Old Documents Not Preserved For Evidence Not A Basis To Uphold Summary Judgment For American National Bank

More than $1.3 million was embezzled from General Automation, Inc. General’s payroll deposit checks were made payable to its bank, American National Bank and Trust. General’s accountant got the checks before they were deposited with the bank, and deposited them in his personal account.

General Automation settled its claims against the accounting firms with which its embezzler-accountant was associated. General then assigned its claims against American National Bank to Continental Casualty Company, which was the insurer of one of the accounting firms. As assignee, Continental sued American National Bank for breach of contract and violation of the Illinois Fiduciary Obligations Act.

American National asked for and received summary judgment from the trial court. Continental appealed.

Arguing in support of its summary judgment, American claimed the trial court should have granted American’s motion for sanctions against General for failure to preserve evidence – i.e., certain financial records dated around 1993. The First District Illinois Appellate Court disagreed, and ruled that the failure to preserve and produce the documents did not form a basis to affirm the summary judgment. Here is the court’s rationale:

ANB [American] sought discovery of certain financial documents from around the year 1993 that ANB hoped would answer the question of when GAI [General Automation] reasonably should have discovered that Mr. Cohn [accountant] had embezzled the payroll tax deposit checks. The documents sought were approximately 11 or 12 years old. Plaintiff, GAI, and Starr [General’s owner] all searched for the documents, but could not find them. There is no evidence that the documents were purposely destroyed. Further, ANB has access to other documents relevant to the discovery issue, and it has the right to depose Mr. Cohn and Mr. Starr in order to seek facts regarding this issue. We cannot say that the plaintiff’s failure to preserve evidence was deliberate, contumacious, or an unwarranted disregard of the court’s authority; therefore, plaintiff’s failure to preserve evidence cannot serve as a basis to affirm the grant of summary judgment against plaintiff.

In the end, the appellate court ruled that questions of material fact precluded summary judgment. The whole case, Continental Casualty Co. v. American National Bank and Trust Company, No. 1-07-0627 (9/25/08), by clicking here.

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