Sekisui American Corp. v. Hart

Facts

Sekisui America Corp. (Plaintiff) signed a contract to buy American Diagnostica, Inc. (ADI) from Richard Hart (Defendant). Before closing, Plaintiff claimed that ADI was not complying with certain representations in the contract involving FDA compliance. Plaintiff sent a Notice of Claim to Defendant, indicating that Plaintiff planned to file suit for breach of contract. The suit was filed several months later. During discovery, Plaintiff informed Defendant that Plaintiff had not implemented a litigation hold until more than fifteen months after sending the Notice of Claim. In addition, Plaintiff had not notified its information technology (IT) vendor of the litigation hold until about six months after it was put in place. In the interim, Plaintiff had deleted the electronically stored information (ESI), including emails, of Defendant and Leigh Ayres, an ADI employee. Ayres was involved in ADI’s Food and Drug Administration (FDA) compliance, a subject matter that was in dispute in Plaintiff’s breach of contract claim. As a result of the destruction of evidence, Defendant requested that a magistrate judge impose sanctions on Plaintiff in the form of an adverse-inference jury instruction. The magistrate denied Defendant’s request for sanctions, because it found that Defendant had not proven prejudice. Defendant appealed.