Jonathan H. Smothers, et al., Appellants, vs. Insurance Restoration Specialist, Inc., et al., Respondents, Will Do Corporation, a/k/a Will Do Construction, Inc., et al., Respondents.

Jonathan H. Smothers, et al., Appellants, vs. Insurance Restoration Specialist, Inc., et al., Respondents, Will Do Corporation, a/k/a Will Do Construction, Inc., et al., Respondents. A04-1036, Court of Appeals Unpublished, March 17, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-1036

 

Jonathan H. Smothers, et al.,

Appellants,

 

vs.

 

Insurance Restoration Specialist, Inc., et al.,

Respondents,

 

Will Do Corporation, a/k/a Will Do Construction, Inc., et al.,

Respondents.

 

Filed March 17, 2005

Affirmed Willis, Judge

 

Anoka County District Court

File No. C7-02-6298

 

Vincent W. King, 310 South Fourth Avenue, Suite 900, Minneapolis, MN  55415 (for appellants)

 

John T. Brandt, Merrigan, Brandt & Ostenso, P.A., 25 Ninth Avenue North, P.O. Box 458, Hopkins, MN  55343 (for respondents Insurance Restoration Specialist, Inc., et al.)

 

Diane B. Bratvold, Patrick J. Sauter, Timothy D. Webb, Rider Bennett, LLP, 333 South Seventh Street, Suite 2000, Minneapolis, MN 55402 (for respondents Will Do Corporation, et al.)

 

            Considered and decided by Peterson, Presiding Judge; Willis, Judge; and Hudson, Judge.

U N P U B L I S H E D   O P I N I O N

WILLIS, Judge

            This is an appeal from two district court orders.  Appellants argue that the district court erred by granting respondents' motion for summary judgment on appellants' statutory- warranties claim and claim for attorneys fees under the Consumer Fraud Act.  On appeal from a spoliation-hearing order excluding appellants' evidence and dismissing the rest of their claims, appellants argue that the district court abused its discretion by bifurcating the proceeding; by serving as the fact-finder at the spoliation hearing; by finding that respondents were prejudiced by the spoliation; and by excluding evidence gathered from appellants' house.  Because we find no error or abuse of discretion, we affirm.

FACTS

In May 1998, a tornado damaged the roof and exterior of a house owned by appellants Jonathan and Gizelle Smothers in Lino Lakes.  Appellants' house then sustained water damage from rain that fell in the days following the tornado.  That same month, Gizelle Smothers began having sinus problems that caused headaches and eventually required surgery. 

Appellants' insurance agent recommended several contractors, and appellants hired respondents Lee Shovell, Noah Bridges, and TJP Construction to repair the damage to their house.  Both Shovell and Bridges are general contractors who own home-repair and home-cleaning companies, which are also respondents here.  Respondent TJP Construction, Inc. repaired appellants' roof, and respondents Shovell and Bridges performed extensive interior repair work, including replacing wet drywall and insulation to prevent mold growth.  Gizelle Smothers told Bridges that she had a "high allergy" to mold.  Over the next three years, appellants called Shovell twice to discuss what they believed to be poor workmanship.  Appellants had complaints about the drywall and carpet installations, and Shovell sent workers to appellants' house to fix the problems.

Gizelle Smothers continued to have health problems, and in June 2001, her allergist suggested that mold in the house might be the cause.  Appellants informed their homeowner's-insurance agent of the possible mold problem, and at his direction, a meeting took place at appellants' home to determine the extent of the mold.  A mold specialist conducted tests and found that the mold in appellants' house was in the "low to normal range."  He found no evidence of a large reservoir of active mold growth but recommended that appellants hire a professional cleaner to clean their house with a HEPA vacuum cleaner.  Shovell was at appellants' house for about 45 minutes during this meeting. 

             In October 2001, appellants hired a professional cleaning contractor to clean the house.  Gizelle Smothers was continuing to have health problems, and the cleaning contractor advised her that he would not be able to remove all of the mold.  Appellants moved out of their house the next month. 

            In December 2001, appellants sent a letter to the Minnesota Department of Commerce, alleging that Shovell performed work for them without a valid permit, that he used an inferior grade of vapor barrier, and that he improperly performed the mold clean-up.  The Department of Commerce forwarded the letter to Shovell.  Shovell responded to the allegations, and the Department of Commerce sent a second letter warning him about the possible consequences of performing work without building permits.  Shovell considered the Department of Commerce investigation resolved because neither appellants nor the Department of Commerce pursued it further at that time.

