On certification to the Superior Court, Appellate Division. (A-70/71-08).
SYLLABUS (This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
This case involves a commercial building constructed with an alleged, but now remediated, defective window system. The plaintiff-owner made repairs without waiting for a resolution by the defendant-contractor it believed was the cause. The issue is how to fashion a sanction appropriate to address a plaintiff's spoliation of evidence concerning a defect.
Plaintiff Robertet Flavors, Inc. manufactures food flavorings. Acting as its own general contractor for its new headquarters construction, plaintiff hired defendant Tri-Form Construction and its president, Robert Karabinchak, to serve as construction manager. Tri-Form made recommendations on contractors. Karabinchak supervised their work. Plaintiff chose defendant Academy Glass to install a strip-window system. Academy Glass finished work in 1998. Plaintiff moved in and, in early 1999, noticed water leaking in through the window system. Academy Glass made several visual inspections and undertook some repair efforts, mainly suggesting re-caulking. The leaks got worse. By 2001, water damage was visible. Plaintiff stopped trying to have Academy Glass fix the leaks and hired Joseph Frezza, an environmental consultant, to address the problem. He indicated that some windows had to be removed to determine the cause.
In January 2002, plaintiff, represented by attorney Milton Breitman, filed a complaint against Academy Glass, Tri-Form, and Karabinchak. Frezza and William Munro of Pioneer Glass removed a section of the windows and discovered mold. A consultant was hired to evaluate the mold and reported a significant problem in the building. Munro recommended removal of all the strip windows and replacement with a new window system. Plaintiff decided it had no choice but to replace everything contaminated with mold, including the inside walls, insulation, and carpeting. In March 2002, Tri-Form and Academy Glass served their answers to the complaint and discovery requests on Breitman, who did not advise plaintiff about their demands to inspect the building. Meanwhile, plaintiff hired Frezza to coordinate remediation work, Pioneer Glass to replace the windows, and others to remediate the mold. Breitman did not inform defendants' attorneys about the investigations, the mold discovery, or plaintiff's plans to replace the strip windows. In October 2002, Mark Epstein, plaintiff's president, learned Breitman had been hospitalized. According to Epstein, he called counsel for Academy Glass and told her about Breitman's illness, as well as the plans to begin repairing the strip windows. Counsel for Academy Glass testified that when Epstein called, she told him she could not talk to him and ended the call. In December 2002, plaintiff learned Breitman was no longer able to practice, and its case file was transferred to his former law firm.
The strip-window system remediation began on December 13, 2002, and was photographed by plaintiff as it progressed. One month later, plaintiff informed its new counsel that remediation was three weeks from completion. At a hearing on January 24, 2003, defendants' attorneys were alerted that remediation had begun, but they were not told about the mold. Counsel for Academy Glass requested that plaintiff refrain from further remediation until it evaluated plaintiff's claims. Plaintiff refused, believing it would be impractical to halt repairs already underway. In mid-February, counsel for Academy Glass and a consultant visited the building and found that the strip-window system had been replaced and all allegedly defective conditions in the building relating to work performed by Academy Glass had been remediated.
Academy Glass filed a motion to prevent plaintiff from offering any testimony relating to installation of the strip windows. At an evidentiary hearing, Academy Glass's expert, Herbert Cannon, explained that because the remediation was done, he could not independently evaluate the work of Academy Glass or the alleged window leaks or mold contamination. He testified that plaintiff's photographs were insufficient for him to form an opinion about the cause of any leaks; that there were many possible sources other than the windows; that there was insufficient information to confirm or deny the number and extent of deficiencies in the windows installed by Academy Glass; and that he therefore could not give an opinion about repair alternatives that might have been less costly. Munro, plaintiff's expert, testified that several defects in the installation work of Academy Glass were plainly visible and photographed before corrective work was done. Munro conceded that he did not photograph every defect in every window; that after remediation was completed, defects could not be independently verified; and that some components blamed for the leaks were removed and discarded during remediation.
The trial court granted defendants' motions to exclude evidence relating to the window installation, concluding that spoliation of evidence resulted in prejudice to defendants, whose experts had no opportunity to fully investigate the cause of the leaks. The court found that the appropriate remedy was to preclude plaintiff's expert from giving opinion testimony. The court later granted defendants' motions for summary judgment on all window-related claims, because plaintiff could not sustain its burden without expert proof on liability and damages. The Appellate Division reversed and remanded. It noted that Academy Glass had many opportunities to inspect the windows during the two years plaintiff complained about leaks, and had superior knowledge about the installation of the strip-window system. The panel found that the proper remedy is to limit plaintiff's expert proofs to those based only on evidence obtained prior to removal of the windows. The Court granted defendants' petitions limited to the remedy available on the spoliation claim. 197 N.J. 477 (2009).
HELD: Courts confronted with spoliation in commercial construction litigation should consider the identity of the spoliator; the manner in which the spoliation occurred; the prejudice to the non-spoliator and whether that party bears any responsibility for the loss of spoliated evidence; and the alternate sources of information available to the non-spoliator. Courts should balance all of those considerations in crafting an appropriate remedy consistent with fundamental fairness.
