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Monday, January 13, 2014

Spoliation of Evidence: Sanctions Reversed in Employer Fraud Case

Where an employer was unable to retrieve unfamiliar accounting records because his computer was “totally broke down,” and he tossed it out, a NJ Appellate Court overruled the Trial Court’s imposed discovery sanctions.

The case involved a claim brought by both, Liberty Mutual Insurance Company [LM] and the State of New Jersey [NJ], against an employer, and their accountant.  At the employer’s request his acceptant allegedly maintained two sets of payroll records. 

One set was the “big payroll roll,” [between $2 and $3 million], and the other set was labeled the “small payroll [$5000,000.]” The employer was charged with fraudulently paying premiums for workers’ compensation based upon the small payroll.

An audit by LM of the employer’s payroll records, initiated after  an anonymous telephone call, revealed the discrepancy that eventually resulted in charges being brought by the NJ State Office of Insurance Fraud Prosecutor.

During the discovery phase of the case, the employer was unable to timely produce QuickBooks accounting records from his computer. The resulting discovery sanctions were imposed. They resulted in a cascading series of legal determinations resting in a judgment against the employer.

The Appellate Court held that the discovery sanction were too harsh. It reversed and remand the case for further proceedings.

Liberty Mutual Insurance Company v. Viking Industrial Security, Inc., 2014 WL 51615 (N.J. Super. A.D.) Decided January 9, 2014
Jon L. Gelman of Wayne NJ is the author NJ Workers’ Compensation Law (West-Thompson) and co-author of the national treatise, Modern Workers’ Compensation Law (West-Thompson). For over 4 decades the Law Offices of Jon L Gelman  1.973.696.7900  have been representing injured workers and their families who have suffered occupational accidents and illnesses.