In Meir Babaev v. Grossman, 2008 U.S. Dist. LEXIS 77731 (S.D.N.Y. Sept. 8, 2008), the court ruled that an adverse inference instruction was appropriate for defendants’ refusal to turn over certain banking records and for the disposal of a computer that contained potentially relevant information.

In this case, plaintiffs alleged they were fraudulently induced to invest $100,000 in defendants' catering businesses. In the course of discovery, plaintiffs argued defendants' "belated" claims that their computer had been lost or misplaced was spoliation of evidence. Plaintiffs also accused defendants of willfully refusing to produce banking records. Defendants contended the "lost" computer had been left at one of its catering assignments and when the computer was to be retrieved, the files were corrupted or otherwise inaccessible.  Defendants then discarded the computer claiming its removal was prior to any anticipation of litigation. Defendants further contended their banking records were not in their care, custody and control. 

The court disagreed and found defendants' evidence unpersuasive.  The court held that although it was difficult to discern precise dates when evidence was corrupted or destroyed, the conclusion to be reached from the record was the evidence on the computer should have been preserved, that it was destroyed with a culpable state of mind and that it was relevant to the plaintiffs' claim that they were lied to by the defendants about their financial situation when the relevant investments were made. The court further held that plaintiffs were entitled to an adverse inference instruction to the effect that the spoliated evidence confirmed plaintiffs' stock purchase in defendants' catering businesses in the amounts set forth in the complaint and further supported plaintiffs' claims of falsity in the defendants' representations about their fiscal soundness, which induced the plaintiffs to invest.  The court also rejected defendants' argument that records held by their bank were not in defendants' care, custody and control.  The court noted that documents are under a party's control when it has the right, authority or practical ability to obtain them from a non-party.  Thus, the defendants had no basis to assert that it lacked sufficient control over the records which they could simply request from their bank.    The court found the defendants' failure to produce the documents also warranted the adverse inference instruction and awarded plaintiffs $5,000 in costs and fees in connection with the sanctions motion.