After destroying sales records daily over the course of three years, the retailers accused by the Cayuga Nation of running an unauthorized cannabis shop will face sanctions, a New York federal judge ruled, calling their behavior "grossly negligent and likely willful."

Entrepreneurs Dustin Parker and Nora Weber knew that their handwritten records of each sale made at their shop, Pipekeepers, should be preserved and that getting rid of them risked a penalty, said U.S. District Court Judge Brenda K. Sannes in a 17-page order, issued Thursday, granting the Nation's request for sanctions.

Judge Sannes explicitly rejected Parker's explanation attempting to justify the disposal.

"The court has found the Parker defendants' noncompliance with their disclosure obligations to be grossly negligent and likely willful," the judge said. "The reason for the destruction — Parker's determination that 'we don't really need to keep it, just kind of taking up space,' stands in direct opposition to the instruction he presumably received from his attorney at Magistrate Judge [Andrew] Baxter's direction."

The ruling is a second loss in a week for the retailers. On Tuesday, Judge Sannes rejected Parker and Weber's bid for summary judgment on the tribe's RICO claims.

While Judge Sannes said sanctions are certainly justified, the judge wasn't quite ready to commit a particular penalty. This was for a few reasons.

The Cayuga Nation asked for an entry of default judgment in their favor, but Judge Sannes suggested this was too "drastic" an answer. Alternatively, the tribe asked for a jury instruction, telling the panel of peers that the entrepreneurs destroyed the evidence "because it was unfavorable to them and would fully support the Nation's merits claims and claims for damages," according to the court order.

But Judge Sannes said this could be "overbroad" since it's not obvious how the destruction of the records, which occurred at the second location known as the Montezuma Pipekeepers, would actually harm the Nation's racketeering claims, which center on profits made at the first retail location, Bayard Street Pipekeepers.

What's more, it's not yet clear if the tribe is legally allowed to recover taxes for cannabis sales, the judge said.

"Still, in the absence of Montezuma Pipekeepers' cannabis sales records, the Nation may face a disadvantage in establishing damages to its cannabis business that would warrant an adverse inference in connection with damages," the judge said.

"The Parker defendants are advised that even if the court concludes an adverse inference instruction is not warranted, given their intentional disposal of cannabis sales records over the course of years, some form of sanctions are likely justified," the judge said in a footnote.

This is the latest turn in the ongoing multimillion-dollar legal battle between the Cayuga Nation and the entrepreneurs behind Pipekeepers. The tribe sued in the Northern District of New York in February 2022, claiming the two were operating an unsanctioned shop selling cannabis and untaxed cigarettes, according to the court record. The shop's operators have filed a countersuit claiming they were wrongfully evicted from tribal land.

This document dispute started in May, when Parker, a citizen of the Nation who the tribe said is banished, said that second Pipekeepers does, in fact, generate a record for every cannabis sale at the time of purchase, but they are destroyed at the end of each day, according to his deposition.

Following this, U.S. Magistrate Judge Andrew T. Baxter ordered Parker and Weber to preserve Pipekeepers' records and share them with the tribe.

In total, 39 months of records were destroyed, Judge Sannes said.

Parker and Weber urged the court against the kind of sanctions that would give the tribe a win. Rather, if the court should sanction them at all, it should be in proportion to the actual harm caused, they argued. The records would only determine how much in damages the entrepreneurs might owe, should they be found liable. The documents do speak to whether they are actually liable for those damages, according to their motion opposing sanctions.

In addition, Parker and Weber argued that the tribe's request for case-ending sanctions was in bad faith. They reminded the court that, before filing suit, the nation conducted a raid on the shop in January 2022, destroying electronic records.

The retailers filed their own motion for sanctions for this action by the tribe, but Judge Sannes said these records were not relevant to the case and denied their request.

Neither side immediately responded to a request for comment on Friday.

Parker and Weber are represented by Daniel J. Hurteau, Kasey Kaspar Hildonen and Robert McManigal of Nixon Peabody LLP.

The Cayuga Nation is represented by David G. Burch Jr. and Michael E. Nicholson of Barclay Damon LLP.

The case is Cayuga Nation v. Dustin Parker et al., case number 5:22-cv-00128, in the U.S. District Court for the Northern District of New York.