Osberg v. Foot Locker, Inc. et al
Filing
167
CORRECTED OPINION & ORDER re 126 : For the aforementioned reasons, plaintiff's motion for sanctions is GRANTED. The parties shall confer on the wording of an appropriate adverse inference that the Court shall draw at trial in this matter. T hey shall provide proposals for the scope of such an inference to the Court - jointly if possible, and separately otherwise - within 10 days, or by Thursday, July 24, 2014. The Clerk of Court shall close the motion at ECF No. 126 and remove the Opinion & Order at ECF No. 156 from the docket. (Signed by Judge Katherine B. Forrest on 7/25/2014) (tn)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#: - - - - - - DATE FILED: 'JUL 2 5 2014
GEOFFREY OSBERG, on behalf of himself
and on behalf of all others similarly situated,
Plaintiff,
-v-
07-cv-1358 (KBF)
CORRECTED OPINION
& ORDERl
FOOT LOCKER, INC., et al.,
Defendants.
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KATHERINE B. FORREST, District Judge:
On February 23, 2007, plaintiff Geoffrey Osberg initiated this action against
his former employer, Foot Locker, claiming that it violated the Employee
Retirement Income Security Act ("ERISA") through converting its "defined benefit"
pension plan to a "cash balance" retirement plan by (1) issuing false and misleading
plan descriptions in violation of Section 102(a) of ERISA, (2) breaching its fiduciary
duties in violation of Section 404(a) of ERISA, and (3) failing to give plan
participants notice in violation of Section 204(h) of ERISA.
Before the Court is plaintiffs motion for spoliation sanctions. (ECF No. 126.)
For the reasons set forth below, that motion is GRANTED.
1
The Court has corrected pages 20 and 21 of this opinion to reflect that the Court will be the
factfinder rather than a jury. The Court has made no other changes.
I.
BACKGROUND
A. Factual Background
Prior to this lawsuit, two other lawsuits relating to similar subject matter
regarding the Foot Locker Retirement Plan were filed on June 23, 2006 and
November 30, 2006. Despite these pending lawsuits, defendants did not issue a
litigation hold on the relevant subject until October 8, 2009. In short, two to three
years passed between the filing of the first lawsuit and the third before a litigation
hold relating to the relevant subject matter was put in place. During this period,
relevant documents were destroyed.
On June 23, 2006, defendants were sued in Patino v. Foot Locker, 06-cv-4879
(LBS). As in this case, plaintiff alleged that Foot Locker had misled its employees
concerning the conversion of the company's retirement plan from a defined-benefit
plan into a cash-balance plan. (Compl., Patino v. Foot Locker, No. 06-cv-04879
~~
2,
6, 18, ECF No. 1.) As in this case, plaintiff alleged that Foot Locker violated ERISA
through concealing the "wear-away" effect caused by the conversion, by which
certain older plan participants would have their retirement benefits frozen and
would accrue no new benefits unless and until their cash balance caught up to and
exceeded their frozen benefits. (See id.
~
44.) Plaintiff voluntarily dismissed that
lawsuit on September 25, 2006. (Shapiro Deel. Ex. 2, ECF No. 130.) No litigation
hold was put into place with regard to the Patino suit.
This Court has previously stated that, based on the Patino lawsuit,
defendants should have issued a litigation hold in June or July 2006. (ECF No. 90.)
2
At the time of the 2006 lawsuit, Foot Locker had in place a set of document
retention guidelines that compelled its General Counsel to immediately distribute a
"document retention memorandum" to individuals with control over documents
"needed for a legal action in which the Company is involved or expects to become
involved." (June 8, 2012 Gottesdiener Deel. ("June 2012 Gottesdiener Deel.") Ex. 1
(Eichberger Deel.), at Ex. C, at FL-OSB 009770, ECF No. 78.) On July 6, 2006,
Proskauer Rose LLP, defendants' outside legal counsel, stated on a "To Do List"
that defendants should issue a "[d]ocument preservation memo." (Sept. 13, 2012
Gottesdiener Deel. ("Sept. 2012 Gottesdiener Deel.") Ex. 3, at FL-PRIV 000163, ECF
No. 128.) In addition, defense counsel discussed with Foot Locker the need to
collect documents from Foot Locker personnel, issue a litigation hold memorandum,
and notify third parties of the litigation. (Shapiro Deel. Ex. 5 (Sheehan Dep.), at
236:23-238: 15.) Foot Locker did notify certain third parties of the lawsuit and
collected certain relevant documents from Foot Locker personnel. (Id. Ex. 8.)
However, defendants did not implement a litigation hold when the Patino case was
filed in 2006. (Sept. 2012 Gottesdiener Deel. Ex. 4 (Sheehan Dep.), at 180:23181 :08.)
On November 20, 2006, plaintiff in the instant case sued defendants claiming
that Foot Locker had miscalculated his pension benefit under the cash-balance
plan. Osberg v. Foot Locker, Inc., et al., No. 06-cv-6620 (N.D. Ill. Nov. 30, 2006).
