What Every Owner, Contractor, and C-Suite Should Know About the “Spoliation of Evidence”

At the height of the pandemic, opposing counsel allowed their owner client to “rip out” significant portions of a new $14M automated robotic warehousing system.  The owner of the warehouse claimed the software and equipment comprising the system were defective, everything had to be “ripped out” and replaced, and sought more than $50M of damages.  The contractors claimed the system satisfied the owner’s original specifications, the problems, if any, resided in the owner’s software, and the owner would be committing “economic waste” if it ripped out the system.  [See “What Every Owner and Contractor Should Know About the Economic Waster Rule” posted 2/22/23].  The only way to reconcile these competing positions, was to perform "end-to-end" testing of the system tracing the flow of data through the software and observing the automated operation of the robotic portion of the system. 

By ripping out portions of the robotic system, opposing counsel and their owner client rendered it impossible to perform "end-to-end" testing.  More importantly, they destroyed significant portions of a system, they claimed to be defective, upon which they carried the burden of proof.  Opposing counsel allowed, if not actively counseled, their owner client to intentionally destroy material evidence (i.e. robotic system) at the core of the owners claims and the contractors defenses.  Such destruction of material evidence is deemed “spoliation” and subjects the irresponsible party and/or their counsel to varying degrees of punishment dependent upon the nature and extent of the “spoliation”.

Litigants have a legal obligation to preserve all evidence they know, or should know, is “relevant” to pending or future litigation. “Spoliation” is a legal doctrine that punishes a litigant who deliberately, negligently, or accidentally destroys evidence “relevant” to a pending or future lawsuit. The doctrine is derived from Roman law, and the Latin phrase "Contra Spoliaterem Omnia Praesumuntur" meaning “everything most to his disadvantage is to be presumed against the destroyer”.  Any evidence is “relevant” so long as it has “any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence”.  Obviously, when it comes to allegedly defective construction, the “work”, “system” or “equipment” at issue is highly “relevant” and must be preserved in order to avoid the “spoliation” of evidence.

However, the obligation to preserve “relevant” evidence and avoid “spoliation” extends far beyond the physical work that may be at dispute.  By way of example, “relevant” evidence may include not only the work, but also, physical objects, software, hardware, photographs, hard copy documents, e-mails, text messages, plans and specifications, videos, test reports and the list continues.  Litigants must take “reasonable steps” so as to avoid the “spoliation” of “relevant evidence”.  As a practical matter, once the possibility of litigation is foreseen, future litigants should issue a “litigation hold” to all “custodians” who possess or control “relevant evidence" and suspend any “document retention policies” that might otherwise cause the destruction and “spoliation” of “relevant” evidence.

The punishment resulting from the “spoliation” of evidence varies depending upon the nature and extent of the “relevant” evidence that has been destroyed.  If the “relevant” evidence may be restored or replaced, the punishment may be as simple as a “slap on the hand”.  If the “relevant” evidence is “negligently” or “accidentally” destroyed, the punishment is generally no greater than necessary to cure the “prejudice” to the party seeking to rely upon the evidence destroyed.  But if the “relevant” evidence is “intentionally” destroyed, the punishment ranges from a negative inference that the destroyed evidence was damaging to the destroyer to dismissal of the destroyers claims and/or a default judgment.  Opposing counsel advising the owner to “rip out” the robotic warehousing system in our case, acted intentionally resulting in a very favorable resolution to the contractors who were severely “prejudiced” by the inability to conduct "end-to-end" testing of the integrated system.

In the event you reasonably anticipate the possibility of litigation, filed by or against your company, you should take reasonable steps to avoid the destruction of "relevant" evidence.  Such steps include the distribution of a "litigation hold" to all custodians of "relevant evidence", instructing each custodian to preserve all materials and things they maintain, control or possess with relation to the reasonably anticipated or pending litigation. For the avoidance of doubt, litigation is reasonably anticipated when it is more likely than not the parties will be engaged in litigation in the near future.   If litigation is reasonably anticipated, beware of the "spoliation" of evidence.