UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA
March 17, 2010
BRUCE KOPITAR, PLAINTIFF,
NATIONWIDE MUTUAL INSURANCE COMPANY, AN OHIO CORPORATION; AND DOES 1 THROUGH 50, INCLUSIVE, DEFENDANTS.
The opinion of the court was delivered by: Oliver W. Wanger United States District Judge
MEMORANDUM DECISION ON NATIONWIDE MUTUAL INSURANCE COMPANY'S MOTION FOR SANCTIONS FOR SPOLIATION OF EVIDENCE (Doc. 21)
Before the court for decision is Defendant Nationwide Mutual Insurance Company's "Motion for Sanctions for Spoliation of Evidence." (Doc. 21.) Defendant seeks dismissal of Plaintiff's mold damage claim because Plaintiff "knowingly and willfully destructed relevant and material evidence." In the alternative, Defendant seeks evidentiary sanctions and to recover legal fees and costs.
Plaintiff Bruce Kopitar has filed opposition, to which Defendant has replied. (Docs. 27 & 30.)
This matter involves an insurance coverage and payment dispute between Plaintiff Bruce Kopitar ("Kopitar") and Nationwide Mutual Insurance Company ("Nationwide"), an insurance and financial services company headquartered in Columbus, Ohio. The dispute concerns the February 20, 2004 flooding of Plaintiff's home, which allegedly occurred as a result of a malfunctioning steam room (the "steam incident"). The Complaint alleges that Plaintiff's home was covered under a pre-existing "farm package plus" policy underwritten by Nationwide. According to Plaintiff, after receiving notification of Plaintiff's water damage, Nationwide "commenced an effort deliberately designed to deprive plaintiff of the full and complete benefits to which he was and is entitled to under the policy for his suffered and covered loss."
On May 8, 2007, Plaintiff filed this case in the Superior Court of California, County of Tulare, alleging two causes of action: (1) Breach of Contract; and (2) Breach of the Implied Covenant of Good Faith and Fair Dealing. (Doc. 1, Exh. A.) Plaintiff alleges that he initiated a lawsuit because Nationwide "continuously refused to comply with its obligations [...] and otherwise fail[ed] to move the claim along and keep plaintiff apprised of the claim process, in the hopes that plaintiff would abandon his claim and thereby allow Nationwide to profit from its improper, unreasonable, and illegal conduct." Plaintiff requests general, special, economic, consequential, and punitive damages.
On June 21, 2007, this case was removed on the basis of diversity jurisdiction. (Doc. 1.) The notice of removal provides that removal is proper because "this is action is between citizens of different states, and the matter in controversy exceeds the sum or value of $75,000." (Id. ¶ 10.) Defendant filed its answer on June 26, 2007. (Doc. 5.)
Defendant Nationwide filed this motion on September 30, 2009. (Doc. 21.) Defendant moves to dismiss Plaintiff's mold damage claim because "Plaintiff destroyed components of [his] residence which [he] contends contained the alleged mold without the opportunity of defense experts to inspect and observe." Defendant contends that Plaintiff did so knowing that the parties agreed "to allow Nationwide's experts to observe the destructive testing and repairs to the areas of the home where the mold was alleged to exist."*fn1
Plaintiff filed his opposition on November 20, 2009. (Doc. 27.) Plaintiff responds that Nationwide "had access to Plaintiff's home, and despite Plaintiff's request that it do so, refused to conduct further destructive testing and advised Plaintiff that no such further testing was necessary or required." According to Plaintiff, this case does not involve deliberate and knowing spoliation of evidence and Defendant "could not have been prejudiced because it made the determination that no further destructive testing was required or necessary."
III. LEGAL STANDARD
The Ninth Circuit has held that a district court has the authority to impose sanctions for spoliation pursuant to: "the inherent power of federal courts to levy sanctions in response to abusive litigation practices, and the availability of sanctions under Rule 37 against a party who fails to obey an order to provide or permit discovery." Leon v. IPX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006) (citing Fjelstad v. Am. Honda Motor Co., 762 F.2d 1334, 1337-38 (9th Cir. 1985); Fed. R. Civ. P. 37(b)(2)(c)). In the present case, because Plaintiff's alleged actions did not violate a discovery order, any sanction must be imposed pursuant to the district court's inherent power.
