uncertainty concerning the scope of the order was subsequently resolved, and ABS was instructed to move to compel the production of emails if there was disagreement as to any objection or privilege invoked. Affirmation of Brian D. Starer, January 12, 2007 (“Starer Aff.”), Exh. 2. ABS did file a motion to compel. Following a two-day evidentiary hearing, that motion was granted. See Nov. 2 Order. Given the totality of the circumstances, the Court finds there is not sufficient evidence to show that Spain deliberately violated the July 6 Order. *5 ABS argues that nevertheless, Spain was grossly negligent regarding the preservation of emails. ABS Mem. at 20; see Chan v. Triple 8 Palace, Inc., 2005 WL 1925579, *7 (S.D.N.Y. Aug. 11, 2005) (“the utter failure to establish any form of litigation hold at the outset of litigation is grossly negligent.”). However, unlike the defendants in Chan, Spain took some efforts to preserve evidence. While Spain breached its obligations to adequately preserve electronic discovery, it did search and preserve records from certain computers and paper records. See Spain Mem. at 4. Spain asserts that its counsel oversaw and supervised 77 separate productions of documents commencing in April 2004 resulting in over 188,000 pages of documents (11,400 pages of paper documents and 134 emails from the Casualty period). Id. at 16. The record thus supports a finding that Spain did establish some form of litigation hold at the outset of the litigation, which commenced six months after the casualty. There is even evidence some steps at preservation, albeit inadequate, had been taken at the Merchant Marine and SASEMAR, the two organizations Spain claims to have coordinated and managed the response efforts. In 2003, an oral litigation hold to preserve all documents and emails was given to officials at the Merchant Marine, and a limited number of computers and workstations were searched. Nov. 2 Order at 7. Similarly, in early 2004, SASEMAR issued a notice to individuals to voluntarily preserve records related to the casualty. Id. at 8. Because this Court does not find sufficient evidence demonstrating bad faith, willfulness or gross negligence by Spain, dismissal of the action, or dismissal of certain claims in this action, is not an appropriate remedy. This Court's finding remains, however, that Spain failed to implement a timely litigation hold, and as a result, emails were destroyed. b. Negligence ABS argues that if the Court does not dismiss Spain's claims, ABS is entitled to have the finder of fact draw an adverse inference against Spain to the effect that “(1) Spain's decision to tow the Prestige out to sea was made without any consideration whatsoever of the facts and circumstances, including the relevant technical circumstances; and (2) commencing at noon on November 13, Spain undertook a series of reckless or negligent acts that transformed a manageable marine casualty into an environmental catastrophe.” ABS Mem. at 18. Spain maintains that the scope of the adverse inferences requested by ABS is unprecedented, and that the “affirmative adverse inference” in not an inference, but rather a finding that Spain's action were reckless or negligent, as opposed to a missing evidence inference. Spain Mem. at 21. Spain's argues that ABS has not offered any proof that lost or destroyed mails addressed Spain's decision to tow the Prestige out to sea, or contained information about the reckless or negligent acts that resulted in the casualty. Id. *6 Although an “adverse inference instruction is an extreme sanction and should not be given lightly,” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 220 (S.D.N.Y.2003), it may be imposed when a party has breached a discovery obligation not only through bad faith, but also through ordinary negligence. Residential Funding Corp., 306 F.3d at 101. An adverse inference instruction is warranted if necessary to remedy the party prejudiced by the negligent destruction of documents. Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 75 (S.D.N.Y.1991) (“The adverse inference provides the necessary mechanism for restoring the evidentiary balance. The inference is adverse to the destroyer not because of any finding of moral culpability, but because the risk that the evidence would have been detrimental rather than favorable should fall on the party responsible for its loss.”). This Court finds that Spain acted negligently by failing to implement a timely litigation hold. See Nov. 2 Order. Were this Court to accept Spain's contention that the search for electronic discovery should be focused on the two agencies that managed and coordinated the response, the Merchant Marine and SASEMAR, Nov. 2 Order at 4-5, the record still supports the finding that Spain negligently preserved records within those agencies. As stated above, this Court found that the preservation efforts regarding electronic records within those agencies were inadequate and untimely. Nov. 2 Order at 8, 9. The Court also found that officials within the Ministry of Development failed to conduct a timely and diligent search for electronic discovery. Id. at 9. Therefore, Spain has acted with a sufficiently culpably. However, the propriety of imposing an adverse inference instruction against Spain depends on the relevance of the missing evidence, as discussed below. 