Destroying information, or “spoliation,” can lead to severe penalties, including imprisonment and hefty fines. The duty to preserve information, including electronically stored information (ESI), exists in all litigation in New York. Breaching this duty can forfeit a New York civil case before the merits are reached and even force the spoliating party to pay its opponent’s attorneys’ fees and costs for uncovering the spoliation.
The penalties are far more serious in criminal cases. New York state and federal laws impose a comparable duty to preserve information for official proceedings and investigations. The government can pursue criminal penalties and fines solely for destruction of information. The severe civil and criminal sanctions that could result from seemingly commonplace deletion of information must be continuously considered.
Civil litigation spoliation in New York
Spoliation is the “intentional destruction, mutilation, alteration, or concealment of evidence, [usually] a document,” Metlife Auto & Home v. Joe Basil Chevrolet, Inc., 303 A.D.2d 30, 33-34 (4th Dept. 2002), aff’d, 1 N.Y.3d 478 (2004). The duty to preserve relevant evidence applies equally to ESI and tangible evidence. Spoliation sanctions cannot be imposed, however, unless the party with control over relevant ESI had an obligation to preserve it at the time it was destroyed, VOOM HD Holdings LLC v. EchoStar Satellite LLC, 93 A.D.3d 33, 45 (1st Dept. 2012). The obligation to preserve arises “[o]nce a party reasonably anticipates litigation,” Id. at 41, even if the spoliator was not yet a party.
Several remedies may be levied against a spoliator. For instance, the spoliator’s pleadings may be stricken, Denoyelles v. Gallagher, 40 A.D.3d 1027 (2d Dept. 2007). Other penalties include requiring the spoliator to pay the non-spoliator’s costs for developing replacement evidence, precluding proof favorable to the spoliator on the issues to which the destroyed evidence is relevant, or charging an adverse-inference instruction against the spoliator, Martinez v. Paddock Chevrolet, Inc., 85 A.D.3d 1691, 1692 (4th Dept. 2011). The non-spoliating party may also be awarded its fees and costs for uncovering and proving spoliation, 915 Broadway Assocs. LLC v. Paul, Hastings, Janofsky & Walker, LLP, No. 403124/08, 2012 WL 593075 (Sup. Ct. N.Y. Cnty. Feb. 16, 2012).
For instance, defendant Servall Company was sanctioned for spoliation after the Appellate Division, Fourth Department’s decision in Marcone APW, LLC v. Servall Co., 85 A.D.3d 1693 (4th Dept. 2011). There, plaintiff’s former employees stole thousands of ESI documents belonging to Marcone (“virtually all of [Marcone]’s customer information”), Id. at 1696.
The trial court found that the former employees used Marcone’s information to establish a completing business in the northeastern United States with Servall Company (“Servall”), Id. A forensic examination of the former employees’ computers revealed that defendants possessed and subsequently destroyed numerous ESI files and documents containing Marcone’s confidential information, Id. at 1694.
Marcone later moved for CPLR 3126 sanctions against Servall failing to produce discovery and/or preserve other relevant ESI. After a seven day spoliation hearing, the court determined that Servall spoliated evidence and awarded Marcone an adverse inference and its attorneys’ fees expended in investigating the spoliation.
Criminal document destruction
Criminal spoliation statutes apply in broad circumstances and carry hefty criminal and monetary penalties. New York Penal Law § 215.40 makes altering or destroying physical evidence relating to a pending or prospective official proceeding a class E felony. Proposed legislation seeks to amend the definition of “physical evidence” to include ESI. Assemb. B. 212, 2013-14 Reg. Sess. (N.Y. 2013). Although Article 156 of the N.Y. Penal Law criminalizes computer tampering, it is addressed to unauthorized use of a computer, not spoliation per se.
Federal obstruction of justice statutes criminalize document and ESI destruction. A well-known case under the federal statutes involved charges brought against Arthur Anderson LLP — the former Enron Corporation’s accounting firm — for shredding documents before an investigation by the U.S. Securities and Exchange Commission. Although Arthur Anderson was ultimately vindicated, the charges alone ruined the company.
Section 1512(c)(1) of Title 18 provides imprisonment and/or fines against “[w]hoever corruptly — (1) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object’s integrity or availability for use in an official proceeding …” Section 1515 defines “official proceedings” to include, without limitation, proceedings before a judge or court of the United States, a United States magistrate judge, a federal grand jury or a federal government agency that is authorized by law.
An “official proceeding” need not be pending or about to be instituted for a violation of Section 1512 to occur, nor must the document or record be admissible in evidence or free of a claim of privilege. A violation is punishable by imprisonment of not more than 20 years and/or fines of up to $250,000 for an individual and $500,000 for an organization., 18 U.S.C. § 3571(b) – (c) (2012).
To prove a violation of Section 1512(c)(1), the government must show “that a defendant altered, destroyed, or concealed a document, or attempted to do so, with intent to impair the document’s availability for use in an official proceeding,” United States v. Jahedi, 681 F. Supp. 2d 430, 434-35 (SDNY 2009) (citations omitted). The United States Court of Appeals for the Second Circuit has assumed without deciding that the government must demonstrate a nexus between the defendant’s obstructive act and the official proceedings, see United States v. Ortiz, 220 F. App’x 13 (2d Cir. 2007).
Section 1512 covers ESI destruction. The indictment of BP PLC Engineer Kurt Mix is illustrative. A criminal complaint was issued against Mix in April 2012 under Section 1512(c)(1) for his involvement with the April 2010 Maconda well explosion in the Gulf of Mexico — one of the largest environmental disasters in United States history.