On February 12, 2007, plaintiff voluntarily dismissed that complaint. (Shapiro
Deel. Ex. 4.)
3
On February 23, 2007, plaintiff initiated the instant litigation, claiming that
the converted plan's "wear-away" effect effectively "froze" certain employees'
benefits, and that defendants' adoption of the plan thereby violated ERISA. (ECF
No. 1.) Again, defendants collected relevant documents and notified third parties of
the lawsuit. (Shapiro Deel. Exs. 8-10.) However, defendants did not issue a
litigation hold until October 8, 2009. (Eichberger Deel.
ii
15.)
Defendants claim that, after distributing the litigation hold memorandum,
they worked with counsel to determine whether any information had been lost.
This investigation revealed that certain electronic documents were not retained,
and that certain hard-copy documents related to human resources ("HR") were
stored at the HR File Room in Foot Locker's headquarters. (Shapiro Deel. Exs. 1416.) Certain other HR-related documents, including those related to benefits for
subsidiaries, wage-and-hour matters, and fair employment practices, were typically
stored at an off-site facility at Camp Hill, Pennsylvania rather than in the HR File
Room. (Shapiro Deel. Ex. 18 (Peck Dep.), at 143:24-144:17.) However, Dennis
Sheehan, Foot Locker's vice president and deputy general counsel, testified that he
could only "speculat[e]" as to whether any such investigation occurred. (Sept. 2012
Gottesdiener Deel. Ex. 4 (Sheehan Dep.), at 359:13-360:05.)
Documents subsequently produced during discovery demonstrate that certain
potentially relevant documents were lost or destroyed between June 2006 and
October 2009, the period during which no litigation hold was in place. Later
discovery revealed two categories of documents that could not be recovered: (1)
4
boxes stored at Foot Locker's long-term storage facility at Camp Hill and (2)
handwritten notes and other documents kept by Carol Kanowicz, a Foot Locker
manager.
On March 1, 2012, in response to plaintiffs discovery requests, defendants
admitted that "some boxes that could have contained potentially relevant
information were purged/destroyed," and that "certain boxes of hard-copy
documents sent off-site by various personnel in Defendants' Human Resources
Department were destroyed in 2007 and 2008." (Eichberger Deel.
~iJ
15, 18(c)-(d).)
However, defense counsel also stated that they "reviewed the hard-copy box i.d.
slips of those identified as destroyed in this period" at the Camp Hill facility "and
ascertained that those boxes did not contain potentially relevant information." (Id.
il 18(e).) Defense counsel also claimed that the untimely distribution of the
litigation hold memorandum would not have affected electronic documents:
electronic documents created after 1998 were not subject to routine retention and
destruction policies, and other electronic "materials on the Proskauer system are, as
a practical matter, never destroyed." (Shapiro Deel. Ex. 30, at 2.)
Later in 2012, plaintiffs learned that defendants had destroyed documents
other than those at Camp Hill. On March 29, 2012, Carol Kanowicz, a Foot Locker
manager and member of the team that designed the cash-balance plan, testified
that two or three large filing "cabinet drawers" of handwritten notes and other
hard-copy documents that had been "generated during the design phase" were
"definitely in the file room" when she retired in fall 2006. (June 2012 Gottesdiener
5
Deel. Ex. 26 (Kanowicz Dep.), at 107:08-108:05.) She further testified that defense
counsel were unable to locate all the materials that they expected to find and that
they were "surprised not to find" them. (Id. at 135:14-136:17.) Moreover,
documents in the file room were at times destroyed due to "periodic" "spring
cleanings." (Sept. 2012 Gottesdiener Deel. Ex. 23 (Peck Dep.), at 39:23-40:14.)
Then, on July 27, 2012, defendants produced an excerpt from the database of
their off-site storage facility at Camp Hill that identified 29,503 boxes that were
destroyed at Camp Hill between June 2006 and October 2009. (Sept. 2012
Gottesdiener Deel.
~l
2.) Of these 29, 503 boxes, 305 were labeled as originating from
the "HR," "HR/Benefits," or "Benefits" department, and 675 as originating from the
"Legal" department. (Id.
~
3.) Plaintiff reviewed this database and determined that
141 potentially relevant boxes were destroyed between June 2006 and October
20m3. (Id.) Plaintiff created a spreadsheet of these 141 boxes based on their
database descriptions. (Id. Exs. 1, 2.) According to the box ID slips for those boxes,
they contained documents relating to, inter alia, a "Cash Balance Plan
Presentation,'' "Mercer CB+ 401(k),'' "Video - the coolest number 401(k)," "Meeting
H.R.," "Pension Plan R[etirement] I[nvestment] C[ommittee]," "Benefit
Comparisons - 1999," and "H.R. Confidential Info." (Id.)
