Philmar Dairy, LLC v. Armstrong Farms

No. 18-cv-0530SMV/KRS (D.N.M. July 11, 2019)

In this breach of contract case, the court denied the plaintiffs’ motion for sanctions, finding that the defendants were under no duty to preserve evidence at the time of its loss.

The plaintiffs, dairies located in New Mexico, agreed to buy hay from the defendants, Armstrong Farms and its owner Randy Armstrong. The plaintiffs paid for 9,232 tons of hay, but only received 6,585 tons.

Armstrong claimed that the remaining 2,647 tons of hay were destroyed in a fire in August 2017. Alfred Vest, Armstrong’s former farm manager, testified that he discovered only “smoldering, smoking embers” where the hay had been stored. He said he took photos of the destruction, but no longer had those photos as they were “about five cell phones ago.” Armstrong never replaced the lost hay or credited the plaintiffs for it.

The plaintiffs sued Armstrong for breach of contract and other claims in April 2018. In this motion, the plaintiffs argued that Armstrong spoliated evidence by failing to preserve Vest’s photos.

The court’s analysis focused on whether Armstrong was under a duty to preserve evidence at the time they allowed the photos to be lost. As soon as a party reasonably anticipates litigation, it must preserve evidence for use in that litigation.

Typically, “a party reasonably anticipates litigation after it has a certain type of negative interaction with its potential adversary.” While there need be no explicit mention of litigation in that interaction, there should be a clear indication that the relationship has become adversarial.

The plaintiffs here argued that “discovery of the alleged fire, by itself, was sufficient to put [Armstrong] on notice that litigation was imminent.” The court rejected this contention. While it “is possible … for an event to trigger the duty to preserve evidence,” that type of event would usually involve a more serious accident resulting in death or serious injury.

Further, in this case, “the lack of interaction between [the parties] strongly weighs against” a reasonable anticipation of litigation. The court found that the parties exchanged “almost no communications” about the fire or the lost hay. Therefore, Armstrong had no way of knowing that the plaintiffs were contemplating litigation.

Nor would the mere assertion that the contract was breached suffice to trigger a duty to preserve evidence. This is especially so where, as here, the parties “did business … for many years ‘without incident.’” The court concluded that their “previously amicable relationship weighs against assuming that the fire would have made litigation imminent.”

Because the plaintiffs did not establish that Armstrong anticipated litigation, the court further concluded that Armstrong did not destroy the photos with any intent to deprive the plaintiffs of their use in litigation.

The court therefore denied sanctions for spoliation.

However, it ruled that, under Federal Rule of Evidence 403, neither party could use or refer to the photos at trial. The existence of photos “strongly implies that something worthy of photography — like a fire — existed in the first place.” Any probative value that the photos offered would thus be substantially outweighed by the danger of unfair prejudice to the plaintiffs.

Takeaways on Evaluating Potential Trigger Events

If you suspect your organization may face litigation, don’t wait for a lawsuit to be filed to take action. Evaluate the incident carefully, whether it’s a potential breach of contract, an accident, an employment decision, or something else. If you do not implement a legal hold immediately, be sure to document your decisions, including your rationale and any conversations or research you conducted in reaching that decision.

Are you preserving the right evidence?

We’re here to help. If you have questions, please contact us.

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