In a decision with significant impact on e-discovery practices in New York State, a state Supreme Court has sanctioned The Corcoran Group, a national real estate brokerage, for “willfully” misleading a Brooklyn couple into buying a defective, water-leaking “lemon” apartment – and then failing to protect or produce potentially damaging email evidence when the couple sued. The decision was announced by the couple's law firm, Itkowitz & Harwood.

The ruling by Manhattan Supreme Court Justice Charles E. Ramos arose out of the discovery stage of a lawsuit in which the purchasers, a married couple with two young children, alleged that Corcoran, the sponsors, developers and others had fraudulently schemed to sell them a “lemon” apartment by concealing that the unit would flood severely with every rainstorm. The family was forced to move out of the apartment after a short time into rented quarters, but remains obligated to make mortgage and condominium payments on the unsalable unit.

The case extends the existing standards for the protection of evidence in a lawsuit to electronically stored information for the first time in New York State.

“This is a landmark case. It establishes for the first time that in New York State, parties in a lawsuit must preserve and protect electronic documents just as if they were on paper,” said Jay Itkowitz of Itkowitz and Harwood, attorney for the purchasers. “Attorneys and their clients can no longer remain in the ‘typewriter era’ and ignore the obligation in a lawsuit to avoid the destruction of potentially damaging electronically stored evidence. This case is a victory for computer-era common sense.”

Justice Ramos imposed sanctions against Corcoran and its attorneys, Margolin & Pierce LLP, for several violations, including:

• Failing to suspend its routine document deletion and destruction policy when the lawsuit began.
• Failure to produce damaging electronically stored information (ESI) even while producing self-serving emails.
• Failure by Corcoran’s IT director and counsel to tell brokers involved in the suit to stop deleting emails and other potentially relevant ESI.

Among the emails which the defendants failed to produce, according to the lawsuit, was one revealing that on rainy days, Corcoran would cancel appointments to show the unit to prospective buyers.

“…This court sanctions the Corcoran Defendants by finding that they are deemed to have known of the water infiltration problem and to have willfully misled the Plaintiffs by concealing that condition from them during the sales process,” wrote Justice Ramos in a 31 page opinion.

In his opinion, Justice Ramos observed that New York State law had not previously addressed the obligation of attorneys and parties to preserve electronic evidence. He said that the failure to observe proper evidence protection procedures, upon the start of litigation, was “grossly negligent.”

The case involves the 2007 purchase of a ground-level and partially subgrade duplex apartment in a Park Slope condominium by a married couple, Harold Einstein and Jennifer Boyd. Named in the suit with Corcoran were three of its brokers, the developer, sponsors, and vendors and others.

The defendants were ordered to pay for the purchasers’ legal and other costs. The underlying lawsuit will continue in Supreme Court.

Itkowitz & Harwood is an AV-rated, boutique law firm focusing in complex commercial litigation, real estate litigation, and real estate transactions, which has been serving the business community in New York City for over twenty five years.

www.itkowitz.com