Anything you post on your website can be used against you in later litigation.  Deleting content is not a solution.  Like other electronic files, snapshots or copies of a website as it existed on a certain date are discoverable in litigation.  And for all types of documents, trying to cover tracks by denying their existence after previously disclosing possession of them gives a judge good reason for ordering spoliation sanctions like an adverse inference instruction.

The Facts

The dispute in Arteria Property Pty Ltd. v. Universal Funding V.T.O., Inc., arose from failed negotiations to enter into an agreement to secure a $125 million long-term loan for Arteria to develop parcels of real estate in Australia.  In discovery, the Defendants, Universal Funding and its CEO/owner Vincent O’Hara, failed to produce a letter from the Bank of New York and electronic snapshots or paper copies of the company website as it existed at the time the dispute first arose.  Arteria sought an adverse inference as a sanction for the Defendants’ alleged spoliation of evidence.

The Plaintiff claimed that O’Hara showed the letter to an Arteria employee.  The letter’s terms induced Arteria to make a wire transfer of $50,000 to Universal Funding as an application fee to secure the $125 million loan from the Bank of New York.  Before the district court decided this motion, O’Hara denied that the Bank of New York letter existed, despite the Defendants’ previous affirmations, including a Rule 26 disclosure that the Defendants had the letter in their possession.  Bad move #1.

As for the website, the Plaintiff claimed that it stated that Universal was “one of the leading lenders serving the real estate market” with more than “50 years of Commercial Mortgage Banking experience.”  During O’Hara’s deposition, he confirmed the website’s content while admitting that the website stated some “fallacious information” and manipulated facts to attract customers.  Bad move #2.

After numerous requests by Arteria, the Defendants failed to produce the letter or the copies of the website.  Bad move #3.

The Law

Spoliation of evidence is “the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.”  A court may impose sanctions on an offending party who allows spoliation to occur.  Spoliation violates a litigant’s duty to preserve what it knows or reasonably should know will be requested in pending or reasonably foreseeable litigation.

In its motion for spoliation sanctions, the Plaintiff requested that the court order an adverse inference, a mild spoliation sanction.  An adverse inference informs the trier of fact that it may regard a party’s destruction or failure to produce a document as evidence that the party did so out of fear that the contents would harm him or her. 

To order an adverse inference instruction, a court must find:

1)    The evidence was within the party’s control;

2)    There was an actual suppression or withholding of evidence;

3)    The evidence destroyed or withheld was relevant to the claims or defenses; and

4)    It was reasonably foreseeable that the evidence would be discoverable.

The Letter

Applying the factors to the failure to produce the Bank of New York letter, the court found:

1)    The evidence was in the Defendants’ control, as the initial disclosures identified the letter as a document in their possession.

2)    Districts within the Third Circuit have split regarding the standard necessary to satisfy “actual suppression.”  While some districts require intentional action to suppress the evidence, others order an adverse inference instruction upon the mere negligent destruction of evidence.  Regardless of the standard, O’Hara’s later statement that he did not know of the existence of the letter demonstrates that the Defendants either intentionally destroyed it or negligently lost it.

3)    The letter was relevant to the Plaintiff’s claim because Arteria alleged that it induced the company into wiring the $50,000 application fee to Universal Funding.

4)    Because the Defendants included the letter in their initial disclosures, they were aware that it would be sought in discovery.

The Website

The court concluded that the website should not be treated any differently than other electronic files.  Focusing its inquiry on the control factor, the court determined that the Defendants had control over the website’s content, whether it was by posting or deleting.  Even if an intermediary, such as a web designer, posted the content, the Defendants still had the ultimate authority to post, delete, or modify the content.  There was no dispute that the website was in existence the few months before the Plaintiff filed the action in October 2005.  Once the Defendants could reasonably anticipate the litigation, they were under a duty to maintain the website and put a litigation hold in place to preserve relevant documents.

The court granted the motion for an adverse inference regarding both the letter and the website.  Future parties, take note of the Defendants’ mistakes.  Make sure you treat websites the same as you would any other type of electronic file during discovery.  Be careful not to make inconsistent statements regarding the existence of discoverable documents.  AND most importantly, put adequate litigation holds in place to preserve evidence and comply with requests from your adversary to produce documents.

Author Bio: Suzanne Janusz will receive her J.D. from Seton Hall University School of Law in 2012.  She received her B.A. from Rutgers University, New Brunswick, summa cum laude in 2008.  She currently serves as the Managing Editor for the Seton Hall Journal of Sports and Entertainment Law.