American Lecithin Company et al v. Rebmann

Filing 412

ORDER: As Matthias's Req. for Sanctions pursuant to Fed. R. Civ. P. 37(e)(2)(B) was GRANTED, fees are owed. When a Court imposes sanctions under Rule 37, the Court "must order the disobedient party, the attorney advising that party, or b oth to pay the reasonable expenses, including attorney's fees... unless the failure was substantially justified or other circumstances make an award of the expenses unjust." Fed. R. Civ. P. 37(b)(2)(C). Here, as the Court has imposed Rule 37 sanctions and finds no substantial justification, attorney's fees for the motion at issue are warranted. Given counsel's current preoccupation with the impending trial, the assessment of costs and fees any similar applications will be adjourned until after the final determination of this action. SO ORDERED. (Signed by Magistrate Judge Jennifer E Willis on 10/31/2023) (tg)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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AMERICAN LECITHIN CO., LIPOID GmbH,
LIPOID LLC, and PHOSPHOLIPID GmbH,
ORDER

Plaintiffs,

12-cv-929 (VSB) (JW)

-againstCARSTEN MATTHIAS REBMANN,
Defendant;
Counterclaim and
Third-Party Plaintiff,
-againstHERBERT REBMANN, LIPOID
GRUNDSTUECKS GmbH, LIPOID
VERWALTUNGS, GmbH, LIPOID AG, and
COMPLECTOR AG,

Third-Party
Defendants.
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JENNIFER E. WILLIS, United States Magistrate Judge:
This action has been pending for over a decade and was initially commenced
on February 6, 2012. Dkt. No. 1. On February 13, 2014, the first answer with
counterclaims was filed naming Third-Party Defendant Dr. Herbert Rebmann (“Dr.
Rebmann”) as a party to this action. Dkt. No. 82. The instant dispute regarding
sanctions arises from the alleged failure to preserve, search, and provide emails from
Dr. Rebmann’s email account “[e-mail]” (the “Subject Email
Account”). Dkt. No. 374.

On October 13, 2023, this Court issued an order for Plaintiffs and Third-Party
Defendant (together, the “Lipoid Group”) to show cause as to why the Court should
not impose sanctions pursuant to its authority under Fed. R. Civ. P. 37(e) for
spoliation and failure to preserve relevant information. Dkt. No. 380 (“OTSC”). In
response to the OTSC, on October 18, 2023, the Lipoid Group submitted a
memorandum of law asking that the Court impose no sanctions arguing that Dr.
Rebmann took reasonable measures to preserve, Dkt. No. 386 (“OTSC Resp.”),
including a supporting declaration of Gregory F. Hauser, who is the Lipoid Group’s
current counsel, Dkt. No. 386, Ex. 1 (“Hauser Decl.”); a declaration of Sherica Bryan,
who was formerly employed by Plaintiff’s counsel, Dkt. No. 386, Ex. 7 (“Bryan Decl.”);
a declaration from Andreas Zolodziej, who is a representative of Plaintiff Lipoid
GmbH and Plaintiff Phospholipid GmbH, Dkt. No. 386, Ex. 8 (“Zolodziej Decl.”); a
declaration of Third-Party Defendant Dr. Herbert Rebmann, Dkt. No. 386, Ex. 9 (“Dr.
Rebmann Decl.”); and a declaration of Dr. Rebmann’s wife, Birgit Rebmann, Dkt. No.
386, Ex. 10 (“B. Rebmann Decl.”).
Defendant/Third-Party Plaintiff (“Matthias”) requests that this Court impose
an adverse inference sanction for spoliation. Dkt. No. 392 (“Req. for Sanctions”). In
a prior letter prompting the OTSC, Matthias requested sanctions, “including but not
limited to case ending sanctions, an award of attorneys’ fees, or an adverse jury
instruction.” Dkt. No. 374. The Lipoid Group responded that Matthias had not met
his burden of showing Dr. Rebmann acted with an intent to deprive Matthias of the
information. Dkt. No. 403 (“Reply”).
This Court, having heard the arguments on October 27, 2023, and reviewed
the moving papers, is deeply troubled by the pattern and practice of dilatory discovery
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tactics in this action. For the reasons stated below, and more fully on the record, this
Court GRANTED the request for an adverse inference jury instruction, and awarded
Matthias the fees and costs associated with the sanctions briefing.
BACKGROUND 1
The operative amended complaint in this action was filed on April 10, 2012.
Dkt. No. 12 (the “Am. Compl.”). Plaintiffs are a collection of companies that specialize
in the lipoid business. Dkt. No. 340 at 3-4. Matthias was previously an officer of
Plaintiff American Leicithin Company and Plaintiff Lipoid, LLC. Am. Compl. at ¶
11. Plaintiff Lipoid GmbH and Plaintiff Phospholipid GmbH are related companies
organized under the laws of Germany. Id. at ¶¶ 2,4. Plaintiffs’ lawsuit arises out of
a claim that Matthias registered various company domains in his own name and/or
transferred various domains to his own name. Id. at ¶¶ 11-28. Specifically, Plaintiffs
assert claims against Matthias arising out of the Anticybersquatting Consumer
Protection Act (the “ACPA”), 15 U.S.C. § 1125(d). Am. Compl. at ¶ 6. Plaintiffs also
have surviving claims for breach of fiduciary duty and conversion. Dkt. No. 400 at 3.
Matthias has counterclaims for (i) wrongful termination, alleging in part that
his father Third-Party Defendant Dr. Rebmann orchestrated his termination because
he would not file fraudulent tax returns and (ii) conversion against Dr. Rebmann for
allegedly

