The opinion
Riptide Autonomous Solutions, LLC v BAE Sys. Info.
& Elec. Sys. Integration Inc.
2025 NY Slip Op 30052(U)
January 7, 2025
Supreme Court, New York County
Docket Number: Index No. 652078/2022
Judge: Andrea Masley
Cases posted with a "30000" identifier, i.e., 2013 NY Slip
Op 30001(U), are republished from various New York
State and local government sources, including the New
York State Unified Court System's eCourts Service.
This opinion is uncorrected and not selected for official
publication.
[FILED: NEW YORK COUNTY CLERK 01/07/2025 04:57 P~ INDEX NO. 652078/2022
NYSCEF DOC. NO. 262 RECEIVED NYSCEF: 01/07/2025
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 48
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RIPTIDE AUTONOMOUS SOLUTIONS, LLC, and INDEX NO. 652078/2022
JEFFREY SMITH,
Plaintiffs, MOTION DATE
- V - MOTION SEQ. NO. 017
BAE SYSTEMS INFORMATION AND ELECTRONIC
SYSTEMS INTEGRATION INC., DECISION+ ORDER ON
MOTION
Defendant.
----------------------------X
HON. ANDREA MASLEY:
The following e-filed documents, listed by NYSCEF document number (Motion 017) 201, 202, 203, 204,
205,206,207,208,209,210,211,212,213,214,215,216,217,218,219,220,221,222,223,224,
225,226,227,228,229,230,231,232,233,237,238,239,240,241,242,243,244,245,246,257
were read on this motion to/for SANCTIONS
Motion sequence number 017 stems from defendant BAE Systems Information
and Electronic Systems Integration lnc.'s (BAE) deletion of the email accounts of Sarah
Smith and Jeffrey Smith, former employees of plaintiff Riptide Autonomous Solutions,
LLC (Riptide) and BAE.
Riptide moves by order to show cause for an order granting Riptide the following
relief: (i) conclusive spoliation inferences for all identified missing evidence, (ii) a burden
shift requiring BAE to prove that it used commercially reasonable efforts and good faith
in achieving revenue during the earn-out period, and (iii) an inference that all improperly
deleted documents would have supported Riptide's claim that BAE failed to engage in
commercially reasonable efforts and good faith. Counterclaim defendant Jeffrey Smith
joins Riptide's motion. (NYSCEF Doc. No. [NYSCEF] 246, Notice of Joinder.)
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Background
Riptide designed and manufactured unmanned underwater vehicles for defense,
commercial, and research applications. (NYSCEF 1, Complaint ,I 2.) Pursuant to an
April 12, 2019 Asset Purchase Agreement, Riptide sold its operating assets to BAE. (Id.
,I 1.) After the acquisition, Riptide was entitled to three earn-out payments not to
exceed $26 million, which were tied to the revenue from Riptide business and paid
during the earn-out periods of calendar years 2019, 2020, and 2021. (See id. W 5, 18-
20.) Riptide's sole remaining cause of action against BAE is for breach of the APA by
failing to "act in good faith and use commercially reasonable efforts to operate [Riptide]
Business with respect to achieving revenue of Business Products and Services in the
Earn-Out Period." (Id. ,I 63 internal quotation marks and citation omitted]; NYSCEF
118, Decision and Order at 1 [mot. seq. no. 006].) BAE alleges counterclaims against
Riptide and Jeffrey Smith for (i) fraudulent inducement seeking to rescind the APA and
declare the same void ad initio, (ii) fraudulent inducement seeking damages, (iii) breach
of APA/contractual indemnification, and (iv) fraud. (NYSCEF 122, Answer with
Counterclaim at 24 ,I 1, at 31-34 ,r,r 37-60.) The counterclaims are predicated on the
allegation that Riptide and Jeffrey Smith "falsely represented that the Riptide product
functioned at depths of up to 300 meters for more than 30 hours." (Id. at 31 ,I 38; see
id. at 32-34 ,I,I 45, 52, 58.)
