LITIGATION ALERT: Spoliation of Evidence in Construction Litigation in Texas
Spoliation of Evidence in Construction Litigation in Texas
August, 2013
Authors:
Michael A. Logan
Zach T. Mayer
Roland G. Hamilton
The risk of spoliation of evidence is a continuing concern in construction litigation. Simply defined, spoliation is the improper alteration or destruction of evidence, proof of which may give rise to a presumption that the evidence would have been harmful to the entity that caused the alteration or destruction. Trial courts have broad discretion to take measures to correct the effects of spoliation of evidence, including instructing the jury that the evidence would have been harmful to the party who destroyed it, or in abusive cases, to strike the pleadings of the party leaving them effectively without a defense to the suit. Whenever an incident occurs that may lead to litigation, there is a risk of spoliation if any of the potential evidence is altered or destroyed. But what happens if the "evidence" is equipment or machinery or other tools or property that is needed in the conduct of business? What happens if the "evidence" involves an ongoing construction site that is on a schedule and needs to be completed? What happens if the "evidence" needs to be repaired and placed back in service immediately? These are just some of the many variations that are encountered routinely in construction litigation, and a decision must be made immediately how to proceed.
The First Court of Appeals of Houston recently addressed the issue of spoliation of evidence in connection with a property owner's obligation to allow the general contractor the opportunity to inspect and conduct forensic testing prior to having another entity perform repairs. In Miner Dederick Construction, the appellate court considered whether an owner spoliated evidence vital to a general contractor's defense of the owner's claims. [1]
The property owner, Gulf Chemical and Metallurgical ("Gulf"), engaged in the business of recycling a spent catalyst generated by oil refineries and stored the catalyst in a hazardous waste building called "Containment Building 2" or "CB2." Gulf contracted with a general contractor, Miner Dederick Construction ("Miner Dederick") for the construction of an expansion to the CB2. The drawings and specifications required that a new concrete foundation be poured for the expansion. Miner Dederick gave Gulf a one-year warranty for materials and labor. After completion of the project, an adjacent property owner discovered an oily substance in a ditch on its property. Upon investigation, Gulf discovered that the oily substance was leaking from the expansion joint of the CB2, where the new foundation met the old foundation.
Gulf requested that Miner Dederick repair the expansion joint pursuant to the warranty, using a repair designed by the engineering company that had initially designed the project. However, Miner Dederick informed Gulf that the repairs requested were not covered by the warranty and asserted that the expansion joint had been constructed in accordance with the plans and specifications but that the construction design was faulty. In response, Gulf retained a forensic engineering firm to determine why oil was leaking through the expansion joint. During this time period, Miner Dederick sent Gulf three written requests to inspect the expansion joint, the third of which was denied by Gulf. The engineering firm subsequently took three core samples from the expansion joint. However, Miner Dederick was never notified of the engineering firm's testing work, and did not learn of this testing until three months later. During the repair process, the repair contractor covered the expansion joint with a new sealant system, poured six to eight inches of concrete over it, and built a 15-foot high, 97-foot long retaining wall to prevent the storage of the catalyst on the expansion joint.
Gulf subsequently filed suit against Miner Dederick for breach of contract, breach of warranty, and negligence. In support of its breach of contract claim, Gulf alleged that Miner Dederick failed to construct the expansion joint in conformance with the project's design and specifications, and failed to repair the joint to make it conform to the plan design and specifications. Gulf also claimed that Miner Dederick refused to honor its warranty and repair any defects to the completed structure. Miner Dederick answered the lawsuit and alleged that Gulf spoliated evidence by refusing to allow Miner Dederick to inspect the expansion joint, by failing to notify of the testing conducted on the expansion joint, and by effectively destroying the expansion joint by covering it with concrete. Miner Dederick asserted that Gulf had a duty to inform it of the testing conducted on the expansion joint and to preserve the expansion joint for inspection and testing.
Gulf later sought partial summary judgment on its breach of contract claim. In its summary judgment response, Miner Dederick asserted that Gulf was not entitled to summary judgment because Gulf engaged in spoliation. Miner Dederick alleged that Gulf destroyed or concealed evidence of the alleged construction defects in the expansion joint, thus depriving Miner Dederick of any opportunity to investigate and conduct its own testing, and by depriving it of the ability to show that the joint had been constructed according to the plans and specifications and that the general contractor had not been the cause of injury to the owner. Miner Dederick requested that the trial court sanction Gulf for spoliation of the expansion joint, either by striking Gulf's pleadings, precluding Gulf from introducing evidence of the joint's construction, or alternatively finding that Miner Dederick was entitled to a rebuttable presumption that the evidence destroyed by Gulf was unfavorable to Gulf on the issues of the oil leak and the existence of construction defects. However, the trial court granted Gulf's motion for partial summary judgment. By doing so, the trial court implicitly denied Miner Dederick's request for spoliation sanctions or a spoliation presumption.
Thereafter, Miner Dederick filed a motion for sanctions. The trial court denied the motion. The case was tried to a jury, and during trial, Miner Dederick moved for spoliation sanctions, asked that a spoliation presumption instruction be given to the jury and moved for a directed verdict based upon the element of causation. The trial court denied the motion for sanctions and the request for a spoliation instruction. Based on the jury's verdict, the trial court signed a judgment awarding Gulf actual damages in excess of $727,000.
