In EPAC Techs., Inc. v. HarperCollins Christian Publ’g, Inc., Nos. 19-5836/5838 (6th Cir. Apr. 15, 2020), in this unpublished decision, the Sixth Circuit Court of Appeals, in affirming the decision by the district court, found that “District courts have broad discretion to craft sanctions for spoliated evidence” and “[t]he fact that Thomas Nelson was only ‘negligent’ does not defeat the [permissive adverse inference] instructions” that were issued.

Case Background

In this contract dispute that arose when the defendant prematurely terminated a Master Services Agreement (“MSA”) it had executed with the plaintiff, which sued, bringing numerous claims. Most claims were thrown out before trial, with only two claims going to the jury: breach of the MSA and fraudulent concealment. The jury returned a verdict in the plaintiff’s favor on both claims, awarding $3 million in compensatory damages for the breach of the MSA claim, as well as $60,000 in compensatory damages and $12 million in punitive damages for the fraudulent concealment claim. But the district court granted judgment notwithstanding the verdict in the defendant’s favor on the fraudulent concealment claim, finding that the defendant did not have a duty to disclose, which is necessary to maintain a fraudulent concealment claim.  As a result, both parties appealed the ruling.

Court’s Ruling

The Court began it’s ruling by stating “What should have been a ‘simple’ contract dispute—as the district court labeled this case at the summary judgment stage—has cost both parties millions of dollars in attorneys’ fees and years of litigation.”  After a lengthy discussion regarding the fraudulent concealment claim, the Court ruled in affirming the decision of the district court, stating: “With a complete lack of evidence, there is only one conclusion: there was no duty to disclose.”  The Court also affirmed the district court’s decision in dismissing the plaintiff’s promissory fraud claim at the summary judgment stage and granting the defendant’s Rule 50(a) motion for judgment as a matter of law on the plaintiff’s claim for breach of the confidentiality agreement.

On the defendant’s cross appeal, he challenged the jury verdict on the breach of the MSA in three ways: 1) He claimed the damages amount was too high, given not all orders accounted for in the damages amount were subject to the contract, 2) He claimed the plaintiff’s presentation of evidence on its improper fraudulent concealment claim unfairly prejudiced him, and 3) He claimed the district court’s adverse inference instructions based on destruction of evidence also prejudiced him.

With regard to the damages amount, the Court affirmed the ruling, stating: “The district court didn’t err here, given EPAC presented evidence that could support with ‘reasonable certainty’ a damages amount of $3 million and the damages amount lies within the range contemplated by both parties.”  The Court also stated that, with regard to the defendant’s claim that the fraudulent concealment claim unfairly prejudiced him, “we conclude that the district court didn’t abuse its discretion in denying a motion for a new trial on these grounds.”

As for the defendant’s argument that it was entitled to a new trial because it was unfairly prejudiced by two adverse inference instructions given to the jury, the Court disagreed, stating:

“District courts have broad discretion to craft sanctions for spoliated evidence… The district court didn’t err in issuing the above two jury instructions… First off, the instructions above are merely permissible, telling the jury what they ‘may’ infer. The fact that Thomas Nelson was only ‘negligent’ does not defeat the instructions. Only mandatory adverse instructions require a culpable state of mind in the destruction of evidence…Second, both instructions were no greater than necessary because they were only permissive in nature…Giving broad discretion to the district court and even reviewing the propriety of the instructions de novo, we find that Thomas Nelson’s claim for a new trial based on these instructions fails.”

So, what do you think?  Did the court make the proper ruling to uphold the adverse inference instruction sanctions, even though only negligence was demonstrated?  Please share any comments you might have or if you’d like to know more about a particular topic.

Case opinion link courtesy of eDiscovery Assistant.

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