Riptide transferred its email accounts, including the Smiths' email account, to
BAE as a result of the acquisition. (NYSCEF 208, Riptide Nov. 19, 2023 email at 2/5.)
BAE deleted the Smiths' Riptide email accounts 180 days after the deal, i.e. around
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December 2019. (See NYSCEF 255, tr at 22:19-23 [oral argument]; NYSCEF 225, tr at
277:4-13 [Jeffrey Smith depo] [stating that deal closed in May 2019].)
Following the acquisition, the Smiths began working for BAE. Jeffrey Smith and
Sarah Smith left BAE in May 2021, and February 2022, respectively. (NYSCEF 230, tr
at 172:12-14 [Sarah Smith depo]; NYSCEF 216, Sarah Smith aff ,i 3.) Pursuant to
BAE's document retention policy, the Smiths' BAE email accounts were disabled upon
their departure from BOO and their emails were purged. BAE's counsel explained that
"Mr. and Mrs. Smith left BAE Systems prior to the legal hold going into effect on
March 18, 2022. Pursuant to BAE Systems' document retention policies and
procedures, departing employees' accounts are disabled on the day of their
departure and associated documents (including emails) that are not either
designated as a company record or subject to a legal hold are reset from a 180-
day to a 0-day purge status. Once purged, the emails and the account are not
recoverable. BAE Systems complied with that policy when both Mr. and Mrs.
Smith left BAE Systems. Consequently, BAE Systems cannot produce their PST
files." (NYSCEF 209, Gregory M. Williams 1 Dec. 29, 2023 email at 2-3/5.) 2
BAE put the litigation hold in place on March 18, 2022. (Id. at 2/5.) Riptide
initiated this action on May 4, 2022. (NYSCEF 1, Complaint.)
Discussion
Timeliness
As early as August 8, 2023, Riptide learned that the Smiths' email accounts were
deleted. (See NYSCEF 209, Williams Dec. 29, 2023 email at 3/5.) On September 12,
1Williams is BAE's counsel. (NYSCEF 222, Williams aff ,i 1.)
2Despite lack of clarity in Riptide's papers, the court assumes that this motion is based
on deletion of the Smiths' Riptide and BAE email accounts. The Riptide email accounts,
however, were deleted around December 2019 (see supra at 2-3), i.e. prior to the
November 20, 2020 date when Riptide argues the duty to preserve attached.
Additionally, in its reply brief, Riptide alleges for the first time deletion of email accounts
of certain additional BAE employees which is not before the court since you cannot
raise issues for the first time on reply. (NYSCEF 237, Reply Brief at 4/18 n 2.)
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2023, the court ordered that any discovery motions shall be filed immediately, otherwise
waived. (See NYSCEF 143, Amended PC Order ,i 6.) This motion was filed on June
17, 2024. (See NYSCEF 201, Proposed OSC [mot. seq. no. 017].) The court rejects
BAE's argument that this motion should be denied as untimely. This is not a discovery
motion that could have been filed immediately; more productions by BAE followed in
2023. (See NYSCEF 210 & 211, email chains.) Indeed, Riptide explains that it "was
waiting to see if later productions or alternative sources would cure the loss of these e-
mail accounts" and "refrained from wasting the Court's time and resources until it was
certain that these items were indeed missing." (NYSCEF 237, Reply Brief at 15-16/18.)
Spoliation
"Under the common-law doctrine of spoliation, when a party negligently loses or
intentionally destroys key evidence, the responsible party may be sanctioned under
CPLR 3126." (Delmur, Inc. v School Constr. Auth., 174 AD3d 784, 786 [2nd Dept 2019]
[internal quotation marks and citations omitted].)
