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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: January 10, 2019

Court Imposes Preclusion Sanction on Defendant for Spoliation of Evidence

On December 21, 2018, Justice Ramos of the New York County Commercial Division issued a decision in China Dev. Indus. Bank v. Morgan Stanley & Co. Inc., 2018 NY Slip Op. 33385(U), imposing a preclusion sanction on a defendant for spoliation of evidence, explaining:

Under the common law doctrine of spoliation, dismissal is appropriate where key evidence is destroyed prior to examination by the opposing party.

It is not disputed that CDIB failed to impose a litigation hold until 2010, despite reasonably anticipating litigation in August 2007. In addition, it is not disputed that CDIB began collecting some, but not all, evidence relating to Stack as early as 2007. CDIB failed to preserve and actually destroyed two hard drives, including one used by its employee who monitored Stack.

In addition CDIB failed to preserve the metadata for 59 audio recordings, and internal and external email communications predating 2010. The selective destruction by CDIB of some of this evidence is extremely troubling.

CDIB has not offered a reasonable excuse for its grossly negligent and/or willful conduct. Moreover, CDIB has refused to produce key witnesses for deposition, preventing the Morgan Stanley defendants from deposing the custodians whose files were destroyed.

The destroyed evidence is clearly relevant and may even be critical to the issues in this action. Nonetheless, the destroyed evidence does not constitute the sole source of relevant information by which the Morgan Stanley defendants can establish their defense, and thus, the extreme sanction of striking the complaint at this point is not appropriate.

Exercising its broad discretion under CPLR 3126, this Court determines that the appropriate sanction for CDIB’s conduct is to precluding CDIB from presenting and relying upon any audio recordings and email communications to establish its claims. This will ensure a level playing field between the parties.

(Internal citations omitted).

A big part of complex commercial litigation is giving, receiving and evaluating evidence (this is called “discovery”). This decision discusses the problem of litigants not performing their discovery obligations and what can happen to them if they do not. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client has a question regarding discovery obligations (and what to do if a litigant is not honoring those obligations).

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