Articles

Corporate Law

Corporate governance

Every Company Must Adopt Proper Document Maintenance Procedures Nov-Dec-05

                        We are often asked during the course of a litigation about the impact of a party’s failure to maintain or produce certain evidence that is exclusively in that party’s possession.  The term for the failure of a party to preserve relevant evidence is “spoliation of evidence.”  The spoliation of evidence usually results in a special instruction being given to the jury as the recent North Carolina case of Arndt v. First Union National Bank demonstrates.

                        In Arndt, Arndt sued First Union for bonuses based on an alleged oral contract.  During the discovery process, Arndt requested copies of emails and financial statements that Arndt contended were relevant to prove his claim.  First Union could not locate the documents and had not preserved the emails.  Accordingly, the trial court instructed the jury that it could draw an adverse inference against First Union as follows:

Evidence has been received that tends to show that certain profit and loss statements and emails were in the exclusive possession of the defendant, First Union.  From this you may infer, though you are not compelled to do so, that the profit and loss statements and the e-mails would be damaging to the defendant. You may give this inference such force and effect as you think it should have, under all the facts and circumstances. You are permitted this inference, even if there is no evidence that the defendant acted intentionally, negligently or in bad faith.   However, you should not make this inference, if you find that there is a fair, frank and satisfactory explanation for the defendant’s failure to produce the documents. 

                         First Union objected to the instruction and appealed the judgment entered against it.  In finding that the instruction to the jury was proper, the court noted that the relevant case law provides that when the evidence shows that a party is aware of circumstances likely to give rise to future litigation and “yet destroys potentially relevant records without a particularized inquiry, a fact finder may reasonably infer that the party probably did so because the records would harm its case”; to qualify for the inference, “the party requesting it must ordinarily show that the spoliator was on notice of the claim or potential claim at the time of the destruction”; and the party seeking the adverse inference does not have to show “direct evidence of a cover up. . . circumstantial evidence will suffice.”


                        The court further found that the testimony at trial illustrated that after Arndt gave notice he would be seeking his claimed bonuses, First Union’s human resource department did nothing to preserve related emails and electronic documents on the hard drive of Arndt's computer, the implication being that the documents would have been damaging to First Union’s defense.

                        Given the ruling in Arndt, any party involved in or anticipating litigation must implement a policy that will ensure that relevant documents are preserved and produced during discovery or the party will be subject to the negative inference created by the spoliation of evidence rule.  In today’s litigious society, that means all employers should adhere to this rule.

Attorney to Contact

• Thomas W. Rieck
• Jerome F. Crotty
• Ronald P. Duplack
• Douglas C. Conover