Pegasus Aviation I, Inc. v. Varig Logistica S.A.

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This opinion is uncorrected and subject to revision before

publication in the New York Reports.

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No. 153

Pegasus Aviation I, Inc., et al.,

Appellants,

v.

Varig Logistica S.A.,

Defendant,

MatlinPatterson Global Advisers,

LLC, et al.,

Respondents.

Richard R. Patch, for appellants.

Thomas C. Rice, for respondents.

PIGOTT, J.:

A party that seeks sanctions for spoliation of evidence

must show that the party having control over the evidence

possessed an obligation to preserve it at the time of its

destruction, that the evidence was destroyed with a "culpable

state of mind," and "that the destroyed evidence was relevant to

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the party's claim or defense such that the trier of fact could

find that the evidence would support that claim or defense" (Voom

HD Holdings LLC v Echostar Satellite L.L.C., 93 AD3d 33, 45 [1st

Dept 2012], quoting Zubulake v UBS Warburg LLC, 220 FRD 212, 220

[SD NY 2003]). Where the evidence is determined to have been

intentionally or wilfully destroyed, the relevancy of the

destroyed documents is presumed (see Zubulake, 220 FRD at 220).

On the other hand, if 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 (see id.).

On this appeal, we are asked to decide whether the

Appellate Division erred in reversing an order of Supreme Court

that imposed a spoliation sanction on the defendants. We hold

that it did, and remand the matter to the trial court for a

determination as to whether the evidence, which the Appellate

Division found to be negligently destroyed, was relevant to the

claims asserted against defendants and for the imposition of an

appropriate sanction, should the trial court deem, in its

discretion, that a sanction is warranted.

I.

In 2005 and 2006, plaintiffs Pegasus Aviation I, Inc.,

Pegasus Aviation IV, Inc. and Pegasus Aviation V, Inc.

(collectively, Pegasus) leased cargo planes to defendant Varig

Logistica, S.A. (VarigLog), a Brazilian air cargo company.

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Shortly thereafter, the MP defendants1 purchased VarigLog out of

a Brazilian bankruptcy. In early 2007, a dispute arose between

one of the MP defendants (MP Volo) and its Brazilian shareholders

concerning the distribution of proceeds from the sale of one of

VarigLog's wholly-owned subsidiaries. In July 2007, the

Brazilian shareholders denied the MP defendants access to

VarigLog's offices, and shareholder litigation ensued. The end

result was that the MP defendants were, in effect, "frozen out"

of VarigLog's affairs from July 2007 until April 1, 2008, when a

Brazilian court removed the three Brazilian shareholders and

appointed MP Volo to "take over the administration and

management" of VarigLog under the supervision of a judicial

oversight committee.

During the shareholder litigation, and while the MP

defendants were "frozen out" of VarigLog, VarigLog defaulted on

its leases with Pegasus. In February 2008, Pegasus commenced

1

For purposes of background, the MP defendants consist of a

group of commonly controlled New York-based firms and entities

under their control. Defendants MatlinPatterson Global Advisers,

LLC, MatlinPatterson Global Opportunities Partners II LP, and

MatlinPatterson Global Opportunities Partners (Cayman) II LP

(collectively, MP Funds) formed defendant Volo Logistics LLC (MP

Volo), a Delaware corporation that is a wholly-owned subsidiary

of defendant Oskars Investments LTD. MP Volo and three Brazilian

shareholders/co-investors formed Volo do Brasil, S.A. (VdB), a

Brazilian corporation, which purchased VarigLog out of a

Brazilian bankruptcy proceeding in 2006. Brazilian aviation law

requires that Brazilian citizens or entities must control at

least 80% of the voting interest in a Brazilian airline and, as a

result, the Brazilian shareholders controlled 80% of the voting

interest in VdB while MP Volo owned the remaining 20%.

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litigation against only VarigLog in Florida state court for,

among other things, breach of the lease agreements. Later,

Pegasus voluntarily discontinued the Florida action and filed

suit against both VarigLog and MP in New York County Supreme

Court in October 2008. As relevant here, Pegasus sued VarigLog

for breach of contract and conversion, and sought to hold the MP

defendants liable for VarigLog's conduct on an alter ego theory.