converting

Matthias’s

10%

equity

interest

in

non-party

Lipoid

Grundstuecks GmbH (“Lipoid G”). Dkt. No. 400 at 8. The resolutions of Lipoid G
indicated that Matthias’s interests were taken away “for cause” in part because

This Court presumes familiarity with the facts of the case and only recites those necessary to resolve
the instant dispute over sanctions.

1

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Matthias had “failed to file tax returns” on behalf of Plaintiff Lipoid, LLC and
American Lecithin Company. Dkt. No. 293 at 5.
A. The Subject Email Account and Relevant History
The Lipoid Group alleges that Dr. Rebmann began using the Subject Email
Account after Matthias was terminated in August 2011. OTSC Resp. at 4. The
domain associated with the Subject Email Account is controlled by Plaintiff Lipoid
GmbH, another named party in this action. Id. The Lipoid Group further states that
due to confidentiality concerns, emails from the Subject Email Account were stored
on Dr. Rebmann’s computer and not saved on the email server. Id. at 5. Dr. Rebmann
alleges, “[i]n the time period of 2006-2012, [his] emails were never on the exchange
server at Lipoid GmbH or Phospholipid GmbH, and were instead only on the laptop
[he] was using, stored locally and not otherwise backed up.” Dr. Rebmann Decl. at 2.
Counsel for the Lipoid Group attests that on March 21, 2012, counsel received
a letter from Matthias’s attorney’s raising the duty to preserve evidence and
forwarded the letter to Dr. Rebmann the same day. OTSC Resp. at 6. Plaintiffs’
former counsel does not recall a specific conversation with Dr. Rebmann on
preserving emails, but alleges that their standard practice was to have a conversation
with clients about document preservation. Bryan Decl.
On February 20, 2014, Matthias sent his first request for production of
documents to Dr. Rebmann, which included a direction to “preserve all relevant
and potentially relevant information” (bold in the original text).

