Where a homeowner filed suit against design professional and a contractor for defective services concerning extensive rock retaining walls they designed and built, the defendants move the trial court to dismiss the suit due to the fact that after filing suit, the homeowner tore down the walls before the defendants inspected them.  Trial judge denied the motion because he concluded adequate notice had been given to the defendants of the impending destruction of the walls (the evidence in question).  On appeal, the court vacated the judgment and remanded for the court to consider the framework set forth by the appellate court for considering such cases.  The appellate decision presents an excellent discussion of the importance of preserving evidence and the sanction available if a custodial party destroy evidence.  Diversified Concepts, LLC v. Koford, 495 P.3d 755 (2021).

The defendants claimed that, without an opportunity to inspect and observe the demolition of the walls, their ability to defend the case had been irreparably compromised.   The plaintiff noticed that numerous retaining walls had started sinking, some had started to bow in the middle, and another was not straight. She further alleged that, “all over the property,” gravel was leaking out of the seams of the walls and wall caps were coming off.  The contractor had also deviated from the landscape blueprint by constructing one large wall (in the place of two, with one designed to be recessed behind the other) in a different shape than was specified.

Attorneys for the  homeowner wrote letters to the designer and contractor advising them of the problems and terminating them from the project.  After having a forensic engineer evaluate the walls, the homeowner’s attorney wrote additional letters advising the designer, stating in part:

“After meeting with a number of industry experts and representatives from several product manufacturers and having those experts and representatives inspect the project, we now believe that the majority of the problems with the project are the result(s) of inferior workmanship and/or failure to follow the approved engineering plan obtained from [Engineering Firm] …. The problems with the project are so significant that they necessitate repairs and remedial work which will potentially cost hundreds of thousands of dollars.”

The letter stated that the homeowners would “look to [Diversified] to pay for those repairs and to make them whole,” and requested certain information “to assist the [homeowner’s] in mitigating their damages.” The letter concluded by warning that if the information was not sent within five days, the [homeowner] would have “no choice but to initiate legal action against [Diversified]”.

Another letter was subsequently sent by homeowner’s counsel to Diversified’s counsel, stating:

“[Forensic Engineer] has performed an initial walk through of the property and has indicated that the movement observed in the walls … is likely due to faulty construction and in particular faulty mechanically stabilized earth. [Forensic Engineer] is currently in the process of taking measurements at the property to determine the amount to which the construction is outside the acceptable tolerances. … [I]t is anticipated that [Forensic Engineer] will (at a cost of between $5,000 and $20,000) be required to dismantle a portion of the walls and do further tests on the mechanically stabilized earth behind and beneath those walls.”

A few months after this, the homeowners hired a new contractor to tear down and replace the two retaining walls, and they hired an engineering firm to document it.  The owners testified that they were “terrified” by what the limited destruction of the wall revealed and that they consequently decided to tear down and reconstruct the rest of the walls.  The engineering firm documented the destruction of the remaining walls and put its findings into a written report.  The firm also took “thousands” of pictures during the deconstruction.

After completion of the walls, the homeowners filed suit to recover their costs from the original designer and contractor.  On the motion of those firms to dismiss the suit based on spoliation of evidence by the homeowner tearing down the walls that constituted the evidence, the trial judge denied the motions because:

“However, based on the letters that the Kofords’ attorney sent to Landform and Diversified, the district court declined to dismiss the case outright, or to even dismiss certain claims. Specifically, the court determined that the letters the Kofords’ attorney sent in June and July had provided “general notice” of anticipated litigation, reasoned that general notice shifted the onus to Landform and Diversified to investigate and to take action to preserve evidence, and thus concluded that neither should be “rewarded” by the dismissal of the case. In other words, the court focused less on the Kofords’ duty to preserve evidence and instead relied more on an implicit duty to investigate on the part of Landform and Diversified.”

On appeal the Utah Court of Appeals explained that there was no applicable case law in Utah and it therefore looked to the law of several other states to create a new framework for Utah courts to use when deciding whether to grant sanctions for spoliation of evidence.

Determining When a Party May be Sanctioned

The first issue is determining whether there is a duty to preserve evidence.  The duty to preserve evidence begins when litigation is pending or reasonably foreseeable.  But the court recognizes that the “duty to preserve is not boundless.”  In certain circumstances, a party may reasonably need to destroy material that it is presumptively duty-bound to preserve.  But just because a custodial party has reasonable grounds to destroy evidence (as may have been the case here), “does not mean it can unilaterally do so.”  “Instead, the custodial party must provide to the noncustodial party advance notice outlining its intention to destroy evidence. And that notice must be specific enough and be given far enough in advance to allow the noncustodial party to ‘protect itself against the loss of evidence.’”  The court stated:

“In sum, a custodial party may discharge its duty to preserve evidence—thereby insulating it from spoliation sanctions—if it: (1) has reasonable grounds for destroying the evidence and (2) provides advance notice to the noncustodial party that allows for a full and fair opportunity to inspect that evidence. And, if challenged, the burden is on the custodial party to demonstrate that both elements have been met.”