Defendant has proposed the following sanctions for Plaintiff's spoliation of the evidence contained in Plaintiff's walls and home: dismissal of Plaintiff's claims for alleged mold damages; and precluding Plaintiff from arguing or presenting any evidence concerning the alleged mold damage and related repairs. The exclusion of evidence is tantamount to a terminating sanction. See, e.g., Ware v. Rodale Press, Inc., 322 F.3d 218, 221 (3rd Cir. 2003). All of the sanctions that Defendant seeks are terminating sanctions or the equivalent thereof; making applicable the standard for the imposition of dismissal as a sanction for spoliation.
The Ninth Circuit stated:
Dismissal engaged deliberately is an available in deceptive sanction when a party has undermine the integrity of judicial practices that
because when courts have proceedings action a inherent power and engaged in party has willfully to dismiss the an conduct utterly deceived administration with court orderly justice. inconsistent the
Before imposing court should consider the following factors: the district the harsh sanction of dismissal, of however,
public's litigation; interest
dockets; (3) the its of
(2) the in court's expeditious resolution
risk of prejudice need to to manage
seeking sanctions; (4) the the party disposition of cases on their public policy favoring availability of less drastic sanctions. merits; and (5) the Leon, 464 F.3d at 958 (citations and quotation marks omitted).
A court need not specifically address all five factors before ordering dismissal, but it must find willfulness, fault, or bad faith, and it must consider lesser sanctions.*fn2 See id.
A. Willfulness, Fault, Bad Faith To establish the culpability required under Leon, Nationwide
argues that "Plaintiff was repeatedly reminded of the need to furnish notice and opportunity for the defense's experts to be present for any wall tear-down and conduct necessary inspections and testing before repairs were undertaken." Defendant contends that when Plaintiff opened up and repaired the walls of his home in April 2009 - without notifying Defendant or his own counsel - he "knowingly destroyed evidence in a pending litigation relating to [his] claim for policy benefits for mold alleged to exist in his property." According to Defendant, this conduct warrants the imposition of terminating sanctions as to Plaintiff's mold claim only.
Defendant places considerable emphasis on the parties' prior agreements "to allow Nationwide's experts to observe the destructive testing and repairs to the areas of the home where the mold was alleged to exist." On May 15, 2008, the parties filed a "Stipulation and Order to Continue Settlement Conference and Trial Date and Order Thereon," stipulating that "all experts will need to be present for the destructive testing." (Doc. 14, 2:8-2:10.) Defendant has also submitted a declaration from Theodore W. Hoppe, counsel for Defendant, indicating that Mr. Hoppe informed Plaintiff's counsel in July 2008 that "the defense wanted its consultants to be present at any destructive testing so that the defense's representatives could directly observe what was found." (Doc. 23, ¶ 5.) According to Mr. Hoppe, Plaintiff's counsel responded that he would "contact the defense and advise when the work was to take place so that both parties' experts could observe and participate in mutual inspection and testing," which he allegedly did not do.
Defendant also points to its July 25, July 31, and December 16, 2008 correspondence to Plaintiff requesting an update on the status of efforts to schedule the destructive testing. According to Defendant, Plaintiff did not respond to these inquires until April 15, 2009 when Plaintiff's counsel informed Mr. Hoppe that he wished to cancel the April 23, 2009 mediation. The purported reason for the cancellation was that the "tear-down of the walls had revealed substantial mold damage thereto."
Plaintiff does not dispute the substance of his correspondence with Mr. Hoppe and acknowledges signing the May 15, 2008 stipulation. Instead, Plaintiff maintains that he did not "deliberately and knowingly destroy material evidence" because Defendant had access to Plaintiff's home and "refused to conduct further destructive testing and advised Plaintiff that no such further testing was necessary or required." On Plaintiff's account, Defendant waived its right of access in the mold evidence because it did not conduct a destructive testing in a timely manner.*fn3
Plaintiff's arguments are not well-taken. In Leon, the Ninth Circuit stated that "[a] party's destruction of evidence qualifies as willful spoliation if the party has some notice that the evidence was potentially relevant to the litigation before it was destroyed." Id., 464 F.3d at 959 (citing United States v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002); see also In re Napster, Inc., 462 F. Supp. 2d 1060, 1067 (N.D. Cal. 2006) ("As soon as a potential claim is identified, a litigant is under a duty to preserve evidence which it knows or reasonably should know is relevant to the action."). "Moreover, because the relevance of destroyed [evidence] cannot be clearly ascertained because the [evidence] no longer exist, a party can hardly assert any presumption of irrelevance as to the destroyed [evidence]." Leon, 464 F.3d at 959 (internal quotation marks omitted).