Req. for

Sanctions at 5. Dr. Rebmann was deposed on April 29, 2015, and he testified that he
had relevant emails and documents on his personal computer. Id. at 4. On May 20,
2015, the Lipoid Group’s counsel received a follow-up communication for documents
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discussed at Dr. Rebmann’s deposition, including “[a]ll documents relating to the tax
returns that [Matthias] allegedly refused or failed to file.” Id., Ex. C at 2. From July
3, 2014 to September 30, 2017, discovery on the counterclaims was stayed
intermittently pending the Court’s resolution of various motions to dismiss in this
action. Reply at 3-4. During a hearing on sanctions on October 27, 2023, when asked
whether Dr. Rebmann’s email retention procedures changed at all in response to the
litigation notice, counsel for the Lipoid Group responded that no change in retention
practices occurred. 2
Dr. Rebmann alleges he “had a series of laptops [since 2011]. One ha[d] been
destroyed, another lost, and one damaged. As a result, only a limited number of [his]
emails to and from [Matthias] during the relevant time period [had] been saved.”
Dkt. No. 377, Ex. 2 at 2. Dr. Rebmann claims he lost the first relevant laptop in 2016.
Dr. Rebmann Decl. at 3.
On May 24, 2023, this Court heard oral argument regarding a discovery
dispute and discussed relevant tax issues with the Parties. See Transcript at Dkt.
No. 340. On May 24, 2023, this Court ordered Plaintiffs to “turn over any responsive
documents in their possession related to the tax issues” discussed in the case. Dkt.
No. 330 at 2. On August 25, 2023, the Court denied Matthias’s request to compel
certain communications, but directed Plaintiffs “to produce the relevant tax emails
by September 1, 2023.” Dkt. No. 350. After many disputes over tax communications
and whether all documents had been produced, on October 2, 2023, this Court ordered
the Lipoid Group to prepare an affidavit outlining their search protocols and
endeavors to retrieve tax related email communications. Dkt. No. 369. The Order
2 The Court notes that at the time of the filing of this order, the transcript of the October 27, 2023
hearing was not yet available.

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for an affidavit prompted the discovery that the Subject Email Account had never
been searched. Dkt. No. 374. The Lipoid Group’s counsel, Matthias, and the Court
were not aware of Dr. Rebmann’s “lost” laptop until October 2023.
Trial in this matter is imminently scheduled for November 7, 2023, before
District Judge Broderick. Dkt. No. 380.
LEGAL STANDARD
A District Court has “broad discretion to determine an appropriate sanction
for discovery violations based on the facts of the particular case.” R.F.M.A.S., Inc. v.
So., 271 F.R.D. 13, 24 (S.D.N.Y.2010) (citing Residential Funding Corp. v. DeGeorge
Fin. Corp., 306 F.3d 99, 101 (2d Cir.2002)). “An appropriate sanction is one that will:
(1) deter parties from violating discovery obligations; (2) place the risk of an erroneous
judgment on the party that wrongfully created the risk; and (3) restore the prejudiced
party to the same position that it would have been in absent the discovery violation
by an opposing party.” Id. (citing West v. Goodyear Tire & Rubber Co., 167 F.3d 776,
779 (2d Cir.1999)).
“Spoliation is 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. 1999). The Court may impose sanctions where
electronically stored information (i) should have been preserved, (ii) is lost because a
party failed to take reasonable steps to preserve it, and (iii) cannot be restored or
replaced through additional discovery. See Fed. R. Civ. P. 37(e). Upon finding that
a party acted with the intent to deprive another party, the Court may “(A) presume
that the lost information was unfavorable to the party; (B) instruct the jury that it

