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Elhannon LLC v. F.A. Bartlett Tree Expert Co.

United States District Court, D. Vermont

August 2, 2017

ELHANNON LLC, Plaintiffs,
v.
THE F.A. BARTLETT TREE EXPERT COMPANY, Defendant.

          OPINION AND ORDER

          William K. Sessions III District Court Judge

         I. Introduction

         This matter arises from a contract and consumer fraud dispute between Plaintiffs Elhannon Wholesale Nurseries, LLC, a New York corporation, and its predecessors (collectively “Elhannon”), and Defendant F.A. Bartlett Tree Expert Company (“Bartlett”), a Connecticut corporation. Elhannon alleges that between 2007 and 2014, the parties entered into a series of contracts calling for Bartlett to design and execute an integrated pest management program for Elhannon's entire tree nursery, which it called the “MoniTor” program. Elhannon alleges that, despite Bartlett's representations and contractual promises, Bartlett employees underserviced the nursery, leading to a large scale outbreak of disease and insects on its trees. In addition, Elhannon alleges that Bartlett applied chemicals that were illegal under New York law to Elhannon's nursery in order to attempt to control an incipient outbreak. Finally, the Amended Complaint states that Bartlett falsified its records to give the impression that it was doing more work at Elhannon than it actually performed, and that Bartlett improperly billed Elhannon for work done for others. As a consequence of these failures, Elhannon alleged that it had to destroy trees valued at several million dollars and to implement its own pest management program. Elhannon brings claims for breach of contract, negligence, negligent misrepresentation, fraud and intentional misrepresentation, fraud in the performance, and violations of New York's General Business Law.

         Following a series of discovery disputes, the Court granted the parties' joint motion for a revised discovery schedule. ECF 128. Discovery is now set to be completed by November 30, 2017, and summary judgment motions are due on December 31, 2017. Nevertheless, on June 7, 2017, Bartlett filed a motion for dismissal based on spoliation of the evidence and a motion for summary judgment. ECF 124. In the first motion, Bartlett contends that it was prejudiced by Plaintiff's destruction of “the very trees for which [Elhannon] seeks millions of dollars in damages from Bartlett.” Id. at 5. As a result of this alleged spoliation of the evidence, Bartlett contends that it will be unable to challenge Plaintiff's claims about the number of trees that were allegedly damaged by its conduct, or to independently determine the cause of the alleged damage. Rather, it may only assess the cause and scope of the damages from the documentary evidence that Elhannon gathered before destroying the trees, as well as its inspection of the nursery after much of the tree destruction took place. Consequently, Bartlett moves the Court to (i) dismiss the Amended Complaint and award it attorneys' fees; (ii) hold an evidentiary hearing on the spoliation issue to allow it to present evidence that the harm it has suffered from Elhannon's destruction of evidence warrants dismissal; or (iii) grant any other relief it finds just and proper.

         Furthermore, Bartlett asserts that Plaintiffs do not own the trees on the Nursey, or the Nursery itself. As a result, Defendant argues that Plaintiffs have sustained no physical harm and cannot recover for economic losses in tort. In addition, Bartlett asserts that Plaintiffs have not suffered compensable damages under any alternative theory, including harm caused by illegal spraying, loss of business reputation, or Elhannon's alleged payment for work performed for other Bartlett customers. Thus, Bartlett argues that no rational jury could find in Elhannon's favor, and moves for summary judgment on all counts of Plaintiff's amended complaint. Elhannon opposes both motions, asserting that its removal of trees was necessary to mitigate damages to the nursery, that it did, in fact, own the trees on the nursery, and that it has sustained damages. For the reasons discussed below, the Court denies Bartlett's motions.

