From IDT Corp. v. Morgan Stanley Dean Witter & Co. 2009 NY Slip Op 5253, 2009 N.Y. App. Div. LEXIS 5167 (1st Dept. June 25, 2009):

The issue on this appeal is whether cognizable claims for fraudulent misrepresentation and fraudulent concealment may be based on intentional spoliation of evidence, notwithstanding that New York does not recognize an independent tort of third-party negligent spoliation. We conclude that intentional spoliation of evidence may be the basis for such claims.

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In May 2001, IDT commenced an arbitration proceeding against Telefonica alleging that Telefonica had breached its contract with IDT. Morgan Stanley was not a party to the arbitration. The arbitration panel concluded that Telefonica had breached the contract, and IDT was awarded more than $16,000,000 in damages. IDT's claims for fraudulent misrepresentation and fraudulent concealment in this action are based on Morgan Stanley's response to a subpoena served by IDT in connection with the arbitration proceeding that sought all documents referring or relating to any advice provided to Telefonica by Morgan Stanley concerning the fiber-optic cable deal.

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. *** 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.

The Court of Appeals' decision in Ortega v City of New York (9 NY3d 69 [2007]...) 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 [Morgan Stanley was IDT’s former investment banker], 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 Div 1991] certif denied 127 NJ 565, 606 A2d 375 [1992]). There is no sound reason for New York courts to conclude otherwise.