Indiana Spoliation Law: Experts Can be Critical and Good Faith May Not be Enough
The Indiana Court of Appeals issued a decision last month that provides a good overview of spoliation claims under Indiana law, and which confirms the need for all parties and their insurers to be diligent to preserve evidence that could be relevant to potential litigation. This ruling affirms prior decisions that those who hold property that could become relevant evidence in litigation must be very careful to preserve all of the relevant evidence.
This latest case pertained to a fire that occurred at Aqua Environmental Container Corp.’s (“Aqua”) warehouse in Wolcott, Indiana. Aqua sued Northern Indiana Public Service Company (“NIPSCO”) and claimed the fire occurred because NIPSCO had negligently supplied electrical power to the Wolcott area, including Aqua’s warehouse, resulting in severe power fluctuations that caused a fire in the area of the ceiling-mounted furnace of Aqua’s warehouse. During discovery, it was determined that Aqua had preserved some, but not all of the ceiling mounted furnace equipment, and that the part Aqua had failed to preserve was the most relevant part.
NIPSCO then filed a Motion for Default Judgment against Aqua for Spoliation of Evidence. The trial court denied the Motion, and NIPSCO appealed the denial. The Court of Appeals upheld the denial of the Motion for Default, but concluded that Aqua had negligently destroyed or failed to save, and thus spoliated, evidence relevant to the lawsuit. The Court of Appeals then remanded the case to the trial court to determine the appropriate remedy, if any, for Aqua’s negligent spoliation of evidence.
NIPSCO’s Motion for Default was premised, in large part, on the following facts:
- after the fire, the Fire Marshal pointed to the ceiling mounted furnace equipment as the area of origin of the fire and stated to Aqua’s property manager, “This is a possible cause, and you may want to save it for your insurance company or other entities”;
- Aqua preserved some, but not all of the furnace system; and
- it was later found that the parts of the system not retained were the most relevant parts for determining the cause of the fire.
This case is a bit unusual in that other spoliation cases address situations where a party arguably knew or should have known to preserve evidence, and failed to preserve any evidence. In this case, on the other hand, the target of the spoliation motion (Aqua) had hired a subcontractor and preserved evidence from the correct area at issue, but had not made the correct decision regarding what evidence to preserve.
Aqua responded to NIPSCO’s Motion for Default by showing it had retained a subcontractor to remove the ceiling mounted “furnace,” and then saved the removed parts in a separate storage area. NIPSCO’s experts contended that not all of the relevant equipment and ductwork had been retained and that the parts that had been retained really were not the right ones. NIPSCO contended that because Aqua had failed to identify and preserve the correct parts, a default judgment should be entered against Aqua, even though it retained at least some of the evidence in the area the Fire Marshal had indicated as the area of origin. Thus, NIPSCO contended that the Trial Court erred, as a matter of law, in not entering a finding of spoliation against Aqua.
Before rendering its ruling, the Court of Appeals cited well-established Indiana law on spoliation, which is important and worthy of repeating as a refresher for all who handle evidence, or what may be deemed to be relevant evidence in litigation. That law is as follows:
Our Supreme Court has recognized that “[t]he intentional or negligent destruction or spoliation of evidence cannot be condoned and threatens the very integrity of our judicial system.” Gribben v. Wal–Mart Stores, Inc., 824 N.E.2d 349, 354 (Ind. 2005). However, a finding of spoliation alone does not necessarily require the imposition of sanctions. Popovich, 17 N.E.3d at 410 (citing Howard Reg’l Health Sys. v. Gordon, 952 N.E.2d 182, 189–90 (Ind. 2011)). Rather, a trial court has broad discretion to redress spoliation of evidence; its power to sanction spoliation is derived from its broad and inherent discretionary powers to issue evidentiary rulings and to manage the orderly and expeditious disposition of cases. Id. Indiana Trial Rule 37(B) also authorizes trial courts to respond to discovery violations with such sanctions “as are just,” which may include, among others, 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. Gribben, 824 N.E.2d at 351. Additionally, if spoliation by a party to a lawsuit is proved, rules of evidence permit the jury to infer that the missing evidence was unfavorable to that party. Glotzbach, 854 N.E.2d at 338.
When deciding whether to sanction a party for the spoliation of evidence, courts consider two primary factors: (1) the degree of culpability of the party who lost or destroyed the evidence; and (2) the degree of actual prejudice to the other party. Popovich, 17 N.E.3d at 410; see also WESCO Distribs., Inc., 23 N.E.3d at 703 (trial court’s response to the loss of evidence depends on both the degree of culpability and the extent of prejudice). Culpability can range along a continuum, from destruction intended to make evidence unavailable in litigation to inadvertent loss of information for reasons unrelated to the litigation. Howard Reg’l Health Sys., 952 N.E.2d at 189 (quoting Rimkus Consulting Grp., Inc. v. Cammarata, 688 F.Supp.2d 598, 613 (S.D. Tex. 2010) ). Prejudice likewise can range along a continuum, from an inability to prove claims or defenses to little or no impact on the presentation of proof. Id. “[I]f there is an inadvertent loss of evidence but severe prejudice to the opposing party, that will influence the appropriate response, recognizing that sanctions (as opposed to other remedial steps) require some degree of culpability.”
After reviewing the facts at issue, the Court of Appeals upheld the Trial Court’s ruling that Aqua had not intentionally failed to preserve the relevant evidence. Thus, Aqua had met the first prong of the cases cited above. However, the Court of Appeals determined, as a matter of law, that Aqua had failed to meet the second part of the test, and that it had negligently failed to preserve relevant evidence because, the Court stated, “Aqua had a duty to preserve the entire furnace…”
This case is instructive for at least three reasons:
- It affirms long-standing Indiana law that parties and their insurers have a duty to preserve property that could become relevant evidence in a lawsuit;
- It is not enough to retain a demolition subcontractor or other subcontractor and provide it with general instructions to remove and retain a general part of the property at issue; and
- Parties in possession of property that could become relevant to a lawsuit should consider retaining an expert early in the process and using the expert, rather than a general subcontractor or other “non-expert,” to decide what part of the evidence should and should not be retained.
Finally, the above case dealt with a spoliation claim regarding tangible evidence. Parties in Indiana have similar duties to preserve intangible evidence, such as computer data and other electronically stored information (“ESI”). Because it is common for businesses to perform periodic deletions of ESI to prevent overloading computers with large volumes of outdated and irrelevant ESI, it is equally important in cases involving ESI to identify the relevant ESI early in the process and to retain any relevant ESI in its original form. As in the case above, identifying the appropriate expert to assist in that process can be an important first step.
 See Northern Indiana Public Service Co. v. Aqua Environmental Container Corp., 2018 WL 2091583
Author Raymond T. Seach
Ray Seach is an AV-Rated attorney focusing on litigation and transactions involving products, premises, environmental, aviation, shareholders, contracts, financing, and insurance matters. He has significant jury trial experience representing local, regional and national companies. Ray has also litigated appeals to the Indiana Court of Appeals, and has argued before the Seventh Circuit Court of Appeals.
Ray also represents companies and their owners with business formation, shareholder agreements, financing, acquisitions, leasing, franchising, and shareholder disputes. Through his work as a Certified Public Accountant before attending Indiana University School of Law, Ray gained experience with auditing entities and their financial statements, which provides a strong foundation for his work as a litigation and business lawyer.
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Posted May 23, 2018 by Raymond T. Seach