1. Under familiar spoliation principles, courts have turned to preclusion of evidence derived from the destroyed material as an appropriate sanction. The remedy also depends in part on when the spoliation is discovered. Selection of the appropriate remedy must be guided by the sanction's essential purpose: to even the playing field. (pp. 25-28)
2. The sanction of dismissal for spoliation is imposed sparingly, but it has been ordered when the natural result of a lesser remedy, precluding expert reports, was that plaintiff could not prove its case. The Appellate Division considered spoliation in the context of construction claims in a case that involved a commercial building owner who removed deteriorating, fire-retardant treated plywood. The defendants had inspected and documented the conditions of the wood, but were not given advance notice of the remediation. The panel found that dismissal was unnecessarily harsh. It concluded that a fair remedy was precluding use of evidence developed during the renovation because it was not available to defendants. (pp. 29-33)
3. Other jurisdictions addressing spoliation issues have been motivated by a concern about the need to find an appropriate remedy to balance the parties' rights. Some have taken a restrictive approach, limiting sanctions to cases where evidence was willfully destroyed and imposing sanctions short of dismissal. Others have devised tests for determining remedies in the construction litigation context, such as requiring courts to consider the culpability of the spoliator, the importance of the evidence destroyed, the prejudice to the other party, and the availability of sanctions less severe than dismissal. (pp. 33-37)
4. Other jurisdictions' tests are useful, but require expansion. Courts confronted with spoliation in commercial construction litigation should consider the identify of the spoliator; the manner in which the spoliation occurred, including the reason for and timing of its occurrence; prejudice to the non-spoliator and whether that party bears any responsibility; and the alternate sources of information available to the non-spoliator from its own records and other sources. Courts should balance those considerations in crafting an appropriate remedy consistent with fundamental fairness to the parties. Remedies may include adverse inferences, evidence preclusion, dismissal, and limitation of claims to only those that can be tried fairly. (pp. 38-42)
5. The case illustrates how courts can fairly and creatively address spoliation in commercial construction litigation. It is left to the sound discretion of trial courts to make those decisions as justice requires. There remains, however, one final step in this case. As to Academy Glass, plaintiff's strip-window claim may proceed, but it is limited to the conditions observable prior to remediation, and its experts are limited to a review of only those conditions. Tri- Form and Karabinchak had no opportunity to inspect the leaking windows before remediation. With no independent source of evidence with which to mount a defense, the claims against those defendants cannot proceed. The only fair remedy is dismissal. (pp. 43-46)
The judgment of the Appellate Division is AFFIRMED as it relates to Academy Glass and REVERSED as it relates to Tri-Form and Karabinchak, and the matter is REMANDED to the Law Division for further proceedings.
JUSTICES LONG, LaVECCHIA, ALBIN, WALLACE and RIVERA-SOTO join in JUSTICE HOENS's opinion. CHIEF JUSTICE RABNER did not participate.
The opinion of the court was delivered by: Justice Hoens
Argued September 15, 2009
Commercial construction projects often present unique challenges to the courts, in part because when an argument erupts over a claimed construction defect, it is inevitably complicated by the conflicting interests of the parties. The project owner wants the building to be free of defects, while other parties to the project, including the general contractor, its subcontractors and suppliers, the construction manager, if any, the architect and other design professionals, each may dispute the existence of, the extent of, and the responsibility for, any claimed defects. Moreover, each of them may seek to shift the blame for any conceded defect to others and each will likely assert that it has the right to investigate the claim and to attempt to cure any defects that are identified.
Further compounding those competing interests, time itself may create overriding considerations for the building's owner. Particularly if the claimed defect threatens the building's integrity or the owner's ability to conduct its business, the owner will view the time within which to remedy a defect in a building's construction as being constrained. The building's owner, fearing that existing, identified defects, if not cured promptly, will worsen or adversely affect other parts of the structure, may have limited patience with a contractor who does not resolve a problem quickly. The owner may lose confidence in the contractor's ability to remedy a defect if that contractor's response is slow or if proposed resolutions are inadequate. In either situation, the building owner may hasten to seek solutions from experts, consultants, or contractors in an effort to prevent a relatively minor problem from turning into a major failure of one of the building's systems.
Nor is the building's owner the only party whose interests complicate the dispute. A contractor who is being blamed for a problem may conclude that there is no defect to be cured and, if the complaints persist, may come to regard the owner as unreasonable or as seeking perfection when the work was performed in an adequate, acceptable, and workmanlike manner. Alternatively, the contractor may recognize that there is a defect and try to resolve it, or it may decide that the problem was caused by a supplier, laborer, or another contractor outside of its control, or has resulted from faulty plans or specifications.
Other parties to a large construction project will also have their own unique perspectives on the owner's claim that there is a problem to be addressed. General contractors, construction managers, architects, and engineers each have a role to play in the project and interests to protect in the event that a claimed defect is identified. Questions about whether the defect arose because of faulty plans and specifications, improper design, poor workmanship, defective materials, insufficiently skilled subcontractors, or inadequate supervision may divide the participants and confound the ability to reach a workable solution.
