Federal, Not State, Law Governs Spoliation Sanctions

Sherman v. Rinchem Co., 2012 U.S. App. LEXIS 16283 (8th Cir. Aug. 6, 2012):

A. Spoliation of Evidence

In seeking summary judgment as a sanction for spoliation of evidence, Sherman argued that he had specifically requested that Rinchem produce "[a]ny and all documents relating to Plaintiff and the investigation of the Plaintiff conducted by Human Resources at Rinchem." According to Sherman, Rinchem failed to provide him with interview notes that Inman took during their April 18, 2008 meeting. Sherman asserted that these "notes [were] extremely critical to the case because they were taken shortly after the accusations and would be extremely relevant because [Inman] was discussing the Plaintiff's termination and what was in fact discussed." Based on Rinchem's alleged misconduct, Sherman contended that the district court should grant his motion for summary judgment or, in the alternative, give an adverse-inference instruction to the jury for spoliation of evidence. Sherman's argument relied on the application of Minnesota law.

At the motions hearing, the district court applied federal law, which requires "a finding of bad faith in order to impose the sanctions of summary judgment or an adverse inference instruction." Based on the record, the district court found no "evidence of bad faith intentional destruction" because Inman's testimony was that she "lost" the notes, not that she "destroy[ed] the notes." The court concluded that this act was at most "negligent," not intentional. The court asked Sherman what remedies he sought if it concluded that "negligent spoliation" occurred, stating, "[I]s there some remedy I could give you if I were to find spoliation short of summary judgment or an adverse inference instruction?" In response to the court's question, Sherman's counsel stated:

The Court's point is well-taken. I concur that, based on the record that we have, that it was non-intentional and that it was negligent in nature based on Ms. Inman's deposition that I took.

I think the remedy that we would ask the Court for, in the event that this matter proceeds to trial, would be a motion in limine and that is to exclude in part or in whole the testimony of Ms. Inman. Now, I'm not sure how that would actually proceed, but that it would be some kind of in limine testimony, in limine order related to her testimony.

(Emphasis added.) Thereafter, the district court denied the motion for summary judgment for spoliation of evidence without prejudice, explaining:

I think what I will do, Mr. Villaume, is I think I'm just going to deny your motion without prejudice. The basis is your motion asks for summary judgment or an adverse inference instruction. Rightly or wrongly, as I understand Eighth Circuit law binding on me, I can't give you either remedy outside of a finding of bad faith. You've candidly admitted that I can't really make a finding of bad faith on this record.

That doesn't foreclose you from coming back to me if we try this case and asking for some--as part of our motions in limine, which I'd hear before trial, asking for some remedies short of judgment or an adverse inference instruction. And I will give you--I know it's a lot to foist on you just standing at the podium, but I will give you a chance to think about that. If you want me to revisit the issue, you can bring it as a motion in limine. Let's do it that way.

(Emphasis added.) Shortly after the hearing, the court entered an order denying Sherman's summary judgment motion without prejudice.

On appeal, Sherman argues that the district court erroneously applied federal law relating to spoliation of evidence instead of Minnesota law, which only requires that he show that Rinchem was negligent in failing to retain Inman's notes. Sherman contends that because Rinchem negligently destroyed the notes, either summary judgment or an adverse-inference instruction is an appropriate sanction.

We review for an abuse of discretion "a district court's imposition of sanctions under its inherent power." Stevenson v. Union Pac. R.R. Co., 354 F.3d 739, 745 (8th Cir. 2004) (quotation, alteration, and citation omitted). "A court's inherent power includes the discretionary ability to fashion an appropriate sanction for conduct which abuses the judicial process." Id. (quotation and citation omitted).

Under federal law, "there must be a finding of intentional destruction indicating a desire to suppress the truth." Id. at 746 (emphasis added) (citing, inter alia, Lewy v. Remington Arms Co., 836 F.2d 1104, 1111-12 (8th Cir. 1988) (citing federal law for the general proposition that the adverse inference instruction is appropriate only where the spoliation or destruction of evidence is intentional and indicates a fraud or desire to suppress the truth)). By contrast, Minnesota law provides that "even when a breach of the duty to preserve evidence is not done in bad faith, the district court must attempt to remedy any prejudice that occurs as a result of the destruction of the evidence." Miller v. Lankow, 801 N.W.2d 120, 128 (Minn. 2011) (emphasis added).

Thus far, we have declined to determine whether federal or state law applies to motions for sanctions based on spoliation of evidence in diversity cases where no conflict existed between the state and federal law. See, e.g., Menz v. New Holland N. Am., Inc., 440 F.3d 1002, 1006 (8th Cir. 2006) ("We need not decide whether federal or state law governs in this diversity action because the result is the same under both--to warrant dismissal as a sanction for spoliation of evidence there must be a finding of intentional destruction indicating a desire to suppress the truth." (quotation and citation omitted)). But, in the present case, because a direct conflict exists between federal law and Minnesota law, we must resolve the issue.

We now hold, in accordance with our sister circuits, that federal law applies to the imposition of sanctions for the spoliation of evidence. See, e.g., Adkins v. Wolever, 554 F.3d 650, 652 (6th Cir. 2009) (citing Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001); Reilly v. Natwest Mkts. Grp. Inc., 181 F.3d 253, 267 (2d Cir. 1999); Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993)); Condrey v. SunTrust Bank of Ga., 431 F.3d 191, 203 (5th Cir. 2005) ("[F]ederal courts . . . apply federal evidentiary rules rather than state spoliation laws in diversity suits."); Flury v. Daimler Chrysler Corp., 427 F.3d 939, 944 (11th Cir. 2005) ("We agree with the first view, that federal law governs the imposition of spoliation sanctions. Furthermore, in accordance with the fourth and fifth circuits, we conclude that federal law applies because spoliation sanctions constitute an evidentiary matter.").

We believe that this is the correct view for two reasons. First, the authority to impose sanctions for spoliated evidence arises not from substantive law but, rather, "from a court's inherent power to control the judicial process." Silvestri, 271 F.3d at 590 (citing Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991)). Second, a spoliation ruling is evidentiary in nature and federal courts generally apply their own evidentiary rules in both federal question and diversity matters. King v. Ill. Cent. R.R., 337 F.3d 550, 556 (5th Cir. 2003). These reasons persuade us now to acknowledge the district court's broad discretion in crafting a proper sanction for spoliation.

Adkins, 554 F.3d at 652.

Sherman argues that even if federal law applies, the district court abused its discretion by denying a sanction for spoliation of evidence. Sherman contends that Rinchem received notice early in the dispute that Sherman would file suit for defamation and still failed to preserve all relevant evidence, including Inman's notes. Sherman asserts that because Rinchem destroyed relevant evidence, it acted in bad faith.

But, based our review of the record, we conclude that Sherman conceded before the district court that Rinchem did not intentionally or in bad faith destroy the notes. Specifically, Sherman's counsel stated, "I concur that, based on the record that we have, that it was non-intentional and that it was negligent in nature based on Ms. Inman's deposition that I took." (Emphases added.) Thereafter, the district court confirmed the concession of Sherman's counsel, stating, "You've candidly admitted that I can't really make a finding of bad faith on this record." Therefore, we hold that the district court did not abuse its discretion in denying Sherman's motion for summary judgment based on spoliation of evidence or, in the alternative, an adverse-inference instruction.