Kosher Ski Tours Inc. v. Okemo Limited Liability Company

Background

Kosher Ski Tours Inc. (KST) sued Okemo Limited Liability Company over the termination of a lodging agreement. KST asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and racial discrimination under federal law and the Vermont Fair Housing and Public Accommodations Act. The pending motion concerned alleged spoliation—the loss or destruction of evidence that should have been preserved—in particular electronically stored information (ESI) in emails belonging to Okemo employees Wendy Ackerman and Amy Morgan.

On October 7, 2020, KST’s counsel sent a letter to Vail Resorts, Inc.’s general counsel stating that KST intended to sue Okemo if the lodging agreement dispute was not resolved. Okemo said it first learned of the litigation around October 23, 2020, and placed a legal hold on certain employees’ ESI on October 30. Okemo later added Ackerman and Morgan to the hold on January 20, 2021, 93 days after the lawsuit was filed. At that time, Okemo’s maximum email-retention period was 90 days. The parties did not dispute that the employees’ emails were irretrievable and could not be replaced through additional discovery.

Rule 37(e) standard

Federal Rule of Civil Procedure 37(e) applies when a party fails to take reasonable steps to preserve ESI that should have been preserved for anticipated or pending litigation, and the information is lost and cannot be restored or replaced. If the loss prejudices another party, the court may order measures no greater than necessary to cure that prejudice. More severe measures—such as an instruction that the lost information may or must be presumed unfavorable, dismissal, or default judgment—require clear findings that the party acted with the intent to deprive the other party of the information’s use in the litigation.

Court’s analysis

The court found that Okemo’s duty to preserve relevant ESI began when it received KST’s October 7, 2020, demand letter expressly threatening litigation. The court also found that Ackerman and Morgan’s emails were relevant or potentially relevant to KST’s original breach-of-contract claim because the employees attended weekly management meetings before the lodging agreement was terminated. Okemo therefore failed to take reasonable steps to preserve the emails.

The court found that KST was prejudiced by the loss. The emails might have documented statements by alleged decision-makers, the employees’ comments about the meetings, and the contemporaneous reasons for Okemo’s decision. The court also noted that existing chat messages confirmed that Ackerman and Morgan used email to communicate about the meetings. Because the emails were lost, KST had to rely on a limited number of chat messages instead of a complete email record.

The court did not find clear and convincing evidence that Okemo acted with the specific intent to deprive KST of the emails for use in the litigation. The timing of the legal hold was suspicious and could support an inference that Okemo allowed the retention period to expire, but the court found credible explanations other than bad faith, including Okemo’s stated position that its initial investigation did not identify Ackerman and Morgan as potentially relevant custodians.

Disposition

The court granted KST’s motion for spoliation sanctions to the following extent: the parties may present evidence to the jury about the loss of Ackerman and Morgan’s ESI and the likely relevance of that information, and the jury may consider that evidence when deciding the case. The court stated that this measure was sufficient and no greater than necessary to address the prejudice.

Because KST did not establish the required intent, the court did not provide an adverse-inference instruction allowing the jury to presume that the missing information was unfavorable to Okemo. The court also denied KST’s request to prohibit Okemo from presenting testimony or evidence contradicting KST’s discrimination allegations. Finally, the court denied KST’s request for attorney’s fees related to the motion and the deleted emails. The court directed the parties to submit a proposed jury instruction about the spoliation evidence and terminated the motion.