Thank You, Captain Obvious — It Is Improper To Throw Your Records In A Dumpster In Advance Of A Lawsuit

 by:  Peter J. Gallagher (@pjsgallagher)

When most litigators hear the term “spoliation” nowadays, they probably think of emails, servers, document retention policies, and back-up tapes. But the Appellate Division recently reminded us that old-fashioned spoliation is still alive and well (and improper).

In Hess Corporation v. American Gardens Management Company, plaintiff sued various single-purpose entities with which plaintiff had contracted to sell oil and gas. Plaintiff also sued the individual owner of all of these entities, which were essentially judgment proof, arguing that it was entitled to pierce the corporate veil and hold him liable because he had co-mingled funds and fraudulently conveyed and diverted assets from the various corporate entities for his personal use.

During discovery, plaintiff served the individual defendant with a document request. The individual defendant failed to respond and his answer was stricken. He later moved to reinstate his answer, first arguing that he could not answer the discovery request without implicating his Fifth Amendment right against self incrimination (which the court rejected) and then claiming that he did not have many of the documents requested. Based on the latter, the court vacated its prior order and reinstated his answer.


Plaintiff later deposed the individual defendant and asked him, among other things, about records related to the various single-purpose entities. It then became clear why he did not have many of the documents plaintiff had requested. The individual defendant admitted that, after his various businesses went south, he lost interest in them and had his files and documents thrown into a dumpster. After hearing this, plaintiff moved for an order striking the individual defendant’s answer and for summary judgment against him. The judge granted the motion to strike and then entered default judgment against the individual defendant. The court then held a proof hearing and entered judgment against the individual defendant for approximately $3.1 million (including legal fees).

The individual defendant appealed, arguing, among other things, that plaintiff could not prove what evidence was destroyed or that it was prejudiced by the destruction, and that, even assuming there was spoliation, the trial court should have imposed a lesser sanction. The Appellate Division rejected all of these arguments.

The Appellate Division noted that trial courts have broad discretion to manage discovery and impose discovery sanctions. These decisions are not disturbed on appeal as long as they are “just and reasonable under the circumstances.” When determining appropriate sanctions, trial courts should be “guided by the essential purposes that all of the sanctions are designed to achieve,” one of which is to make the aggrieved party whole, or as nearly whole as possible. If this can be accomplished by something short of dismissal, then trial courts should strive to do so because dismissing claims or defenses is seen as the “ultimate sanction.”

In Hess, the Appellate Division held that the trial court’s decision to strike the individual defendant’s answer was a proper exercise of its discretion. It endorsed the trial court’s finding that the individual defendant had “blatantly allowed the destruction of relevant evidence,” and added that defendant’s argument about plaintiff not having proved what was destroyed was “ironic” given the facts of the case: “It is ironic that [the individual defendant] argues [plaintiff] failed to produce necessary evidence when the [trial court] found that he either destroyed or allowed to be destroyed the evidence needed to prove the case.” Finally, the Appellate Division held that nothing less than striking the individual defendant’s answer would have made plaintiff whole because proving that the individual defendant misused corporate funds required a searching inquiry of the very paper trail that the individual defendant had allowed to be tossed into a dumpster.

The lesson from this case is obvious, but one that is worth repeating — spoliation is spoliation, whether it occurs by hitting delete on your keyboard or by tossing your files in the garbage. And, either way, when it happens, the offending party faces stiff penalties.

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