Here, it is beyond dispute that Plaintiff knew that the mold evidence was potentially relevant to his claims against Nationwide. First, the Complaint states that Nationwide is "contractually required to pay for the full and complete cost to repair the damages plaintiff suffered to his home as a result of the February 20, 2004 incident," which necessarily includes mold damages.*fn4
Second, in April 2005, Plaintiff informed Mr. Hoppe that he believed his walls contained mold damage as a result of the February 20, 2004 steam room incident. (Doc. 23, Exh. B.) According to Plaintiff's opposition, the parties reached an agreement in Spring 2006, providing that a "jury will be entitled to award Plaintiff's damages for mold issues, regardless of [Nationwide's] subsequent coverage arguments." (Doc. 27, 5:2-5:6.) Plaintiff expressly agreed and was fully aware that the existence, nature, and extent of the mold scene would be a claim in the litigation when he tore down and repaired his walls in April 2009, without notifying Defendant or his counsel.
Despite clear notice of the need to preserve the scene, and that his counsel agreed to allow Defendant's experts to observe any repairs or destructive testing, Plaintiff did not notify Defendant that he tore down and replaced his walls until April 15, 2009. This qualifies as willful spoliation under the circumstances. See Leon, 464 F.3d at 959; In re Napster, Inc., 462 F. Supp. 2d at 1073-74.
It is important to note that Defendant's diligence in pursuing destructive testing is largely irrelevant to the willfulness determination. Plaintiff was obligated - based on the parties' repeated agreements and the stipulation filed with this Court - to notify Defendant of his intentions to open and replace the wall. Failure to do so was unjustified, considering that he advanced a mold damage claim, preserved evidence he unilaterally determined was relevant, and his duty to "notify" Defendant of his intent to repair the walls. He also does not support his "waiver" theory with any legal authority. On these facts, the suggestion that Defendant waived all of its rights concerning the mold site is unavailing.
Defendant argues that it is prejudiced by Plaintiff's "destruction of critical physical evidence [that] deprived [Nationwide] of access to the objective and direct information needed to effectively refute Plaintiff's claims of covered mold damage to the walls of the residence." Defendant frames the relevant legal inquiry as "the actions of Plaintiff have precluded any ability to determine the pre-repair condition of the walls' interiors, or recreate those conditions."
Plaintiff rejoins that Defendant is not prejudiced because "its experts did not believe such further testing was necessary or required [...] it had all the evidence it needed to disprove Plaintiff's claims relating to mold." Plaintiff contends that "all he was doing was repairing his home so that he could return to it [...] four years after it had sustained substantial water loss damages." Plaintiff also asserts that he "has preserved evidence, in the form of photographs, carpet materials and sheet rock materials, for [Northwestern's] further inspection and analysis."
The primary dispute between the parties is whether Plaintiff's residence suffered mold damage stemming from the steam incident and whether this damage is covered under Plaintiff's umbrella farm policy. On May 15, 2008, the parties stipulated that experts from each side were to be present for any and all "destructive testing" of Plaintiff's home. Plaintiff allegedly violated this agreement -and Defendant suffered extreme prejudice - when he repaired his walls in April of 2009. According to Defendant, it is now unable to determine the cause of the mold damage without access to the walls and other mold evidence in its original state. However, July 31, 2008 correspondence from Hoppe to Plaintiff's counsel demonstrates that Defendant's experts had already determined that the existing mold was unrelated to the steam incident:
As completed we discussed their analysis previously, have our experts have now north only mold wall that was present and the in the concluded is that the house the
They your [sic] concluded front bedroom of on client's to or that that steam which occurred at any involvement wall your client's house. in the house. in incident did not have relate has the mold (Doc. 23, Exh. B.)
Based on this correspondence, it appears that Defendant's investigation into the cause and extent of the mold damage was completed on July 31, 2008 and its interest in the mold scene was limited to observing Plaintiff's future destructive testing, if such testing was to occur. On the present record, Defendant's argument that Plaintiff's "lack of notice" extinguished its "one and only opportunity" to document the mold scene is inaccurate.*fn5
To establish prejudice, Defendant states the facts of this case are "strikingly similar to those analyzed and invoked by the Leon court." While Leon's reasoning remains instructive -- it is cited throughout this opinion - the factual comparisons are better suited for the more typical spoliation case involving manifest bad faith and the destruction of "smoking gun" documents. The circumstances here do not present Leon-type prejudice, where over 2,200 documents were purposefully deleted from an employer-owned computer by an aggrieved former employee. See Leon, 464 F.3d at 959 ("Leon was on notice that files created in violation of this IDX company policy would be relevant to IDX's lawsuit against him [...] [h]is deletion and wiping of 2,200 files, acts that were indisputably intentional, amounted to willful spoliation of relevant evidence.") (internal quotations omitted).