3. Relevance of Missing Evidence Relevance of the missing evidence can be inferred by a finding of gross negligence or bad faith. Residential Funding Corp., 306 F.3d at 101 (a finding of gross negligence or bad faith “is ordinarily sufficient to support a finding that the missing or destroyed evidence would have been harmful to that party, even if the destruction or unavailability of the evidence was not caused by the acts constituting bad faith or gross negligence.”). However, where the culpable party was negligent, there must be extrinsic evidence to demonstrate that the destroyed evidence was relevant and would have been unfavorable to the destroying party. Zubulake, 220 F.R.D. at 221. (citing Turner, 142 F.R.D. at 77) (“Where, as here, there is no extrinsic evidence whatever tending to show that the destroyed evidence would have been unfavorable to the spoliator, no adverse inference is appropriate.”). “The party seeking an adverse inference must adduce sufficient evidence from which a reasonable trier of fact could infer that ‘the destroyed [or unavailable] evidence would have been of the nature alleged by the party affected by its destruction.” ’ Residential Funding, 306 F .3d at 109 (citations omitted). *7 In support of their claim that the missing evidence is relevant, ABS notes that this Court has already held that the electronic records ABS seeks “bear directly on both parties' claims and may elucidate Spain's response to, and handling of, the casualty.” ABS Mem. at 21 (quoting Nov. 2 Order at 14). Further, ABS points to three specific examples of “compelling extrinsic evidence” to support a finding that the missing electronic records were relevant: 1) a statement by former Spanish vice president Mariano Rajoy (“Rajoy”) stating that there “were many things we did not do right” with regards to the Government's activity in the Prestige crisis; 2) Rajoy's admission that he lied about having consulted with experts prior to towing the Prestige away from the Spanish coast, in contradiction of Lopez-Sors account of the events; and 3) former Minister of Development, Francisco Alvarez Cascos (“Cascos”) having been accused of destroying Prestige-related documents prior to leaving office in March 2004. ABS Mem. at 22. ABS argues this evidence shows that documents destroyed by Spain would have been exceedingly harmful to its case, and would have shown that Spain's conduct caused the alleged injury underlying this action. Id. Spain argues that ABS has failed to prove through extrinsic evidence that the missing emails would have been favorable to them, or that it is prejudiced in its ability to litigate this case given the voluminous records already produced regarding the precise actions taken by Spanish officials. Spain Mem. at 20. Spain maintains that although ABS has claimed that the missing emails would have revealed what Spanish officials were thinking and doing in response to the casualty and that they would have revealed Spain's “true feelings” about the response efforts, ABS has referred to only one email to support this contention and that email indicates that a civil servant was bored with collecting documents. Spain Mem. at 20; see also ABS Mem. at 13, n. 10. Spain further critiques ABS's three proffered examples of evidence taken from newspaper clippings. Spain Mem. at 21-22, n. 23. First, it notes that Rajoy's statement does not relate to the destruction of emails. See ABS Mem. at 22. Second, it argues that if Rajoy's statements were in conflict with testimony from Lopes-Sors and were related to the destruction of emails, ABS would have explored the issue in his two-day deposition, which occurred after ABS had notice of the newspaper article. Id. Finally, Spain contends that the last piece of “evidence” is merely an unsubstantiated accusation, not a fact. Id. Having reviewed the submissions of the parties, the Court concludes that ABS has failed to demonstrate that the missing emails are relevant. ABS's reliance on this Court's finding that the electronic records sought “bear directly on both parties' claims and may elucidate Spain's response to, and handling of, the casualty,” Nov. 2 Order at 14, is misplaced in the context of demonstrating relevance for the imposition of an adverse inference instruction. That finding was made in the context of a motion to compel discoverable documents. In that context, the information need not be admissible at trial. Ferguson v. Lion Holding, Inc., 2005 WL 1216300, *2 (S.D.N.Y. Mar. 25, 2005). However, to warrant sanctions for the loss or destruction of