         II. Discussion

         a. Motion to Dismiss Due to Spoliation of Evidence

         A district court may impose sanctions for spoliation pursuant to its inherent power to control litigation. See West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999). Spoliation is defined as “the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.” Id. Courts should craft sanctions in order to (1) deter parties from engaging in spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore the prejudiced party to the same position he would have been in absent the destruction of evidence by the opposing party. Id. Although a court may choose to dismiss a case as a sanction for spoliation, it should do so “only in extreme circumstances, usually after consideration of alternative, less drastic sanctions.” Id. (quoting John B. Hull, Inc. v. Waterbury Petroleum Prods., Inc., 845 F.2d 1172, 1176 (2d Cir. 1988). Thus, before dismissing a party's case, the court should first consider whether dismissal is the only adequate remedy to “vindicate the trifold aims” of the spoliation sanctions doctrine. Id. at 780; see also Dahoda v. John Deere Co., 216 F.App'x 124, 125-26 (2d Cir. 2007) (considering whether “no lesser sanctions exist that would cure the potential prejudice” before concluding that district court abused its discretion in dismissing case for spoliation).

         In order to obtain an adverse inference instruction based on spoliation -a lesser sanction than dismissal -a party must establish “(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind; and (3) that the destroyed evidence was relevant to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.” Chin v. Port Auth. of N.Y. & New Jersey, 685 F.3d 135, 162 (2d Cir. 2012) (quoting Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir.2002)). Dismissal, however, requires a stronger showing of a “culpable state of mind” than a mere instruction. See e.g., Great N. Ins. Co. v. Power Cooling, Inc., Case No. 06-CV-874, 2007 WL 2687666, at *10 (E.D.N.Y. Sept. 10, 2007) (holding that degree of fault did not warrant dismissal, but did establish that Plaintiff acted with requisite culpability to warrant a lesser sanction). The harshest sanction “is appropriate if there is a showing of willfulness, bad faith, or fault on the part of the sanctioned party.” West, 167 F.3d at 779. “Although dismissal can be entered even absent a finding of bad faith or willfulness, see Reilly v. Natwest Mkts. Group, Inc., 181 F.3d 253, 267 (2d Cir.1999) (noting that gross negligence constitutes showing of “fault” that could warrant sanction of dismissal), the degree of fault on the part of the plaintiff is a relevant consideration in fashioning an appropriate sanction.” Dahoda, 216 F.App'x at 125. In considering the degree of fault, for example, the Second Circuit has looked to whether the non-moving party exhibited dilatory behavior or compliance with prior discovery orders. See Metro Found. Contractors, Inc. v. Arch Ins. Co., 551 F.App'x 607, 610 (2d Cir. 2014). Ultimately, the Second Circuit has found that a “case-by-case approach to the failure to produce evidence” is appropriate because “such failures occur along a continuum of fault -ranging from innocence through the degrees of negligence to intentionality.” Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107-08 (2d Cir. 2002) (internal quotation omitted).

         Here, there is no question that Elhannon acted willfully in destroying the allegedly infected trees. In fact, Elhannon clearly acted with the prospect of litigation in mind in doing so, since, according to Mr. Sutton's testimony, it believed removal was necessary in order to mitigate damages. ECF 129-2; 129-7, p. 3-4. That concern was warranted: in certain circumstances, New York law[1] imposes an obligation on a “party subjected to injury from the breach of a contract ... to make reasonable efforts to render the injury as light as possible.” Losei Realty Corp. v. City of N.Y., 254 N.Y. 41, 47-48, 171 N.E. 899, 902 (1930); see also Cornell v. T. V. Dev. Corp., 17 N.Y.2d 69, 74, 215 N.E.2d 349, 352 (1966) (“While the plaintiff is required to mitigate damages upon breach, the burden of proving a lack of diligent effort to mitigate damages is upon the defendant”); Donald Rubin, Inc. v. Schwartz, 191 A.D.2d 171, 171-72, 594 N.Y.S.2d 193, 194 (1993) (“The obligation to mitigate damages [in a contract dispute] turns upon the particular facts in the individual case.”). In the same vein, a party who is injured in tort may have an obligation to employ “reasonable and proper efforts to make the damage as small as practicable.” N.Y. Tel. Co. v. Harrison & Burrowes Bridge Contractors, Inc., 3 A.D.3d 606, 609-10, 771 N.Y.S.2d 187, 191 (2004) (internal quotation omitted).