In March 2009, VarigLog filed for bankruptcy. At all relevant

times, VarigLog and the MP defendants were represented by

separate counsel.

Pegasus served a notice to produce documents pursuant

to CPLR 3120 that, as relevant here, sought electronically stored

information (ESI) concerning Pegasus's claims and VarigLog's

relationship with the MP defendants. VarigLog produced some

documents in response, but that production was unsatisfactory to

Pegasus, particularly with regard to the ESI.

Supreme Court appointed a discovery referee to assist

Pegasus and VarigLog in resolving the dispute. During the first

conference, which occurred in January 2010, counsel for VarigLog

reported that VarigLog had experienced one or more computer

"crashes" that impaired its ability to provide the requested ESI.

VarigLog's counsel later explained that between 2000 and 2008,

VarigLog did not have a system of preserving emails, that emails

were routinely stored on the computers of individual employees

and that employee computers were returned empty when an employee

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left the company. Counsel also explained that beginning in March

2008, VarigLog had established a system whereby VarigLog's ESI

was backed up on a daily, weekly and monthly basis, but that

computer crashes that occurred in February and March 2009

resulted in the loss of much of the ESI, and that data recovery

efforts had proven unsuccessful.

Pegasus then moved for the imposition of sanctions

against VarigLog and the MP defendants. It sought an order

holding VarigLog in contempt for failing to comply with court

orders, striking VarigLog's answer, and imposing a trial adverse

inference against the MP defendants for their failure to properly

preserve electronic and paper records relevant to the action and

within their control, albeit in the possession of their

subsidiary, VarigLog. Pegasus argued that the MP defendants

controlled VarigLog and therefore had a duty to impose a

"litigation hold" to preserve certain VarigLog paper documents

but failed to do so.

Supreme Court granted Pegasus's motion, holding that

VarigLog's failure to issue a "litigation hold" amounted to gross

negligence as a matter of law, such that the relevance of the

missing ESI was presumed.2 Supreme Court also found that the MP

defendants, having been charged by the Brazilian court with the

duty to "manage" and "administer" VarigLog, were in "control" of

2

VarigLog did not appeal Supreme Court's order and is not

a party to this appeal.

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VarigLog for purposes of putting a "litigation hold" into place

to preserve the ESI, and their failure to do so amounted to gross

negligence. The court therefore struck the answer of VarigLog

and imposed a trial adverse inference sanction against the MP

defendants with regard to ESI and paper records relevant to the

action and within the MP defendants' control. The MP defendants

appealed the order of Supreme Court to the Appellate Division

insofar as it granted Pegasus's motion for a trial adverse

inference instruction.

A divided Appellate Division reversed insofar as

appealed from on the law and the facts and denied Pegasus's

motion for a trial adverse inference instruction (118 AD3d 428,

428 [1st Dept 2014]). The majority held that the record

supported Supreme Court's finding that the MP defendants had

sufficient control over VarigLog so as to trigger a duty on their

part to preserve the ESI, but that it could not be said that

their "failure to discharge this duty was so egregious as to rise

to the level of gross negligence" (id. at 432). It rejected

Supreme Court's holding that the MP defendants' failure to

institute a litigation hold amounted to gross negligence per se,

and held that the facts of the case supported, at most, a finding

of simple negligence (see id. at 432-434). Further, according to

the majority, because Pegasus failed to prove that the lost ESI

would have supported Pegasus's claims, a trial adverse inference

sanction could not stand (see id. at 435).

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Justice Andrias concurred with the majority on the

issue of the MP defendants' control over VarigLog and their duty

to preserve the ESI, and also agreed "that upon a contextual

assessment of all pertinent facts" the MP defendants' "failure to

discharge [their] duty did not rise to the level of gross

negligence." However, in his view, because Supreme Court

possessed the discretion to impose a spoliation sanction for

negligent destruction of evidence, the matter should have been

remanded to Supreme Court "for a determination of the extent to

which [Pegasus has] been prejudiced by the loss of the evidence,

and the sanction, if any, that should be imposed" (id. at 436-437

[Andrias, J., concurring in part and dissenting in part]).

