Hermann v. Unily Inc., No. 25-CV-04431 (MKV) (RFT) (S.D.N.Y. Oct. 5, 2026), full opinion (PDF)
An employer's duty to preserve ESI can begin on the call that ends an employee's job. In an ADA discrimination and retaliation suit, a federal magistrate judge in New York ruled that a fired employee's spoken threat to sue started that duty. According to the court, the company took no preservation steps for 76 days after the call. Laptop wiping, auto-delete settings, and retention policies led to the loss of several categories of the company's ESI. The court found the loss of four of those categories prejudicial but still denied a mandatory adverse inference. That remedy requires an intent to deprive.
What happened
The head of human resources wrote down the employee's threat in her summary of the termination call. The company's first litigation hold email went out at the end of August. IT then placed a hold on the employee's mailbox while leaving auto-delete running for his other files, such as his Teams messages. The court noted that email was not the company's primary method of communication.
Routine deletion took ESI both before and after the hold. The employee's laptop was wiped under a standard separation policy when he was terminated. Auto-delete removed its OneDrive backup about five weeks later. He had complained to human resources in a recorded call shortly before his termination. Because nobody exempted that recording from auto-delete, the hold failed to save the call. His manager's notes and Teams chat were lost too. The manager claimed they showed the employee refusing to prospect for new business. The company could locate quarterly business reviews for only two of his comparators.
The court's analysis
The court explained that the governing test is objective. It asks whether a reasonable party in the same circumstances would have foreseen litigation. The company argued that its duty arose only with a letter from the employee's lawyer in late August. People make litigation threats all the time, it said, without following through. The court rejected that argument. In its view, the employee's express threat to sue on the day of his termination triggered the company's preservation obligations.
From that day, according to the court, the company should at a minimum have preserved all of the employee's files, not his mailbox alone. Holds should have reached his manager, the head of human resources, and comparator account executives. Auto-delete should have been disabled for each of those custodians. The court added that the call recording should have been stored outside the auto-delete protocols.
The court found prejudice from the loss of the laptop and its backup, the call recording, the manager's notes and chat, and the comparators' reviews. It denied relief for Teams messages about the employee's performance, the performance improvement plan he had been placed on, and his termination. He had identified their subject but offered no plausible, concrete suggestion of what they would have shown.
On intent, the court called the company "stunningly derelict in carrying out its document preservation obligations" yet described the question as close. Most of the lost ESI, the court reasoned, would have disappeared even under a broader hold because nobody suspended auto-delete. The failure to suspend auto-delete was open, in the court's view, to the interpretation that the company was incompetent rather than acting in bad faith. Concluding that the failures resulted from negligence, the court denied the mandatory adverse inference under Rule 37(e)(2).
The court allowed the employee, under Rule 37(e)(1), to present evidence of the four losses it found prejudicial and argue their significance at trial. He may request an instruction allowing the jury to consider that evidence with the rest of the record. The court left the company free to argue that he failed to prospect for new business. Preclusion, it concluded, would go farther than necessary.
Why it matters
An employer facing a departing employee's spoken threat to sue should treat the termination call as the trigger. Waiting for a lawyer's letter leaves routine laptop wiping and short auto-delete periods running during the weeks before any hold issues.
A hold notice protects little if IT applies it to the mailbox alone. Counsel should confirm which systems the company actually uses to communicate, such as Teams, and extend the hold to each system. IT should then verify that auto-delete is off for every custodian, including relevant call recordings.
A movant seeking a mandatory adverse inference needs more than proof of a derelict preservation program. When the loss traces to an auto-delete setting nobody turned off, the movant must show that the omission reflected an intent to deprive. Otherwise, the movant should expect Rule 37(e)(1) measures, such as the trial evidence and jury instruction allowed in Hermann. Those measures still require a showing of prejudice.
A movant should also say what each lost category likely contained and how it would help. In Hermann, Teams messages identified only by subject drew no relief.
The full opinion is available as a PDF.
