ACE AMERICAN INS CO V EMMET COATING SERV INC
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STATE OF MICHIGAN
COURT OF APPEALS
ACE AMERICAN INSURANCE COMPANY and
ALLIANZ INSURANCE COMPANY,
UNPUBLISHED
December 28, 2006
Plaintiffs,
v
No. 268138
Macomb Circuit Court
LC No. 2004-000651-CK
EMMET COATING SERVICES, INC.,
Defendant/Cross-Defendant/CrossPlaintiff/Third-Party PlaintiffAppellee,
and
NACCO MATERIALS HANDLING GROUP,
INC., a/k/a HYSTER GROUP, and AMERIGAS
PROPANE, INC.,
Defendants/Cross-Defendants,
and
WORTHINGTON INDUSTRIES, INC., d/b/a
WORTHINGTON CYLINDERS
CORPORATION,
Defendant/Cross-Plaintiff/CrossDefendant,
and
SELECTIVE INSURANCE COMPANY,
ELLISON, NEILSON, ZEHE & ANTAS, P.C.,
GREAT LAKES POWER PRODUCTS, INC.,
CARDELLI, HEBERT, LANFEAR & BUIKEMA,
MICHIGAN INDUSTRIAL FORKLIFTS, INC.,
and FORKLIFT TIRE OF MICHIGAN,
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Third-Party Defendants,
and
HERNDON & ASSOCIATES,
Third-Party Defendant-Appellant.
Before: Owens, P.J., and White and Hoekstra, JJ.
PER CURIAM.
In this case arising out of a factory fire, third-party defendant Herndon & Associates
(defendant) appeals as of right the trial court’s refusal to impose sanctions against third-party
plaintiff Emmet Coating Services, Inc. (plaintiff) or its attorneys for allegedly filing a frivolous
claim. We affirm.
Defendant argues that the trial court erred in refusing to impose sanctions because
plaintiff’s attorneys failed to conduct a reasonable inquiry into the factual and legal viability of
plaintiff’s claim for spoliation of evidence. We disagree.
We review a trial court’s denial of sanctions based on frivolous pleadings and claims for
clear error. Kitchen v Kitchen, 465 Mich 654, 661; 641 NW2d 245 (2002). Pursuant to MCL
600.2591(3), a party’s claim is frivolous if “[t]he party had no reasonable basis to believe that the
facts underlying his or her legal position were in fact true,” or “the party’s legal position was
devoid of arguable legal merit.” MCL 600.2591(3)(a)(ii) and (iii). Under MCR 2.114, sanctions
are mandatory if a court finds that a pleading was signed without reasonable inquiry into the
factual and legal viability of the pleading, or that a frivolous claim or defense was pleaded.
Attorney General v Harkins, 257 Mich App 564, 576; 669 NW2d 296 (2003); see also MCR
2.625(A)(2). The reasonableness of the inquiry into the factual and legal viability of a pleading
is determined by an objective standard. Harkins, supra. Whether a claim or defense is frivolous
depends on the facts of each case, Kitchen, supra at 662, and must be determined on the basis of
the circumstances existing at the time the claim was asserted, In re Costs and Attorney Fees, 250
Mich App 89, 94; 645 NW2d 697 (2002). Thus, a plaintiff’s inability to defeat a motion for
summary disposition or to prove its claims at trial does not itself merit a finding that his claims
were frivolous. See Jerico Constr, Inc v Quadrants, Inc, 257 Mich App 22, 36; 666 NW2d 310
(2003).
Defendant argues that plaintiff’s attorneys failed to reasonably develop a factual basis
sufficient to support that defendant at some point had possession, custody, and control over the
missing evidence. However, contrary to defendant’s argument, the documents compiled by
plaintiff’s attorneys provide a reasonable basis for plaintiff’s claim. Indeed, the fire marshal’s
incident report indicates that physical evidence regarding the source of the fire was turned over
to defendant’s agent, Dan Terski, at the accident scene. In addition, the June 2003 notes of
engineer Mark Brennan indicate that “[e]vidence was lost (maybe)” and that “[defendant was]
looking for that evidence.” Counsel for plaintiff also had in their possession written evidence
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that Brennan planned to retrieve parts from Terski at defendant’s place of business for
inspection. Brennan’s engineering firm later noted, however, that it was unable to form an
opinion as to the cause of the fire because the evidence needed to do so was “gone.” Plaintiff
also learned from August 2003 correspondence sent by the attorneys for Ace American
Insurance Company to the law firm retained by plaintiff’s insurer that defendant at one time
indicated that the evidence at issue—a hose—may have disintegrated while in defendant’s
possession.
Nothing in the documents relied on by plaintiff as support for its spoliation claim
contradicts that defendant was at some time in possession of the hose. Photographs of the hose
were taken at one point in time, showing that the hose did in fact exist in recognizable form after
the accident. Moreover, as noted, the fire marshal’s report indicates that at least some evidence
from the scene was given to defendant. Although the hose in question is not specifically listed as
having been given to defendant at the scene, this fact does not preclude that defendant in fact
took possession of the hose.