Defendant's legal analysis also incorporates language from the holdings of Anheuser-Busch, Inc. v. Natural Beverage Distributors 69 F.3d 337, 354 (9th Cir. 1995) and State Farm Fire and Cas. Co. v. Broan Mfg. Co., Inc., 523 F. Supp. 2d 992, 997 (D. Ariz. 2007), two cases where prejudice was found because "a party's refusal to provide certain documents forced Plaintiff to rely on incomplete and spotty evidence at trial." However, this case differs from Anheuser-Busch and State Farm Fire because in those cases an adversary's spoliation interfered with the "rightful decision of the case by preventing full development of the alternative theories of causation" and "forced [Plaintiff] to rely on incomplete and spotty evidence at trial." Conversely, here it is unclear what impact, if any, Plaintiff's conduct will have on Defendant's ability to defend itself against Plaintiff's mold claims. It is unknown whether Plaintiff intends on introducing the "saved" mold samples in this case, whether on a motion for summary judgment or at trial. It is also unclear whether Defendant's investigation was complete on July 31, 2008 and/or whether Defendant's experts can conduct a full investigation based on the preserved evidence. On the current record, Defendant's claim that it "missed its one and only opportunity" is speculative; the extent of alleged prejudice suffered by Defendant is distinguishable from the prejudice found in Leon, Anheuser-Busch and State Farm Fire.*fn6
There is some evidence supporting Leon-type prejudice, however. Specifically, Plaintiff maintains that he "preserved photographs and materials reflecting the condition of the property at the time the repairs were made, for [Nationwide's] further inspection and analysis." This suggests Plaintiff was aware that Defendant had an interest in inspecting and analyzing the evidence, yet did not contact Defendant or its counsel as required by their course of dealing. This raises questions about Plaintiff's motives under the reasoning of State Farm Fire:
Not only is the but it is also limited to that which evidence
Plaintiff incomplete, chose to preserve Defendant conduct , and to of interfere the  cannot scene. with spoliation an independent investigation
The development decision therefore full rightful of the of the threatens alternative case by preventing the theories of causation.
Id., 523 F. Supp. 2d at 997 (emphasis added).
"A defendant suffers prejudice if the plaintiff's actions impair the defendant's ability to go to trial or threatened to interfere with the rightful decision of the case." Anheuser-Busch, 69 F.3d at 353-54 (citation omitted). In this case, the alleged destruction or modification of the original mold scene could force Defendant to rely on the evidence preserved by Plaintiff - the photographs, carpet materials, and sheet rock samples. On the current record, however, it is unclear how Plaintiff's conduct specifically impacts Defendant's case as Plaintiff has not yet introduced the preserved mold evidence into this case. Defendant's experts have not examined the preserved evidence, which could moot Plaintiff's mold claim and/or reveal inconsistencies in Plaintiff's allegations about the cause of the mold. At this time there is not enough evidence detailing the prejudicial impact of Plaintiff's conduct on Defendant's case. These developments directly affect the prejudice inquiry and, without them, terminating sanctions cannot be decided. See, e.g., Anheuser-Busch, Inc., 69 F.3d at 353-54.
The only remaining question is the appropriate sanction.
There are three types of sanctions for destruction of evidence. First, the court can instruct the jury that it may infer that evidence made unavailable by a party was unfavorable to that party. See, e.g., Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993); Akiona v. United States, 938 F.2d 158, 161 (9th Cir.1991); Cedars-Sinai Med. Ctr. v. Superior Court of Los Angeles, 18 Cal.4th 1, 11-12 (1998). Second, the court may exclude witness testimony based on the evidence that was destroyed. See, e.g., Unigard Sec. Ins. Co. v. Lakewood Eng'g & Mfg. Corp., 982 F.2d 363, 368-69 (9th Cir. 1992). The third (and most drastic) sanction is to dismiss the claim of the party responsible for the spoliation. See, e.g., Allstate Ins. Co. v. Sunbeam Corp., 53 F.3d 804, 806-07 (7th Cir. 1995); see also Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991) (noting that "outright dismissal ... is a particularly severe sanction, yet is within the court's discretion").
