Spoliation of Evidence After Brookshire Brothers v. Aldridge

The Texas Supreme Court issued its opinion in Brookshire Brothers, Ltd. v. Jerry Aldridge on July 3, 2014 governing spoliation of evidence and a trial court’s duties.  Brookshire Brothers, Ltd. v. Jerry Aldridge, ___S.W.3d___ (Tex. 2014) (Case No. 10-0846 July 3, 2014). Brookshire involved a slip-and-fall premises-liability case in which the trial court issued a spoliation instruction to the jury when the store owner retained the requested portion of the surveillance footage (i.e. the time the plaintiff entered and departed store only) but allowed additional footage to be automatically erased. Aldridge argued that the additional footage would have been helpful to the key issue of whether the substance that caused Aldridge to slip-and-fall was on the floor long enough to give Brookshire Brothers a reasonable opportunity to discover it.

The trial court allowed the jury to hear evidence bearing on whether Brookshire Brothers spoliated the video, submitted a spoliation instruction to the jury presuming that the evidence would have been unfavorable to Brookshire, and permitted the jury to decide whether spoliation occurred during its deliberations on the merits of the lawsuit. The jury a returned  verdict against Brookshire Brothers in excess of a million dollars and Brookshire Brothers appealed, alleging, among other things, that the trial court abused its discretion in admitting evidence of spoliation or charging the jury with a spoliation instruction.  The court of appeals affirmed and found that the trial court did not abuse its discretion.

In a lengthy opinion, the Supreme Court of Texas reversed the trial court, remanded the case for a new trial and held that the imposition of the severe sanction of the spoliation instruction was an abuse of discretion and held that the trial court erred in admitting evidence of the circumstances of the spoliating conduct. Brookshire Brothers, Ltd. v. Jerry Aldridge, ___S.W.3d____(Tex. 2014)(Case No. 10-0846 July 3, 2014). The Supreme Court also clarified the standards governing whether an act of spoliation has occurred and the parameters of a trial court’s discretion to impose a remedy upon finding spoliation, including the submission of a spoliation instruction to the jury.

The Supreme Court held that a spoliation analysis involves a two-step judicial process: (1) the trial court must determine whether a party spoliated evidence; and (2) if spoliation occurred, the court must assess an appropriate remedy.  To conclude that a party spoliated evidence, the trial court must find that (1) the spoliating party had a duty to reasonably preserve evidence, and (2) the party intentionally or negligently breached that duty by failing to do so. Further, spoliation findings and their related sanctions are to be determined by the trial court outside the presence of the jury in order to prevent unfair prejudice that is unrelated to the facts of the lawsuit. The Supreme Court acknowledged that a trial court has a “spectrum of remedies” that may be imposed for spoliation but held that a spoliation instruction is warranted only when the trial court finds that the spoliating party acted with specific intent of concealing discoverable evidence, and that a less severe remedy would be insufficient to resolve the prejudice caused by the spoliation. The Supreme Court further held that a failure to preserve evidence with a negligent mental state may only underlie a spoliation instruction in the rare situation in which a non- spoliating party has been “irreparably deprived of any meaningful ability to present a claim or defense.”

This case is a must read for all trial lawyers, especially with the technology in existence today concerning automatic destruction programs as part of a document retention plan. The opinions in this blog are solely the author’s and any comments, replies and suggestions may be sent to John@jrjoneslaw.com.

Funds Held By Trustee at Time of Conversion Belong to Creditors

The United States Court of Appeals for the Fifth Circuit recently weighed in on whether the funds held by a Chapter 13 trustee at the time the case is converted to Chapter 7 are given back to the debtor or paid out to the creditors.

In Viegelahn v. Harris, III, ___F.3d ___(Case No.  13-50374 5th Cir. July 7, 2014), Debtor’s proposed Chapter 13 plan was approved and out of each plan payment, $352 was to go to Chase Bank for his mortgage arrears and the rest to another secured creditor. Debtor was also to make a separate payment to Chase outside the plan. Debtor got behind on his mortgage, Chase moved to lift the automatic stay which was granted and foreclosed on Debtor’s house. Debtor continued to make the monthly plan payments including that portion approved for Chase. The trustee placed a hold on the payments to Chase after foreclosure and continue to accumulate the funds that originally where to go to Chase. Debtor did not modify the plan and eventually, the case was converted to Chapter 7. At that time, the trustee held $5,519.22 in his possession and distributed the funds to pay debtor’s counsel, the other secured creditor, six unsecured creditors and a portion to himself. Trustee then filed a final report and accounting for the Chapter 13 case. The debtor objected and argued that the funds should be returned to him and the trustee disagreed. The district court found in favor of the debtor and an appeal was taken.

Reversing the district court’s finding that the funds should be returned to the debtor, the Fifth Circuit held that payments in the possession of the Chapter 13 trustee at the time the case was converted from Chapter 13 to Chapter 7 must be distributed to creditors who have a superior claim to the funds. Under equitable and policy considerations, the Fifth Circuit held that returning undistributed funds to the debtor is not justified by policy of encouraging debtors to proceed through Chapter 13 rather than Chapter 7. Fairness also dictates distribution of funds to creditors. The attached wages given up are quid pro quo during the pendency of the reorganization in return for being permitted to stave off creditors. Viegelahn v. Harris, III, ___F.3d ___(Case No.  13-50374 5th Cir. July 7, 2014).

The Fifth Circuit provides an exhaustive view of cases that have gone the other way such as the Third Circuit’s opinion in In re Micahel, 699 F.3d 305 (3rd Cir. 2012) (holding funds must be returned to debtor) and distinguished and limited its prior opinion In re Stamm, 222 F.3d 216 (5th Cir. 2000) (holding that when a Chapter 13 case is converted before confirmation of a plan, the wages paid to a Chapter 13 trustee pursuant to a proposed plan do not become part of the Chapter 7 estate upon conversion). I commend the reading of the opinion which is at https://www.ca5.uscourts.gov/opinions%5Cpub%5C13/13-50374-CV0.pdf because the exhaustive treatment of the prior cases and statutory arguments.

The opinions of this blog are solely the author’s and any comments, replies or suggestions should be sent to john@jrjoneslaw.com.