On March 30, 2021, the US District Court for the Southern District of New York issued an order granting in part and denying in part a motion for spoliation sanctions in a case stemming from Brazil’s Lava Jato (Operation Carwash) investigation. Operation Carwash is a long-running investigation of bribery and corruption by officials in Brazil who received bribes in exchange for lucrative public contracts. During the course of the investigation, related corrupt conduct has been identified in at least twelve other countries.
In 2017, plaintiffs Doubleline Capital LP sued Odebrecht Financial Ltd. and its affiliates alleging securities fraud. Specifically, the plaintiffs alleged that Odebrecht had committed fraud by representing in offering memoranda used to sell bonds that Odebrecht had been very successful in obtaining large public contracts “based on its business skills, expertise and efficiencies,” when, in fact, the contracts had been secured through bribery. Plaintiffs pointed to Odebrecht’s plea agreement with the DOJ as proof of the bribery, among other evidence.
During the discovery phase of the litigation brought by Doubleline Capital LP, plaintiffs filed a motion requesting discovery sanctions for spoliation after the defendants admitted to intentionally destroying the encryption keys needed to access a shadow accounting system that had been used by Odebrecht to track illicit bribe payments. The plaintiffs claimed that the information it would have obtained from the accounting system would have confirmed allegations in its amended complaint that defendants’ bribes totaled $3.3 billion rather than $788 million as alleged by the defendants, and would have also demonstrated the extent to which the defendants’ public statements misinformed investors, an issue at the heart of their securities fraud case. Plaintiff argued that because the destruction was intentional, the defendants should receive severe sanctions under FRCP Rule 37(e)(2) such as a mandatory adverse inference instruction as an appropriate remedy under the circumstances.
According to the court, the plaintiff proved that Rule 37(e) sanctions were warranted by successfully demonstrating (1) that defendants had a duty to preserve the encryption keys before January 2016 when they were destroyed; (2) that plaintiff was prejudiced by the loss of the keys that prevented access to critical information; and (3) that the lost information could not be restored or replaced through additional discovery. However, the court found that plaintiff had failed to prove that the keys were destroyed with the specific intent to deprive this particular plaintiff’s access to the information, an element necessary for “particularly harsh” sanctions. While denying plaintiff the mandatory adverse inference instruction it sought, the judge ruled instead that plaintiffs would be permitted to present evidence and arguments to the jury about the defendants’ intentional destruction of the encryption keys. The court also declined to impose monetary sanctions.
Letter Motion for Spoliation | Letter Response to Motion for Spoliation | Opinion and Order