Justice Richter dissented in full, arguing that the MP

defendants' "failure to take any meaningful steps to preserve

evidence constitute[d] gross negligence" and that the adverse

inference sanction should be affirmed (id. at 438 [Richter, J.,

dissenting]). She based her determination not only on the fact

that the MP defendants failed to initiate a litigation hold, but

also "on a close review of the specific facts of the case" (id.

at 440).

The Appellate Division granted Pegasus's motion for

leave to appeal, and, in its certified question, asks this Court

to determine whether the Appellate Division's order, which

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reversed Supreme Court, was properly made.3 We answer that

question in the negative.

II.

Our state trial courts possess broad discretion to

provide proportionate relief to a party deprived of lost or

destroyed evidence, including the preclusion of proof favorable

to the spoliator to restore balance to the litigation, requiring

the spoliator to pay costs to the injured party associated with

the development of replacement evidence, or employing an adverse

inference instruction at the trial of the action (see Ortega v

City of New York, 9 NY3d 69, 76 [2007] [citations omitted]; CPLR

3126 [if a trial court determines that a party has destroyed

evidence that "ought to have been disclosed . . . the court may

make such orders with regard to the failure or refusal as are

just"]).

Here, the order of the Appellate Division reversed the

order of Supreme Court "on the law and facts" (118 AD3d at 428).

In its certified question to this Court, the Appellate Division

certified that the "determination was made as a matter of law and

not in the exercise of discretion." However, we are not bound by

the Appellate Division's characterization in its certification

order, and instead "look to see whether the Appellate Division's

3

Because the Appellate Division focused solely on the

destruction of ESI and did not address the issue concerning the

paper records, our analysis is similarly limited to the ESI

evidence.

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decision, regardless of the characterization, nonetheless

reflects a discretionary balancing of interests" (Andon v 302-304

Mott Street Assoc., 94 NY2d 740, 745 [2000] [citations omitted]).

The trial court (which had presided over and supervised

the discovery in the case for several years) and the Appellate

Division reached different conclusions concerning the MP

defendants' level of negligence in failing to preserve the ESI.

The trial court conducted a review of the facts, determined that

the MP defendants exercised sufficient control over VarigLog,4

and held that the failure of the MP defendants to institute a

litigation hold amounted to gross negligence. On appeal, all

five Appellate Division Justices agreed with Supreme Court's

assessment that the MP defendants possessed "control" over

VarigLog such that it had a duty to preserve the ESI, but the

three-Justice majority found that "[t]he facts of this case" did

not support a "finding of gross negligence" (118 AD3d at 432). A

fourth Justice made a "contextual assessment of all pertinent

facts" and reached the same conclusion (id. at 436 [Andrias, J.,

concurring in part and dissenting in part]). The dissenting

Justice's conclusion that the MP defendants were grossly

4

Our utilization of the word "control" for purposes of

this opinion is solely in reference to the issue of whether the

MP defendants possessed sufficient control over VarigLog so as to

trigger a duty on the MP defendants' part to see to it that

VarigLog was preserving the ESI. At the trial of this action,

Pegasus will still be required to meet all of the elements of its

alter ego cause of action against the MP defendants.

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negligent was "based on the unique facts of [the] case and the

significant control [the MP defendants] had over VarigLog at the

time this action was commenced" (id. at 440 [Richter, J.,

dissenting]). Thus, whether the MP defendants' "culpable mental

state" rose to the level of gross negligence, as opposed to

ordinary negligence, constituted differing factual determinations

by the trial court and the Appellate Division.

Where the Appellate Division reaches a factual

conclusion different from that reached by the trial court, "the

scope of our review is limited to determining whether the

evidence of record . . . more nearly comports with the trial

court's findings or with those of the Appellate Division"

(Friedman v State of New York, 67 NY2d 271, 284-285 [1986]). In

our view, the record evidence comports more with the Appellate

Division majority's findings.

