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CHAN v. TRIPLE 8 PALACE

August 11, 2005.

HENG CHAN, SHING TAO AU, YAN BIN CAO, AI YIN CHEN, WAN ZHEN JIANG, FONG LI, JIAN YUN LIN, WEI CHAO TAN, FENG QUIN ZHENG TANG, SUM KAY WONG and YONG CAI ZHANG, Plaintiffs,
v.
TRIPLE 8 PALACE, INC., SUN YUE TUNG CORP. d/b/a 88 PALACE, KUNG TAK YEUNG, KWOK MING CHAN, a/k/a K.M. CHAN, GRACE CHAN, LUNG KONG, CHAN a/k/a MANDY CHAN, HANG LI, CHIU NG, WEI WONG a/k/a DAVID WONG, GUI YANG, ZEN QUAN ZHAO, GONG GUI GUAN, CHEUK HONG LAU, and YEUNG CHAO LO, Defendants.



The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge

MEMORANDUM AND ORDER

This case illustrates how serious a risk a party runs when it destroys documents relevant to ongoing litigation. The underlying action was initiated by eleven waiters, busboys, and captains at a Chinatown restaurant who allege that they have been denied compensation to which they are entitled under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (the "FLSA"), and the New York State Labor Law. The defendants are the current and former owners of the restaurant. The plaintiffs now move pursuant to Rule 37(b) of the Federal Rules of Civil Procedure and the inherent power of the Court for sanctions against the current owners — Sun Yue Tung Corp. (d/b/a 88 Palace), Gui Yang, Gong Gui Guan, Cheuk Hong Lau, and Yeung Chao Lo (collectively, the "88 Palace defendants") — in connection with the destruction of evidence. Specifically, the plaintiffs request that the Court strike the answer of the 88 Palace defendants and enter judgment against them by default. In the alternative, they request that an order be entered (1) precluding these defendants from offering evidence of their compliance with state and federal labor laws, (2) precluding them from contesting the plaintiffs' damage calculations, (3) instructing the jury that an adverse inference may be drawn against these defendants based on their destruction of evidence, and (4) awarding the plaintiffs their attorneys' fees and costs incurred in connection with the spoliation issue.

For the reasons that follow, the plaintiffs' motion is granted in part and denied in part.

  Background

  The complaint in this action was served on or about August 11, 2003. It sets forth five causes of action in which the plaintiffs allege that the defendants: (1) failed to pay tips and minimum wages in violation of the FLSA, (2) intentionally failed to pay overtime in violation of the FLSA, (3) intentionally failed to pay minimum wages, overtime, and spread of hours pay in violation of the New York State Labor Law, (4) appropriated the plaintiffs' tips in violation of state law, and (5) failed to reimburse the plaintiffs for uniform expenses in violation of state law. (Complaint, ¶¶ 81-98). In connection with these claims, the plaintiffs served discovery requests on the 88 Palace defendants on about January 15, 2004. Among other things, these requests sought production of "all documents concerning tips and tip shares assigned, earned, and distributed to Plaintiffs, including, but not limited to, pay records, tip records, accounting and bookkeeping records" for the period from May 1989 to the present, "all documents concerning wages paid, and tips received by each Defendant, each managerial employee, each administrative employee, and cashier or counter-person," "all documents concerning the tip and tip shares assigned and distributed to" the defendants and managerial employees, and "all documents concerning . . . 88 Palace Restaurant's earnings and expenditures[.]" (Plaintiffs' First Request for Production of Documents and First Set of Interrogatories, attached as Exh. 3 to Declaration of Mark S. Cheffo dated April 21, 2005 ("Cheffo Decl."), document request nos. 4, 9, 10, 15).

  In response to these requests, the 88 Palace defendants initially produced Sun Yue Tung Corp.'s employee rate chart, payroll registers, time card sheets, W-2 wage and tax statements, W-4 certificates, Form 1040 individual tax returns, check stubs, and corporate tax returns. (88 Palace Defendants' Response to Plaintiff's First Request for Production of Documents and First Set of Interrogatories ("Def. Discovery Response"), attached as Exh. 4 to Cheffo Decl., responses to document requests nos. 4, 9, 15). They also represented that they had no documents concerning any tips or tip shares paid to "any managerial employee, bartender, and cashier and/or counter-person." (Def. Disco very Response, response to document request no. 10).

