CPLR § 3126 Penalties for refusal to comply with order or to disclose
Northfield Ins. Co. v Model Towing & Recovery, 2009 NY Slip Op 04878 (App. Div., 2nd, 2009)
A preliminary conference order dated July 28, 2005, set forth deadlines for discovery including, inter alia, a provision that the plaintiff was to provide, within 30 days of the preliminary conference, its complete claims file, all contracts relating to the subject premises, and responses to any of the demands of the defendant Model Towing and Recovery (hereinafter Model Towing) to the extent not already provided. By order entered December 19, 2006, the Supreme Court, inter alia, directed the parties to appear for a status conference on February 14, 2007, at which time it was anticipated that all discovery would be completed.
The court conducted numerous status conferences throughout 2006 and 2007 to expedite discovery. At the conclusion of a conference on December 12, 2007, after the parties failed to complete discovery, the court issued an order directing, inter alia, that by January 16, 2008, the plaintiff was to produce a certified copy of its claims and underwriting files pertaining to the subject premises, in addition to providing responses to any outstanding discovery requests. In addition, Model Towing was directed to "advise" the plaintiff by letter with respect to the outstanding demands by December 14, 2007. The order also directed that the plaintiff's failure to provide any of the demanded documents would result in preclusion. Model Towing provided a list of 25 outstanding demands to the plaintiff on December 12, 2007, in court. By January 16, 2008, discovery from the plaintiff remained outstanding.
Thereafter, Model Towing moved, inter alia, to strike the plaintiff's complaint pursuant to CPLR 3126 for the plaintiff's failure to comply with discovery demands and discovery orders of the court, including the order dated December 12, 2007. In an order entered August 21, 2008, the court denied the motion, finding that the plaintiff's actions were not willful, contumacious, or calculated to deprive Model Towing of discovery. In the same order, the court set forth a schedule by which the outstanding discovery was to be completed and provided that failure to comply with the schedule would be the basis for a motion for relief pursuant to CPLR 3126.
The nature and degree of the penalty to be imposed pursuant to CPLR 3126 is a matter of discretion (see Kihl v Pfeffer, 94 NY2d 118, 122; Zletz v Wetanson, 67 NY2d 711; Morano v Westchester Paving & Sealing Corp., 7 AD3d 495; Novis v Benes, 268 AD2d 464). Although striking a pleading is a drastic remedy, it is appropriate where there is a clear showing that the failure to comply with discovery demands was willful or contumacious (see Frias v Fortini, 240 AD2d 467; cf. Novis v Benes, 268 AD2d 464). It can be inferred that a party's conduct is willful and contumacious when it repeatedly fails to comply with discovery demands and court orders compelling disclosure without providing a reasonable excuse for noncompliance (see Mei Yan Zhang v Santana, 52 AD3d 484, 485; Dinstber v Geico Ins. Co., 32 AD3d 893; Kroll v Parkway Plaza Joint Venture, 10 AD3d 633, 634; Ordonez v Guerra, 295 AD2d 325; Cutolo v Khalife, 242 AD2d 661; Frias v Fortini, 240 AD2d 467; Kubacka v Town of North Hempstead, 240 AD2d 374). "If the credibility of court orders and the integrity of our judicial system are to be maintained, a litigant cannot ignore court orders with impunity" (Kihl v Pfeffer, 94 NY2d at 123).
The plaintiff did not offer a reasonable excuse for failing to comply with Model Towing's repeated discovery demands or the orders of the court directing compliance with those demands. Accordingly, it was an improvident exercise of discretion to deny Model Towing's motion to unconditionally strike the complaint (see Hanlon v Rosenthal, 7 AD3d 758; Smith v Eastern Long Is. Hosp., 263 AD2d 477).
IDT Corp. v Morgan Stanley Dean Witter & Co., 2009 NY Slip Op 05253 (App. Div., 1st, 2009)
IDT alleges that Morgan Stanley produced more than 2,000 pages of documents in response to IDT's subpoena and represented in writing that it had fully complied with the subpoena, but that during the course of discovery in this action IDT learned that Morgan Stanley produced only a small percentage of the documents that were relevant and responsive to IDT's subpoena and that the excluded documents, consisting of an additional 500,000 pages, included critical "smoking gun" documents. One of those documents is a letter from two Morgan Stanley executives to Telefonica's chairman just two months after the contract with IDT was signed, advising Telefonica to sell its equity in the project at cost and encouraging Telefonica to reevaluate its agreements with IDT. IDT alleges that this concealment by Morgan Stanley caused it great damage in the arbitration because the withheld documents would have enabled IDT to prove that Telefonica had breached the contract as early as October 1999 rather than somewhere between October 2000 and March 2001, as the arbitrators determined, thus increasing the award of damages.