The trial court found that it was the lack of a

litigation hold, and not the computer crashes themselves, that

resulted in the destruction of the requested documents. However,

the trial court incorrectly stated that the MP defendants were

part of the Florida litigation, and that once they were, they

were required to ensure that a litigation hold was in place,

pointing to the fact that because the MP defendants were ordered

by the Brazilian court to "manage and administer" VarigLog, the

MP defendants were running VarigLog and therefore had the means

of implementing a litigation hold. However, in this instance,

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the failure to institute a litigation hold did not amount to

gross negligence per se, as the trial court held. Rather, a

party's failure to institute a litigation hold is but one factor

that a trial court can consider in making a determination as to

the alleged spoliator's culpable state of mind.

In contrast to the trial court's reasoning, the

Appellate Division majority noted that Pegasus did not adduce

evidence that any steps were taken to defeat the computer back-up

system in the months leading up to the crashes, nor did Pegasus

claim that the MP defendants themselves caused the crashes. The

Appellate Division majority considered a number of factors in

reaching its ultimate holding that the MP defendants' conduct in

failing to preserve the ESI was not grossly negligent. Pertinent

to that finding was the fact that VarigLog was represented by its

own counsel when the MP defendants were brought into the

litigation in April 2008, and there was no evidence that the MP

defendants had reason to believe that VarigLog's counsel was not

providing VarigLog adequate advice concerning ESI preservation.

Another factor relied on by the majority was that the MP

defendants adequately responded to all of Pegasus's discovery

demands directed at them, thus negating any inference that the MP

defendants were reckless concerning Pegasus's demands made on

them. Finally, the majority found that notwithstanding the fact

that the MP defendants had exercised practical control over

VarigLog, the record evidence indicated that VarigLog and the MP

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defendants were separate entities, with each possessing their own

offices, staff, operations and computer systems.

These aforementioned facts substantiated the Appellate

Division's ultimate conclusion that, at most, the MP defendants'

failures amounted to "a finding of simple negligence" (118 AD3d

at 432-433). The evidence in the record adequately comports with

the Appellate Division majority's holding.

On this record, we see no reason to disturb the

unanimous finding of the lower courts that the MP defendants had

sufficient control over VarigLog to trigger a duty on its part to

preserve the ESI. Nor is there any basis to disturb the findings

of fact by the Appellate Division that the MP defendants were

negligent in failing to discharge that duty. The Appellate

Division majority erred, however, to the extent that it

determined that Pegasus had not attempted to make a showing of

relevance (118 AD3d at 433, n 7) and chose to conduct its own

analysis of the relevance issue without taking into account

Pegasus's arguments in that regard, which were contained in its

appellate brief.5 Thus, although the Appellate Division

possesses the authority to make findings of fact that are as

broad as the trial court, in this instance, where it all but

ignored Pegasus's arguments concerning the relevance of the

documents, we conclude that the prudent course of action is to

5

Indeed, Pegasus made a motion to reargue addressing this

error, and, rather than granting that motion, the Appellate

Division granted Pegasus leave to appeal to this Court.

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remit the matter to Supreme Court for a determination as to

whether the negligently destroyed ESI was relevant to Pegasus's

claims against the MP defendants and, if so, what sanction, if

any, is warranted.

Finally, the Appellate Division erroneously stated that

a trial adverse inference charge in an alter ego case such as

this one would be "tantamount to granting [Pegasus] summary

judgment" (118 AD3d at 436). Such adverse inference charges have

been found to be appropriate even in situations where the

evidence has been found to have been negligently destroyed (see

e.g. Strong v City of New York, 112 AD3d 15, 22-24 [1st Dept

2013] [stating that adverse inference charge at trial "may be

appropriate" where the evidence was negligently destroyed];

Marotta v Hoy, 55 AD3d 1194, 1197 [3d Dept 2008] [holding that

Supreme Court did not abuse its discretion in determining that

the plaintiff was entitled to an adverse inference instruction as

a sanction for negligent spoliation]; Tomasello v 64 Franklin,

Inc., 45 AD3d 1287, 1288 [4th Dept 2007] [adverse inference

charge appropriate sanction for negligent spoliation]). Contrary

to the Appellate Division majority's contention, a trial adverse

inference sanction would not be akin to granting summary judgment

to Pegasus on its alter ego claim, since such a charge is

permissive and can be appropriately tailored by the trial court

(see PJI 1:77; see also Gogos v Modell's Sporting Goods, Inc., 87

AD3d 248, 255 [1st Dept 2011]).

