Spoliation: Permissive Adverse Inference Instruction Typically Appropriate for Negligent Destruction of Evidence Where Opponent Not Denied Ability to Make or Defend Its Case — Severity of Sanction Should Correspond to Degree of Fault

Arch Ins. Co. v. Broan-Nutone, LLC, 2012 U.S. App. LEXIS 26464 (6th Cir. Dec. 21, 2012):

This case arises out of a fire that occurred at Montgomery County Fire Station 1 in Mt. Sterling, Kentucky, on September 17, 2007. Plaintiff Montgomery County Fire Protection District 1 was compensated for the resulting property damage by its insurance carrier, Plaintiff Arch Insurance Company. After an investigation, Arch Insurance determined that the cause of the fire was a defective fan/light assembly manufactured by Defendant Broan NuTone, LLC.

On September 16, 2009, Plaintiffs filed a subrogation action***. Prior to trial, Plaintiffs negligently allowed key evidence to be destroyed, and Defendant moved the district court to consider sanctions for the spoliation of evidence. On August 31, 2011, the district court ordered that the jury be given a permissive adverse inference instruction at trial.

Footnote 1. The jury was ultimately instructed as follows:

The jury is instructed that Plaintiffs negligently failed to preserve the fan/light device in the northern stall which they contend caused the fire, and negligently failed to preserve the fan/light device in the southern stall, and associated wiring, and circuit panels. You have heard evidence that SEM/EDS (Scanning Electron Microsocpe/Energy Dispersive Spectroscopy) testing of the fan/light would have confirmed or refuted Plaintiff's theory of causation. Because Plaintiffs did not preserve the evidence, the jury may infer that this further testing would have disproved Plaintiffs' causation theories.

***

I. Spoliation Instruction

We review for an abuse of discretion the district court's decision to impose sanctions for evidence spoliation, "[g]iving great deference to the district court's credibility determinations and findings of fact." Beaven v. U.S. Dep't of Justice, 622 F.3d 540, 554 (6th Cir. 2010). District courts have "broad discretion in crafting a proper sanction for spoliation." Adkins v. Wolever, 554 F.3d 650, 652 (6th Cir. 2009) (en banc).***

"[A] proper spoliation sanction should serve both fairness and punitive functions." Adkins, 554 F.3d at 652. The district court properly considered both the fairness and punitive functions of possible spoliation sanctions, as well as the alternatives requested by Defendant, and concluded that an adverse inference instruction was appropriate.

A. Fairness

The district court considered relevant facts and chose a sanction that was fair to both parties. Defendant argues that its experts never had the opportunity to examine the fan/light assembly until after it was notified of Plaintiffs' theory of causation. Had they been able to conduct SEM/EDS testing, Defendant argues, Plaintiffs' theory of causation would have been positively confirmed or refuted. Undoubtedly Defendant was prejudiced by its inability to conduct these tests, as the district court readily acknowledged. But Defendant did not lose the opportunity to present a defense to Plaintiffs' claim, nor was it totally blindsided by Plaintiffs' causation theory.

On the contrary, Defendant had notice of the general nature of Plaintiff's theory, as well as several opportunities to inspect the fan/light assembly before it was destroyed. Plaintiffs' insurance adjuster sent two letters to Defendant before the evidence was destroyed, each stating specifically that the fire was determined to have been caused by the fan/light assembly manufactured by Defendant. Defendant's expert, Richard Kovarsky, was present for a formal site inspection on November 1, 2007, as well as an additional inspection of the physical evidence on November 29, 2007. The fan/light assembly was destroyed in April 2008, but Defendant did not express a desire to conduct further tests until March 2009, nearly one year later.

Nevertheless, the destruction of the evidence was prejudicial. Defendant was unable to definitively refute Plaintiff's causation theory. Defendant could and did present its own expert testimony, however, which put before the jury alternative causation theories. Additionally, Defendant was able to argue to the jury that Plaintiffs had negligently allowed the fan/light assembly to be destroyed, and the jury was instructed that they could infer that further testing would have disproved Plaintiffs' causation theory.

