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Philmar Dairy, LLC v. Armstrong Farms

United States District Court, D. New Mexico

July 11, 2019

PHILMAR DAIRY, LLC; ARCH DIAMOND, LLC; MOONSTONE DAIRY, LLC; and HENDRIKA DAIRY, LLC; Plaintiffs,
v.
ARMSTRONG FARMS and RANDY ARMSTRONG, Defendants, and RANDY ARMSTRONG, Counterclaimant,
v.
PHILMAR DAIRY, LLC; ARCH DIAMOND, LLC; MOONSTONE DAIRY, LLC; and HENDRIKA DAIRY, LLC; Counter-defendants.

          MEMORANDUM OPINION AND ORDER DENYING PLAINTIFFS' MOTION FOR SANCTIONS FOR SPOLIATION OF EVIDENCE AND EXCLUDING CERTAIN EVIDENCE AT TRIAL UNDER FEDERAL RULE OF EVIDENCE 403

          STEPHAN M. VIDMAR UNITED STATES MAGISTRATE JUDGE.

         THIS MATTER is before the Court on Plaintiffs' Motion for Sanctions for Spoliation of Evidence [Doc. 103], filed on April 17, 2019. Defendants responded on May 1, 2019. [Doc. 111]. Plaintiffs replied on May 15, 2019. [Doc. 117]. The Court has considered the briefing, the relevant portions of the record, the relevant law, and the oral argument. Because Plaintiffs fail to establish the elements of a successful spoliation claim, the Court will DENY Plaintiffs' Motion. Nevertheless, the Court finds that exclusion of testimony or argument concerning the disputed evidence is warranted under Federal Rule of Evidence 403.

         BACKGROUND

         Plaintiffs are dairies located in Portales, New Mexico. [Doc. 1-1] at 13. Defendant Armstrong Farms, owned by Defendant Randy Armstrong, is a farm near Dell City, Texas. [Doc. 1-1] at 3 (Complaint); [Doc. 55] at 4 (Defendant's Response to Plaintiffs' Motion for Partial Summary Judgment). It agreed to sell Plaintiffs approximately 9, 232 tons of hay for the 2017 growing season. [Doc. 43] at 4 (Plaintiffs' Motion for Partial Summary Judgment); [Doc. 43-1] at 1-2. After the hay was harvested, Defendants stored it on open-air stack lots on their farm until it was needed by Plaintiffs. [Doc. 55] at 4. From May 2017 through February 2018, Defendants delivered approximately 6, 585 tons of hay to Plaintiffs. [Doc. 1-1] at 15. Defendants claim that on August 23 or 24, 2017, a lightning-caused fire destroyed some of the stored hay. [Doc. 43-1] at 7-8.

         Defendants claim that, some time after the fire occurred, Alfred Vest, Armstrong Farms' former farm manager, discovered “smoldering, smoking embers”-and no remaining hay-where Defendants had stored 2, 647 tons of hay intended for delivery to Plaintiffs. [Doc. 103-1] at 2-3; see [Doc. 55] at 3. He did not witness the fire. [Doc. 103] at 1. Vest testified that he took photos of the smoldering embers on his cell phone, but he no longer possesses the photos because “[they were] about five cell phones ago.” [Doc. 55-1] at 4. Vest testified that he does not recall sending these photos to Armstrong.[1] Id. According to Defendants, Vest “informed Plaintiffs within one week of the fire” of the hay's destruction.[2] [Doc. 43-1] at 7. Defendants neither delivered the 2, 647 tons of missing hay nor refunded Plaintiffs' payment for it. [Doc. 1-1] at 16; [Doc. 55] at 4. Plaintiffs dispute that the fire occurred. [Doc. 1-1] at 16.

         PROCEDURAL HISTORY

         Plaintiffs sued Defendants in New Mexico state court on April 26, 2018. [Doc. 1-1] at 1. The Complaint contains claims for unjust enrichment, breach of contract, fraud, and violations of the New Mexico Unfair Practices Act. Id. at 17-18. Defendants removed the action to this Court on June 7, 2018. [Doc. 1]. On April 17, 2019, Plaintiffs filed the instant Motion for Sanctions based on the loss/destruction of the photos. Id. at 1.

         ANALYSIS

         Plaintiffs claim that Defendants spoliated evidence by failing to preserve the photos taken by Vest. In response, Defendants argue that (1) they had no duty to preserve the photos, (2) Plaintiffs suffered no prejudice from the loss of the photos, and (3) Defendants lacked the necessary intent to justify imposition of a default judgment or an adverse-inference jury instruction. [Doc. 111] at 3-10.

         The Court must first determine which law to apply. Plaintiffs rely on three sources of law: Federal Rule of Civil Procedure 37(b), the Court's inherent authority, and Rule 37(e). [Doc. 103] at 6-7. Because Plaintiffs do not explain how Defendants' alleged spoliation violated a discovery order, Rule 37(b) does not apply. Because Vest stored the photos on a cell phone, and the record does not indicate that they were ever printed, the photos constituted electronically stored information (“ESI”). Amended Rule 37(e) forecloses reliance on the Court's inherent authority to sanction for spoliation of ESI. See Newberry v. Cty. of San Bernardino, 750 Fed.Appx. 534, 537 (9th Cir. 2018) (unpublished); Snider v. Danfoss, LLC, No. 15 CV 4748, 2017 WL 2973464, at *3 n.8 (N.D. Ill. July 12, 2017). The Court will therefore apply Rule 37(e).

         The Court will not impose spoliation sanctions because (1) Plaintiffs fail to establish that Defendants knew or should have known litigation was imminent, and (2) Plaintiffs fail to establish that Defendants acted with an intent to deprive Plaintiffs of the photos' use in future litigation.

         Nonetheless, the Court will bar testimony and argument concerning the photos under Rule 403 because the probative value of mentioning photos which Defendants cannot produce at trial is substantially outweighed by the danger of unfair prejudice to Plaintiffs.

         A. Plaintiffs' spoliation claim fails because they have not established that Defendants knew or should have known that ...


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