            In May 2002, mold experts conducted a final inspection of appellants' house and concluded that there were elevated levels of mold in the basement of the house "that would be irritating to a person sensitive to mold."  Appellants mailed respondents a summons and complaint on May 17, 2002, alleging claims of (1) fraud and negligent misrepresentation, (2) breach of contract and breach of warranty, (3) breach of statutory warranties, (4) negligence, and (5) violations of the Minnesota Consumer Fraud Act.  Shovell acknowledged service of the complaint on June 5, 2002.  Bridges claims that he did not receive the summons and complaint until he was served personally on June 17, 2002.  Appellants filed the complaint with the district court on June 9, 2002, and on June 11, 2002, they tore down their house. 

Respondents moved for summary judgment on each of appellants' claims.  The district court granted respondents' motion on the breach-of-statutory-warranties claim and the claim for attorneys fees under the Consumer Fraud Act.  In response to a subsequent motion by respondents, the district court bifurcated the proceeding by holding a hearing to decide the issue of spoliation of evidence before the trial.  After the spoliation hearing, the district court determined that (1) appellants destroyed evidence relevant to their claims against respondents, (2) respondents were "significantly prejudiced" by the spoliation, and (3) the appropriate sanction for appellants' spoliation was exclusion of evidence gathered from the house.  The district court dismissed appellants' remaining claims because it concluded that appellants could not prosecute the action without evidence from the house.  This appeal follows.

D E C I S I O N

Spoliation of evidence is the destruction of relevant evidence by a party.  Hoffman v. Ford Motor Co., 587 N.W.2d 66, 70 (Minn. App. 1998).  A district court may sanction a party that destroys evidence if that party gains an evidentiary advantage due to its failure to preserve evidence after having had the opportunity to examine it.  Himes v. Woodings-Verona Tool Works, Inc., 565 N.W.2d 469, 47071 (Minn. App. 1997), review denied (Minn. Aug. 26, 1997).  The severity of the sanction depends on the prejudice suffered by the opposing party.  Hoffman, 587 N.W.2d at 71.  But a party can avoid sanctions for spoliation of evidence if the opposing party had sufficient notice of the claim, giving the party the opportunity to correct defects, prepare for negotiation or litigation, or "safeguard against stale claims being asserted after it is too late . . . to investigate them."  Id. at 70 (quotation omitted).

I.

            Appellants first argue that the district court abused its discretion by bifurcating the proceeding and holding a spoliation hearing before trial.  We review a district court's bifurcation decision under an abuse-of-discretion standard.  Grosfield v. Clearwater Clinic, 417 N.W.2d 640, 642 (Minn. 1988). 

            A district court, "in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial of one or any number of claims, cross-claims, counterclaims, or third-party claims, or of any separate issues."  Minn. R. Civ. P. 42.02.  Appellants argue that the district court abused its discretion because the spoliation hearing served none of the objectives described in Minn. R. Civ. P. 42.02.

We conclude that the spoliation hearing served all of the objectives described in rule 42.02.  By addressing the spoliation issue in a separate hearing, the district court was able to consider a threshold issue that might resolve the case without a complete trial.  Had the district court not bifurcated the proceeding, the jury could have been exposed to a substantial amount of prejudicial evidence that might ultimately be excluded.  Because the separate spoliation hearing was convenient, avoided prejudice, and was "conducive to expedition and economy," we find that the district court did not abuse its discretion by ordering bifurcation.

II.

Appellants next argue that the district court erred by serving as the fact-finder at the spoliation hearing.  One of the issues at the hearing was whether appellants gave respondents sufficient notice of appellants' claims before they razed their house.  Appellants argue that the issue of notice is a fact question properly decided by a jury.

