United States District Court, E.D. Kentucky, Central Division, Lexington
JAMES T. SCATUORCHIO RACING STABLE, LLC, et al., Plaintiffs,
WALMAC STUD MANAGEMENT, LLC, et al., Defendants.
MEMORANDUM OPINION AND ORDER
DANNY C. REEVES, District Judge.
Plaintiffs James T. Scatuorcho, LLC, James T. Scatuorchio, Kevin Scatuorchio, Courtney Sullivan, and Bryan Sullivan have moved for an order granting an adverse inference jury instruction. The plaintiffs contend this instruction is necessitated by Defendants Walmac Farm, LLC ("Walmac Farm"), Walmac Stud Management, LLC ("Walmac Stud"), and John T.L Jones' alleged failure to provide certain discovery. [Record No. 207] For the reasons discussed below, the motion will be denied.
On October, 30, 2013, a hearing was held before United States Magistrate Judge Robert E. Wier to address several discovery disputes. [Record No. 177] The defendants argued that the plaintiffs had not complied with the Court's previous order regarding the supplementation of discovery. [ Id., p. 1] Likewise, the plaintiffs alleged numerous discovery deficiencies by the defendants. The magistrate judge that the plaintiffs were to have access to all bank records directly relating to Ready's Image connected to deposit or disbursement. However, he also indicated that the plaintiffs were not entitled to trace assets from the Walmac general accounts unless they reflected payments and disbursement directly concerning Ready's Image. [ Id., p. 2]
Magistrate Judge Wier further directed that, if the defendants did not have such records, they must make a diligent effort to secure them from the bank. The defendants were also ordered to produce any and all documents that "reflect, relate to, and/or corroborate co-owner payment of Ready's Image syndicate billing and/or receipt of syndicate disbursements." [ Id. ] Magistrate Judge Wier went on to state that the defendants must "produce the Haldeman [sic] debt forgiveness records. It is relevant, at least in this instance, for Plaintiffs to test whether Walmac provided debt relief to an insider at the same time that insider was a syndicate debtor." [ Id., p. 3]
Following the hearing, the plaintiffs made several requests regarding the defendant's alleged discovery deficiencies. [Record Nos. 207-4, 207-5, 207-6, 207-7] Through these letters and other correspondence, the plaintiffs identified various documents they believed were missing from discovery and required by the Court's prior orders. These items included: (i) general ledgers for Walmac Farm and Walmac Stud; (ii) documents evidencing payments by Walmac Stud to Walmac Farm for the Walmac syndicate bills; (iii) cancelled checks; (iv) properly redacted bank statements; (v) documents evidencing the Hardeman debt forgiveness; and (vi) Ledbetter Trust payments. [Record No. 207-1, pp. 3-7]
The plaintiffs argue that, because the defendants have failed to produce these documents, they are entitled to an adverse inference jury instruction concerning the information this evidence may have included. They assert that the defendants have withheld the various records despite Court orders and various discovery requests, that this was done with a "culpable state of mind, " and that all of the records were relevant to their claims. [ Id., pp. 9-11]
The defendants have produced over 871 megabytes of data constituting approximately 20, 000 pages of material relevant to Ready's Image. This does not include documents produced by non-parties in response to subpoenas. The defendants represent that they have produced evidence including, but not limited to: (i) copies of all invoices to co-owners up to April, 2013; (ii) copies of payments from all the co-owners; (iii) bank records for payments to the Walmac Farm operating account for expenses relevant to Ready's Image; (iv) A Walmac Farm disbursement journal showing payments made to vendors; (v) invoices from all vendors; (vi) documents showing all income generated by Ready's Image; (vii) spreadsheets from 2009 to 2013 documenting the breeding seasons showing all mares bred to Ready's Image and the conditions of the breeding; and (viii) copies of all nominations contracts, mare share contracts, and letters of nomination allocation to the co-owners between 2009 to 2013. [Record No. 242, p. 4] They assert that this material contains all information relevant to Ready's Image. [Record No. 226 ¶ 21]
Spoliation of evidence is the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation. Forest Labs., Inc. v. Caraco Pharm. Labs., Ltd., No. 06-CV-13143, 2009 WL 998402, at *1 (E.D. Mich. Apr.14, 2009). "An adverse inference for spoliation of evidence, or a spoliation inference, permits a [factfinder] to infer that destroyed evidence might or would have been unfavorable to the position of the offending party." Bankcorpsouth Bank v. Herter, No. 04-2420, 2009 WL 1596654 at *14 (W.D.Tenn.2009) (quoting Kounelis v. Sherrer, 529 F.Supp.2d 503, 520 (D.N.J.2008)). Additionally, an adverse inference instruction may be appropriate if a party does not produce evidence peculiarly within its control. In re U.S. Truck Co. Holdings, Inc., 341 B.R. 596, 607 (E.D. Mich. 2006); Provience v. City of Detroit, 10-11719, 2011 WL 7445088, at *6 (E.D. Mich. Nov. 28, 2011).
A party seeking an adverse inference instruction based on the destruction or loss of evidence must show that: (i) the party controlling the evidence was obligated to preserve it when it was destroyed; (ii) the evidence was destroyed "with a culpable state of mind;" and (iii) the destroyed evidence was "relevant" to a party's claim or defense such that a reasonable trier of fact could find that it would support a claim or defense. Beaven v. U.S. Dep't of Justice, 622 F.3d 540, 553 (6th Cir. 2010) (citations omitted). Further, "it must have been reasonably foreseeable to the spoliating party that the evidence would be subject to discovery." Kounelis, 529 F.Supp.2d at 520. "The burden is on the party seeking to use the evidence to show... each criterion." Forest Labs., Inc. v. Caraco Pharm. Labs., Ltd ., No. CIV.A.06-CV-13143, 2009 WL 998402, at *1 (E.D. Mich. Apr. 14, 2009). However, a party is not automatically entitled to an adverse inference instruction simply because all elements are met. Kounelis, 529 F.Supp.2d at 520-21 ("[A court] may, despite a finding that all of the elements entitling a party to an adverse inference have been met, exercise [its] discretion and decide not to grant a request for an adverse inference.").
The plaintiffs argue that the defendants failed to produce discovery in violation of the October 30, 2013 Order. [Record No. 207-1, p. 1] They claim that they have suffered prejudiced and are entitled to an adverse inference instruction concerning the evidence not produced. The defendants argue that all discoverable information concerning Ready's Image has been disclosed and any further discovery would be unnecessarily duplicative or irrelevant. [Record No. 242, p. 1] They claim that responding to the plaintiffs' motion is difficult because it requires speculation concerning what the plaintiffs think the defendants have not produced, how or why it was withheld, and how it relates to the plaintiffs' claims. Additionally, the defendants ...