"A party that seeks sanctions for spoliation of evidence must show [1] that the
party having control over the evidence possessed an obligation to preserve it at
the time of its destruction, [2] that the evidence was destroyed with a culpable
state of mind, and [3] that the destroyed evidence was relevant to the party's
claim or defense such that the trier of fact could find that the evidence would
support that claim or defense." (Pegasus Aviation I, Inc. v Varig Logistica S.A.,
26 NY3d 543, 547 [2015] [internal quotation marks and citations omitted].)
An obligation to preserve relevant evidence arises when a party reasonably
anticipates litigation, that is, when a party "is on notice of a credible probability that it will
become involved in litigation, seriously contemplates initiating litigation, or when it takes
specific actions to commence litigation." (VOOM HD Holdings LLC v Echostar Satellite
L.L.C., 93 AD3d 33, 43 [1st Dept 2012] [internal quotation marks and citation omitted].)
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In the commercial context, notice of a credible probability of litigation has been found
where a party repeatedly threatens to terminate an agreement and transmits numerous
breach letters. (See id. at 43.) A duty to preserve has also been found to have been
triggered when a party notified an adversary that the party would consult legal counsel
and consider commencing litigation. (See Ocwen Loan Servicing, LLC v Ohio Pub.
Employees Retirement Sys., 49 Misc 3d 1219[A], 2015 NY Slip Op 51775[U], *6 [Sup
Ct, NY County 2015].)
Duty to Preserve
Riptide argues that BAE's duty to preserve was triggered when BAE sent the
November 30, 2020 Notice of Indemnification to Riptide.
As stated on the record on July 25, 2024, this argument is rejected. (NYSCEF
255, tr at 41 :11 :17 [oral argument].) First, the indemnification letter alleges
misrepresentations by Riptide and relate to the portion of the purchase price held in
escrow in order to cover potential losses related to breaches. (See NYSCEF 204, Nov.
30, 2020 Letter and Indemnification Claim.) Riptide's allegations in its breach of the
APA cause of action are on a different subject, i.e. that BAE failed to use commercially
reasonable efforts to operate the Riptide business post-acquisition leading to reduced
earn-out payments to Riptide. (See e.g. NYSCEF 1, Complaint ,i 63.) The November
30, 2020 letter and indemnification claim could not have triggered BAE's obligations to
preserve evidence in anticipation of Riptide's claims for breach of the APA (See World
Trade Centers Assn., Inc. v Port Auth. of New York and New Jersey, 2018 WL
1989616, *5, 2018 US Dist LEXIS 56894, *13 [SD NY, Apr. 2, 2018, No.
15CIV7411 LTSRWL] [stating that although plaintiff "had a duty to preserve evidence
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related to [another] dispute" between parties since June 2011, "that duty did not extend
to the trademark dispute at issue here" where the duty to preserve was triggered in
January 2012 (citation omitted)], report and recommendation adopted sub nom. World
Trade Centers Assn. v Port Auth. of New York and New Jersey, 2018 WL 1989556,
2018 US Dist LEXIS 69668 [SD NY, Apr. 25, 2018, No. 15 CV 7411-LTS-RWL]; Voom
HD Holdings, LLC v Echostar Satellite, L.L.C., 2010 NY Slip Op 33759[U], *24 [Sup Ct,
NY County 201 O] ["Typically, the duty to preserve evidence attaches as of the date the
action is initiated or when a party knows or should know that the evidence may be·
relevant to future litigation" (emphasis added; internal quotation marks and citations
omitted)], affd 93 AD3d 33 [1st Dept 2012]; see also Zubulake v UBS Warburg LLC, 220
FRO 212, 218 [SD NY 2003] ["The duty also extends to information ... which is 'relevant
to the subject matter involved in the action"' (quoting Fed Rules Civ Pro rule 26 [b][1])].)
Second, even if the November 30, 2020 communication could trigger the duty to
preserve in relation to Riptide's claim, as Riptide argues, on December 21, 2020, BAE
sent a letter informing that it elected to release the escrow funds "in order to focus the
entire BAE Systems team, including our heritage Riptide employees, on resolving these
issues and mitigating the resulting damages." (NYSCEF 206, Dec. 21, 2020 letter.)
This letter evidences BAE's intention not to litigate.
