Commercial Litigation and Arbitration

Spoliation of One Defendant’s Evidence by Consultant Retained by Joint Counsel Exposes All Jointly-Represented Co-Defendants to Sanctions

In United States v. Maxxam, Inc., 2009 U.S. Dist. LEXIS 30743 (N.D. Cal. Mar. 29, 2009), the plaintiff claimed that certain evidence in the possession of one defendant was spoliated by a consultant and that the spoliation was attributable to that defendant’s counsel. The same counsel also jointly represented two other defendants (the corporate parent and grandparent of the first defendant), and the plaintiff claimed that the spoliation was therefore attributable to all three because it was committed by the agent of each of them. While the Court ultimately denied sanctions on other grounds, it agreed that the jointly-represented co-defendants could properly be sanctioned for misconduct by joint counsel, without piercing the corporate veils among the defendants:

As a threshold matter, the Court addresses the parties' arguments regarding whether Defendants Maxxam and Hurwitz may be found responsible for any alleged spoliation of evidence because the SYP inputs were in the possession of VESTRA, an agent of Pacific Lumber, and not in Defendants' possession or control. The Court concludes that they can.

Defendants argue at length that Plaintiffs have not met their burden of establishing that Defendants Hurwitz and Maxxam had anything to do with the alleged destruction of evidence at VESTRA. Defendants argue further, that in order to so find, this Court would have to pierce the corporate veil. See Opposition at 18, citing Pirv v. Glock Inc., 2009 U.S. Dist. LEXIS 1524, 2009 WL 54466, at *5-6 (D. Or. Jan. 8, 2009) (plaintiff not responsible for spoliation where he did not have possession of evidence, did not destroy it himself, and did not employ third party who destroyed it); Litton Systems Inc. v. Ssangyong Cement Industrial Co., 107 F.3d 30, 1997 WL 59360, at *6 (Fed.Cir. Feb 13, 1997) (district court erred in entering default against parent corporation as sanction of alleged spoliation by subsidiary).

The Rawles Hinkle firm retained VESTRA near the end of the Headwaters Purchase to do the computer modeling. The allegedly missing SYP [sustained yield plan] inputs were in the possession of VESTRA as a part of that modeling process. Rawles Hinkle, in turn, jointly represented Pacific Lumber, Maxxam and Hurwitz in the Headwaters Purchase. It is entirely reasonable to hold Maxxam and Hurwitz responsible for the preservation of evidence in the hands of its agent — the Rawles Hinkle law firm — and therefore in the hands of the consultants retained by the firm.

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