The Latest Developments in Litigation

• Pages: 24-27
• Date: 01 January 2025
• Published date: 01 January 2025
• Subject Matter: Derecho Público y Administrativo

Unjustif‌ied Delay

Renders Spoliation

Motion Spoiled

Rotten

By Bide B. Aka nde, Litigation News

Contributing Editor

According to a federal district court

decision rejecting two requests for

sanctions based on a party’s failure to

preserve electronically stored informa-

tion (ESI), spoliation motions have an

expiration date, and a spoliation issue

not timely raised may curdle and sour

with the court. ABA Litigation Section

leaders suggest that the timeliness of

a motion for spoliation sanctions may

be as important as its merits in deter-

mining whether the court will grant any

relief.

In CSX Transportation, Inc. v.

Spiniello Global, Inc., CSX owned

and operated a coal shipment facil-

ity in Maryland. CSX and the City of

Baltimore entered into an agreement

allowing the city to update and repair

sewage lines under the facility. The

city hired Spiniello as subcontrac-

tor to clean and reline these sewage

lines. A Spiniello employee mistakenly

discharged contaminated water that

worked its way into the CSX facility’s

water f‌iltration system, forcing CSX to

take action to prevent adverse impacts.

Following its remediation eorts,

CSX sued the city and Spiniello, seeking

approximately $2.3 million in damages.

After the close of discovery, the defen-

dants f‌iled four motions to dismiss,

including two motions for sanctions

due to CSX’s alleged spoliation of ESI.

The f‌irst spoliation motion con-

cerned data from CSX’s Supervisory

Control and Data Acquisition (SCADA)

system, which was overwritten after 30

days in the normal course of business.

One of Spiniello’s experts explained

that the SCADA data would have

helped the defendants understand

information potentially relevant to

CSX’s claimed damages. The second

spoliation motion related to CSX’s com-

munications with coal owners in the

aftermath of the incident.

The U.S. District Court for the

District of Maryland denied both spo-

liation motions. In doing so, the court

noted that a party seeking sanctions

for ESI spoliation must establish:

“(1)ESIshould have been preserved;

(2)ESIwas lost; (3) the loss was due

to a party’s failure to take reason-

able steps to preserve theESI; and (4)

theESIcannot be restored or replaced

through additionaldiscovery.” The

court determined that it did not need

to consider whether these thresh-

old requirements were met, however,

because the defendants had failed to

show that CSX “acted with the intent to

deprive” them of the ESI.

The defendants, the court opined,

did not meet their burden to show CSX

“acted with the requisite heightened

culpability” by failing to preserve the

ESI, much of which was deleted in the

regular course of business. Further,

the court noted that the timing of the

defendants’ motions “well after the

close of discovery” made it dicult to

determine what relevant ESI existed

and “whether CSX’s eorts to f‌ind them

were adequate.”

The court suggested that these dif-

f‌iculties “could have been sorted out

during the discovery phase, rather than

raised as grounds for dismissal more

than a year after fact discovery had

closed, and some eighteen months

after Spiniello became aware of the

issue.” The court emphasized that

“[t]he lesson to be learned from the

cases that have sought to def‌ine when

aspoliationmotion should be f‌iled in

order to be timely is that there is a par-

ticular need for these motions to be

f‌iled as soon as reasonably possible

afterdiscoveryof the facts that under-

lie the motion.”

Litigation Section leaders recognize

the importance of timeliness in seek-

ing spoliation relief. “If you’re going to

seek a terminating sanction, you really

should be doing that during the dis-

covery process,” explainsJoseph V.

Schaeer, Pittsburgh, PA, Co-Chair of

theLitigation Section’sPretrial Practice

& Discovery Committee. Considering

the defendants’ failure to seek termi-

nating sanctions until after discovery

had ended, the court may not have had

a great deal of sympathy towards them.

“Diligence and competence require

prompt action on discovery issues; the

longer you wait to raise a discovery

issue, the less important it seems to the

court,” observes Jeanne M. Huey, Dallas,

TX, Co-Chair of the Section’sEthics &

Professionalism Committee.

Escrow Agent Held

100 Percent Liable

for Phishing Scam

By Steven B. Chane les, Litigation

News Contributing Editor

A state appellate court upheld a jury’s

apportionment of 100 percent fault

to an escrow agent handling transac-

tion proceeds that were fraudulently

diverted through an email phishing

scam. The court held that the jury was

permitted to refuse to assign any liabil-

ity to the fraudster, even though state

law required the jury to “consider” the

fault of all persons who contributed

to the injury. ABA Litigation Section

leaders recognize the growing risks of

cyber fraud and suggest measures to

mitigate liability for losses from such

scams.

In Mago v. Arizona Escrow &

Financial Corp., the defendant acted

as the escrow agent for the pur-

chase and sale of a business. After the

escrow account was opened and the

buyer deposited the purchase price,

an imposter hacked the buyer’s email

account. After the hack, the imposter

created an email address that matched

the sellers’ email address except for an

inconspicuous two-letter typo.

The imposter subsequently dis-

cussed the purchase with the buyer

by email without including the escrow

agent in the email chain. Shortly there-

after, the imposter emailed wiring

instructions to the escrow agent, copy-

ing the buyer on the email. The escrow

agent questioned the wiring instruc-

tions because the name on the bank

account provided in the imposter’s

email was dierent than the sellers’

name or any other entity related to the

transaction. Upon being requested by

the escrow agent for authority for the

wire transfer, the buyer instructed the

escrow agent to release the funds to

the sellers.

Without further verifying the wiring

information, the escrow agent released

the funds and emailed conf‌irmation of

the wire transfer to the buyer and the

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THE LATEST DEVELOPMENTS IN LITI GATION

NEWS & ANALYSIS

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