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Records a New York Business Should Always Keep On File (II)


1109269_keep_it_clean.jpgIn our last post we asked the question: What records does a business have to keep when it is, or it reasonably believes it will become, involved in litigation? The answer is, generally, that a business must preserve records and documents which support its claims, or support defenses against its claims, or which might lead to discoverable evidence. See Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003). That is, it must keep records that could help it or hurt it, or which might lead to other evidence that could help it or hurt it, in the dispute/litigation. If the business does not save those records, it can be penalized for “Spoliation.”

Spoliation is the significant alteration or destruction of evidence, or the failure to save or preserve evidence or something that could be used as evidence in litigation, whether it is reasonably foreseeable that the litigation will occur or it already has commenced. See West v. Goodyear Tire & Rubber Co., 167 F.3d 776 (2d Cir.1999); Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003). See also VOOM HD Holdings LLC v. EchoStar Satellite L.L.C., 93 A.D.3d 33 (First Dept. 2012). Penalizing Spoliation is in essence a way to prevent one side from losing, or even destroying, evidence that could help its opponent. Both state and federal courts in New York favor deciding cases on the merits. See Robles v. Grace Episcopal Church, 192 A.D.2d 515 (2nd Dept. 1993); and Traguth v. Zuck, 710 F.2d 90 (2d Cir. 1983). Preserving documentary evidence relevant to the issues in a dispute is one way to ensure that the merits are reached.

A business runs a major risk if it fails to save documents that are relevant to a dispute that could devolve into litigation. The risk involves the litigation itself: The penalty is enforced by making it more difficult, if not impossible, for the offending party to prevail in the litigation. The more egregious the offense, the harsher the penalty and the more difficult it will be for the offending party to win.

In New York, the focus is on helping the party that is deprived of the lost evidence, (the “Injured Party”) and this necessarily penalizes the party that “lost” the evidence, also known as the “Spoliator.” To level the playing field, the court can prevent the Spoliator from presenting favorable evidence at trial. Imagine what it would be like if a business had a key piece of evidence that it was certain would help it win, but could not use it because it did not save evidence that the opponent might have been able to use. Sometimes replacement evidence can be found, but this often requires a lot of time and effort. The court can order the Spoliator to pay the Injured Party the cost of developing the replacement evidence. At trial, the court can give the jury an adverse inference instruction. That means, basically, that the jury can find the lost evidence would have helped the Injured Party and hurt the Spoliator. Finally, the court also can decide that the Injured Party should win, and the Spoliator should lose, the case. If the Spoliator is the Plaintiff, the court can dismiss the complaint. Without the complaint, there is no litigation and the case is dismissed. If the Spoliator is the Defendant, the Court can dismiss its answer. Without an answer, the Plaintiff gets a default judgement against the Defendant. See Ortega v. City of New York, 9 N.Y.3d 69 (N.Y. 2007).

There are many examples of what happens to a business if it fails to preserve relevant evidence. The harshest penalties normally are reserved for the ones that deliberately destroy evidence or which at least have a pattern of “losing” relevant documents and records. How and why the particular penalties are applied is something that we will discuss in subsequent posts.

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