As complicated as the relationships inherently are, they are compounded when they play out in the shadow of threatened or actual litigation. The reality of how project owners, contractors, and related professionals behave, each with distinct and often inconsistent goals and motivations, frequently leads one or more of them to act in ways that impact on the eventual conduct of that litigation.
The building owner who only wants to solve a problem and prevent it from getting worse may undertake testing and repairs without waiting for a resolution by the contractor whose work the owner believes is the cause. The contractor called back to the building for a repair may make suggestions or corrections without undertaking a thorough investigation or fully documenting the alleged defect or identifying other potential causes. Even if the parties act with the purest motives, evidence of the extent or the cause of any claimed defect may be compromised or destroyed as testing and investigations are undertaken and as repair, retrofitting, or replacement of affected building systems or components is completed.
It is preferable, of course, to have an orderly procedure for identifying a defect, alerting the allegedly culpable party, conducting an investigation and testing that is observed and documented by representatives for all potentially responsible parties, identifying a cause, and achieving a solution. In the real world of construction projects, however, the parties do not always behave that way and may proceed to develop a solution without preserving all of the evidence that is needed to determine liability or prove damages.
This matter, which arises in the context of a large commercial building with a claimed, but now cured, defective window system, exhibits many of these competing concerns. The specific question before us is how courts should respond when an alleged defect has been remediated and evidence concerning that defect has been spoliated. More to the point, the question is how to fashion an appropriate remedy when there is some, but by no means complete, evidence of the defect and its cause, when prior to the remedial work, the party alleged to have caused it had opportunities to evaluate it and was unsuccessful in addressing it, and when the owner failed to alert others who might have some responsibility for the defect in time to include them in the process of identifying and resolving it.
Commercial construction projects present the courts with unique challenges, but they also provide opportunities to achieve creative ways of fairly sanctioning acts of spoliation. Because this dispute includes most of the familiar themes seen in such projects, it serves as a ready example for addressing spoliation now and in the future.
Plaintiff Robertet Flavors, Inc., creates, manufactures, and sells flavorings to the food, beverage, and pharmaceutical industries. In 1995, plaintiff's representatives met with an architect, who designed a new corporate headquarters that would be L-shaped, with a two-story high entry way. The larger leg of the building is a single story in which the manufacturing facilities are housed and the smaller leg is two stories high, with laboratories and administration offices on both floors.
Plaintiff acted as its own general contractor, but hired defendant Tri-Form Construction, Inc., and its president, defendant Robert Karabinchak, to serve as the construction manager for the project. In that role, Tri-Form was responsible for organizing the bids and making recommendations to plaintiff about selecting the contractors. After the work began, Karabinchak coordinated, supervised, and approved payment for all work done by the contractors on the project.
Through a competitive bidding process, plaintiff selected defendant Academy Glass, Inc. to install two separate window systems in the building. According to the architectural design, a curtain wall window system was to be installed in the entrance atrium and a strip-window system was to be utilized on both floors of the administration and laboratory wing of the building. The plans and specifications required both window systems to be manufactured by Kawneer Company, Inc.
The issues on appeal focus only on the Kawneer strip-window system,*fn1 which is installed as a continuous ribbon, with one strip of windows on each of the two floors. An Exterior Installation Finishing System (EIFS) was installed above and below each set of strip windows, with a metal coping at the top of the building. The strip-window system is designed to allow a certain amount of water to penetrate the windows and then exit at the bottom of the window frame. It relies on flashing to permit water to weep out by acting as a channel for the water's escape. Academy Glass began its work in late 1997 and finished in 1998, all under the supervision of Karabinchak, who approved Academy Glass's requests for payment.
Plaintiff moved into the administration/laboratory building in early December 1998, and began to occupy the manufacturing part of the building when construction was completed in March or April 1999. Beginning early in 1999, plaintiff's employees noticed that water was leaking in through the strip-window system along the entire length of one side of the two-story administration/laboratory wing of the building. Plaintiff began calling Academy Glass early in 1999 to have it evaluate the windows and fix the leaks.
Although the parties dispute how often Academy Glass responded to the calls, and what, if anything, Academy Glass did to address the problem, they agree that Academy Glass conducted visual inspections of the interior and exterior of the building and undertook some efforts to solve the leaking, which principally involved suggesting that the windows be re-caulked. Ultimately, those efforts were unsuccessful. Plaintiff concedes that the windows did not leak continuously, and that the severity of the problem depended to some extent on the angle and the intensity of the rain as well as the way in which the wind was blowing. However, as the year progressed, the leaks grew worse and by early 2000, plaintiff was placing five-gallon buckets on the window sills during heavy rainstorms to collect the leaking water.
Throughout 2000, plaintiff continued to contact Academy Glass about the leaks, but by the end of that year, plaintiff's calls were not being returned. Eventually, some time early in 2001, plaintiff stopped trying to have Academy Glass solve the problem of the leaks, ...