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Accordingly, the order of the Appellate Division should

be reversed, with costs, and the case remitted to Supreme Court

for further proceedings in accordance with this opinion and the

certified question is answered in the negative.

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Pegasus Aviation I, Inc., et al. v Varig Logistica S.A., et al.

No. 153

STEIN, J.(dissenting):

I respectfully dissent. The majority properly relies

upon VOOM HD Holdings LLC v EchoStar Satellite L.L.C. (93 AD3d

33, 45 [1st Dept 2012]), for the proposition that a party seeking

sanctions for spoliation of evidence must establish three facts:

(1) that the party with control over the destroyed evidence had

the obligation to preserve it; (2) that the evidence was

destroyed with a culpable state of mind; and (3) that the

evidence was relevant to -- or, in other words, would have

supported -- the party's claim. Like the majority, I conclude

that the courts below correctly determined that the MP defendant

firms and entities had sufficient control over Varig Logistica,

S.A. (VarigLog) to trigger a duty to preserve electronically

stored information (ESI) and the computer hardware on which it

was stored. However, I part ways with the majority over its

determination that the MP defendants' "culpable state of mind"

amounted to, at most, simple negligence. I would hold that

defendants acted with gross negligence in failing to preserve the

ESI.

I further disagree with the majority's view that

relevance is not to be presumed because the evidence was not

intentionally or wilfully destroyed. The majority endorses the

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conclusion of the First Department in VOOM and the case upon

which it relies -- Zubulake v UBS Warburg LLC (220 FRD 212, 220

[SD NY 2003] -- that, "[w]here the evidence is determined to have

been intentionally or wilfully destroyed, the relevancy of the

destroyed documents is presumed" (maj. op., at 2). However, the

majority neglects to mention that VOOM further held that

"destruction that is the result of gross negligence" also "is

sufficient to presume relevance" (VOOM, 93 AD3d at 45). Inasmuch

as, under VOOM, the MP defendants' gross negligence gives rise to

a presumption of relevancy, I would remit to the Appellate

Division for consideration of whether, in its discretion, a

sanction is warranted.

I.

The basic facts are largely undisputed and reflected in

the record as described by the majority. The MP defendants were

"frozen out" of VarigLog's affairs by Brazilian shareholders with

whom they shared ownership of VarigLog's parent corporation, Volo

do Brasil, S.A. (VdB); during that time frame, VarigLog breached

its aircraft lease agreements with plaintiffs, leading to the

commencement of a now-discontinued Florida action and then this

action. Prior to the commencement of this action, one of the MP

defendants was granted authority over the "administration and

management" of VarigLog by a Brazilian court. Thereafter,

VarigLog suffered two computer crashes resulting in the loss of

much of the ESI that plaintiffs sought in discovery. After the

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loss was disclosed, plaintiffs sought sanctions.

Supreme Court -- which, as the majority notes, "had

presided over and supervised the discovery in the case for

several years" (maj op., at 9) -- determined that the MP

defendants' culpable state of mind amounted to gross negligence,

warranting an adverse inference charge at trial. In contrast,

the Appellate Division concluded that the record supported only a

finding of ordinary negligence and not gross negligence (118 AD3d

428, 432-433 [1st Dept 2014]). Because the Appellate Division

reversed the trial court's factual determination in this regard,

our review is limited to a consideration of "which court's

determination more closely comports with the evidence" (Glenbriar

Co. v Lipsman, 5 NY3d 388, 392 [2005]). In my view, Supreme

Court's determination does so here.