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may or must presume the information was unfavorable to the party; or (C) dismiss
the action or enter a default judgment.” Fed. R. Civ. P. 37(e)(2).
When a party seeks a jury instruction of adverse inference for spoliation of
electronically stored information, it must demonstrate: “(1) that the party having
control over the evidence had an obligation to preserve 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.”
Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 430 (S.D.N.Y. 2004). The party
requesting an adverse inference, “bears the burden to show by clear and convincing
evidence that the alleged spoliator acted with the intent to deprive the movant of the
information for use in the litigation.” Europe v. Equinox Holdings, Inc., 592 F. Supp.
3d 167, 175 (S.D.N.Y. 2022).
DISCUSSION
A. Spoliation Sanctions
Throughout my years of practice and relatively short tenure on the bench, I have
not seen such an egregious case of spoliation. One month before trial, Dr. Rebmann
raised for the first time that he lost the only laptop where certain emails were stored
over seven years ago. Dr. Rebmann Decl. at 3. The threshold question with respect
to spoliation is whether evidence has been lost. See La Belle v. Barclays Capital Inc.,
340 F.R.D. 74, 82 (S.D.N.Y. Jan. 13, 2022)(“[S]poliation sanctions can be imposed only
when the party seeking such sanctions demonstrates that relevant evidence has been
lost.”). Here, the Lipoid Group concedes that, “[g]iven Dr.Rebmann’s use of the POP3
email protocol . . . copies of the [Subject Email Account] emails stored only on the lost
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laptop became inaccessible.” OTSC Resp. at 5. Given that emails were clearly lost,
the Court need only find that the duty to preserve existed, Matthias is prejudiced by
the missing emails, and Dr. Rebmann acted with the intent to deprive Matthias of
relevant information.
1. Duty to Preserve and Reasonable Steps to Preserve
“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 Limited v. Federal Express Corp., 247
F .3d 423, 436 (2d Cir. 2001). “To fulfill this preservation obligation, a litigant must
take affirmative steps to prevent inadvertent spoliation.” R.F.M.A.S., Inc. v. So, 271
F.R.D. 13, 24 (S.D.N.Y. 2010))
The 2012 complaint in this action accused Matthias of wrongfully converting
internet domains. Dkt. No. 1 ¶ 11. Arguably at that time, the Subject Email Account
that Dr. Rebmann created due to the allegedly converted email domains was at issue.
Req. for Sanctions at 3. In 2014, Dr. Rebmann became a Party to this action. Dkt.
No. 82. The most generous application of the duty to preserve is that it attached
when that first answer with counterclaims was filed on February 13, 2014. Id. This
duty to preserve was in place long before the laptop was “lost” in 2016.
The Lipoid Group concedes the duty to preserve existed when the laptop was
lost, and instead argues that reasonable methods to preserve the emails were taken.
OTSC Resp. at 9-10. Matthias counters that no efforts to search, preserve, or produce
emails from the Subject Email Account were taken for over a decade. Req. for
Sanctions at 2. This Court agrees that based on the record before it, no affirmative
steps were taken to prevent spoliation.
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“A party or anticipated party must retain all relevant documents . . . in
existence at the time the duty to preserve attaches, and any relevant documents
created thereafter.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y.
2003). To this end, a party must “suspend its routine document retention/destruction
policy and put in place a ‘litigation hold’ to ensure the preservation of relevant
documents.” Id. The Court has found “it is not sufficient to notify all employees of a
litigation hold and expect that the party will then retain and produce all relevant
information.” Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 432 (S.D.N.Y. 2004).
Instead, “counsel should instruct all employees to produce electronic copies of their
relevant active files. Counsel must also make sure that all backup media which the
party is required to retain is identified and stored in a safe place.” Id. at 434.
Here, counsel attests to forwarding a preservation email from Matthias’s
counsel to Dr. Rebmann, OTSC Resp. at 6, but prior counsel does not remember
whether the duty to preserve was actually discussed with Dr. Rebmann, Bryan Decl.
Additionally, during oral argument on October 27, 2023, the Lipoid Group’s counsel
conceded that no changes to document retention practices were made as a result of
this litigation. Neither Dr. Rebmann, nor Plaintiff Lipoid GmbH who owned the
email server, made any effort to shield the Subject Email Account from spoliation.
This Court finds that no reasonable efforts to preserve were taken.
2. Prejudice and Relevance
According to Matthias, Dr. Rebmann’s missing emails from the Subject Email
Account are clearly relevant to Matthias’s claims and he is prejudiced by the inability
to examine them. Req. for. Sanctions. The Lipoid Group argues that Matthias has
not met his burden of showing that missing emails would support his case. OTSC
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Resp. at 11-12. On balance, the Court is persuaded that Matthias has met his burden
of showing that the missing communications are relevant and there is significant
prejudice to him from the missing communications.
“Relevance and prejudice may be presumed when the spoliating party acted in
bad faith or in a grossly negligent manner.” Ottoson v. SMBC Leasing and Fin., Inc.,
268 F. Supp. 3d 570, 581 (S.D.N.Y. 2017) (quoting another source). “In the context of
a motion for spoliation sanctions, ‘relevance’ means that ‘the destroyed evidence
would have been favorable to the movant.’” Id. at 580 (citations omitted).
Here, while the inaction of the Lipoid Group was certainly negligent, Matthias
also offers decisive evidence of relevance and prejudice. During Dr. Rebmann’s April
2015 deposition, he mentioned that he had relevant letters and communications with
Matthias on his computer. Req. for Sanctions at 4. Additionally, Matthias has shown
that tax communications with the Lipoid Group’s outside accountant include emails
that Dr. Rebmann has not produced from the Subject Email Account.