  Subsequently, however, it was revealed that three other types of records responsive to the requests had been maintained. First, Yeung Chao Lo, one of the owners of 88 Palace Restaurant, testified during his deposition about "banquet receipts," which reflected monies collected from large parties. (Deposition of Yeung Chao Lo ("Lo Dep."), attached as Exh. 6 to Cheffo Decl., at 72). He stated that such receipts were used internally and not given to the customers. (Lo Dep. at 72). He then described how the receipts were maintained:
Q. Are records like this kept for every banquet that is held at the restaurant?
A. Yes.
Q. And where are they kept, sir?
A. They were kept in, they are kept in our office.
Q. Do you know how far dating back you have records like this?
A. We just keep it for one year.
Q. And then what happens to it?
A. Then we got rid of them, because what's the point of keeping all this paper? Q. What do you mean you got rid of them?
A. Throw them away.
Q. These are thrown away after one year?
A. Yes.
Q. Were you ever informed that you were no longer supposed to destroy any documents that could be related to this litigation?
A. No.
Q. There was no document retention policy put into place to preserve documents that could potentially be related to this litigation?
A. Nobody told me about it.
Q. So the only records relating to banquets that are maintained at the restaurant relate to 2004; is that correct?
A. I don't know for sure.
* * *
Q. Well, as you sit here today, do you know one way or the other if you have records like those dating back beyond 2004?
A. I don't know. I don't think so.
Q. And why is that, sir?
A. How can we keep them all? The rent in Chinatown is so expensive, how can we keep all this paper, it is not like they are money.
Q. So, after one year, you throw them away; correct?
A. Yes, all the useless things we throw away.
(Lo Dep. at 76-79).
  The second set of documents consists of the "money received book," which contained records of the amount of money taken in each day at lunch. Min Ling He, 88 Palace's bookkeeper, described the book as follows:
Q. What information is contained in the received money book?
A. It is written down the daily amount of money that was handed over to the boss.
Q. Besides the date and the amount of money turned over to the boss, is there any other information in the received money book?
A. No.
* * *
Q. And the "money received book" has moneys received from lunch?
A. Yes.
(Deposition of Min Ling He ("He Dep."), attached as Exh. 9 to Cheffo Decl., at 21-22). Ms. He explained that these records were disposed of on a regular basis and that this practice persisted after the litigation commenced:
Q. Okay. My question is, do you have a different "money received book" for each month or for each year?
A. It is the same book but — (pause) — see, after I did my part, the boss tear off that page.
Q. What does the boss do with that page?
A. I don't know.
* * *
Q. I believe earlier you said that somebody rips the page out of the "money received book." A. Yes.
Q. Is it your testimony that you don't know who rips that page out?
A. Yes.
Q. How do you know that the page is ripped out?
A. Because it would be missing.
* * *
Q. As part of this lawsuit were you ever told that documents, you know, including bills, other materials may be required to be produced?
A. No.
Q. Did you ever have any conversation with your employer or your supervisors regarding the retention of the lunch, dinner and banquet bills?
A. No.
Q. Did you have any conversation with your employers or your supervisor regarding the retention of the "money received book"?
A. No.
(He Dep. at 43-46). Yeung Chao Lo confirmed that he reviews the page from the money received book each day and then discards it if the amount appears to be correct. (Lo Dep. at 103-04). He continued to destroy the pages from the book at least up until the time of his deposition. (Lo Dep. at 104-05).
  Finally, Mr. Lo testified that "tip distribution sheets" were posted at the 88 Palace Restaurant indicating how tips were shared among the employees on a daily basis. Some of these were produced to the plaintiffs in discovery, but others went missing. Mr. Lo stated:
Q. So those documents are maintained by the company; is that correct?
A. I am not sure if it is kept because after one week and one month, and there is no dispute, I don't know if the paper will be kept.
Q. So for some period of time the restaurant keeps the document; is that correct?
A. Yes. If there is no, nothing else, then it will be thrown away.
(Lo Dep. at 162).
 
Q. Before you told me that you would keep them for a week, if there is no dispute you get rid of it; right?
A. If there is no dispute, then why not throw it away?
(Lo Dep. at 165).

  Upon learning that the 88 Palace defendants had maintained the banquet receipts, money received book, and tip distribution sheets for some time and then destroyed them, the plaintiffs filed the instant motion.

  Discussion

  A. Liability

  Spoliation is "`the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.'" Byrnie v. Town of Cromwell, Board of Education, 243 F.3d 93, 107 (2d Cir. 2001) (quoting West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999)). A court's authority to impose sanctions in response to spoliation derives from at least two sources. Where a party violates a court order — either by destroying evidence when specifically directed to preserve it or by failing to produce information when directed to do so because the relevant data have been destroyed — Rule 37(b) of the Federal Rules of Civil Procedure provides that the court may impose a range of sanctions, including dismissal or judgment by default, preclusion of evidence, imposition of an adverse inference, or assessment of attorneys' fees and costs. Fed.R.Civ.P. 37(b); see Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 106-07 (2d Cir. 2002); Metropolitan Opera Association, Inc. v. Local 100, Hotel Employees and Restaurant Employees International Union, 212 F.R.D. 178, 219-20 (S.D.N.Y. 2003). Indeed, "[e]ven though a party may have destroyed evidence prior to issuance of the discovery order and thus may be unable to obey, sanctions are still appropriate under Rule 37(b) because this inability was self-inflicted." ...


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