In most commercial litigation in the New York courts, the parties and their lawyers spend much effort and expense in discovery. “Discovery” is the pretrial process of obtaining evidence from the opposing party that is or may be relevant to the parties’ claims and defenses. Like most aspects of litigation, discovery is an adversarial process by which the parties formally demand, and often object to, the disclosure of specified documentary evidence and deposition testimony. The basic rule is that if the requested information is material and necessary to the prosecution or defense of the case, the requesting party is entitled to that information. A party uses discovery to identify all of the other party’s evidence and avoid “trial by ambush.” Lawyers also use discovery to test the strength of the other side’s claims and defenses: Does the other party have in its possession the relevant and admissible evidence needed to prove its case?
Related to the obligation to disclose requested and relevant evidence is the obligation to preserve relevant evidence. As a matter of fundamental fairness as well as law, a party to a lawsuit (or, in many instances, a party expecting to be sued or planning to commence a lawsuit) must preserve relevant evidence, both favorable and unfavorable, and disclose that evidence if requested in discovery. The destruction, discarding, alteration or loss of evidence is called “spoliation.”
When one party has spoliated evidence, the adversary party may ask the court to impose sanctions. The rules prohibiting spoliation address not only paper documents or physical objects involved in the underlying incident (such as, for example, a vehicle involved in a traffic accident). Parties to a lawsuit often face the risk of sanctions when they delete, discard or alter electronically-stored information (“ESI”). Emails, text messages and many other types of digital data qualify as ESI. A lawyer expecting that a client may sue or be sued, or hired to represent a defendant in a lawsuit, must counsel the client accordingly. A lawyer must communicate with the client to identify all possible data sources and repositories, whether paper or ESI, cause the client to instruct all custodians of the information to hold and not discard that information (a “litigation hold”), and confirm with the client that all litigation holds have been followed. The lawyer will then review the client’s relevant information to identify both favorable and unfavorable evidence, and when the discovery phase of a case begins, respond to the adversary’s discovery requests with the understanding that all relevant evidence has been preserved.
Under New York law, spoliation sanctions are appropriate where a party, intentionally or negligently, disposes of crucial items of evidence before its adversary has had an opportunity to inspect them, particularly if that party knows that the evidence might be needed for future litigation. The severity of the sanction imposed by a court will depend in part upon whether or not the spoliating party’s conduct was willful, but more importantly, upon the degree of prejudice suffered by the other side as a result of the loss of important evidence.
Where a court finds significant prejudice to the adversary party as a result of the spoliation of evidence, the remedy may be the dismissal of the claims or defenses to which the missing evidence relates. When a court finds the prejudice to the adversary party to be less severe (or can be mitigated in some way), the remedy may be an order precluding the spoliating party from introducing other evidence (including witness testimony) relevant to the issue to which the missing evidence relates, or a jury instruction that directs the jury to presume that had the missing evidence been preserved, it would have been against the spoliating party’s position on that issue.
Sometimes a party will destroy or discard relevant evidence without, or before, consulting a lawyer. Consider this hypothetical. A buyer contracts with a seller to acquire a commercial building. Prior to the closing of the transaction, the buyer has conducted an on-site property condition assessment, an on-site appraisal and an on-site environmental inspection. Three years after the closing, the buyer sues the seller, alleging that it had discovered deterioration and mold in the building’s ceiling timbers. In an attempt to get around the settled New York rule of caveat emptor, which bars a buyer from claiming it reasonably relied on a seller’s representations when the buyer had an opportunity to perform, and did perform, its own due diligence, the buyer argues that the seller had intentionally concealed the claimed deterioration and mold with ceiling tiles so that it could not be discovered during the on-site inspections.
In the buyer’s deposition, he testifies that the deterioration had been discovered when the buyer removed the ceiling tiles. Further questioning makes clear that the sole evidentiary basis advanced for the claim that the seller had intentionally concealed the condition of the ceiling timbers was the age of the ceiling tiles: the buyer says the ceiling tiles looked like they were new and had been installed in the recent past. The seller knows the ceiling tiles had been installed many years before, has no knowledge of the claimed deterioration, and knows that the removed ceiling tiles will reflect their advanced age. Based on the buyer’s testimony, the seller serves a notice on the buyer to inspect the removed ceiling tiles. However, the buyer responds that they had been discarded after they were removed.
In this hypothetical, the discarding of the ceiling tiles has deprived the seller of any opportunity to inspect the ceiling tiles and challenge the buyer’s characterization of the ceiling tiles as new and recently-installed, resulting in significant prejudice to the seller. The buyer’s spoliation of the key evidence in support of its claim of intentional concealment exposes the buyer to the risk of sanctions.
If you have any questions regarding this article, or if you have any other Labor & Employment Law concerns, please contact the Underberg & Kessler attorney who regularly handles your legal matters or Thomas F. Knab the author of this piece, here or at (716) 847-9104.