Req. for

Sanctions at 9-10. The Court previously determined the relevance of these tax related
email communications in its prior order on May 24, 2023. Dkt. No. 330.
Further, with respect to prejudice, the Lipoid Group’s argument that any email
communications about Matthias would also be in Matthias’s possession is not
persuasive. Both the tax related email communications and other communications
about Matthias’s termination would not be in his possession. The Court is satisfied
that the missing emails are relevant to Matthias’s arguments and their absence is
prejudicial to him.

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3. Intent to Deprive
Matthias requests that this Court impose an adverse inference, one of the
harshest penalties under Fed. R. Civ. P. 37(e)(2). Req. for Sanctions at 2. The Lipoid
Group argues that Matthias has not shown by clear and convincing evidence that Dr.
Rebmann acted with the intent to deprive.

See generally Reply.

Conversely,

Matthias countered during the hearing on October 27, 2023, that the intent to deprive
is clear based on the lack of preservation efforts and the record before the Court.
The intent to deprive can be inferred where a party has significantly failed in
its obligations to preserve and collect relevant documents.

Europe v. Equinox

Holdings, Inc., 592 F. Supp. 3d 167, 175 (S.D.N.Y. 2022). It can also be inferred where
a significant loss of data cannot be “credibly explained other than by bad faith.” Id.
(internal quotation marks and citation omitted). This intent requirement must go
beyond the intent to destroy electronically stored information, and show the intent to
deprive another party of evidence. Id. (citing Leidig v. Buzzfeed Inc., 2017 WL
6512353, at *11 (S.D.N.Y. Dec. 19, 2017)).
In Moody v. CSX Transportation, Inc., a district court found the intent to
deprive warranting an adverse inference where “[a party’s] failure to make any effort
over the course of four years to confirm that the data was properly preserved . . .
undercut[] the reasonableness and credibility of their asserted belief that the
material was still accessible.” Moody v. CSX Transportation, Inc., 271 F. Supp. 3d
410, 431 (W.D.N.Y. 2017). Similarly, here, while the Lipoid Group argues that Dr.
Rebmann knew of his duty to preserve and tried to comply with his obligations to
preserve, OTSC Resp. at 10-11, that argument is belied by the fact that when Dr.
Rebmann’s laptop went missing, he notified no one. There were many inflection
points in this case where Dr. Rebmann could have (and should have) notified his
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counsel and Matthias’s counsel about the missing laptop containing relevant emails.
In 2016 when the laptop went missing, in 2017 when the discovery stay was lifted, or
even earlier in 2023 when this Court ordered emails be produced.
The actions of Dr. Rebmann are those of a party with the conscious intent to
shield information from another party. In Moody, the court noted that even excusing
the initial failure to preserve as an error, the “repeated failure over a period of years
to confirm that the data ha[d] been properly preserved despite its ongoing and
affirmative Rule 11 and Rule 26 obligations . . . [was] so stunningly derelict as to
evince intentionality.” Moody at 432 (emphasis added). Applying this logic to the
instant action, this Court is particularly troubled that there was no mention of a “lost”
laptop until this Court ordered an affidavit be produced regarding the tax related
emails.
The only evidence that the laptop was indeed lost are affidavits from Dr.
Rebmann and his wife Birgit Rebmann. Dr. Rebmann Decl.; B. Rebmann Decl. At
the outset, this Court is skeptical of the assertion that Dr. Rebmann lost and/or
damaged three laptops beyond recovery over the years. This is improbable and the
affidavits provided are shockingly vague about what actually happened. Rather than
providing any details or factual support, the Court is expected to simply rely on Dr.
Rebmann’s assertion that “[i]n 2016, [he] lost the laptop [he] was using.”