Since IDT had not initially included causes of action for fraudulent misrepresentation and fraudulent concealment in its complaint, it sought leave to amend the complaint [FN2]. Supreme Court granted the motion, rejecting Morgan Stanley's arguments that the claims were legally deficient because IDT could not demonstrate that it suffered any harm as a result of not having the documents during the arbitration and that the documents were cumulative. The court found that IDT had pleaded the elements of fraud and fraudulent concealment, noting that the elements of fraudulent concealment are the same as fraud, with the addition that the party charged with the fraud must have had a duty to disclose.
Subsequently, Morgan Stanley moved to dismiss those causes of action for failure to state a cause of action on the ground that New York does not recognize spoliation of evidence as a cognizable tort. On constraint of the Court of Appeals' decision in Ortega v City of New York (9 NY3d 69 [2007]), Supreme Court granted the motion, concluding that IDT's framing of the claims as fraud claims "[did] not take it out of the rules regarding spoliation of evidence claims." This was error.
Supreme Court correctly found in its initial assessment that IDT had sufficiently alleged claims for fraud and fraudulent concealment. IDT alleges that Morgan Stanley made a material misrepresentation of fact when it represented that it had fully complied with the subpoena; that the misrepresentation was made intentionally to defraud or mislead IDT; that IDT reasonably [*3]relied on the misrepresentation, and that it suffered damage as a result of its reliance (see e.g. P.T. Bank Cent. Asia, N.Y. Branch v ABN AMRO Bank N.V., 301 AD2d 373, 376 [2003]). In addition to these elements, IDT alleges that Morgan Stanley had a duty to disclose and that it failed to do so, thus stating a claim for fraudulent concealment (id.).
The Court of Appeals' decision in Ortega v City of New York (9 NY3d 69 [2007], supra) does not require dismissal of IDT's claims for fraud and fraudulent concealment simply because the vehicle for the alleged fraudulent conduct was concealment of evidence. First, the Ortega holding involved a claim of negligent spoliation of evidence, not a claim of intentional concealment or spoliation of evidence. Second, unlike the City in Ortega, which the court noted was a third party with a duty to preserve evidence but with no connection to the underlying litigation, Morgan Stanley was not an uninvolved third party to the arbitration proceeding between IDT and Telefonica. It had fiduciary relationships with both parties, and the concealment of documents from IDT arguably both benefitted its client Telefonica in the arbitration and protected Morgan Stanley from being sued by IDT.
Two additional circumstances distinguish this case from Ortega. The Ortega court refused to recognize a third-party spoliation claim because the content of the lost evidence is unknown, thus leading to speculation as to causation and damages. Here, there is no such concern because the concealed documents have been produced. The court also found that it would not be sound public policy to permit an independent tort of spoliation to be asserted against a municipality. There are no public policy reasons to disallow IDT's claims for fraud and fraudulent concealment against its fiduciary based on the latter's spoliation of subpoenaed documents.
Importantly, the Ortega court wrote that "[a]t bottom, plaintiffs seek recognition of a new cause of action because they cannot meet the traditional proximate cause and actual damages standards at the foundation of our common-law tort jurisprudence" (9 NY3d at 80). IDT suffers from no such impediment. It has met the pleading standard for fraud and fraudulent concealment and thus has a remedy under existing tort principles. There is no indication in Ortega that the court would reject an already recognized common-law tort claim simply because the claim was based on the spoliation of evidence.
We note that the New Jersey courts, which do not recognize a separate tort action for intentional spoliation, recognize a claim of fraudulent concealment based on the intentional spoliation of evidence (see e.g. Rosenblit v Zimmerman, 166 NJ 391, 766 A2d 749 [2001]; R.L. v Voytac, 402 NJ Super 392, 407-408, 954 A2d 527, 536 [App Div 2008] certif granted in part 197 NJ 259, 962 A2d 530 [2008]; Viviano v CBS, Inc., 251 NJ Super 113, 597 A2d 543 [App [*4]Div 1991] certif denied 127 NJ 565, 606 A2d 375 [1992]). There is no sound reason for New York courts to conclude otherwise.
