In Hart v. Dillon Companies, Inc., the U.S. District Court in Colorado has ruled sanctions await defendants who fail to preserve relevant evidence—in this case a recording.
The employer’s loss prevention officer (“LPO”) was investigating alleged misconduct by a 21-year-old employee. The LPO had surreptitiously taped his interview with the employee, which included the employee’s admissions. The tone and tenor of the conversation and the content of some of the remarks that were being disputed by the parties also could be heard on the tape. The employer terminated the employee based upon the LPO’s investigation. The LPO recapped the interview, using the recording to prepare his memorandum. Later, the digital recording was wiped out when the recorder became full and the recording was displaced. No litigation hold had been issued by then, but Dillon had demanded arbitration after receiving a charge of discrimination from the Equal Employment Opportunity Commission. Dillon conceded the former employee intended to litigate.
The court reviewed the case for spoliation under its test from a 2011 case imposing sanctions against the same employer: (1) Is the evidence relevant to an issue at trial; (2) Did the party have a duty to preserve the evidence because it knew, or should have known, that litigation was imminent; and (3) Was the other party prejudiced by the destruction of the evidence? EEOC v. Dillon Companies, 839 F.Supp.2d 1141 (D.Colo. 2011).
This time, the company failed to issue a litigation hold for four months after receipt of the EEOC charge of discrimination. It issued a hold upon receipt of the lawsuit. Too late, said the court. Relying upon the charge and the EEOC’s procedural rules, 29 C.F.R. §1602.14, which imposes a general duty on employers to preserve records about employment actions, including terminations, for one year and the whole time the charge is pending, if longer, the court concluded spoliation had occurred. Although most EEOC charges do not lead to litigation, courts have uniformly imposed hold duties upon receipt of a charge. The EEOC informs employers of the duty of preservation when it transmits the charge. The court found Dillon “highly culpable” because it failed to preserve the interview recording.
A hearing was set for this week to set the sanctions, but stricken after Dillon filed an objection. Dillon has asked the District Judge to defer sanctions until the trial, after consideration of the other evidence, to avoid a “double-dip” on sanctions by the plaintiff. The company argues the court must hear the issue in context with the rest of the trial and should defer any monetary sanction. It also argued the plaintiff suffered no prejudice as the parties have no dispute on the material points from the recorded meeting. Dillon argued that here, unlike in the 2011 case, the decision makers had not relied upon the destroyed recording. It disputed the court’s finding of bad faith, arguing no willfulness with regard to the LPO’s mistaken destruction of the recording. Dillon did not address whether the conduct was reckless or grossly negligent.
The court has not ruled upon Dillon’s objection.