            Appellants contend that our decision in Hoffman v. Ford Motor Co. requires a jury determination of fact issues at spoliation hearings.  In Hoffman, this court affirmed a district court's order dismissing the plaintiff's case after a pretrial spoliation hearing at which the court served as the fact-finder.  587 N.W.2d at 69, 72.  To determine whether the notice of a claim was sufficient to avoid sanctions for spoliation, we relied on Church of the Nativity of Our Lord v. WatPro, Inc., 491 N.W.2d 1 (Minn. 1992), overruled on other grounds by Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000).  Although WatPro dealt with a U.C.C. breach-of-warranty claim, this court noted that the objectives of notice under the U.C.C. "are virtually identical" with the objectives of notice in spoliation cases.  Hoffman, 587 N.W.2d at 70.  The court in WatPro held that the sufficiency of notice of a breach of warranty under the U.C.C. is a jury question.  WatPro, 491 N.W.2d at 5.  Appellants argue that by adopting a statement of the objectives of notice from WatPro, Hoffman also incorporated a requirement that a jury determine the issue of the sufficiency of notice to avoid sanctions for the spoliation of evidence.  We disagree.  Such a requirement was not an issue in Hoffman because the parties there agreed that the district court would serve as the fact-finder.  Thus, Hoffman does not stand for the proposition that a jury must be the fact-finder at a spoliation hearing.

Spoliation of evidence is not a cause of action in Minnesota.   Federated Mut. Ins. Co. v. Litchfield Precision Components, Inc., 456 N.W.2d 434, 439 (Minn. 1990).  Whether spoliation occurred here is relevant not to appellants' underlying claims but rather to whether evidence gathered from the house is admissible at trial.  See Hoffman, 587 N.W.2d at 7172 (discussing exclusion of evidence as a sanction for spoliation).  The spoliation hearing is, therefore, essentially a preliminary evidentiary hearing.  See Minn. R. Evid. 104(a) (stating that "[p]reliminary questions concerning . . . the admissibility of evidence shall be determined by the court").  When the "admissibility of evidence is conditioned on the resolution of a second question . . . it is the function of the court to determine whether or not the condition has been fulfilled."  Minn. R. Evid. 104(a) cmt.

            The issues before the district court at the spoliation hearing were whether spoliation of evidence occurred and, if so, whether sanctions were appropriate.  The imposition of sanctions for the spoliation of evidence is within the discretion of the court.  Patton v. Newmar Corp., 538 N.W.2d 116, 118-19 (Minn. 1995).  Here, the district court had to resolve issues of fact before it could decide whether to impose sanctions for spoliation.  We conclude that the district court did not err by serving as the fact-finder at the spoliation hearing. 

III.

            Appellants next argue that the district court erred by imposing sanctions because they provided respondents with sufficient notice of their claims as described in Hoffman and WatPro.  A party may avoid sanctions for spoliation of evidence if it provided the opposing party with notice of its claims.  Hoffman, 587 N.W.2d at 70. 

Appellants point to four events that they argue provided notice to respondents of appellants' claims sufficient to make sanctions inappropriate:  (1) their two complaints to Shovell regarding the quality of workmanship on appellants' house, (2) the inclusion of Shovell at the mold-inspection meeting, (3) appellants' letter to the Department of Commerce, and (4) the summons and complaint initiating this lawsuit.  The district court determined that none of these events constituted sufficient notice under Hoffman to avoid the imposition of sanctions.  In Hoffman, this court observed that one of the objectives of notice is to provide an opposing party with the opportunity to prepare for litigation and held that "to be sufficient in content, a spoliation notice must reasonably notify the recipient of a breach or a claim."  Id.  In the absence of clear error, we will not reverse a district court's determination of the sufficiency of notice of a claim when deciding whether sanctions are appropriate for the spoliation of evidence.  Id. at 71.

We examine in turn each of the events that appellants argue was sufficient notice of a claim:

Pre-June 2001 complaints about the quality of work

            Appellants argue that their two complaints to Shovell about the poor drywall and carpet workmanship notified respondents of a "breach or a claim" under Hoffman.  But these complaints did not alert respondents to the issue of mold damage.  We conclude that the district court's finding that these complaints did not "constitute notice of a potential claim against [respondents] Bridges and Shovell for mold damage to the house" is not clearly erroneous.

June 2001 mold-inspection meeting at appellants' house

            Appellants next argue that by including Shovell at the mold-inspection meeting, they provided sufficient notice of their claims against respondents for mold damage.  Although the meeting provided Shovell with notice that appellants' house had mold, there was no suggestion that respondents' work was responsible for the problem.  The district court found that appellants "did not make it clear to [respondents] that theythe [respondents]would be the target of any potential litigation."  The district court did not clearly err by concluding that the mold-inspection meeting was not sufficient notice to respondents of a claim.

