Minnesota Supreme Court Clarifies Spoliation Rule In Mold Case

Can a person faced with environmental conditions posing potential health risks implement remedial measures without running the risk of being sanctioned for destroying evidence? This problem can arise when a consultant destroys soil or groundwater samples but what about a mold case where  the home itself is the evidence? This was the issue addressed in Miller v. Lankow, 801 N.W.2d 120 (Minn. 2011).

In this case, defendant Lankow entered into a purchase agreement to sell her home. The buyer’s home inspection revealed fungal growth in a basement wall and cancelled the sale. Lankow then hired Industrial Hygiene Services Corporation (IHSC) to test the home’s interior drywall for fungal problems. After IHSC found evidence of elevated moisture in the wall cavity, the defendant Lankow hired three contractors to repair basement wall. Total Service Company (TSC) investigated and repaired the moisture damage. Diversified Contractors, Inc. (DCI) applied anti-fungal paint to the affected wood. Donnelly Brothers replaced the stucco removed as a result of the repairs. Lankow also hired a landscape contractor to redirect water flow from away the home.

After the repairs were completed, Lankow entered into a purchase agreement with the plaintiff. A disclosure statement to the purchase agreement that stated “Seller became aware of a moisture intrusion/mold issue in spring of 2003. The affected areas were remediated by licensed professional contractors and engineers.” The disclosure also cautioned buyers that “If you have a concern about water intrusion or the resulting mold/mildew/fungi growth, you may want to consider having the property inspected for moisture problems before entering into a purchase agreement or as a condition of your purchase agreement.” The IHSC reports, and invoices from DCI, TSC, Donnelly Brothers, and the landscaper were attached to the disclosure statement.

The plaintiff purchased the home in May 2004. When signing the purchase agreement, plaintiff signed a receipt for the disclosure forms, acknowledging his awareness of the previous moisture and mold problems and the repairs performed by the contractors. He also expressly waived an inspection of the home.

One year later, the plaintiff decided to sell the home, and entered into a purchase agreement with a prospective buyer. Along with the purchase agreement, plaintiff provided a statement that disclosed that the home’s previous owner had experienced moisture problems. After receiving this information, the prospective buyer retained its own home inspector who reported that that the home still had significant moisture intrusion problems and the prospective buyer declined to purchase the home.

The plaintiff then notified Donnelly, TSC, and DCI of the discovery of renewed moisture intrusion problems. At a site visit, the contractors agreed there was moisture in the wall in the area that had been repaired. Plaintiff told the contractors that the problem had to be immediately repaired because he did not want his children living in a mold-infested home.

In December 2005, plaintiff’s attorney sent letters to the contractors alleging that the remediation work they performed in 2003 was defective, resulting in continued moisture intrusion and mold. The letter also provided notice of a possible claim for breach of the home-improvement warranty provided under state law. The letter requested that the contractors him to discuss possible resolution of the problem. Plaintiff’s attorney also sent a notice letter to Lankow alleging that they had falsely represented that the moisture and mold problems had been remediated and demanding that they contact him by January 9, 2006, to avoid legal action.

In March 2007, plaintiff’s attorney sent a letter to the defendants instructing them to immediately schedule any further inspections of the home because plaintiff planned to proceed with necessary repairs beginning on March 22, 2007. As it turned out, the plaintiff had hired a contractor to remediate and repair the home in January 2007 so that when a representative from Donnelly visited the home in March, the entire exterior of the home, including the stucco and the underlying plywood, had already been removed, and only insulation remained in the wall cavities.

In April 2007, plaintiff filed a suit against Lankow and the contractors. The defendants cross-claimed against each other for contribution and indemnity, and the seller brought a third-party claim against the real estate brokerage and agent. The defendants moved for summary judgment, claiming that appellant had spoliated the evidence of water damage and mold by making repairs to the home without providing them with a meaningful opportunity to inspect the premises.

The district court found that the defendants did not did not have an opportunity to independently inspect the evidence prior to its destruction and therefore suffered “extremely significant” prejudice. The court sanctioned plaintiff by excluding all of his expert reports and testimony relating to moisture intrusion and the extent of the mold. Since there was no other evidence as to the cause or origin of the moisture intrusion and the extent of the mold, the court granted summary judgment and dismissed all claims for lack of evidence. A divided court of appeals affirmed the district court.

However, the Minnesota Supreme Court found the lower courts had misapplied the rules for spoliation. The court began its analysis by stating that while parties have an obligation to preserve evidence necessary for litigation, the duty to preserve evidence wais not boundless. The court noted that several jurisdictions have recognized limited circumstances where a party’s destruction of evidence may be excused. The court then held that the duty to preserve evidence must be tempered by allowing custodial parties to dispose of or remediate evidence when the situation reasonably requires it.

The court then articulated provided guidance for lower courts to follow when considering whether to impose sanctions for the spoliation of evidence. The court said judges should consider the totality of the circumstances in determining whether the notice given was sufficient to satisfy a custodial party’s duty to preserve evidence. The court said that sanctions for spoliation may not be appropriate when a custodial party with a legitimate need to destroy evidence gives notice that is sufficient for the noncustodial parties to protect themselves by taking steps to inspect or preserve the evidence and the noncustodial parties nevertheless do nothing to inspect the evidence.

The court suggested that sufficient notice might be a meeting or a letter indicating the time and nature of any action likely to lead to destruction of the evidence, and offering a full and fair opportunity to inspect. While the court said it would be good practice to explicitly provide such a notice in written form, failure of the custodial party to provide further notice of destruction should not deprive the custodial party of an otherwise valid claim or defense where a court is able to determine that noncustodial parties had sufficient knowledge to protect its interests but failed to inspect important evidence.

The court noted that the evidence in this lawsuit was the plaintiff’s home and that remediation of the moisture intrusion problem was likely necessary and perhaps essential to address immediate health concerns. The court said the plaintiff had advised the contractors at the September 2005 meeting that he was concerned about the health implications for himself ad his children. Under such circumstances, the court reasoned, it would be unfair to force him to make the unpleasant and perhaps dangerous choice between preserving evidence for a potential lawsuit by living in a mold-infested home or remediating the mold infestation at the risk of fatally compromising at action for damages.

As a result, the court reversed the lower court rulings and remanded the matter for further proceedings to determine if plaintiff had a legitimate reason to destroy the evidence and whether he provided notice sufficient to enable the respondents to protect themselves by inspecting the relevant evidence. After making these determinations, the court said the trial judge should determine whether imposition of sanctions for spoliation is appropriate and, if so, whether it was appropriate to exclude all of plaintiff’s expert reports and testimony relating to moisture intrusion and the extent of mold or if some lesser sanction is more appropriate