Reversing the Burden of Proof: Lying Doesn't Pay-Discovery Misconduct

the problem

We represented the plaintiff, who was hired to grow the defendant company.  In exchange, he was paid a salary plus 20% of the company’s profits.  The problem was that the owner of the company depressed the company profits by improperly expensing items for various other companies and also for personal expenses, which cheated plaintiff out of his rightful bonus.  The challenge of the case was to find, capture, and monetize the improper expenses over a vast nine-year period.

our approach

With backgrounds in finance and accounting, we rolled up our sleeves and engaged in significant discovery of the company’s financials, its general ledger, and the expenses that were run through the company.  It became clear early in the case that the defendants were not forthcoming, so more “rope” was provided in the form of requests for admissions and additional discovery, which yielded further untruthful and incomplete answers.  By deposing a number of current and former employees, together with a business broker who had formerly listed the business for sale, we uncovered a host of untruthful answers and assertions by the defendants.  The issues were brought to the Court’s attention and, over the course of a number of hearings, the Court began to understand the true nature of the defendants’ discovery failures.

the result

The Court ultimately granted our motion to reverse the burden of proof – an extraordinary remedy – and additionally sanctioned the defendants with the costs and fees associated with their false discovery answers.  In reversing the burden of proof, the Court required the defendants to affirmatively prove the legitimacy of every expense that we had identified as improper.  The case settled on a confidential basis shortly after the Court’s ruling.

The discovery work-up in this case was a significant undertaking and it would have been too expensive to intimately involve a forensic accounting expert.  We avoided this expense by uncovering the truth and marshalling the evidence ourselves based on our knowledge of finance and accounting, and using the defendant company’s own CPA to confirm the impropriety of various categories of misbehavior.