Arch Insurance Company et al v. Broan-Nutone, LLC
Filing
101
MEMORANDUM OPINION & ORDER: GRANTING dft's 71 Motion for a spoliation sanction against Arch Ins & Montgomery Fire; a jury instruction conforming with this opinion will be allowed at trial. Signed by Judge Jennifer B Coffman on 8/31/11.(KJR)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
LEXINGTON
CIVIL ACTION NO. 09-319-JBC
ARCH INSURANCE COMPANY, ET AL.,
V.
PLAINTIFFS,
MEMORANDUM OPINION AND ORDER
BROAN-NUTONE, LLC,
DEFENDANT.
***********
This matter is before the court on Defendant Broan-Nutone’s Motion for
Summary Judgment or Alternative Sanction for Spoliation (R. 71). Because
Plaintiffs Arch Insurance Company and Montgomery County Fire Protection District
1 a/k/a Montgomery County Fire & Ambulance, Montgomery County Fire &
Protection Properties, Inc., (“Montgomery Fire”) breached their duty to preserve
evidence that they knew was relevant to future litigation, the court will grant
Broan-Nutone’s motion for an appropriate jury instruction.
This case arises out of a fire that destroyed the Montgomery Fire property on
Main Street in Mount Sterling, Kentucky on September 17, 2007. Arch Insurance
paid $493,000 to Montgomery Fire for the loss of the building and personal
property. Montgomery Fire indemnified the lessor of the building, the City of
Mount Sterling, for the damage to the property as it was required to do under its
lease. Donan Engineering Company was engaged by Janie Brosze of Collins and
Company, a third-party administrator representing the City of Mount Sterling, to
investigate the cause of the fire. The Donan representatives, along with
representatives of Broan-Nutone and others, inspected the scene of the fire on
November 1, 2007. The Donan representatives determined that the ignition source
of the fire was a fan/light assembly manufactured by Broan-Nutone, and after the
investigation they removed it and another ceiling light fan assembly, a wall panel,
and associated wiring for storage at Donan’s Louisville office.
An inspection of the evidence from the scene was held at the Donan
Louisville office on November 29, 2007. Representatives of Broan-Nutone, Arch
Insurance, and Montgomery Fire attended this inspection. Based on this
investigation, Steven Weddington and Russell Zeckner of Donan Engineering
determined that the fan/light assembly was the ignition source of the fire, and that
the fire was caused by a manufacturing or design defect in the assembly:
The examination of the exhaust fan/light produced a credible theory
regarding an ignition source. The evidence suggests that heating
sufficient to ignite other combustibles existed in an isolated area within
the wiring for the fluorescent light fixture. Because this heating existed
in an area where the exemplar showed mechanical damage, we theorize
that during manufacture, some wires were pulled too tightly against
metal edges in the burned unit. Over time, the vibrations created by the
fan’s constant operation exacerbated this issue, and, eventually,
resistance heating occurred which was sufficient to be an ignition source.
Weddington/Zeckner Report (Jan. 16, 2008), Ex. 1 to Weddington Deposition (R.
80).
Donan retained possession of the fan/light assembly after the November 29,
2007 inspection, and sent invoices to Collins for storage fees. In April 2008,
2
Donan intentionally destroyed the fan/light assembly, wiring, and wall plate that
had been recovered from the site of the fire at the instruction of Brosze of Collins.
Collins took this action of its own initiative, presumably to avoid incurring further
storage fees, and neither Arch Insurance nor Montgomery Fire were consulted
before Collins ordered the destruction or affirmatively assented to it.
Communications between the parties indicate that representatives of Arch
Insurance or Montgomery Fire did not learn of the destruction of the fan/light
assembly until Broan-Nutone requested to inspect it in March 2009, nearly a year
after it was destroyed.
In 2009, after the destruction of the fan/light assembly, David Riggs, a
senior forensic engineer with Donan, was hired to perform testing on other fan/light
assemblies of the same model, in order to confirm or replicate the hypothesis
proffered by the Weddington/Zeckner report. Riggs was unable to confirm or
reproduce the conditions that caused the fire as theorized by Weddington and
Zeckner, and found no deficiencies in the manufacture or design of the units he
tested that could potentially cause a fire.