         However, parties to a dispute may also be subject to an obligation to preserve evidence for purposes of litigation. “The obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.” Fujitsu Ltd. v. Fed. Exp. Corp., 247 F.3d 423, 436 (2d Cir. 2001). “Identifying the boundaries of the duty to preserve involves two related inquiries: when does the duty to preserve attach, and what evidence must be preserved?” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003). In this case, the damage to the trees is the primary subject-matter of the litigation, and is therefore clearly relevant. Moreover, the duty to preserve the physical evidence attached, at latest, on December 10, 2014, when Elhannon filed its first complaint in this case. ECF 1; see Id. (finding that duty to preserve attached at latest when employee alleging discrimination filed her complaint before the Equal Employment Opportunity Commission).[2] In fact, Elhannon continued to destroy trees after this point. See ECF 129-1, p. 5 (acknowledging that, according to Elhannon's payroll records, its tree destruction ended in the week of September 11, 2016).

         In this sense, Elhannon was arguably subjected to competing obligations with respect to the tree destruction: on the one hand, to destroy trees that could cause further damages, and on the other hand to preserve trees that might serve as physical evidence of the injury it suffered in this case. While not binding on this Court, district courts' decisions from other circuits provide a persuasive framework for addressing situations when a party's obligations regarding the preservation of physical evidence are in tension. First, courts have noted that “evidence that a party destroyed evidence in the course of mitigating damages is relevant to whether the destruction was intentional and in bad faith.” Flint Hills Res. LP v. Lovegreen Turbine Servs., Inc., Case No. 04-4699 JRT/FLN, 2006 WL 2472819, at *5 (D. Minn. Aug. 25, 2006). In Flint, the district court found that dismissal was not warranted even where the opposing party was not provided with the opportunity to inspect the physical evidence, where removal of that evidence was necessary to avoid accruing damages of roughly a million dollars per day and the non-moving party took “all reasonable steps to preserve evidence” by documenting the physical evidence with photographs and notes and saving fragments of the removed evidence. Id. In contrast, other district courts have found that spoliation sanctions may be required where the failure to preserve evidence in its original state “was not urgently required” or necessary for purposes of mitigation. See e.g., PacifiCorp v. Nw. Pipeline GP, 879 F.Supp.2d 1171, 1192-94 (D. Or. 2012).

         Here, Elhannon points to the affidavit of James Sutton, Elhannon's president, along with evidence from its tree experts, to support its contention that the purpose of destroying the nursery trees was to mitigate its damages arising from the harm allegedly caused by Bartlett. ECF 130, p. 8.[3] Separately, Elhannon argues that dismissal would not be warranted even if the court were to find a culpable mental state because, “long before filing this lawsuit [it] diligently documented the damage to the trees, and also its destruction of the trees, in several hundred photos (nearly 350) and videos (110), and also compiled a detailed spreadsheet listing the destroyed trees, ” which it provided to Bartlett three months before filing suit. Id. at 12.

         In contrast, Bartlett implies -although it does not expressly argue so in its initial motion -that the destruction of the physical evidence in this case was more widespread than necessary to mitigate damages attributable to its own conduct. Bartlett's expert, Judd Scott, attended a site inspection at the nursery in June 2016. He later reported that “there was no way for Bartlett to confirm the alleged damages because the trees had either been destroyed, or were not identified by Elhannon, so that Bartlett could inspect them.” ECF 124-13, p. 3. Bartlett points to some examples, however, of trees which Bartlett was able to obtain for testing which were not in fact infested by pests by the time that Bartlett had access to them. In addition, it points to testimony by Elhannon's expert, Jeffrey Ling, who inspected the nursery in September 2014, stating that he could not conclude that Bartlett was the cause of the damage to certain, photographed trees. This ...


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