On appeal, Miner Dederick asserted that the trial court erred by failing to assess spoliation sanctions against Gulf. The First Court of Appeals agreed, holding that the trial court abused its discretion when it denied the request for spoliation sanctions. The appellate court initially considered whether Gulf had a duty to preserve the expansion joint. The duty to preserve evidence does not arise unless (1) a party knows or reasonably should know that there is a substantial chance a claim will be filed, and (2) evidence is relevant and material. A party knows or reasonably should know that there is a substantial chance a claim will be filed if a reasonable person would conclude from the severity of the incident, and other circumstances surrounding it, that there was a substantial chance for litigation at the time of the alleged spoliation. To show that evidence is relevant and material, a party must demonstrate that the alleged spoliator knew or reasonably should have known that the evidence would be relevant to the action. A party must preserve what it knows, or reasonably should know, is relevant to the action or is reasonably calculated to lead to the discovery of admissible evidence.
The appellate court concluded that, at the time of the alleged spoliation Gulf was aware that there was a substantial chance it would file a claim against Miner Dederick. Before taking the core samples from the expansion joint and covering it with concrete, Gulf had requested that Miner Dederick repair the expansion joint under the warranty. However, Miner Dederick stated that the leaks were not caused by defective construction, but by a problem with the design of the joint, and indicated that the repair work requested was not covered by the warranty. Furthermore, Gulf retained a forensic engineering firm to conduct the core testing on the expansion joint, indicating that Gulf knew there was a substantial chance that it would be filing a claim against Miner Dederick. The evidence also revealed that Gulf denied the request to inspect the expansion joint on the advice of counsel. In this regard, the appellate court stated, "the involvement of counsel indicates that Gulf was aware there was a substantial chance of litigation of the time of the spoliation." The appellate court concluded that the expansion joint was the subject matter of the parties' claims, and it was undisputed that the joint was relevant to the litigation.
The next issue for the court of appeals to decide was whether Gulf breached its duty to preserve the expansion joint. A spoliator can defend against an assertion of negligent or intentional destruction by providing explanations to justify its failure to preserve evidence. A claim that the evidence was destroyed in the ordinary course of business will not excuse the obligation to preserve when a party's duty to preserve evidence arises before the destruction.
The appellate court held that Gulf breached its duty to preserve the expansion joint. Gulf's duty to preserve evidence arose before it conducted the repair on the expansion joint. Therefore, Gulf's defense that the joint was destroyed in the ordinary course of business was not justifiable. The appellate court stated, "implicit in the duty to exercise reasonable care in preserving evidence is the duty to refrain from altering or changing the evidence's condition or integrity." Before testing was conducted on the joint on behalf of Gulf, approximately six inches of sealant that had been installed by Miner Dederick was removed by the repair contractor.
The appellate court concluded that Gulf intentionally altered the condition and integrity of the expansion joint without affording Miner Dederick the opportunity to inspect it.
As a final matter in its analysis, the appellate court considered whether Gulf's spoliation prejudiced Miner Dederick's ability to present its defense against the owner's claims. In making such a determination, appellate courts examine a variety of circumstances, including (1) the relevancy of the missing evidence, and (2) the availability of other evidence to take the place of the missing information. As pointed out by Miner Dederick, the expansion joint was "the most important piece of evidence in the case." Gulf's primary evidence offered in support of the its motion for partial summary judgment was testimony from the design engineer concerning his personal observations of the expansion joint, the forensic engineering firm's resulting report, and photographs taken during forensic investigation and testing. The appellate court reasoned that, by altering the expansion joint's condition, Gulf deprived the general contractor of the opportunity to gather evidence to rebut the evidence, and to develop its affirmative defenses. The appellate court also found there was no available substitute for the expansion joint itself with respect to testing. The core samples taken by the forensic engineering firm were in a deteriorated condition and could not be reconstructed to their original condition. Despite the value of photographic evidence, Miner Dederick was denied the opportunity to conduct its own forensic testing on the expansion joint as it existed in its condition before the repair work was performed. Accordingly, the appellate court held that trial court abused its discretion, and the general contractor was prejudiced by the owner's spoliation of the expansion joint.
In conclusion, a contractor should use extreme caution before altering or destroying evidence that is likely to be the subject of litigation. Prior to taking measures to alter or destroy the evidence, all potential parties should be given a reasonable opportunity to examine the evidence. Otherwise, a finding of spoliation could be made, putting the company in jeopardy of losing the case on that basis alone.
[1] — S.W.3d — , 2013 WL 1488186, at *11- 16 (Tex. App.—Houston [1st Dist.] Apr. 11, 2013, pet. filed).
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This Litigation Alert is a summary of recent developments in the law and is provided for informational purposes only. It is not intended to constitute legal advice or to create an attorney-client relationship. Readers should obtain legal advice specific to their situation in connection with topics discussed.
Copyright © 2013 Kane Russell Coleman & Logan PC. All rights reserved. Unless otherwise indicated, the authors are not certified by the Texas Board of Legal Specialization.