Arch Insurance and Montgomery Fire brought this action against BroanNutone, alleging that the fan/light assembly caused the fire as a result of a
manufacturing or design defect, in Montgomery Circuit Court in September 2009,
and Broan-Nutone removed to this court. Broan-Nutone now moves the court to
sanction Arch Insurance and Montgomery Fire for spoliating evidence by granting
3
summary judgment in favor of Broan-Nutone or, in the alternative, providing an
adverse inference instruction to the jury. A sanction in this case is appropriate,
because Arch Insurance and Montgomery Fire had an affirmative duty to preserve
the evidence at the time it was destroyed, because they negligently allowed the
evidence to be destroyed, and because the fan/light assembly was evidence of
central importance to both the claims and defenses in this action. See Beaven v.
Dept. of Justice, 622 F.3d 540, 553 (6th Cir. 2010).
Arch Insurance and Montgomery Fire had an affirmative duty to preserve the
fan/light assembly as relevant evidence in anticipation of bringing suit against
Broan-Nutone. John B. v. Goetz, 531 F.3d 448, 459 (6th Cir. 2008); Fujitsu Ltd. v.
Fed. Express. Corp., 247 F.3d 423 (2nd Cir. 2001). The fan/light assembly is
evidence of central importance to this action. While other evidence supports the
assertion that the fire originated at the fan/light assembly, Arch Insurance and
Montgomery Fire’s claims that the fire started because of a manufacturing or
design defect can be evaluated only by examining the assembly itself. Arch
Insurance and Montgomery Fire assert that they had no duty to preserve the
evidence “indefinitely” and that by the time the fan/light assembly was destroyed,
their duty to preserve it had ended. Because the duty to preserve evidence in
anticipation of upcoming litigation extends up to and through litigation, see Goetz
at 459, Silvestri v. General Motors Corp., 271 F.3d 583, 591 (4th Cir. 2001), this
argument lacks merit.
4
Arch Insurance and Montgomery Fire did not knowingly or purposefully cause
the fan/light assembly to be destroyed, but they were negligent in leaving it in
Donan’s possession. The plaintiffs knew or should have known that the City of
Mount Sterling had engaged Donan to investigate the fire and that its agent Collins
was paying storage fees to Donan for the relevant evidence. The City, having been
fully indemnified for its loss, had no claim for damages against Broan-Nutone and
no intention to bring or join a lawsuit against Broan-Nutone; therefore, the City had
no duty to account for or to preserve the evidence, and no duty to continue paying
storage fees on behalf of other parties who might pursue litigation.
Arch Insurance and Montgomery Fire were not justified in relying on others
who were under no obligation to preserve evidence on their behalf. The plaintiffs
assert multiple times that Collins and the City are “non-parties” that the plaintiffs
had “no involvement or relationship with.” The plaintiffs have provided no evidence
of a relationship with Collins or the City that would give them reason to believe that
Collins would continue paying to preserve evidence on their behalf. The plaintiffs
do not allege any reason that they would have been prevented from taking custody
of the evidence themselves or, at the very least, asking Collins to preserve the
evidence on their behalf. Arch Insurance and Montgomery Fire assert that they
acted in a reasonable manner with regard to the preservation of the fan/light
assembly, but under these circumstances, a reasonable plaintiff, foreseeing and
intending litigation, would have taken an affirmative step to ensure that the
5
evidence around which its theory of liability is centered would be preserved until
trial.
Arch Insurance and Montgomery Fire claim this case is analogous to R.C.
Olmstead, Inc., v. CU Interface, LLC, 606 F.3d 262 (6th Cir. 2010), where the
court declined to sanction defendant CU Interface for a third party’s intentional
spoliation of evidence, but that case is distinguishable on two important points: the
entity that intentionally destroyed the evidence was a defendant in the lawsuit; and
Ohio law provides a separate cause of action for spoliation that is not available
under Kentucky law. In Olmstead, CSE Credit Union licensed banking software
from its developer, Olmstead, and as part of that licensing agreement, Olmstead
provided server hardware that was housed at CSE. As allowed under its contract
with Olmstead, CSE engaged the services of CU Interface to provide technical
support for those servers. Based on this relationship, CSE began working with CU
Interface to develop its own banking software. When Olmstead learned of this, it
informed CSE that it would be collecting the hardware and software leased to CSE
under the terms of its agreement. Olmstead wanted a computer forensics expert to
examine the hardware and software to determine whether CU Interface or CSE had
accessed Olmstead’s source code in developing its competing banking software.
