Just last month, I had the privilege of arguing an appeal on a substantial record before one of New York's appellate courts. Fortunately, this appellate court records the arguments, so I am able to share the video of the argument in this case with you.

The Nature of the Allegations in this Noncompete & Unfair Competition Case

This action arises from plaintiffs-respondents’ (hereinafter “plaintiffs-respondents” or “RCS”) claim that while working in his capacity as a sales manager for plaintiffs in 2014, former defendant Strauss was diverting RCS’s confidential, proprietary sales leads in exchange for commission payments to plaintiffs’ competitor, SGM Socher, Inc. a/k/a SMG Socher, Inc., which was, and is, wholly owned and dominated by defendant Greenwald (hereinafter “defendants-appellants” or “the SGM defendants”).

What Was at Issue on this Appeal

While there were several issues before the appellate court, the two main issues before the appeals court were the defendants' contention that the trial court had erred in two respects:
  1. In granting plaintiffs-respondents an adverse inference and summary judgment on their unfair competition cause of action due to defendants-appellants’ spoliation of nearly 8 full months’ worth of its WhatsApp chats with Strauss after litigation had already commenced, stating:

“[P]laintiffs are entitled to an adverse inference precluding defendants from contesting that the payments made during the times of the deleted WhatsApp messages to Strauss were commission payments made for diverted sales that would have gone to plaintiffs but for defendants’ actions.” [Decision at p. 13; R. 17].

  1. In denying those branches of defendants-appellants’ motion for summary judgment pertaining to plaintiffs’ damages claims, stating that

“[I]t is not speculative that some of these transactions were the result of Strauss providing plaintiffs’ confidential information such as pricing, enabling defendants to bid competitively lower and secure the transaction in their favor over plaintiffs. Thus, this Report does not conclusively show that plaintiffs’ damages are speculative and should be denied altogether” [Ibid. at p. 15; R. 19].

Not surprisingly, the defendants felt that the trial court had erred, and even abused its discretion, in ruling that they should be sanctioned for their "inadvertent" destruction of the evidence because "no one at that time knew that WhatsApp chats would be deleted if you transfer your phone over to someone else.

What the Appellate Court Held

In a decision that was handed down two days ago, on March 14, the Appellate Division, First Department held as follows:

"The adverse inference was a provident exercise of the motion court’s discretion “to provide proportionate relief to a party deprived of lost or destroyed evidence” (Pegasus Aviation I, Inc. v Varig Logistica S.A., 26 NY3d 543, 551 [2015]; see CPLR 3126). After this case was commenced, and despite oral instruction from counsel to maintain relevant documents, defendant Yosef Greenwald gave his assistant his iPhone, which he had used regularly for business communications. His assistant then, by sending messages of her own, overwrote his WhatsApp communications with plaintiffs’ sales representative concerning matters of central relevance to this case. The communications proved to be irretrievable. Accordingly, the motion court acted properly in granting the adverse inference precluding defendants from contesting that the payments defendants made to plaintiffs’ former sales representative during the periods when WhatsApp chats had been deleted, were commission payments made for diverted sales that would have gone to plaintiffs but for defendants’ actions. In light of the adverse inference, the court properly granted plaintiffs summary judgment as to liability on their unfair competition claim."

The appellate court continued as follows:

"We also affirm the motion court’s denial of defendants’ motion for summary judgment dismissing the amended complaint ...At a minimum, factual issues surround the question of damages, due, at least in part, to plaintiffs’ difficulties of proof caused by defendants’ spoliation of the WhatsApp communications or other discovery failures."

The Practical Takeway

At the risk of stating the obvious, the practical takeaway from this decision is that failing to have, and then abide by, an appropriate litigation hold to assure that no relevant evidence is deleted or destroyed (even mistakenly) once litigation is foreseeable (and certainly after it has already been commenced) can carry awfully severe consequences.

Jonathan Cooper
Connect with me
Non-Compete, Trade Secret and School Negligence Lawyer