eDiscovery Daily Blog

Permissive Adverse Inference Instruction Upheld on Appeal – eDiscovery Case Law

In Mali v. Federal Insurance Co., Nos. 11-5413-cv, 12-0174-cv (XAP) (2d Cir. June 13, 2013), the Second Circuit explained the distinctions between two types of adverse inference instructions: a sanction for misconduct versus an explanatory instruction that details the jury’s fact-finding abilities. Because the lower court opted to give a permissive adverse inference instruction, which is not a punishment, the court did not err by not requiring the defendant to show that the plaintiffs acted with a culpable state of mind.

After a fire destroyed a barn converted into a residence, the plaintiffs sought to recover $1.3 to $1.5 million from their insurance policy. The insurance company made three payments before becoming skeptical of the plaintiffs’ claim. In particular, the company balked at the plaintiffs’ statement that they had high-end amenities, such as four refrigerators and copper gutters, and their sketch of the barn’s layout, which showed fourteen rooms, a second floor with four rooms and a bathroom, and four skylights. During discovery, the plaintiffs claimed they had no photographs of the barn, but at trial, an appraiser testified that the plaintiffs had shown her photographs of items in the barn and of the barn, which she testified only had one floor, not two as the plaintiffs claimed.

The defendants asked the court to impose an adverse inference instruction on the plaintiffs as a sanction for destroying the photographic evidence. Over the plaintiffs’ objection, the court instructed the jury that it could draw an adverse inference from the plaintiffs’ failure to produce the photographs. The jury agreed with the defendant and found the plaintiffs had submitted fraudulent claims that forfeited their insurance coverage.

On appeal, the plaintiffs argued that the jury’s verdict should be vacated and that a new trial was required because the court did not make findings to justify this sanction. However, the appellate court ruled that the plaintiffs’ argument was “based on a faulty premise” because the trial court “did not impose a sanction on the Plaintiffs.” Therefore, no findings were required. It also found the plaintiffs’ reliance on a prior Second Circuit decision, Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 107 (2d Cir. 2002), where the court ruled that a trial court “must find facts that justify” an adverse inference instruction based on spoliation, inapposite. In Residential Funding, the plaintiff failed to meet its discovery obligations because it did not produce e-mails or backup tapes. The court refused to impose the defendant’s requested sanction, which was an instruction to the jury that it “‘should presume the e-mails . . . which have not been produced, would have disproved [Residential]’s theory of the case,’” because the defendant had not provided facts sufficient to support the sanction.

Here, the Second Circuit explained the distinction between the two types of adverse inferences in these cases: (1) one that punishes “misconduct that occurred outside the presence of the jury during the pretrial discovery proceedings, often consisting of a party’s destruction of, or failure to produce, evidence properly demanded by the opposing party,” and (2) one that “simply explains to the jury, as an example of the reasoning process known in law as circumstantial evidence, that a jury’s finding of certain facts may (but need not) support a further finding that other facts are true.” The court ruled that the latter instruction “is not a punishment” but instead is “an explanation to the jury of its fact-finding powers.”

The Mali court found the trial court’s instructions did not “direct the jury to accept any fact as true” or “instruct the jury to draw any inference against the Plaintiffs.” Because “the court left the jury in full control of all fact finding,” it fell within the explanatory classification of instructions.

So, what do you think?  Was the permissive adverse inference instruction warranted?   Please share any comments you might have or if you’d like to know more about a particular topic.

Case Summary Source: Applied Discovery (free subscription required).  For eDiscovery news and best practices, check out the Applied Discovery Blog here.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by CloudNine Discovery. eDiscoveryDaily is made available by CloudNine Discovery solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscoveryDaily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.