Furthermore, while defendant denied having ever possessed the hose, plaintiff had
information inconsistent with defendant’s denial of possession—namely, the August 2003 letter
suggesting that defendant at one time stated that the hose may have disintegrated while in its
possession. The fire marshal’s report indicates that defendant took possession of at least some of
the physical evidence, including the ruptured propane tank and broken strap pieces from the
Hyster forklift on which the fire was determined to have begun. Defendant’s contact with at
least some parts of the forklift and propane tank, as well as its own possible acknowledgement
that the hose may have disintegrated while in its possession provided an objectively reasonable
basis for plaintiff to believe that defendant possessed, but negligently lost or intentionally
destroyed, the hose at issue.
Defendant argues that in order to make the reasonable inquiry required by MCR
2.114(D)(2), plaintiff’s attorneys should have asked Brennan and counsel for Ace American
Insurance Company why they were under the impression that defendant had the missing hose,
and should also have asked the fire marshal exactly what he turned over to Terski. Asking each
party to reiterate a statement they already made is unnecessary in this case. As discussed above,
the documents do not contradict each other and, when taken together, reasonably lead to a
conclusion that defendant may have had possession of the hose. The multitude of writings
documenting the communications between parties other than plaintiff served as a sufficient basis
from which plaintiff and its attorneys could draw an objective conclusion that defendant was
responsible for the evidence going missing.
Defendant also argues that sanctions were appropriate because request and review of a
subrogation analysis performed by the attorneys for plaintiff’s insurer would have revealed
plaintiff’s inability to succeed on its claim under the facts of this case. Specifically, defendant
argues that disclosure of the contents of the report, which indicates the belief of the attorneys for
plaintiff’s insurer that the insurer would not likely be able to successfully pursue a subrogation
claim because the cause of the fire was unknown and because plaintiff was itself allegedly
negligent, rendered plaintiff’s claim frivolous. However, the report does not indicate, and
defendant does not argue, that the investigation that formed the basis for the subrogation analysis
was based on any analysis of the hose in question. Thus, it is unclear how review of the
subrogation analysis would have informed plaintiff of the location of the hose, whether
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defendant possessed it, or its materiality to the investigation of the fire. Moreover, plaintiff’s
insurer’s attorneys’ opinion that plaintiff may have been negligent is simply an opinion, not fact.
A trier of fact may have concluded that plaintiff was not negligent or, at the very least, that any
alleged negligence by plaintiff did not render the manufacturers of the hose and forklift free of
responsibility for all potential negligence.
With or without the report, plaintiff had sufficient evidence from which to objectively
believe that defendant may have intentionally or negligently destroyed evidence material to
plaintiff’s case. Indeed, the hose was likely material, as evidenced by the straightforward
statement of counsel for Ace American Insurance Company that “the hoses from the forklift . . .
are pertinent to our determination [of] a cause of the loss.” The efforts made by plaintiff in
reviewing the documents filed and exchanged in this case constitute a sufficient effort to
investigate its claim before filing suit. The facts and circumstances of the case show a
reasonable inquiry supporting that defendant may have intentionally or negligently destroyed
evidence material to plaintiff’s case was made. Therefore, plaintiff’s third-party claim was not
frivolous and the trial court did not clearly err in refusing to award defendant sanctions on that
ground, or for the reason that counsel for plaintiff failed to conduct the reasonable inquiry
required under MCR 2.114.1 Kitchen, supra at 661.
Defendant also argues that to successfully pursue a spoliation claim, plaintiff was
required to prove it would have prevailed in the underlying suit had the evidence not been
destroyed. Thus, defendant argues, plaintiff’s claim that defendant was responsible for the loss
of a cause of action was without arguable legal merit because plaintiff could not prove the cause
of the fire. We again disagree.
Although Michigan law recognizes a duty to preserve evidence, see Bloemendaal v Town
& Country Sports Ctr, Inc, 255 Mich App 207, 212; 659 NW2d 684 (2002), there is no published
authority in Michigan expressly recognizing or rejecting a claim for spoliation of evidence as a
valid cause of action in this state. The substantive requirements for such a claim have not,
therefore, been settled or even expressly considered by any binding Michigan authority. Under
such circumstances, to award defendant sanctions on the ground that the facts evinced by the
record fail to meet the substantive requirements for a claim of spoliation of evidence is
speculative at best. In the absence of authority expressly recognizing and delineating the
requirements for successfully prosecuting a claim for spoliation of evidence, it cannot be said
that plaintiff’s claim was devoid of arguable legal merit at the time it filed its complaint. See,
e.g., Travelers Ins v U-Haul of Michigan, Inc, 235 Mich App 275, 290; 597 NW2d 235 (1999)
(declining to find the plaintiff’s claim “devoid of arguable legal merit” where the viability of its
claim was not settled by published authority). The trial court did not, therefore, clearly err in
failing to award sanctions on that ground.
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For these same reasons, we do not find that the trial court abused its discretion in failing, on
reconsideration, to award costs and attorney fees incurred by defendant subsequent to disclosure
of the subrogation analysis. See Churchman v Rickerson, 240 Mich App 223, 233; 611 NW2d
333 (2000); see also MCR 2.119(F)(3).
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In light of the documentation showing that defendant received custody of at least some of
the materials, as well as the engineer’s notes stating that crucial pieces of evidence were missing,
and statements allegedly made by defendant as to its possession of the hose, plaintiff had a
reasonable basis for believing defendant was responsible for its loss. Thus, the trial court did not
clearly err in refusing to impose sanctions.
Affirmed.
/s/ Donald S. Owens
/s/ Helene N. White
/s/ Joel P. Hoekstra
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