While I concur with the majority's basic outline of the

underlying facts, I note that the following facts -- which were

omitted from the majority's highly selective version -- are also

relevant to an analysis of which of the determinations below more

closely comports with the record. Although the Brazilian

shareholders nominally owned 80% of the voting stock in VdB, a

Brazilian court concluded that they did not make any financial

contribution and "were inserted into the company by [Volo

Logistics LLC, an MP defendant] . . . to circumvent" Brazilian

aviation law. The MP defendants not only owned an equity stake

in VarigLog, but they also advanced capital to VarigLog in the

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form of loans. The dispute that led to the MP defendants being

"frozen out" of VarigLog's affairs in July 2007 arose when the

Brazilian shareholders refused to authorize repayment of the MP

defendants' loans and instead transferred cash to bank accounts

owned by VarigLog and located in Switzerland. MP Volo then sued

VarigLog for breach of its obligations under the relevant loan

agreement in New York, Switzerland and Brazil (see Volo Logistics

LLC v Varig Logistica, S.A., 51 AD3d 554 [1st Dept 2008]. The

parties do not contest that it was as a result of this dispute

that the Brazilian shareholders denied the MP defendants access

to VarigLog's offices and systems and prohibited the MP

defendants from involvement in VarigLog's business affairs from

July 2007 until April 2008. In litigation commenced in Brazil by

the Brazilian shareholders seeking invalidation of the

shareholder agreement with the MP defendants, the Brazilian court

found that the shareholders had used VarigLog funds during that

time for their personal benefit, rather than for the company's

maintenance. It was also during that time frame that VarigLog

began to breach its lease agreements with plaintiffs.

Ultimately, the Brazilian court excluded the Brazilian

shareholders from having any role in the management and

operations of VarigLog, and vested "administration and

management" in MP Volo beginning April 1, 2008. MP Volo remained

subject to judicial oversight until December 9, 2008, when the

judicial administrators were relieved of any further duty to

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supervise and control MP Volo's management and administration of

VarigLog.1 Despite the judicial oversight, the Appellate

Division, in affirming Supreme Court's finding of the requisite

control, stated that "it cannot be ignored that the MP

defendants, as the sole shareholders of VarigLog at this time,

selected VarigLog's directors, and the record establishes that,

during the period in question, employees and consultants of the

MP defendants were closely monitoring VarigLog's operations" (118

AD3d at 431 [emphasis added]).

Indeed, during the relevant time frame, Peter Miller, a

former principal of defendant MatlinPatterson Global Advisors,

LLC, was first president and then a member of VarigLog's Board of

Directors. Chan Lup Wai Ohira, the sister of an MP Volo

director, Lap Chan, became president of VarigLog's Board of

Directors immediately after Miller and, from November 24, 2008

through at least October 19, 2011, she was the CEO of VarigLog.

Miller was directly involved in the negotiations over the

aircraft leases that are in dispute. In fact, he testified at

his examination before trial that he told plaintiffs that their

planes would be returned once the past due amounts that VarigLog

owed plaintiffs were settled -- that is, Miller informed

plaintiffs that reaching an agreement on any outstanding amounts

that VarigLog owed plaintiffs under the leases was a prerequisite

1

Approximately three months after judicial oversight

terminated, VarigLog filed for bankruptcy.

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to the physical return of plaintiffs' planes. Regarding the MP

defendants' day-to-day management of VarigLog, Miller also

testified that Lap Chan led a team of MP defendant employees and

consultants who worked at VarigLog, including an information

technology (IT) consultant. Notably, although VarigLog

maintained a separate computer system from the MP defendants, the

IT consultant recommended that VarigLog's IT operating costs be

reduced by 60% within three to four months of MP Volo being

imbued with authority over the management and administration of

VarigLog. To be sure, as the majority states, VarigLog and the

MP defendants were represented by separate counsel. However, it

is undisputed that, once the MP defendants became responsible for

the administration and management of VarigLog, they replaced

VarigLog's counsel, including in the prior New York action (Volo

Logistics LLC v Varig Logistica, S.A., 51 AD3d 554, supra).2

Significantly, the computer crashes that resulted in

the loss of the ESI at issue occurred on February 15, 2009 and

March 24, 2009 -- approximately 10 to 11 months after the MP

defendants obtained control of VarigLog pursuant to the Brazilian

2

Although the majority concludes that "there was no

evidence that the MP defendants had reason to believe that

VarigLog's counsel" -- hired by the MP defendants -- "was not

providing VarigLog adequate advice concerning ESI preservation"

(maj. op., at 11), any inquiry in that regard may have revealed

cause for concern, given that counsel later conceded that he "did

not discuss backing up existing electronic data that was being

preserved . . ., nor did the possibility of a computer crash that

might eradicate such data enter [his] thinking."

