When does spoliation of evidence amount to a fraud on the court?

Court Punishes Dishonest Defendant with Sanctions, Default Judgment, and Dismissal

In the mood for a judicial tongue-lashing?  All you have to do is disobey a court order, destroy evidence and lie under oath. 

By means of factual background, Plaintiff Pacific Packaging is a distributor of packaging products.  Defendants James Barenboim, Andrew Slater, Steven Slater, and David Guild were salesmen at Pacific Packaging until they each resigned on October 15, 2009.  After leaving Pacific Packaging, the defendants formed Packaging Partners and began operating the very next day, October 16, 2009.  Sandra Zeraschi was a sales correspondent at Pacific Packaging until she resigned and went to work with Defendants at Packaging Partners the day they began operating. 

On November 4, 2009, Pacific Packaging filed a complaint and sought an order for expedited discovery and for the preservation of evidence, sensing something fishy about their new competitor.  Judge Inge allowed the plaintiff’s motion for expedited discovery and ordered the production of several documents, certain depositions, preservation of relevant ESI, and within five days, the provision of any and all computers, laptops, removable storage and other devices used in connection with the Defendant’s businesses to plaintiff’s counsel and experts for examination and copying

On February 2, 2012, Plaintiff moved for a preliminary injunction requiring Defendants to turn over all Pacific Packaging documents and barring the defendants for one year from making sales to any of the Pacific Packaging customers for which the defendants had taken information which Pacific Packaging asserted was confidential.  At the preliminary injunction, Judge Billings found that the defendants had misused information of Pacific Packaging in recruiting or selling to Pacific Packaging customers.  After testimony by the defendants claiming to have complied with the order for expedited discovery, Judge Billing enjoined Defendants for one year from selling certain products to certain customers.

After Ms. Zeraschi resigned from the newly formed Packaging Partners, her eligibility for unemployment benefits was questioned which led to her ultimately submitting an affidavit in support of the plaintiff’s motion for judgment on all claims based on the defendants’ fraud on the court.  In her affidavit, Ms. Zeraschi confessed to removing “account records, price lists, and quotations for various customers” which were later offered to the the defendants.  Ms. Zeraschi also admitted to observing the Defendants using Pacific Packaging Sales History Reports as well as vendor information.  Most harmful to the defendants, Ms. Zeraschi reported that there were emails between the defendants indicating that certain documents had not been turned over as part of document production.

Subsequently, the court ordered forensic analysis of Defendants’ computers and other devises and instructed the the defendants to turn over all computers and devises used for business purposes to the court.  Defendants appeared to comply by turning over various devises for imaging and providing affidavits indicating compliance. 

Once the plaintiff alleged that the defendants were in contempt of the provision of preliminary injunction, however, Defendants’ misconduct came to light.  Although Defendants claimed to have “misunderstood” Judge Billings’ order, Superior Court Judge Bruce Henry did not find these claims credible.  Instead, Judge Henry found that “the defendants deliberately and willfully violate the terms of the injunction” by continuing to sell certain products to certain of Pacific Packaging’s former customers. 

Judge Henry also found several other deliberate acts of misconduct.  These included the defendant Slater’s deletion of hundreds of e-mails from his Yahoo! Account, the continued use of devises that should have been handed over to the court, and the concealment of specific confidential documents.

Thus, the court found the defendants in contempt of court.  This contempt was premised on the information that “Defendants deliberately sold items… that were barred by the prohibition.”  The Plaintiff had therefore established by clear and convincing evidence that there was “a deliberate, clear, and undoubted violation of the clear and unequivocal order of Judge Billings.”

Furthermore, the court found that the “defendants spoliated evidence which they knew or reasonably should have known might be relevant to this matter.”  This spoliation occurred in several ways: the sales orders that Ms. Zeraschi took when she left Pacific Packaging were never produced, Defendant Andrew Slater deleted hundreds of e-mails without making copies, and the defendants failed to ever produce USB devices and other devices presumably used in the course of their business. 

Judge Henry also found that the defendants had committed a fraud on the court.  Like the spoliation of evidence, this fraud was also evidenced on several occasions: untrue assertions in affidavits, deletion of e-mails, misrepresentations, failure to produce devises, deliberately false affidavits, and deliberately misleading statements at the preliminary injunction hearing.

“All of these acts by each of the individual defendants,” the court ruled, “‘sentiently set in motion an unconscionable scheme calculated to interfere with the judicial system’s ability impartially to adjudicate this matter by improperly influencing the trier or unfairly hampering the presentation of the opposing party’s claim or defense.”  The spoliation of evidence, the misrepresentations in affidavits and in sworn testimony, the suppression of documents and other evidence, and the deliberate violation of the injunction all show “a blatant disregard for the judicial process and a disrespect of this court and its orders.”

Because the Defendants committed fraud upon the court, spoliated evidence and deliberately ignored the preliminary injunction, Judge Henry found that sanctions were appropriate.  Accordingly, Judge Henry found that the appropriate sanctions here are the entry of default as to Defendants with respect to some of the issues in some of the counts of the verified amended complaint; the dismissal of the Defendants’ counterclaims; and an order that the Defendants compensate the plaintiff for the attorney’s fees and costs incurred by the plaintiff in litigating the present motion.

Nicole was a 2010 magna cum laude graduate of Northeastern University located in Boston, Massachusetts where she earned her B.A. in English and Political Science.  She will receive her J.D. from Seton Hall University School of Law in 2015.  After graduation, Nicole will serve as a clerk to a trial judge of the Superior Court of New Jersey in the Morris-Sussex Vicinage.

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