Defamation action dismissed over destroyed, manipulated evidence

A defamation action related to a joint real estate venture gone sour was dismissed because evidence was manipulated and destroyed, according to a Los Angeles Superior Court judge's ruling.

Judge Mark A. Young relied on part of a decision in the underlying dispute rendered by the 2nd District Court of Appeal, which issued terminating sanctions against NMS Capital Management LP and owner Neil Shekhter for "destroyed, manipulated and forged evidence."

NMS filed suit against hedge fund AEW Capital Management LP for allegedly breaching a joint venture agreement regarding nine properties in Santa Monica and West Los Angeles. NMS Properties Inc. v. Eric Samek, SC125812 (L.A. Super. Ct., filed May 6, 2016).

In applying the issue of collateral estoppel, which stops re-litigation of a previous issue that has been resolved in a separate action, Young found that because the appellate court in the underlying case found NMS engaged in the spoliation of evidence, it necessitated terminating sanctions in the defamation case. Lincoln Studios LLC v. P6 LA MF Holdings SPE LLC , B276726 (Cal. Ct. App. June 20, 2018).

"Although the issuance of terminating sanctions is an extreme outcome, the egregiousness of plaintiffs' destruction of evidence warrants it in this case," Young wrote in his final decision Monday.

"We are grateful for the court's ruling, and its recognition that no plaintiff should be able to proceed after committing perjury, forgery, and the willful destruction of evidence. The fact that Shekhter's claims had already been rejected in the Lincoln Studios case only made this case that much more outrageous," said AEW defense counsel James P. Fogelman, a partner at Gibson, Dunn & Crutcher LLP, in a statement.

Louis R. "Skip" Miller of Miller Barondess LLP represents NMS and did not respond to a request for comment. He previously said he intended to appeal the remaining NMS sanction after 10 of 11 were reversed.

The appellate court found NMS manipulated documents, including altering a trigger date on a buy-sell agreement for a potential sale from five years to three years, in order to justify a buyout of AEW. A separate decision by the court dismissed, without leave to amend, NMS' claim it had the right to buy out the properties, valued at about $400 million.