Dr.

Rebmann Decl. at 3. The affidavits do not address what happened to his subsequent
laptops other than to say that in 2019, “the hard drive in [Dr. Rebmann’s]
replacement laptop was damaged.” Dr. Rebmann Decl. at 3. The Court expects that
losing or damaging a laptop where business communications were primarily stored
would be a significant event for Dr. Rebmann, prompting more information and recall
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than what was provided to the Court.

Additionally, it strains reason that Dr.

Rebmann knew of the importance of preservation in this action yet did nothing to
notify his counsel or the Court when relevant communications stored on his laptop
were lost in 2016.
Further, the Court notes that Dr. Rebmann has recently undergone a
competency examination in this action, Dkt. No. 404. In addition to this Court’s
concerns about the veracity of Dr. Rebmann’s declaration generally, this adds an
additional specter of doubt. While Dr. Rebmann’s declaration attests that he “could
and would testify competently to the matters set forth [therein,]” this is belied by the
challenge to whether he is competent to testify at all in this matter. The Court is
similarly not at all moved by the declaration of Birgit Rebmann which states she has
“personal knowledge” of the methods in which the Subject Email Account emails were
stored. B. Rebmann Decl.
Based on the record before the Court, including the suspicious timing of the
revelation of the “lost” laptops, Dr. Rebmann’s prior testimony admitting he had
relevant information stored on his computer, Dr. Rebmann’s failure to take any active
steps to preserve emails, and Dr. Rebmann’s failure to disclose the missing laptop to
counsel or to the Court, this Court is persuaded by clear and convincing evidence that
Dr. Rebmann acted with the intent to deprive Matthias of material relevant to
litigation. A common sense reading of the timeline of this litigation supports as much.
Therefore, an adverse inference is appropriate. 3

Considering the gravity of the spoliation in this action, this may have been the extremely rare
situation where case terminating sanctions pursuant to Fed. R. Civ. P. 37(e)(2)(C) would have been
appropriate. However, because none were sought by Matthias, see Req. for Sanctions, the Court need
not address that here.
3

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Matthias does not include in his papers whether he seeks a permissive or a
mandatory adverse inference pursuant to Fed. R. Civ. P. 37(e)(2)(B). See Req. for
Sanctions.

Given the gravity of the spoliation violation, this Court believes a

mandatory adverse inference is warranted. A mandatory adverse inference is the
only sanction that can appropriately address the evidentiary gap caused by Dr.
Rebmann’s missing electronic communications. The precise form of the instruction
will be decided by District Judge Broderick at the time of trial.
B. Costs and Fees
As Matthias’s Req. for Sanctions pursuant to Fed. R. Civ. P. 37(e)(2)(B) was
GRANTED, fees are owed. When a Court imposes sanctions under Rule 37, the Court
“must order the disobedient party, the attorney advising that party, or both to pay
the reasonable expenses, including attorney’s fees . . . unless the failure was
substantially justified or other circumstances make an award of the expenses unjust.”
Fed. R. Civ. P. 37(b)(2)(C). Here, as the Court has imposed Rule 37 sanctions and
finds no substantial justification, attorney’s fees for the motion at issue are
warranted. Given counsel’s current preoccupation with the impending trial, the
assessment of costs and fees any similar applications will be adjourned until after the
final determination of this action.
SO ORDERED.
DATED:

New York, New York
October 31, 2023

______________________________
JENNIFER E. WILLIS
United States Magistrate Judge

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