Based on these facts, the district court's selection of a permissive adverse-inference instruction was appropriate. Under certain extreme circumstances, as when spoliation denies a defendant access to "the only evidence from which it could develop its defenses adequately," dismissal of an action may be a proper sanction. See Silvestri v. Gen. Motors Corp., 271 F.3d 583, 593-94 (4th Cir. 2001). However, dismissal is a "particularly severe sanction," Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991), and is "usually justified only in circumstances of bad faith or other like action." Silvestri, 271 F.3d at 593. No allegations of bad faith have been leveled against Plaintiffs in this case, and Defendant was not denied the ability to develop its defenses adequately.

B. Punishment

The district court concluded that Plaintiffs were negligent in allowing the fan/light assembly to be destroyed, and they have not challenged that conclusion in this Court. The sanction of a permissive adverse-inference instruction is adequate punishment for Plaintiffs' negligent conduct. A spoliation sanction's "severity should correspond to the district court's finding after a fact-intensive inquiry into a party's degree of fault under the circumstances, including the recognition that a party's degree of fault may range from innocence through the degrees of negligence to intentionality." Beaven, 622 F.3d at 554 (internal quotation marks and citation omitted).

***Although Plaintiffs' negligence caused the evidence to be destroyed, the district court's finding that they did not knowingly or purposefully cause the destruction is supported by the record and is not clearly erroneous. Plaintiffs did not learn of the destruction until November 2008, some seven months after Donan Engineering had discarded the fan/light assembly. They did not destroy the evidence to conceal any facts, nor did they do so in an attempt to prevent Defendant from discovering relevant facts. The district court tailored the severity of its sanction to correspond to Plaintiffs' degree of fault. See Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 108 (2d Cir. 2002) ("[The] sanction [of an adverse inference] should be available even for the negligent destruction of documents if that is necessary to further the remedial purpose of the inference.") (internal quotation and citation omitted). C. Alternative Instructions

The district court considered and rejected alternative spoliation sanctions requested by Defendant, among which were a mandatory adverse-inference instruction, a presumption instruction, and outright dismissal of the action. Instead of these, the district court gave a permissive adverse-inference instruction, telling the jurors that they "may infer" that further tests would have refuted Plaintiffs' causation theory.

In the context of spoliation sanctions, adverse-inference instructions are typically permissive, in that they allow, but do not require, the factfinder to infer a given fact. See Beaven, 622 F.3d at 555 ("[A]n adverse inference is usually only permissive for the factfinder, not mandatory . . . ."); Dae Kon Kwon v. Costco Wholesale Corp., 469 F. App'x 579, 580 (9th Cir. 2012) ("A fact finder may draw an inference against any party that destroys or despoils evidence, but that inference is permissive rather than mandatory." ). A permissive instruction is particularly appropriate if the evidence was not intentionally destroyed. See Blinzler v. Marriott Int'l, Inc., 81 F.3d 1148, 1159 (1st Cir. 1996) ("[T]he adverse inference is permissive, not mandatory. If, for example, the factfinder believes that the [evidence was] destroyed accidentally or for an innocent reason, then the factfinder is free to reject the inference." ).

Defendant argues that the permissive instruction gave it "nothing it did not already possess" because the jury is always free to infer facts. Defendant cites to West v. Tyson Foods, Inc., 374 F. App'x 624 (6th Cir. 2010), which described a permissive adverse-inference instruction as "simply a formalization of what the jurors would be entitled to do even in the absence of a specific instruction." Id. at 635. This description properly emphasizes that the jury's discretion to draw inferences warranted by the evidence remains the same with or without a permissive instruction. This Court did not state in Tyson Foods that a permissive instruction has no effect at all. On the contrary, the instruction came dressed in the authority of the court, giving it more weight than if merely argued by counsel. See Boyde v. California, 494 U.S. 370, 384 (1990) (noting that "arguments of counsel . . . are usually billed in advance to the jury as matters of argument, not evidence" but instructions from the court "are viewed as definitive and binding statements of the law"). In choosing a permissive adverse inference instruction, the district court properly balanced the interests of the parties and punished Plaintiffs' culpable behavior. Therefore, the district court's choice of sanction was not an abuse of discretion.

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