Summary:
In a dispute between Sun Trust Mortgage and United Guaranty, which insured against payment defaults on certain loans products, one of Sun Trust’s employees was found to have deliberately altered e-mails to manufacture documentary support for Sun Trust’s position in the dispute. The district court ordered Sun Trust to pay United Guaranty’s attorneys’ fees and costs related to the sanctions motion that was brought by United Guaranty, which had additionally sought dismissal of the entire suit.
Relying on United States v. Shaffer Equip. Co., 11 F.3d 450, 462 (4th Cir. 1993), the Court of Appeals identified six factors to consider in determining whether dismissal is appropriate:
(1) the degree of the wrongdoer’s culpability;
(2) the extent of the client’s blameworthiness if the wrongful conduct is committed by claims against blameless clients;
(3) the prejudice to the judicial process and the administration of justice;
(4) the prejudice to the victim;
(5) the availability of other sanctions to rectify the wrong by punishing culpable persons, compensating harmed persons, and deterring similar conduct in the future; and
(6) the public interest.
The Court reiterated, however, that “the broader policy of deciding cases on the merits” Id. at 463, weighed against dismissal.
Dismissal for spoilation of evidence is justified when “either (1) that the spoliator’s conduct was so egregious as to amount to a forfeiture of his claim, or (2) that the effect of the spoliator’s conduct was so prejudicial that it substantially denied the defendant the ability to defend the claim.” Silvestri v. Gen. Motors Corp., 271 F.3d 583, 593 (4th Cir. 2001). As the District Court had found that United Guaranty was not “substantially denied the ability to defend the claim”, Id. at 593, and because the negative effects fo Sun Trust’s “bad behavior” were discovered and only temporary, the 4th Circuit affirmed the denial of the requested dismissal.
(This case also dealt with the parole evidence rule and assertions of first material breach as a defense. The dissent by Judge Bredar only concerns these issues and otherwise joins the majority regarding the false emails.)
Commentary:
It is somewhat troubling that it appears that the only punishment that Sun Trust appears to have received is payment of United Guaranty’s attorneys’ fees and costs. (Admittedly, since United Guaranty is represented by former Solicitor General and current marriage equality advocate, Ted Olson, those fees are likely rather steep.) Checking the PACER Case locator, neither Sun Trust nor its now former employee, Mary Pettit, have faced criminal charges. It seems unlikely that a too desperate homeowner contesting a Sun Trust foreclosure by taking similar fraudulent actions would have gotten off so lightly.
That notwithstanding, this is one of the first cases that substantiates the long-rumored practice of banks having an “Arts & Crafts Department” that alters documents to fit the needs of the financial institution. As I know of at least one other case where Sun Trust has submitted spurious documents to a court, its pleadings should be subject to rather strict scrutiny, particularly if Mary Pettit is associated with such documents.
For a copy of the opinion, please see:
Sun Trust Mortgage, Inc. v. United Guaranty Residential Insurance Company of North Carolina- Sanction for Spoilation of Evidence.pdf
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