The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge
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.
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?
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
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?
Q. Were you ever informed that you were no longer
supposed to destroy any documents that could be
related to this litigation?
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
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
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?
* * *
Q. And the "money received book" has moneys received
(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
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?
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?
Q. Did you ever have any conversation with your
employer or your supervisors regarding the retention
of the lunch, dinner and banquet bills?
Q. Did you have any conversation with your employers
or your supervisor regarding the retention of the
"money received book"?
(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
(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;
A. If there is no dispute, then why not throw it
(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.
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." ...