The argument that BAE's counterclaims invoke the misrepresentation that were
alleged in the November 30, 2020 letter and indemnification claim is unavailing. That
BAE eventually asserted the counterclaims alleging such misrepresentations in
February 2023 does not demonstrate that BAE seriously contemplated initiating
litigation in the fall of 2020. Indeed, the record does not support such a conclusion.
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Additionally, Riptide fails to explain how the deletion of the Smiths' email account
impairs Riptide's defense of the counterclaims. Indeed, Sarah Smith only recalls one
specific email by a BAE "apologizing ... for the way that BAE mishandled the Riptide
business," which is irrelevant to the defense of the counterclaims. (NYSCEF 216,
Sarah Smith aff ,i 8; see id. ,i 9.) 3 Neither does Riptide seek any specific sanctions in
relation to such defense. Instead, Riptide seeks burden shifting and inference sanctions
solely in relation to its breach of APA claim.
Alternatively, Riptide argues that Jeffrey Smith's December 22, 2020 email
triggered the duty to preserve. The email was sent in the context of an internal BAE
discussion as to how to respond to a customer inquiry regarding pricing on a Riptide
product. A BAE employee proposed to respond that "we are booked for most of 2021"
and new orders for 2022 will be accepted in May or June of 2021 "[r]ather than saying
we are not currently selling and are in re-design mode." (NYSCEF 239, email chain at
3/4.) Jeffrey Smith responded on December 22, 2020:
"Riptide shareholders have a multi-year earn out based on revenue on the
acquisition that requires that BAE Systems sells vehicles and acts in good faith to
maximize that revenue. Halting quotes and thereby sales and revenue, violates
the good faith terms of the acquisition agreement. In my opinion, so does pulling
out of the commercial model given BAE's assurances that they would maintain
the commercial model at the time of sale. This is my comment. It is not from the
Riptide attorney. I'd suggest this decision be reassessed quickly in light of the
acquisition agreement which you may not be fully aware of." (Id. at 2/4.)
This email is insufficient to put BAE on notice of Riptide's potential litigation;
there is no threat of litigation. (Cf. Karsch v Blink Health Ltd., 2019 WL 2708125, *2, 18,
2019 US Dist LEXIS 106971, *4, 48-49 [SD NY, June 20, 2019, No. 17CV3880VMBCM]
3As to Jeffrey Smith's emails, Riptide proffers no evidence in form of an affidavit or
otherwise explaining relevance of his deleted emails.
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[duty to preserve triggered when plaintiff's attorney sent letter to defendants counsel
accusing accused defendants of securities fraud, common law fraud, breach of fiduciary
duty, and breach of contract and threatening litigation unless defendants reconsidered
their course of action].) Indeed, as discussed infra, the record demonstrates that the
parties remained in negotiations regarding the earn-out payments to Riptide until the
end of 2021, the last year of the earn-out period, and the litigation was not initiated until
May 2022. "[T]he mere existence of a dispute" which may be evidenced by the
December 22, 2020 email does "not mean that the parties should reasonably have
anticipated litigation at that time and taken steps to preserve evidence." (Treppel v
Biovail Corp., 233 FRO 363, 371 [SD NY 2006].)
Riptide next argues that BAE's duty to preserve was triggered by BAE's October
28, 2021 letter.
This argument is likewise rejected. In its October 13, 2020 email, Riptide raised
an issue of extending the three-year earn-out period due to "[d]elays and financial
impacts due to COVID-19," "[i]ntegration and implementation of BAE Systems process
and policies," "[d]elays in providing vehicle quotes to customers," and "[d]elays in
moving to a new manufacturing facility." (NYSCEF 212, email chain at 5-6/6.) In the
October 28, 2021 letter, BAE stated that it "would like to make an offer in good faith to
the Board of Managers in an effort to close out this matter without further extending the
earn-out period." (NYSCEF 213, BAE Oct. 28, 2021 letter at 1.) BAE offered to
recognize for the purposes of calculating the 2021 earn-out payment certain revenue
that was delayed. (Id.) Riptide responded on November 24, 2022, that the offer "is
perceived as a sincere effort to try to address what [the Riptide] stakeholders view as
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some concerning issues with the situation" and offered a number of arguments in
support of its request that "BAE fulfill the whole of the earnout. While there may be
room for some creative ways to fulfil this with some delay to allow payment flexibility,
this is Riptide's considered request." (NYSCEF 214, email chain at 4-5/5.) This
correspondence shows that "[r]ather than threatening impending litigation," the parties
continue to be "willing to explore a negotiated resolution"; in such circumstances
litigation is not reasonably anticipated. (Cache La Poudre Feeds, LLC v Land O'Lakes,
Inc., 244 FRO 614, 622 [O Colo] [collecting cases].)
