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Proof and Prejudice: Maryland District Court Finds Spoliation of Potentially Relevant Evidence was not Sufficiently Prejudicial to Warrant Dismissal of Claims

Charter Oak Fire Ins. Co. v. Marlow Liquors, LLC
United States District Court for the District of Maryland, No. JKS 09–1894
(D. Md. Nov. 6, 2012)
by Jhanelle Graham, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

In Charter Oak Fire Ins. Co. v. Marlow Liquors, LLC, the United States District Court for the District of Maryland determined that spoliation of potentially relevant evidence is not, by itself, sufficient to warrant dismissal of all claims. That is, even upon finding that the alleged spoliators had a duty to preserve evidence, a culpable state of mind, and failed to preserve relevant evidence, the degree of prejudice suffered by Plaintiff, William Cunningham d/b/a B.C. Electric (“Cunningham”), an electric company, was not sufficient to warrant dismissal of the claims against him.

The underlying lawsuit was initiated by the Charter Oak Fire Insurance Company (“Charter Oak”), the insurer of Marlow Wing House, after a fire on June 17, 2008, at the Marlow Heights Shopping Center (“MHSC”) in Prince George’s County, Maryland. The fire caused substantial damage to Marlow Liquors’ property and the adjacent business, Marlow Wing House. The shopping center was managed by Gelman Management Company (“Gelman”). MHSC and Gelman were both insured by National Surety Company (“NSC”), and Marlow Liquors was serviced electrically by Potomac Electric Power Company (“Pepco”).

The procedural history of the case is winding. Charter Oak filed a complaint against Marlow Liquors and Pepco, and Marlow Liquors filed a third-party complaint and cross-claim against Cunningham, alleging that the fire was caused by undersized meter conductors installed by Cunningham. Pepco filed a cross-claim against Cunningham arguing the same. Pepco then filed a second amended third-party complaint naming Marlow, Gelman, and MHSC as third-party defendants. Pepco alleged that Gelman and MHSC hired Cunningham, an unlicensed and unqualified electrician, to perform electrical work at the shopping center, and that Cunningham, under the supervision of Gelman and MHSC, installed a faulty electrical system. Cunningham filed cross-claims against Pepco and Marlow. Finally, Gelman and Cunningham filed claims against one another. Cunningham claimed that Marlow Liquors, MHSC, Gelman, NSC and Pepco were all responsible for discarding relevant evidence - such as circuit breaker panels and metal halide lights - that was critical to his defense. It was this alleged spoliation of evidence upon which the district court focused its analysis.

First, the court cited to Silvestri v. General Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001), in which the Fourth Circuit stated that “[s]poliation refers to the destruction or material alteration of evidence or to the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.” Id. To prove spoliation that warrants a sanction, a party must show that: (1) the party having control over the evidence had an obligation to preserve it when it was destroyed or altered; (2) the destruction or loss was accompanied by a “culpable state of mind;” and (3) the evidence that was destroyed or altered was “relevant” to the claims or defenses of the party that sought the discovery of the spoliated evidence, to the extent that a reasonable fact-finder could conclude that the lost evidence would have supported the claims or defenses of the party that sought it. Accordingly, parties may have a duty to preserve evidence, which “includes an obligation to identify, locate, and maintain, information that is relevant to specific, predictable, and identifiable litigation.” Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 520–21 (D. Md.2010). Parties must preserve potentially relevant evidence under their control, but there is also a duty to notify the opposing party of evidence in the hands of third parties. Id.

In the instant case, Pepco, Gelman, and Marlow Liquors all argued that they did not owe a duty to Cunningham to preserve the circuit breaker panels and metal halide lights. With respect to Gelman’s duty, the court stated that a duty to notify Cunningham of a potential claim did not turn on whether the evidence was relevant, but on whether the evidence was potentially relevant. The court found that the circuit breaker panels and halide lights were potentially relevant because they were components of the electrical apparatus that may have caused the fire. It reasoned that a party does not have a license to destroy evidence based solely on its own subjective view of its potential relevance. In addition, because duty arises from control as well as ownership, Gelman, as the property manager, had the presumptive ability to control the items. Similarly, with respect to Marlow Liquors, the court stated that once it was determined that the fire originated around the meter box and electrical equipment, Marlow Liquors had a duty to contact any parties associated with that equipment to allow them the opportunity to inspect the scene. Although Marlow Liquors left the fire scene undisturbed until Pepco was given a chance to examine it, the court held that Marlow Liquors breached its duty to do so for Cunningham. The court concluded the same for Pepco, stating that, like Marlow, Pepco had a duty to notify Cunningham about the potential for future litigation before discarding potentially relevant evidence. Thus, the court found that Pepco, Marlow and Gelman had the ability to preserve the circuit breaker panels but acted in a “culpable state of mind” by willfully discarding the evidence.

Despite finding that the parties willfully discarded the evidence, however, the court concluded that this spoliation did not result in prejudice sufficient to warrant dismissal of the case. Citing Victor Stanley, the district court stated that “[s]poliation of evidence causes prejudice when, as a result of the spoliation, the party claiming spoliation cannot present evidence essential to its underlying claim.” 269 F.R.D. at 532. If the prejudice is extreme, dismissal may be appropriate; however, to order this harsh sanction, a court must “conclude either (1) that the spoliator’s conduct was so egregious as to amount to a forfeiture of his claim, or (2) that the effect of the spoliator’s conduct was so prejudicial that it substantially denied the defendant the ability to defend the claim.” Id. at 534 (citations and quotation marks omitted). Here, the court found that Cunningham could defend this case without the missing evidence, since Cunningham’s expert opined that the most likely cause of the fire was an electrical failure in Pepco’s metering equipment. For these reasons, the district court held that Cunningham did not meet his burden of showing extreme prejudice sufficient to warrant dismissal of all claims against him, but would likely be entitled, at the very least, to appropriate adverse inference instructions at trial.