Although those documents were apparently destroyed between 2006 and
2009, defendants produced other documents concerning the cash balance conversion
in 1 ~)95 to 1996, including, inter alia, draft and completed presentation materials
for management, draft and completed communications to participants, and notes of
6
meetings discussing the contemplated cash-balance design, including the wearaway feature. (See, e.g., Shapiro Deel. Ex. 24.) Plaintiff has not argued that these
notes show any intention to conceal information about the new retirement plan's
wear-away feature. (See, e.g., id.)
B. Procedural History
On December 6, 2012, the Court granted defendants' motion for summary
judgment on the basis that plaintiff failed to state a plausible Section 204(h) notice
claim, that his Section 102(a) claim was time-barred, and that he failed to raise a
genuine issue of material fact on his Section 102(a) and Section 404(a) claims. (See
ECF No. 138.) The Court also denied plaintiffs motion for spoliation sanctions as
moot, finding that, even if defendants had destroyed relevant documents, they
would not have affected the outcome of defendants' motion, because plaintiff would
nonetheless be unable to show actual harm. (Id. at 14-15.)
On February 13, 2014, the United States Court of Appeals for the Second
Circuit affirmed this Court's dismissal of plaintiffs Section 204(h) claim, declined to
decide whether plaintiffs Section 102(a) claim was time-barred, vacated this Court's
dismissal of plaintiffs Section 404(a) claim, and remanded this case for further
consideration of that claim. (ECF No. 144.) On June 5, 2014, the Court allowed
plaintiff to renew his spoliation motion, and plaintiff did so on June 6, 2014. (ECF
Nos. 152, 153.)
7
II.
APPLICABLE LEGAL PRINCIPLES
"Spoliation is the destruction or significant alteration of evidence, or the
failure to preserve property for another's use as evidence in pending or reasonably
foreseeable litigation." West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d
Cir.
19~)9).
·'A party
<:~vichmce
s(~cking
an adverse inforence instruction based on the destruction of
must establish (1) that the party having control over the evidence had an
obligation to
pn~serve
it at the time it was destroyed; (2) that the records were
destroyed with a culpable state of mind; and (3) that the destroyed evidence was
relevant to the party's claim or defense such that a reasonable trier of fact could
find that it would support that claim or defense." Residential Funding Corp. v.
DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002) (internal quotation marks
omitted).
A. Obligation to Preserve Evidence
''[AJnyone who anticipates being a party or is a party to a lawsuit must not
destroy unique, relevant evidence that might be useful to an adversary." Zubulake
v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003). "The obligation to
preserve evidence arises when the party has notice that the evidence is relevant to
litigation or when a party should have known that the evidence may be relevant to
future litigation." Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 436 (2d Cir.
2001).
B. Defendants' State of Mind and Relevance of the Evidence
8
"The state of mind of a party that destroys evidence is a major factor in
determining whether an adverse inference is the appropriate sanction." Turner v.
Hudson Transit Lines, Inc., 142 F.R.D. 68, 74 (S.D.N.Y. 1991).
"Where a party destroys evidence in bad faith, that bad faith alone is
sufficient circumstantial evidence from which a reasonable fact finder could
conclude that the missing evidence was unfavorable to that party. Similarly, a
showing of gross negligence in the destruction or untimely production of evidence
will in some circumstances suffice, standing alone, to support a finding that the
evidence was unfavorable to the grossly negligent party." Residential Funding
Corp., 306 F.3d at 109 (citation omitted).
By contrast, "where the destruction was merely negligent," plaintiff must also
"demonstrate that the destroyed evidence would have been favorable to" him, "since
in those cases it cannot be inferred from the conduct of the spoliator that the
evidence would even have been harmful to him." Zubulake, 220 F.R.D. at 221; see
also Residential Funding Corp., 306 F.3d at 109 ("[T]he 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.") (internal quotation marks
omitted); Turner, 142 F.R.D. at 77 ("[W]here the destruction was negligent rather
than willful, special caution must be exercised to ensure that the inference is
commensurate with information that was reasonably likely to have been contained
in the destroyed evidence.").
9
To establish the relevance of destroyed documents, plaintiff must
"demonstrate through extrinsic evidence, such as other existing documents or
deposition testimony, that a reasonable jury could find that the missing [evidence]
would have been favorable to his claims." Curcio v. Roosevelt Union Free Sch. Dist.,
283 F.R.D. 102, 113 (E.D.N.Y. 2012).
C. Proper Sanction for Spoliation
"Although a district court has broad discretion in crafting a proper sanction
for spoliation, we have explained that the applicable sanction should be molded to
serve the prophylactic, punitive, and remedial rationales underlying the spoliation
doctrine. The sanction should be designed to: (1) deter parties from engaging in
spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully
created the risk; and (3) restore the prejudiced party to the same position he would
have been in absent the wrongful destruction of evidence by the opposing party."
West, 167 F.3d at 779 (citation and internal quotation marks omitted).
III.
DISCUSSION
A. Obligation to Preserve Evidence
It is clear that defendants were under an obligation to preserve the evidence
in question in this case. See Zubulake, 220 F.R.D. at 217 ("[A]nyone who
anticipates being a p
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