According to the complaint, Mix was involved with BP’s efforts to stop the flow of oil following the explosion. Mix allegedly communicated with supervisors and outside contractors about oil flow-rate-related data via email and text message during April and May 2010. Mix allegedly received several Legal Hold Notices requiring that he retain all relevant records, including instant and text messages.
In or around June 2010, the Department of Justice launched a criminal investigation. A subpoena was issued for BP’s oil flow-rate related documents. Mix was personally contacted in September 2010 about collecting electronic data. An ensuing forensic analysis allegedly uncovered that Mix deleted over 300 text messages with his supervisor and contractors during October 2010 and August 2011. Mix was indicted in May 2012 on charges under Section 1512.
ESI destruction can also violate other obstruction of justice statutes. Section 1503 criminalizes, inter alia, “corruptly or by threats or force, or by any threatening letter or communication, influenc[ing], obstruct[ing], or imped[ing], or endeavor[ing] to influence, obstruct, or impede, the due administration of justice.” The government must prove that the defendant knew or had notice of a pending judicial or grand jury proceeding and that the defendant acted with the wrongful intent to influence said proceeding, United States v. Quattrone, 441 F.3d 153, 170 (2d Cir. 2006).
Unlike Section 1512, Section 1503 requires that a judicial proceeding be pending. However, a defendant can be charged with violations of both Sections 1503 and 1512 under appropriate circumstances, see e.g., Jahedi, 681 F. Supp. 2d at 439. A violation of Section 1503 is punishable by imprisonment of not more than 10 years and/or fines of up to $250,000 for an individual and $500,000 for an organization.
Section 1519 criminalizes document destruction in connection with federal investigations. Section 1519 criminalizes knowingly altering, destroying or mutilating a document or record with the intent to impede an investigation or matter or contemplated investigation or matter within the jurisdiction of any department or agency of the United States.
The government must prove that 1) an investigation or matter within the jurisdiction of a department or agency of the United states is pending or contemplated, 2) the defendant is aware of the pending or contemplated investigation or matter, and 3) the defendant knowingly destroyed a document with the intent to impede, obstruct or influence the pending or contemplated investigation or matter, United States v. Perraud, 672 F. Supp. 2d 1328, 1350 (S.D. Fla. 2009). A violation is punishable by imprisonment of not more than 20 years and/or fines of up to $250,000 for an individual and $500,000 for an organization.
Civil litigation spoliation and criminal document destruction
Civil litigation spoliation can violate criminal statutes. This circumstance may arise in trade secret cases involving theft or use of ESI, where misappropriators attempt to hide their misconduct by destroying the ESI trail, see Marcone, 85 A.D.3d at 1694.
In E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 803 F. Supp. 2d 469 (E.D. Va. 2011), DuPont sued Kolon in February 2009 claiming that Kolon wrongfully obtained DuPont’s trade secrets, Id. at 474-75. Kolon hired a former DuPont employee, who engaged other former DuPont employees to obtain DuPont’s trade secrets, Id. at 475.
In July 2011, the court determined that Kolon engaged in spoliation. During the days after DuPont filed its complaint, Kolon employees met and discussed identifying documents on their computers for later deletion, marking email items for possible deletion and deleting folders that contained proprietary information, Id. at 478, 481.
Images of Kolon employees’ hard drives taken in February and March 2009 confirmed that Kolon employees deleted information, Id. at 479. Kolon admitted that an undisclosed number of custodians “may have” done so “in response to the litigation,” Id. DuPont forensically recovered numerous deleted and overwritten emails and files, Id. at 482-94. The court imposed sanctions in the form of attorneys’ fees, expenses and costs related to the spoliation motion and an adverse inference, Id. at 510.
The court awarded DuPont attorneys’ fees in the amount of $2,428,733.90 and costs in the amount of $2,068,313.60, E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., No. 3:09cv058, 2013 WL 458532 (E.D. Va. Feb. 6, 2013)
In August 2012, Kolon and several members of its management team were indicted for obstruction of justice under 18 U.S.C. § 1512(c), conspiracy to convert trade secrets under 18 U.S.C. § 1832(a)(5) and theft of trade secrets under 18 U.S.C. § 1832(a)(2). The indictment based the Section 1512(c) charges on the same acts that constituted Kolon’s spoliation in the civil proceeding.
As the foregoing illustrates, destruction of documents, including ESI, can severely undermine a civil litigant’s case and may invite serious criminal charges and fines. The ever-increasing reliance on and usage of ESI in daily affairs and the ease by which information can be permanently lost, even unintentionally, require that counsel, litigants and potential targets carefully monitor their document and ESI destruction.
Alan J. Bozer and Christopher L. Hayes are attorneys with Phillips Lytle LLP. Alan J. Bozer is a partner and is co-chair of the firm’s White Collar Criminal Defense and Government Investigations Practice Team. He is active in trying criminal and civil cases, and handles appellate and arbitration work as well. Hayes concentrates his practice on general trial and matters involving business torts, such as employee disloyalty, restrictive covenants, tortious interference with contract and business relations, and trade secrets and other confidential information. In addition, he handles federal and state court employment matters. He is a member of the firm’s White Collar Criminal Defense and Government Investigations Practice Team. Bozer can be reached at firstname.lastname@example.org or (716) 504-5700; Hayes can be reached at email@example.com or (716) 504-5725.