Court Sanctions Contractor For Despoiling Evidence

When a contractor consults with an attorney regarding a claim—either one they intend to assert against another contractor, an owner, etc., or one that’s being asserted against them—the conversation will ultimately turn to how will that claim either be proven or refuted. While this column has often warned that “if it ain’t in writing, it didn’t happen”, a related warning (for those not old enough to remember Oliver North and the Iran-Contra Affair) is that once it’s in writing, keep it that way—regardless of how detrimental the writing may seem. The recent case of Borough Construction Group, LLC v Red Hook 160 LLC serves as a reminder that those who destroy evidence can be sanctioned for doing so, with attendant adverse effects on the lawsuit.

Background

In September of 2016, Borough Construction Group entered into a contract with Red Hook 160 for the construction of a project located at 160 Imlay Street in Brooklyn. Shortly after construction commenced, the relationship between the parties soured. On November 30, 2017, in response to complaints by Red Hook, a representative of Borough sent an email claiming that Red Hook was “trying to lay foundation for a potential lawsuit down the road”, and refuting the complaints leveled against Borough in that correspondence.

As time passed, matters did not improve. On August 10, 2018, Red Hook sent Borough a default notice setting forth Borough’s alleged failings on the project, which included delays, blown budgets, unperformed and defective work, and improper billing. While the notice requested a meeting to determine whether Borough could cure its claimed deficiencies, Red Hook reserved all of its rights. Ultimately, on September 24, 2018, Red Hook terminated Borough’s contract. Borough quickly filed a $2.5 million mechanic’s lien, followed just as quicky by a lawsuit to foreclose the lien. In response, Red Hook asserted various counterclaims alleging that Borough breached its contract, and its principals engaged in a fraudulent kickback scheme.

During the lawsuit, Red Hook demanded that Borough produce all communications, including text messages, between Borough’s principals and others involved with the project. When Borough produced its documents, it was apparent to Red Hook that certain text messages which had been demanded were missing. When Red Hook pointed this out to Borough, Borough responded that “it is outside the usual course of business for the Responding Parties to preserve text messages for more than a matter of days or weeks (at most) and, thus, any text messages that you may be seeking were automatically deleted long prior to the prospect of any litigation between the parties (and, thus, any obligation on the part of the Responding Parties to preserve electronically stored information).” Borough elaborated in later correspondence that “it seems that you are already in possession of text messages from third-parties that are responsive to your inquiry” and, thus, claimed that there was no prejudice to Red Hook as the result of the failure to preserve the documents. Red Hook then asked the judge to issue discovery sanctions against Borough, arguing that the missing text messages were critical to its claims and defenses. Red Hook opposed that motion, arguing (as it did directly to Borough) that any prejudice to Red Hook’s case was minimized by the fact that the sought text messages were obtainable from third parties. Borough also argued that its text messages were not relevant once it was terminated from the project, and were unrelated to Red Hook’s claims.

Decision

The court granted Red Hook’s motion for discovery sanctions. In doing so, the court relied on established case law holding that once a party “reasonably anticipates litigation”, it is under an obligation to preserve all records and communications relating to the subject matter of the anticipated litigation. The court set the date on which the obligation to preserve records arose here as the date of the termination, finding that it could not be said that a reasonable party would have surely anticipated litigation prior to that date (despite the earlier saber rattling). With that date set, the court specifically held that “one of the very purposes of discovery is to examine the contemporaneous thoughts and beliefs of the parties”. Accordingly, the court rejected any arguments that the sought text messages were not relevant—resoundingly rejecting the argument that Borough could unilaterally determine what text messages were relevant—and that there was no prejudice because the messages could be procured from elsewhere. The court also noted that for the same reasons, Borough’s own discovery demands to Red Hook required Red Hook to produce all of Borough’s text messages “without regard to relevancy, duplicity or any other basis for non-disclosure”. Finally, as to the sanction itself, given the volume and regularity with which text messages were used to communicate, the court determined that it would permit the jury to draw a negative inference at trial: i.e., conclude that the text messages were not preserved because they would not have supported—or would have outright refuted—Borough’s claims and defenses.

Comment

As all courts are courts of equity, courts will not countenance inequitable conduct designed to thwart the true administration of justice. Accordingly, although in this case it was found that the text messages were intentionally discarded, even a negligent failure to preserve crucial evidence is subject to sanction. Further, depending on the nature of the prejudice resulting to the victim, a court is not constrained to only offer a negative inference: it can go so far as to strike pleadings and grant an immediate judgment to a party.

Given the informality of the media of email and text messages, many such communications are made “from the hip” or “off the cuff”. Accordingly, a party may quickly come to regret sending one or more such communications. However, by engaging in the improper “self help” of deletion, a party is risking the imposition of what can be more severe sanctions. In that regard, a party who knows that such communications exist would be well advised to consult with experienced construction counsel who can work to control how such communications come out—and, crucially, work to provide favorable context of the communication to potentially blunt its impact.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100