Evaluating what type of sanctions are appropriate

The court has broad discretion to decide what sanctions are deemed appropriate.  A trial court fashioning a sanction for spoliation should keep in mind the general rule that sanctions should be proportional to the need to punish and deter future violations, and thus severe sanctions should be meted out with caution. But it must also be cognizant that “the focus in selecting the proper [spoliation] sanction is evening the playing field, or rectifying the prejudice caused by the spoliation so as to place the parties in equipoise,” i.e., the sanction should “make whole, as nearly as possible, the litigant whose cause of action has been impaired by the absence of crucial evidence.” “Generally, the [ ] framework directs a district court to weigh the impropriety of a custodial party’s conduct against the harm suffered by the noncustodial party resulting from the destruction of evidence, and then to fashion a sanction that accounts for them both.”  Three factors must be considered by the court.

  1. Custodial party’s culpability.  “The first Schmid factor is principally meant to guide the district court in evaluating the severity of the sanction necessary to effectuate the twin purposes of punishment and deterrence. See Schmid, 13 F.3d at 79 (instructing courts to impose sanctions that will, “where the offending party is seriously at fault, … serve to deter such conduct by others in the future”). Accordingly, the district court should endeavor to make a factual finding about the mental state of the custodial party concerning the failure to preserve evidence. In the so-called “classic” case of spoliation, the custodial party willfully destroys evidence in bad faith, i.e., for the purpose of frustrating the judicial process.”… And while this type of misconduct [unintentional conduct: recklessness, gross negligence, and negligence] may, standing alone, be less worthy of serious sanctions, “the discretion to impose sanctions for reckless or negligent misconduct [remains] as broad as the discretion which is accorded for imposition of sanctions where the misconduct was deliberate and intentional.”
  2. Noncustodial party’s degree of prejudice. This requires the trial court to determine the relevance and strength of the spoliated evidence to the claims at issue. “And this determination necessarily requires the district court to evaluate the entire evidentiary landscape at the noncustodial party’s disposal, particularly evaluating the relative sufficiency of any available substitutes for the spoliated evidence.” “Often, the purported substitutes for the spoliated evidence are photographs or videos of the evidence taken or made by the custodial party, or evidence of other actions the custodial party took to investigate the evidence prior to destruction. Sometimes the substitute may be sufficient such that a sanction other than dismissal is warranted, but sometimes not.” “But this all raises the practical question of how the district court should go about evaluating the importance of “evidence that is no longer available for review. The answer is this: the burden is on the noncustodial party to demonstrate the prejudice to its case.”

One more consideration is whether the noncustodial party unreasonable failed to take steps to investigate or preserve the spoliated evidence.  “If the custodial party fails to discharge its duty to preserve evidence, but the noncustodial party is nevertheless on notice of specific facts that render its failure to take any steps to preserve or inspect evidence unreasonable, there will be less cause for the court to remedy a situation that the noncustodial party failed to prioritize.”

  1. Fashioning the appropriate sanction. “The third step of the Schmid framework is where the district court should weigh its findings on the foregoing factors and determine what sanction is appropriate in light of them. See Schmid, 13 F.3d at 79. If the court concludes that the custodial party destroyed evidence in bad faith, it is unlikely that severe sanctions will ever exceed the district court’s discretion. [citation omitted]. But, so long as the prejudice to the opposing party’s case can be effectively remedied by the imposition of a lesser sanction, the court is not required to impose a severe sanction such as dismissal even if it finds that the evidence was destroyed in bad faith.”

“But regardless of the custodial party’s culpability in destroying the evidence, the district court should always—at the very least—seek to impose a sanction that workably remedies the prejudice to the opposing party’s case. Further, the court should keep in mind that,

“It will not always be possible to recreate the evidence that has been lost or to limit the claims so as to be fair to the non-spoliating party. In those circumstances, the severe sanction of dismissal may indeed be appropriate. Moreover, even after the claims are limited and the matter can fairly proceed, it will still be within the court’s power to utilize other sanctions against the spoliator through the use of an adverse inference or the imposition of monetary sanctions designed to shift costs to the spoliator.”

In remanding this case to the trial court, the appellate court directed it to apply the factors set forth in this decision.

Comment:  Litigation hold letters are important for attorneys to issue to their clients early in the claim process. Such letters advise the client to hold all documentation and evidence pertaining to a certain project or matter.  These letters should be sent early in the process, and it may be useful to send a reminder litigation hold letter periodically as the case is developing.


About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 24, No. 2 (February 2022).

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