February 8, 2019

Both Negligent and Intentional Spoliation Are Sanctionable; Northern Indiana Public Service Company v. Aqua Environmental Container Corp.

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This case involves the loss of a piece of equipment involved in a fire. NIPSCO sought a default judgment based on spoliation of evidence, which leads to an informative discussion of the ways evidence can be spoliated and the available sanctions.

The discussion of this case’s facts covers 18 of the opinion’s 28 pages, so this is a very brief summary which omits lots of detail. Aqua manufactured swimming pools and leased a warehouse for that purpose.

On the evening of March 28, 2010, an Aqua sales representative heard a bang and saw a suspected fire in the warehouse’s ceiling. He called Aqua’s property manager, who called 911. This was a major fire; it destroyed about 12,000 square feet of finished warehouse, office, and factory space.

The next day a fire inspector came to the premises. He concluded that the fire originated in the area of a ceiling-mounted furnace and that it may have been caused “by NIPSCO’s being low on power.” He told the property manager that he “may want to save it for your insurance company or other entities.” The property manager thought the fire inspector was talking about the ductwork, not the furnace.

Aqua hired Xtreme Contractors to remove the burned parts of the building. Xtreme removed the furnace and placed it in a cleared-out location that was at least 100 feet from any other objects. Aqua then moved the furnace to a warehouse for storage, where it remained untouched until it was examined by Aqua’s experts.

Aqua made a claim with NIPSCO for the damage, and NIPSCO began an investigation. NIPSCO told Aqua that it would like to view the “heater,” but did not make arrangements to see the saved furnace.

A lawsuit was filed. During discovery, Aqua admitted that it did not save the right parts. NIPSCO then looked at what Aqua kept and determined that the “firebox” portion of the furnace was missing. NIPSCO then moved for default judgment for spoliation of evidence. The trial court concluded that the spoliation was not intentional and denied the motion. NIPSCO appealed.

On appeal, the Court noted that a party must prove two things to prove spoliation: (1) a duty to preserve the evidence, and (2) the alleged spoliator either negligently or intentionally destroyed, mutilated, altered, or concealed the evidence. In this case, there was not much of a question regarding Aqua’s duty; the question was whether it negligently or intentionally destroyed, mutilated, altered, or concealed the evidence.

The parties’ arguments focused on whether the spoliation was intentional, and the Court agreed with Aqua that it was not. But “the inquiry does not end there.”

In the Order denying NIPSCO’s Motion for Default Judgment, the trial court acknowledged that Indiana recognizes negligent spoliation of evidence, but it did not expressly make any finding about whether negligent spoliation occurred on the facts of this case. Upon review, we find that it did. That is, as discussed above, Aqua had a duty to preserve the entire furnace, but, as Aqua concedes, “apparently inadvertently, some of the furnace components were not saved.” Stated differently, Aqua negligently destroyed or failed to save—that is, spoliated—evidence relevant to its lawsuit.

The fact that evidence was spoliated “does not necessarily require the imposition of sanctions.” The decision to award sanctions is informed by (1) the degree of culpability and (2) the degree of actual prejudice. And the Court felt it was not appropriate for it to make that assessment in the first instance.

We find that the culpability versus prejudice balancing act, namely, the prejudice to the non-spoliating party versus the culpability of the spoliating party, is best left to the trial court. And as we have observed, “[A] variety of spoliation remedies are available to a party to litigation, such as ‘potent’ discovery sanctions and an inference that the spoliated evidence was unfavorable to the party responsible.” We affirm the trial court’s determination that Aqua did not intentionally spoliate evidence, but remand with instructions to the trial court to determine the appropriate remedy, if any, for Aqua’s negligent spoliation of evidence

Lessons:

  1. Spoliation of evidence can be either intentional or negligent.
  2. A trial court has many remedies available if evidence is spoliated, including:
  • Ordering that designated facts be taken as established;
  • Prohibiting the introduction of evidence;
  • Dismissal of all or any part of an action;
  • Rendering a judgment by default against a disobedient party; and
  • Payment of reasonable expenses including attorney fees.
  1. A trial court’s decision regarding what sanction to order if evidence is spoliated must be informed by the culpability of the spoliating party and the actual prejudice the spoliation causes.
  2. Outsourcing preservation to a culpable vendor provides no excuse; the party with the duty to preserve evidence would have an independent cause of action for third-party spoliation of evidence against the vendor.