CSE objected to the examination on the basis that the servers might also have
stored customer data, and before litigation, CSE’s CEO destroyed the servers by
drilling holes in them.
6
Olmstead filed suit against CSE and CU Interface for trade secret and
copyright claims, among others. CSE settled with Olmstead after discovery, before
the court ruled on the parties’ cross-motions for summary judgment, and the
district court granted CU Interface summary judgment on Olmstead’s remaining
claims. The district court declined to sanction CU Interface for CSE’s intentional
spoliation of evidence, and the Sixth Circuit upheld the district court’s exercise of
discretion. The district court declined to sanction CU Interface because it found
that CU Interface was not at fault for the destruction of the evidence. Olmstead
argued that CU Interface should not be allowed to benefit from the act of spoliation
committed by its joint venturer CSE, but the district court found that the unfairness
of penalizing CU Interface for conduct in which it was not involved outweighed the
harm to Olmstead. Essential to this balance was the fact that Ohio recognizes an
independent tort for spoliation of evidence. Olmstead’s spoliation claim against
CSE was among the claims it settled, and therefore Olmstead was not left without
a remedy when the court declined to sanction CU Interface for spoliation.
Arch Insurance and Montgomery Fire assert that Olmstead provides grounds
to find that they were not culpable for the third-party destruction of the evidence in
the immediate case, but the facts here are significantly different from those in
Olmstead. Here, the City and Collins were never parties to the action, nor did they
have any stake in its outcome. In Olmstead, It was reasonable for CU Interface to
leave essential evidence in the care of CSE, who would inevitably be a co-
7
defendant in any action, because CSE shared CU Interface’s duty to preserve
evidence. Here, the City and Collins were under no such duty, and it was therefore
unreasonable for Arch Insurance and Montgomery Fire not to take affirmative steps
to preserve the evidence. Furthermore, while Ohio recognizes a tort of spoliation,
Kentucky does not, having chosen to address spoliation issues through evidentiary
rules and missing evidence instructions. See Monsanto Co. v. Reed, 950 S.W.2d
811, 815 (Ky. 1997). If this court declines to sanction plaintiffs for spoliation,
Broan-Nutone is without a remedy. Finally, it is worth noting that in Olmstead, the
defendants were charged with spoliation; here, the plaintiffs allowed evidence to be
spoliated through their own negligence, then proceeded to bring suit in the absence
of that evidence.
Finally, Arch Insurance and Montgomery Fire assert that the destroyed
fan/light assembly is not relevant to Broan’s claims and that its destruction is not
prejudicial. This claim is not credible. Broan-Nutone has asserted, and the plaintiffs
have acknowledged, that further testing of the fan/light assembly, particularly
employing a SEM/EDS (Scanning Electron Microsopy/Energy Dispersive Microscopy)
analysis, would tend to prove or disprove the plaintiffs’ theories of causation. The
fact that such analysis has the potential to buttress the plaintiff’s theories does not
mean that the inability to perform the testing is not prejudicial to Broan-Nutone.
Under the federal court’s “inherent power to control the judicial process”,
Adkins v. Wolever, 554 F.3d 650, 652 (2009), the court may craft sanctions
8
against a party for spoliation of evidence that serve both fairness and punitive
functions. Id. at 653. The determination of an appropriate sanction is left to the
trial judge and assessed on a case-by-case basis. Fujitsu, 247 F.3d at 436. Here,
where the evidence was not purposely or knowingly destroyed by the plaintiffs, the
extreme sanction of summary judgment is inappropriate. See Silvestri v. General
Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001). All parties to this action were
able to take the opportunity to inspect the fan/light assembly before it was
destroyed, and these inspections were at least sufficient to allow both sides to
proffer expert opinions as to whether the fan/light assembly caused the fire due to
a design or manufacturing defect. Broan-Nutone is not blindsided by this action or
unable to construct a defense because the evidence has been destroyed. Likewise,
an irrebuttable adverse inference that further study of the destroyed fan/light
assembly would have undermined the plaintiffs’ theory of causation is not
warranted here, because no evidence supports a conclusion that the plaintiffs
purposely or knowingly caused it to be destroyed to avoid further study. See
Beaven v. U.S. Dept. of Justice, 622 F.3d 540, 554 (6th Cir. 2010); Vodusek v.