Complaint letter to the Department of Commerce

            Appellants also argue that the letter they sent to the Department of Commerce provided respondents with sufficient notice of their claim.  But appellants sent this letter to the Department of Commerce, not to respondents.  And any notice of appellants' claim that the letter might have provided was rendered ineffective by appellants' and the Department of Commerce's actions thereafter.  The second letter from the Department of Commerce, warning Shovell of the consequences of performing work without building permits, indicated that the Department of Commerce's primary concern was the building-permit issue.  The letter also stated that the investigation was over, leading Shovell to believe that the matter was concluded.  Appellants did not contest the closing of the investigation, nor did they further pursue any grievance at that time.  The district court found that no reasonable contractor would consider these events to be notice of a potential claim and, in turn, conduct "expensive expert forensic inspection[s]" in preparation for litigation.  We conclude that the district court did not clearly err by finding that the letter to the Department of Commerce did not constitute sufficient notice.

The summons and complaint

            Appellants argue that the summons and complaint provided sufficient notice of their claim against respondents because the summons and complaint gave respondents actual notice of the claim.  But appellants rendered this notice ineffective for spoliation purposes when they razed their house just weeks after serving their complaint.  In Hoffman, we observed that notice is required, inter alia, to provide a party with an opportunity to prepare for negotiation or litigation.  587 N.W.2d at 70.  Here, the district court determined that the notice that appellants gave by serving respondents with a summons and complaint did not satisfy this objective because it did not give respondents a reasonable opportunity to inspect the house in preparation for litigation.  In fact, Bridges was not personally served with the summons and complaint until after the house was razed. 

Appellants argue that because their complaint alleges that their house is "uninhabitable and must be demolished," they gave respondents notice that they were going to destroy the house.  But the complaint does not state when appellants intended to raze their house.  The district court observed that once appellants served their complaint against respondents, they had a "duty to provide [respondents] an opportunity to inspect evidence."  The district court found that, although the complaint gave respondents notice of appellants' claims, the notice was insufficient to avoid sanctions for spoliation because it did not provide respondents with a reasonable opportunity to inspect the evidence.  We conclude that this was not clear error.  

IV.

            Appellants next argue that the district court erred by finding that respondents were "significantly prejudiced by [appellants'] spoliation."  Appellants argue that their experts had gathered enough evidence to permit an expert hired by respondents to form an opinion regarding the extent of and cause of the mold problem in appellants' house. 

We will not reverse a district court's finding of prejudice unless the finding is clearly erroneous.  Hoffman, 587 N.W.2d at 71.  A party's expert witness should not have to rely on secondhand information provided by the opposing party.  Id.  Respondents' expert witness testified that without being able to inspect the house, he could not form an independent opinion regarding the source and extent of the mold problem and that he could not adequately evaluate appellants' claims or support respondents' defenses.  The district court concluded that respondents' were "significantly prejudiced" because they did not have access to the house in their preparation for litigation.  We find that conclusion is not clearly erroneous.

V.

            Appellants argue finally that the district court abused its discretion by excluding the evidence gathered from the house as a sanction for spoliation.  We will not reverse a district court's spoliation-of-evidence sanction unless it abused its discretion.  Patton, 538 N.W.2d at 119.  An appellant must show that "it is clear that no reasonable person would agree [with] the trial court's assessment of what sanctions are appropriate."  Id. (alteration in original) (quotation omitted).  The sanction imposed by a district court for spoliation of evidence should be proportional to the prejudice suffered by the opposing party.  Hoffman, 587 N.W.2d at 71. 

            Here, the district court found that the least-restrictive sanction that would remedy the significant prejudice suffered by respondents was exclusion of all evidence gathered from the house.  It considered the "greatly-disproportionate" evidentiary advantage that appellants had because of the many months available to them for inspection of their house and development of a case against respondents.  We conclude that excluding the evidence gathered from the house as a sanction for spoliation was not an abuse of the district court's discretion.  We further conclude that the district court did not err by determining that, without evidence from the house, appellants could not prove their claim and thereby dismissing the complaint.  Because of our decision on the issue of sanctions for spoliation of evidence and the resulting dismissal of appellants' complaint, it is unnecessary for us to address the other issues that appellants raise.

            Affirmed.