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court order, four to five months after this action commenced,

several months after judicial oversight terminated, and shortly

after plaintiff served VarigLog with its first set of requests

for the production of documents. As noted by the dissenting

Justice at the Appellate Division, it is undisputed that, even

"after the first crash occurred, MP . . . took no additional

action to ensure the preservation of data going forward" (118

AD3d at 439 [Richter, J., dissenting]). Rather, it hired a

company that unsuccessfully attempted to recover the data, and

then waited more than 10 months to disclose the fact that the

crashes had occurred. Critically, while the MP defendants were

"closely monitoring VarigLog's operations" (118 AD3d at 431),

VarigLog failed to maintain the affected disks and applications

following the crashes. That is, this case involves not only a

failure to preserve electronic data but, even more importantly,

the failure to preserve the affected disks and applications

involved in the crashes that plaintiffs could have had examined

to determine if the ESI could be restored.

II.

As noted above, my primary disagreement with the

majority centers on its analysis of the record evidence regarding

the MP defendants' culpable state of mind -- i.e., the extent of

their negligence. In concluding that the Appellate Division's

finding that defendant's conduct constituted ordinary negligence,

rather than gross negligence, more closely comports with the

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record, the majority fails to articulate what it actually means

by the phrase "gross negligence."3 In accordance with this

Court's traditional definition of gross negligence, the proper

standard is "the failure to exercise even slight care," and

whether a party's conduct amounts to gross negligence generally

presents a factual question (Food Pageant v Consolidated Edison

Co., 54 NY2d 167, 172 [1981]; see also Dalton v Hamilton Hotel

Operating Co., 242 NY 481, 487 [1926]). Upon a complete review

of the entire record before us, I conclude that the evidence more

closely comports with a finding that the MP defendants failed to

use even slight care -- i.e., that they were grossly negligent.4

While VarigLog's obligations to preserve evidence may

3

In determining the MP defendants' culpable state of mind,

the Appellate Division defined "gross negligence" as "'conduct

that evinces a reckless disregard for the rights of others or

smacks of intentional wrongdoing'" (118 AD3d at 433, quoting

Hartford Ins. Co. v Holmes Protection Group, 250 AD2d 526, 527

[1st Dept 1998]). As plaintiffs argue, that definition was inapt

because it was drawn from an unrelated context involving the rule

that contractual waiver of liability for gross negligence is

forbidden as a matter of public policy (see Hartford Ins., 250

AD2d at 527; see also Abacus Fed. Sav. Bank v ADT Sec. Servs.,

Inc., 18 NY3d 675, 683 [2012]).

4

Although I believe that the majority has overlooked

significant facts in the record that evince the MP defendants'

gross negligence, I agree that the trial court erred in

concluding that the failure to institute a litigation hold

amounts to gross negligence per se. Rather, "the failure to

adopt good preservation practices . . . [is but] one factor [to

be considered] in the determination of whether discovery

sanctions should issue" (Chin v Port Auth. of N.Y. & N.J., 685

F3d 135, 162 [2012] [internal quotation marks and citation

omitted]).

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have arisen prior to the time the MP defendants acquired control

of that company, the data losses in question occurred long after

the MP defendants assumed management and administration of

VarigLog. Moreover, once the MP defendants' close monitoring of

VarigLog's operations commenced, Miller -- an employee of the MP

defendants -- was directly involved in the unsuccessful

negotiations between VarigLog and plaintiffs over the leases at

issue. Nevertheless, although the MP defendants should have

anticipated litigation with plaintiffs at that point, they failed

to institute any litigation hold, as the majority concedes.