records, relevance must be established by sufficient evidence showing that the missing records would have been unfavorable to the spoliator. Zubulake, 220 F.R.D. at 221; see also In re NTL, Inc. Securities Litigation, 2007 WL 241344, *21 (S.D.N.Y. Jan. 20, 2007). Implicit in this standard is that the information would have been admissible, and the opposing party, here ABS, has therefore suffered prejudice. The adverse inference, therefore, serves to “restor[e] the prejudiced party to the same position he would have been in absent the wrongful destruction of evidence.” See Kronisch, 150 F.3d at 126 ABS has failed to establish that the missing records would have been relevant. *8 Typically, the evidence used to establish relevance of missing documents is deposition testimony. See Residential Funding Corp., 306 F.3d at 109 (citing Byrnie, 243 F.3d at 109-10) (“For example, in Byrnie, the party seeking the adverse inference established relevance through deposition testimony regarding the nature of the missing documents, which we held were likely “relevant” for purposes of an adverse inference in light of the opponent's shifting theory of the case.”). However, there is no deposition testimony here to support a finding of relevance. ABS seeks an adverse inference that Spain acted recklessly or negligently in its response to the casualty, but fails to show that this topic was included in any emails. ABS Mot. at 23. It has presented no testimony from the forty-three officials deposed regarding the content of the missing emails. See Spain Mem. At 22, n. 25. There is no evidence that ABS asked any deponent whether lost or destroyed emails included information concerning its proposed adverse inferences. Because ABS has not met its burden of demonstrating with sufficient evidence that the missing emails would have contained relevant information unfavorable to Spain, or that ABS is now prejudiced without those records, no adverse inference sanction is appropriate. C. Costs In granting it's motion to compel the discovery of electronic discovery, the Court invited ABS to apply for whatever relief, remedy, or sanction it deemed appropriate. Nov. 2 Order at 14. However, ABS has failed to demonstrate willfulness or bad faith sufficient to invoke the Court's inherent powers to sanction discovery abuses, or that Spain violated a discovery order in order to invoke sanctions under Rule 37(b)(2). Therefore, the relief available to ABS is reimbursement of the reasonable expenses incurred in making its motion to compel the electronic discovery from Spain under Rule 37(a)(4). After a finding of negligent preservation of electronic discovery, this Court does not find that Spain was “substantially justified” in opposing the motion to compel. See FED. R. CIV. P. 37(a)(4)(A) (if motion to compel granted, the moving party is entitled to reasonable expenses and attorney's fees unless “the nondisclosure, response, or objection was substantially justified.”). While ABS has not demonstrated the relevance of the missing emails sufficient to warrant an adverse inference instruction, this Court finds that Spain acted negligently in failing to preserve electronic records. However, it is clear that the missing records would have met the standard of relevance under Rule 401. FED.R.EVID. 401. Unlike the standard of relevance in the context of justifying an adverse inference, see Residential Funding Corp., 306 F.3d at 108-09, relevance under Rule 401 means evidence “having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.” FED.R.EVID. 401. “Where lesser sanctions are at issue, it is possible that the moving party would be obligated to show only that the lost evidence was pertinent to its claims, not that it would have been favorable.” Chan, 2005 WL 1925579 at *7, n. 2. Because electronic records have likely been destroyed due to Spain's negligence, this Court does not have the opportunity to evaluate their relevance to the litigation. IV. CONCLUSION *9 For the reasons set forth above, ABS's motion for sanctions (Doc # 188) is GRANTED, in part, and DENIED, in part. Therefore, Spain is directed to complete its forensic search for email records that the Court has concluded are relevant, and to produce these records to ABS on a rolling basis. Spain shall report to the Court on June 15, 2007, a proposed timetable for production. ABS shall submit to the Court, by July 30, 2007, an accounting of the hours expended and the costs incurred in making its motion to compel discovery. Spain may respond to the application for fees and costs, by August 13, 2007. Fees and costs will be imposed upon Spain as the Court deems appropriate, pursuant to Federal Rule 37(a), by a future Order. SO ORDERED this 1st day of June 2007 Footnotes [1] Spain's Memorandum in Opposition to ABS's Motion for Sanctions, dated January 12, 2007, was submitted prior to this Court's Opinion and Order denying Spain's Motion for Reconsideration, dated January 24, 2007.