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Spoliation Instruction Appropriate where Defendants Failed to Preserve Email

Posted in CASE SUMMARIES

Arndt v. First Union Nat’l Bank, 613 S.E.2d 274
(N.C. Ct.App. 2005)

Donald Arndt (“Arndt”) was hired by First Union National Bank (“First Union”) in June 1996 with an initial salary of $90,000 per year and a guaranteed minimum incentive payment of $90,000. Brian Simpson (“Simpson”), Arndt’s manager, orally agreed to pay Arndt 20% of all net income that Arndt generated. First Union decided to implement a more subjective bonus formula in 1999 and reduced Arndt’s bonus to about 10% in 2000, allegedly due to a failed project and poor employee evaluation ratings.

Arndt had informed Diedre Bradshaw (“Bradshaw”) of the Human Resources Department that he would seek “appropriate remedies” when it became apparent that he would not be paid the 20% bonus. He left First Union in February 2001 and filed suit for breach of contract, violation of the North Carolina Wage and Hour Act, and fraud in March 2002. The fraud count was dismissed, Arndt prevailed at trial, and defendants were ordered to pay $837,243 in damages plus interest and costs. Defendants appealed, arguing that the trial court had committed several errors. One of these alleged errors involved a jury instruction on the spoliation of profit and loss statements and email.

Defendants claimed that the jury instruction on spoliation was unnecessary and caused unfair prejudice. The instruction was as follows:

Evidence has been received that tends to show that certain profit and loss statements and E-mails were in the exclusive possession of the defendant, First Union; and, [sic] have not been produced for inspection, by the plaintiff or his counsel, even though defendant, First Union, was aware of the plaintiff’s claim. From this, you may infer, though you are not compelled to do so, that the profit and loss statements and the E-mails would be damaging to the defendant. You may give this inference such force and effect as you think it should have, under all the facts and circumstances. You are permitted this inference, even if there is no evidence that the defendant acted intentionally, negligently or in bad faith. However, you should not make this inference, if you find that there a[sic] fair frank and satisfactory explanation for the defendant’s failure to produce the documents.

Plaintiff had requested production of email Arndt had sent to Simpson in 2000 concerning distribution and payment of the 1999 bonus, and email from David Yorker to Simpson documenting a conversation in which Simpson agreed that the general Incentive Compensation Program did not apply to Arndt. Defendant failed to produce these documents, which were central to the issues at bar. Indeed, the trial court allowed Plaintiff to testify about the emails despite their physical absence. Plaintiff also requested but did not receive from the defendants profit and loss statements for 1999 and 2000. The statements for 1999 would provide evidence of the 20% agreement, and that from 2000 would help establish damages. Evidence that such statements exist was established by defendants’ production of other years’ statements. Plaintiff’s former assistant provided the statement from 2000.

Bradshaw handled compensation questions from Arndt while Arndt was employed with First Union and she was sent the email noting that Arndt would “seek appropriate remedies.” She knew in February 2001 that plaintiff was leaving based on compensation issues, and received the March 2001 letter from Plaintiff’s counsel regarding the claim. She had been designated as “point” on this matter for the defendants throughout the discovery process and was relied upon to provide documents, verify answers, and sign verifications.

Bradshaw’s testimony indicated that despite early and prior notice of the existence and importance of electronic evidence, defendants failed to make preservation efforts. Bradshaw failed to recall any effort to preserve Arndt’s email and hard drive upon his departure. Even upon receipt of the letter from Arndt’s counsel, she did not make any effort to preserve the contents of Arndt’s hard drive.

Evidence was proffered indicating that defendants allowed the destruction of pertinent documents while on notice of Plaintiff’s claim. Defendants were given an opportunity to rebut this evidence, and the jury was instructed accordingly. The trial court did not err with regards to the spoliation instruction or any other matter raised on appeal.