NY 1st Department Recognizes Tort of Intentional Spoliation by a Non-Party
Failure to fully respond to a non-party subpoena may now create a risk greater than sanctions in New York -- it might create tort liability. In IDT Corporation v. Morgan Stanley Dean Witter & Co., the First Department has ruled that claims for fraudulent misrepresentation and fraudulent concealment may be based upon intentional spoliation of evidence.
The spoliation claim arises from defendant, Morgan Stanley’s purported failure to fully respond to a subpoena in an arbitration between two of its clients (Morgan Stanley was not a party to the arbitration). Morgan Stanley had represented in writing that its production of approximately 2,000 pages of documents fully complied with the subpoena.
In this action, the remainder of which was dismissed by the Court of Appeals in March, plaintiff asserts that it learned that only a small number of responsive documents had been produced by Morgan Stanley in response to the subpoena. Allegedly, 500,000 pages were not produced, and the omitted documents included some “smoking guns” -- which would have resulted in an increased arbitration award if plaintiff had known of them at the time.
The trial court had dismissed the claims for fraud and fraudulent concealment because of an earlier Court of Appeals case, Ortega v. City of New York, which did not allow a claim of negligent spoliation against a third party.
The Appellate Division distinguished Ortega and ruled that claims for fraud and fraudulent concealment had been sufficiently alleged – a material misrepresentation of fact was made when Morgan Stanley represented that it had fully complied with the subpoena; the misrepresentation had been intentionally made to mislead plaintiff; that plaintiff had reasonably relied on the misrepresentation, and had suffered damages as a result (more would have been awarded in the arbitration). Because plaintiff stated a claim under existing tort principles, there was no reason to dismiss it because it involved spoliation of evidence in an action in which the defendant was a non-party.
There are a number of facts in this case that arguably present unusual (or, distinguishable) circumstances, including whether this is limited to third-parties who have fiduciary relationships with the other parties. But, the fact is that this is one more reason to pay close attention to those non-party subpoenas.