Because of the potency of the court's inherent powers, they must be exercised with restraint. Advantacare Health Partners L.P. v. Access IV, C-03-04496-JF, 2004 WL 1837997 (N.D. Cal. 2004) (citing Roadway Express Inc. v. Piper, 447 U.S. 752, 764 (1980)). One aspect of this restraint is determining the appropriate sanction in light of the specific abusive conduct. Id. In determining the appropriate sanction, courts should seek to impose a sanction that accomplishes the following objectives:
(1) warrant penalize such those a sanction; whose conduct (2) deter may be parties deemed from to engaging of an erroneous in the sanctioned judgment conduct; created restore the party (4) who place the risk (3) the same the risk; and on wrongfully to destruction position he would have the been prejudiced party wrongful of evidence by in the absent opposing the party.
Id. at *3.
This case is analogous to Reed v. Honeywell Intern., Inc., CV-07-0396-PHX-MHM, 2009 WL 886844 (D. Ariz. Mar. 31, 2009) and In re Napster, Inc., 462 F. Supp. 2d 1060, where the duty to preserve evidence was breached but terminating sanctions were not imposed. In re Napster held:
The depends propriety on the of extent preclusion sanctions, therefore, prejudiced by Hummer's deletion to which its plaintiffs
This to analysis be of emails. requirement impose the must 'least made onerous in light sanction' of the given the prejudice to the opposing party. the extent of the offending party's fault and
As unclear discussed based above, on the the record full purposes before extent of prejudice is of this However, the plaintiffs court for the shown sufficient prejudice motion. to have preclusion sanctions. The nature warrant and extent some degree of of sanctions or trial stage. will be determined at the Summary Judgment these 462 F. Supp. 2d at 1077-78 (citations and quotations omitted).
Honeywell Intern is also instructive:
Without cross-examine access Mr. to the
Eden notes, regarding
Plaintiffs any discrepancies are unable to between summaries. the handwritten
The notes notes and his typewritten inconsistencies in his testimony could have revealed witnesses told him and in might have about revealed what the exaggerations or mistakes any thus appear to have established memory [...] Plaintiffs prejudiced by Honeywell's inadvertent that loss they of are Eden's notes [...] Mr. Plaintiffs [an evidentiary argue that sanction]'
[...] sanction is
[h]owever, appropriately Honeywell any sanctions more for misbehavior on the at part of conclusion the remedied the is presented, of Court case. on trial or at prepared Based the information adverse jurythe instruction is trial. Striking to consider an all relating at appears evidence harsh to  investigation any and inadvertent conduct. too a penalty the for Defendants' alleged [...]
(Id. at *11)(quotations and citations omitted).
Like Napster and Honeywell Intern, any sanction for misbehavior on the part of Plaintiff is more appropriately remedied at summary judgment or trial.*fn7 While Plaintiff's conduct raises questions, his failure to preserve the mold scene does "not eclipse entirely the possibility of a just result." Nursing Home Pension Fund v. Oracle Corp., 254 F.R.D. 559, 564 (N.D. Cal. 2008) (citation and quotation marks omitted). The alleged prejudice suffered by Defendant is distinguishable from the prejudice found in Leon, Anheuser-Busch and State Farm Fire; terminating sanctions are not warranted without further development of the prejudicial impact on Defendant's case.
Terminating sanctions against Plaintiff are premature at this stage of the litigation. The motion for terminating sanctions is DENIED.
Courts, however, have held that a party failing to preserve relevant evidence is subject to monetary sanctions even if the motion for terminating sanctions is denied. See Realnetworks, Inc. v. DVD Copy Control Ass'n, Inc., --- F.R.D. ----, 2009 WL 1258970 at *14 (N.D. Cal. 2009) ("Pursuant to the court's inherent power to impose sanctions, the court grants monetary sanctions against Real for failing to preserve evidence in relation to this litigation [...] [a]n award of attorneys' fees and related costs is granted to defendants for pursuing the evidence of spoliation of Hamilton's notebooks and for bringing this part of the sanctions motion."*fn8 ). Here, it is beyond dispute that Plaintiff failed to preserve evidence he knew was connected to his mold damages claim, necessitating this motion. It is not presently possible to know whether other expenses will be caused by these circumstances. Defendant's motion for monetary sanctions in the amount of $2,280.00 is GRANTED.*fn9
For the foregoing reasons:
1. Defendant's motion for terminating sanctions for spoliation of evidence is DENIED WITHOUT PREJUDICE.
2. Defendant's motion for monetary sanctions is GRANTED in the amount of $2,280.00.
Defendant shall submit a form of order consistent with this memorandum decision within five (5) days of electronic service.
IT IS SO ORDERED.