## Facts

- Investors brought securities-fraud actions against NTL, Inc. and certain officers and directors; the Gordon plaintiffs pursued separate individual claims.
- During the litigation, NTL entered Chapter 11 and emerged under a confirmed reorganization plan that separated operations between NTL Europe, Inc. (successor charged with winding down certain assets) and NTL, Inc. (New NTL), the operating company holding key telecommunications assets.
- Before the split, the company had instituted a litigation hold covering relevant electronically stored information (ESI).
- A demerger agreement granted each post-bankruptcy entity a ten-year contractual right to copy the other’s legacy ESI from the pre-bankruptcy company.
- In discovery, the Gordon plaintiffs sought emails and other ESI, including from numerous “key players.”
- NTL Europe asserted that New NTL possessed the relevant ESI; New NTL produced some materials but represented that critical ESI—including emails of roughly forty-four key employees—had been lost or destroyed.
- The Gordon plaintiffs moved for sanctions under Rule 37 and the court’s inherent authority, seeking an adverse inference and attorneys’ fees and costs due to alleged discovery delays and spoliation.

## Issues

1. Whether NTL Europe had “control” over legacy ESI physically held by New NTL, such that it had a duty to preserve and produce it.
2. Whether the loss of key-player ESI constituted spoliation attributable to NTL Europe based on its preservation failures after litigation was pending or reasonably anticipated.
3. Whether the plaintiffs showed sufficient culpability and prejudice to justify an adverse inference instruction and fee shifting.

## Decision

- The court granted the motion for sanctions in substantial part.
- It held NTL Europe had control over the relevant ESI held by New NTL because NTL Europe had the right, authority, or practical ability to obtain it, including via the demerger agreement and its prior exercise of access rights.
- It found NTL Europe breached its preservation obligations by failing to ensure that key ESI, including the emails of approximately forty-four key employees, was preserved.
- The court ordered an adverse inference instruction permitting the factfinder to infer that the missing evidence would have been unfavorable to NTL Europe.
- The court awarded the Gordon plaintiffs attorneys’ fees and costs associated with the sanctions motion and additional discovery necessitated by the preservation failures.

## Legal Principles

- “Control” for discovery and preservation includes documents and ESI a party has the right, authority, or practical ability to obtain from a non-party or related entity.
- Once litigation is pending or reasonably anticipated, a party must take reasonable steps to preserve relevant evidence, including ESI of key custodians.
- Spoliation sanctions may be imposed when: (1) the party had control over the evidence and a duty to preserve it, (2) the evidence was destroyed with a culpable state of mind (including negligence or gross negligence), and (3) the loss is relevant and prejudicial to the opposing party.
- An adverse inference instruction and monetary sanctions may be appropriate remedies where missing ESI is central to claims such as knowledge and intent and its loss materially hinders proof.

## Conclusion

The court sanctioned NTL Europe for spoliation after concluding it had sufficient control over affiliate-held legacy ESI to trigger preservation duties, failed to ensure preservation of key-player emails, and caused prejudice warranting an adverse inference instruction and fee shifting.


In re NTL, Inc. Securities Litig., 244 F.R.D. 179 (S.D.N.Y. 2007)