Spoliation — Eighth Adopts Requirement That District Court Make Explicit Findings of Bad Faith and Prejudice before It May Issue Adverse Inference Instruction

Hallmark Cards, Inc. v. Murley, 2013 U.S. App. LEXIS 917 (8th Cir. Jan. 15, 2013):

Hallmark Cards, Inc. ("Hallmark") sued its former employee, Janet Murley, for a breach of the parties' separation agreement and won a $860,000 jury verdict on its breach of contract claim. The district court denied Murley's motion for a new trial. Murley now appeals, arguing the district court erred in delivering an adverse inference instruction to the jury and the award on Hallmark's breach of contract claim was excessive. ***

A. The Adverse Inference Instruction

We first consider Murley's argument that the district court's improper delivery of an adverse inference instruction entitles her to a new trial. ***

Our Court made clear in Stevenson v. Union Pacific R.R. Co. that in a case involving the alleged spoliation of evidence, a district court is required to make two findings before an adverse inference instruction is warranted: (1) "there must be a finding of intentional destruction indicating a desire to suppress the truth," and (2) "[t]here must be a finding of prejudice to the opposing party." 354 F.3d 739, 746, 748 (8th Cir. 2004). At the close of trial, over Murley's renewed objection, the district court instructed the jury that if it found Murley had intentionally destroyed the Hallmark-related documents, it could infer the contents of those documents would have been adverse or detrimental to her. Instr. No. 12, Appellant's App. 0145. Murley contends the instruction was improper because it was given absent the requisite findings by the court that she destroyed the electronic evidence in bad faith and that Hallmark suffered any prejudice as a result of its nonproduction at trial.

Murley first raised the issue of the required bad faith and prejudice findings prior to trial, when she objected to Hallmark's request for an adverse inference instruction and requested an evidentiary hearing regarding her alleged deletion of Hallmark's documents. The district court denied Murley's request, choosing instead to render its decision based upon the evidence presented at trial. At the close of the evidence, Murley renewed her objection to the adverse inference instruction on the grounds that the district court had not yet issued findings regarding bad faith and prejudice. The court overruled her objection and submitted the adverse inference instruction to the jury. Murley raised the issue a third time in a post-trial motion for judgment as a matter of law or, alternatively, a new trial, which the court denied.

In light of Murley's repeated efforts to elicit the requisite findings, we presume the court below was aware of our requirement that a district court must find bad faith and prejudice prior to giving an adverse inference instruction. The evidence presented at trial strongly suggests both were present. Murley's desire to suppress the contents of the electronic evidence at issue is reasonably suggested by the fact that she retained Hallmark-related documents five years past her termination but deleted them in the forty-eight hours prior to an inspection of her private computer. That the non-production of those documents would disadvantage Hallmark in a case hinging on Murley's retention and disclosure of Hallmark's confidential information is a given. Accordingly, Murley's contention that the district court failed to make any finding of bad faith and prejudice before submitting the adverse inference instruction to the jury is unpersuasive.

Under the circumstances, we may infer the district court made the requisite findings from the fact that it gave the adverse inference instruction over Murley's multiple objections and from its denial of Murley's post-trial motion on the same grounds. Thus, the issue before us is whether our standard requires a district court judge to issue explicit findings of bad faith and prejudice before giving an adverse inference instruction at trial or if such findings may be implicit.

This appears to be an issue of first impression, as the only relevant precedent in our Circuit comes from a district court opinion in which the U.S. District court for the Eastern District of Missouri noted "[a]n explicit finding of bad faith is required to impose sanctions for: (1) spoliation that occurred prior to commencement of litigation . . . ." Am. Builders & Contractors Supply Co., Inc. v. Roofers [*10] Mart, Inc., No. 1:11-CV-19, 2012 WL 2992627, at *4 (E.D. Mo. July 20, 2012). In support of its proposition, the court cited Process Controls Intern., Inc. v. Emerson Process Mgmt, No. 4:10-CV-645, 2011 WL 5006220, at *6 (E.D. Mo. Oct. 20, 2011) and Menz v. New Holland North America, Inc. 440 F.3d 1002, 1006 (8th Cir. 2006)--both of which merely require "a finding." Thus, the American Builders court's requirement of an explicit finding would seem to be an addition of its own devise.

Our holding in Stevenson may provide more context. There, a district court imposed an adverse inference instruction against a party found to have destroyed evidence both prior to litigation and during discovery. 354 F.3d at 750. Drawing a distinction between the spoliation of evidence prior to litigation and during litigation, we upheld the instruction with respect to the latter on the grounds that a district court is entitled to fashion appropriate sanctions for such evasive litigation tactics--"even absent an explicit bad faith finding." Id. at 748-50. Our holding in Stevenson may, therefore, be read to suggest that "an explicit bad faith finding" is required in the usual case involving pre-litigation spoliation of evidence.

Prospectively, we hold this to be true. Taking into consideration the gravity of an adverse inference instruction, which "brands one party as a bad actor," Morris v. Union Pac. R.R., 373 F.3d 896, 900 (8th Cir. 2004), we conclude that a district court must issue explicit findings of bad faith and prejudice prior to delivering an adverse inference instruction. The minimal burden to trial judges in requiring an on-the-record declaration is offset by our interests in ensuring that sanctions are imposed only after thoughtful consideration and an appropriate weighing of the evidence.

Although the district court here did not issue explicit findings of bad faith and prejudice, we believe it engaged in such consideration prior to issuing the adverse inference instruction. The district court was reminded of the required findings before, during, and after trial, and chose nevertheless to deliver and uphold the instruction. Its decision is strongly supported by evidence that Murley deleted a number of Hallmark-related documents from her private computer just hours before it was scheduled for inspection--evidence to which Murley did not object at trial. And, with respect to prejudice, Hallmark would undoubtedly have benefitted from producing actual documents and examining their contents at a trial about the retention and disclosure of confidential materials, rather than providing third-party testimony as to their once-existence. In light of the overwhelming evidence of bad faith and prejudice before the district court, we conclude its failure to issue explicit findings before delivering the otherwise warranted adverse inference instruction was harmless error which did not prejudice Murley. See Lowe v. Taylor Steel Products Co., 373 F.2d 65, 68 (8th Cir. 1967) ("The harmless error rule applies to [jury] instructions."). Accordingly, Murley is not entitled to a new trial on the basis of the instruction. See Burry v. Eustis Plumbing & Heating, Inc., 243 F.3d 432, 434 (8th Cir. 2001) (affirming a district court's denial of a motion for a new trial where delivery of jury instruction did not prejudice movant).

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