Although BAE emails sent shortly thereafter indicate that two BAE employees
contemplated that "[t]here may be a legal action coming or at least shenanigans related
to Riptide" (see NYSCEF 215, email chain at 2/5), "[m]erely because one or two
employees contemplate the possibility [of a lawsuit] does not generally impose a firm-
wide duty to preserve." (Zubulake, 220 FRO at 217.) 4
Culpable State of Mind; Relevance
As Riptide has failed to establish that BAE was under a duty to preserve
evidence when the Smiths' email accounts were deleted, the court need not consider
the balance of parties' arguments.
Even if a duty to preserve was triggered prior to the date when the email
accounts were deleted, Riptide fails to show that BAE acted with gross negligence.
4
At oral argument, BAE's attorney explained that the litigation hold was eventually
implemented on March 18, 2022, because "[t]he parties were discussing a potential
extension of the earn-out provision, and those discussions looked like they weren't
going well. At that point -- and they had gone fine beforehand and had not been
contentious .... When they heated up in early 2022 and it started to go badly, BAE
following its obligations said, [w]e're going to be conservative. They haven't filed a
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Riptide relies solely on BAE's failure to institute a litigation hold which does "not amount
to gross negligence per se," but is only one factor to be considered in determining the
spoliator's state of mind. (Pegasus Aviation I, Inc., 26 NY3d at 553.) Without more, a
failure to institute a litigation hold and deletion of emails pursuant to the document
retention policy, as happened here, would amount only to simple negligence. (See SM
v Plainedge Union Free Sch. Dist., 162 AD3d 814, 816, 818-19 [2d Dept 2018] ["The
defendant acted negligently in unilaterally deciding to preserve only 24 seconds of
footage and passively permitting the destruction of the remaining footage" which "was
automatically erased 30 days after the accident" "[i]n keeping with the defendant's usual
custom and practice"]; TIAA Global lnvs. LLC v One Astoria Sq. LLC, 2016 NY Slip Op
31240[U], *8 [Sup Ct, NY County 2016] [finding simple negligence where defendants
failed to institute litigation hold and deleted emails in normal course of business].) "[l]f
the evidence is determined to have been negligently destroyed, the party seeking
spoliation sanctions must establish that the destroyed documents were relevant to the
party's claim or defense." (Pegasus Aviation I, Inc., 26 NY3d at 547-48.) Riptide
complaint yet but, we're instituting a hold." (NYSCEF 255, tr at 40:22-41 :6 oral
argument].)
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proffers no evidence of relevance of Jeffrey Smith's emails in the form of an affidavit or
otherwise.
Accordingly, it is
ORDERED that the motion is denied; and it is further
ORDERED that summary judgment motions, if any, shall be filed within 30 days
of the date of this decision and order. (See NYSCEF 258, Sep. 2, 2024 Order.)
1/7/2025
DATE ANDREA MASLEY, J.S.C.
~
CHECK ONE: CASE DISPOSED NON-FINAL DISPOSITION
APPLICATION:
CHECK IF APPROPRIATE:
GRANTED
SETTLE ORDER
0 DENIED
INCLUDES TRANSFER/REASSIGN
8GRANTED IN PART
SUBMIT ORDER
FIDUCIARY APPOINTMENT
□ OTHER
□ REFERENCE
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