Bayliner Marine Corp., 71 F.3d 148, 156 (4th Cir. 1995) (“An adverse inference
about a party’s consciousness of the weakness of his case, however, cannot be
drawn merely from his negligent loss or destruction of evidence; the inference
requires a showing that the party knew the evidence was relevant to some issue at
trial and that his willful conduct resulted in its loss or destruction.”)
9
There is no evidence here of bad faith on the part of Arch Insurance or
Montgomery Fire; however, Broan-Nutone is now unable to investigate the fan/light
assembly to refute plaintiffs’ causation theory, and is prejudiced as a result. Bad
faith is not an essential element of spoliation, see Vodusek, 71 F.3d at 156, and
the court has discretion to craft a spoliation sanction that serves both fairness and
punitive functions. See Adkins, 554 F.3d at 653. To ensure fairness, BroanNutone is entitled to inform the jury that the company was denied a chance to
examine the fan/light assembly after Arch Insurance’s and Montgomery Fire’s
experts finalized their theories, and that such examinations could have either
confirmed or denied those theories. Furthermore, Broan-Nutone is entitled to
present to the jury evidence of Arch Insurance’s and Montgomery Fire’s negligence
with regard to the destruction of the fan/light assembly. The jury will be instructed
that they may infer that further testing would have disproved plaintiffs’ causation
theories but that they are not required to do so.
Broan-Nutone suggests that such a permissive inference is no sanction at all,
as it only formalizes “what jurors would be entitled to do even in the absence of a
specific instruction,” West v. Tyson Foods, Inc., 374 Fed. Appx. 624, 635 (6th Cir.
2010) (discussing without opining on the appropriateness of a permissive inference
instruction), and asks instead for a mandatory inference instruction. Broan-Nutone
directs the court to West v. Goodyear Tire & Rubber Co., 167 F.3d 776 (2nd Cir.
1999), in which the district court dismissed the plaintiffs' case because the
10
plaintiffs tampered with some of their own evidence and sold other parts, allowing
them to be exposed to the elements for a winter before the defendants could
examine them. In reversing, the appellate court suggested multiple sanctions short
of dismissal, including both rebuttable presumptions and precluding the spoliating
party's expert from testifying regarding the evidence. In that case, however, the
evidence was spoliated through the direct actions of the plaintiff, rather than
through the inaction or negligence of the plaintiff as here. Also, the procedural
posture of that case was quite different. The appellate court, in the context of its
holding that dismissal was too harsh a sanction, was merely discussing less drastic
measures rather than trying to specifically find a proper spoliation sanction, a task
which it left to the district court's discretion.
The instruction described above properly compensates for the prejudicial
effect of the spoliation of the evidence to Broan-Nutone while not excessively
punishing Arch Insurance and Montgomery Fire for their negligent but notpurposeful conduct. It specifically allows Broan-Nutone to present evidence of the
testing it would have performed and how the results of those tests might have
disproved the plaintiffs’ causation theories. Furthermore, a neutral instruction to
the jury that it is entitled to believe that such testing would have disproved
plaintiffs’ causation theories, given directly by the court, carries weight beyond
what an attorney can achieve in a closing argument. Finally, a presumption,
rebuttable or irrebuttable, that further testing would have disproved plaintiffs’
11
causation theories is unwarranted here, because Broan-Nutone has presented no
evidence that such testing would have actually disproved plaintiffs’ theories; rather,
it has only suggested that further testing would have either confirmed or denied
those theories.
Accordingly,
Broan-Nutone’s motion for a spoliation sanction against Arch Insurance and
Montgomery Fire is GRANTED, and a jury instruction conforming with this opinion
will be allowed at trial.
Signed on August 31, 2011
12
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?