Court finds ‘much more serious’ spoliation intended to gain litigation advantage

Malone v. Weiss

In this breach of contract case, the court imposed the rare sanction of outright dismissal, finding that it was the only remedy “proportional to the deleterious conduct” of the plaintiffs.

This case began when the plaintiffs, John and Veronica Malone and their closely held company Ahlese, LLC, purchased another business from the defendants, Howard and Wendy Weiss. The Malones alleged that the Weisses “made false representations about the nature of the business” and its assets. The Weisses filed a counterclaim for unpaid services during the transition.

In December 2017, the Weisses advised the court “of a troubling situation” involving discovery. Specifically, the emails produced by the parties had a “series of discrepancies” in key aspects.

In March 2018, counsel for the plaintiffs moved to withdraw, citing an “irretrievable breakdown” of their relationship. Thereafter, the court received a pro se fax from the Malones requesting “the full dismissal of our civil suit … and any/all counter claims” against them. That fax stated that the counterclaim was “only a distraction from the facts” of their own case.

In a subsequent court conference, however, John Malone denied any knowledge of the counterclaim. He alleged that counsel had “never shared any of this” information.

At the hearing on the sanctions motion, the court heard from the Weisses’ expert, who imaged both parties’ computers and examined their respective emails. The inquiry focused on four emails that the Weisses said they did not receive or that had “materially different” content from their own copies. Additionally, the parties offered different versions of their payment agreement.

The emails presented starkly different facts. For example, the Malones’ version of one email stated that they were “interested in cutting off training” and moving forward with the business. The Weisses’ version stated the exact opposite. As the court noted, “only one of these versions could be authentic.”

The computer expert determined that the emails produced by the Malones were “fabricated, altered, or never sent.” The expert explained that he couldn’t find one of these alleged emails in Malone’s sent email folder or on either of the Weisses’ computers. As to the payment agreement, the Weisses’ version was present on both parties’ computers, while the Malones’ version was never sent.

John Malone testified, explaining that “he sometimes deleted emails” but that he couldn’t be sure which ones he had deleted. He stated that he preserved some emails by copying them into Word and preserved others by scanning them to PDFs. He said he could not account for the inconsistencies between the emails.

The court found the expert’s testimony to be credible. Malone’s testimony, by contrast, was “confused and riddled with inconsistencies.” The court pointed out again that John Malone had already contradicted himself to the court regarding his knowledge of the counterclaim.

The Malones argued that “the alterations in the email were immaterial” to the determination of the case. The court disagreed. It concluded that the Malones fabricated and intentionally deleted emails “to conceal their existence” and manipulated the payment agreement.

The Weisses asked the court to dismiss the Malones’ claim as a sanction. The court noted that it could do so under its inherent authority, as Federal Rule of Civil Procedure 37(e) applies only to the failure to properly preserve electronically stored information. Here, the facts were “much more serious,” implicating “the intentional manipulation” of evidence “to gain an advantage in litigation.”

Finding that the “evidence overwhelmingly demonstrate[d]” spoliation, the court weighed the Malones’ degree of fault and the ensuing prejudice. It concluded that John Malone “intentionally altered and manipulated evidence,” resulting in “substantial” prejudice.

Nor were “the costs of [Malone’s] charades … limited to the present lawsuit.” Rather, “Malone’s actions threaten to undermine the public’s faith in courts” altogether.

After “contemplat[ing] various sanctions,” the court rejected lesser options to avoid the message that “money could cure” a party’s improper actions. It concluded that the only “remedy proportional to the deleterious conduct involved in this matter is outright dismissal” of the Malones’ claims. Therefore, the court dismissed the complaint, allowing only the counterclaims to proceed.

Takeaways on Preserving Your Reputation

While this case is obviously an extreme example, it underscores an important message that applies to every case: the court is always paying attention to your conduct. Here, the court carefully set the stage in its opinion to emphasize John Malone’s earlier misrepresentation about his knowledge of the counterclaim. Without that history, the court might have taken a more charitable view of Malone and his technical expertise (or lack thereof); with it, it did not hesitate to find intentional and egregious misconduct worthy of dismissal.

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