Furthermore, VarigLog may have had its own, separate

computer systems and counsel, but once the MP defendants were

authorized to manage VarigLog, their consultant sought to

downsize VarigLog's IT department and the MP defendants replaced

VarigLog's counsel with attorneys of their own choosing, one of

whom admittedly failed to consider the possibility of a computer

crash. The computer crashes occurred well after this action

commenced, after discovery requests were made, and after judicial

oversight of VarigLog had terminated. Thus, at the time of the

first crash, the MP defendants were administering VarigLog

without oversight, yet they took no steps thereafter to ensure

the preservation of the remaining data that survived the first

crash, despite the fact that litigation was ongoing. Most

troubling of all, the hardware and software -- the affected

"disks and applications" -- involved in the crashes were

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discarded after the second crash without any notice to

plaintiffs, thereby "depriv[ing] [plaintiffs] of the opportunity

to have their own expert examine the computer to determine if the

deleted files could be restored" (Harry Weiss, Inc. v Moskowitz,

106 AD3d 668, 670 [1st Dept 2013]).

Regardless of whether the MP defendants responded to

the discovery demands directed at them, the foregoing evidence

more closely comports with the trial court's finding that they

were grossly negligent in their oversight of VarigLog's discovery

obligations (see id. at 669-670; see also AJ Holdings Group, LLC

v IP Holdings, LLC, 129 AD3d 504, 505 [1st Dept 2015]; Ahroner v

Israel Discount Bank of N.Y., 79 AD3d 481, 482 [1st Dept 2010];

see generally Dorchester Fin. Holdings Corp. v Banco BRJ S.A.,

304 FRD 178, 182-184 [SDNY 2014]). Therefore, I would reverse

the Appellate Division's finding of ordinary negligence and

reinstate the trial court's finding regarding the level of

negligence displayed. The MP defendants' grossly negligent

conduct gives rise to a rebuttable presumption that the spoliated

evidence was relevant (see AJ Holdings, 129 AD3d at 505; VOOM, 93

AD3d at 45). Accordingly, inasmuch as the Appellate Division

placed the burden on plaintiffs to demonstrate relevance when it

should have placed the burden on the MP defendants to disprove

it, I would remit to that court for a determination of whether

the MP defendants rebutted the presumption of relevance and, if

not, for a discretionary determination of what sanction, if any,

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is warranted.

Although the issue of relevance should be revisited, I

emphasize that it should be considered by the Appellate Division,

rather than the trial court. I further take this opportunity to

express my disagreement with the majority's characterization of

the Appellate Division's analysis of relevance as having been

performed "without taking into account [plaintiffs'] arguments in

that regard, which were contained in [their] appellate brief"

(maj. op., at 12). In my view, the Appellate Division properly

considered plaintiffs' arguments and concluded that plaintiffs

incorrectly asserted that "the motion court found that the

evidence established that the lost documents . . . were relevant"

(118 AD3d at 435 n 9 [internal quotation marks omitted]).

Although the Appellate Division correctly concluded that

plaintiffs did not attempt to show relevance in the first

instance -- which would be their burden if the MP defendants'

conduct amounted only to ordinary negligence (see VOOM, 93 AD3d

at 45) -- plaintiffs argued in their appellate brief that the MP

defendants failed to successfully rebut the presumption of

relevance of several enumerated categories of documents, by

showing how those documents were relevant. The Appellate

Division expressly addressed and rejected plaintiffs' arguments

concerning the documents, performing a detailed analysis of the

relevance of all of the enumerated categories of documents set

forth in plaintiffs' brief (id. at 433-434). Thus, I disagree

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with the majority's claim -- made in an apparent attempt to

provide a rationale for remitting this case to the trial court,

rather than the Appellate Division -- that the Appellate Division

"all but ignored [plaintiffs'] arguments" (Maj. op, at 12).

However, even if the Appellate Division did overlook plaintiffs'

arguments concerning relevance -- which it plainly did not -- the

correct remedy would be a remittal to that court, not to the

trial court, for consideration of those arguments.

* * * * * * * * * * * * * * * * *

Order reversed, with costs, case remitted to Supreme Court, New

York County, for further proceedings in accordance with the

opinion herein and certified question answered in the negative.

Opinion by Judge Pigott. Chief Judge Lippman and Judges Abdus-

Salaam and Fahey concur. Judge Stein dissents in an opinion in

which Judge Rivera concurs.

Decided December 15, 2015

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