Milwaukee Constructors II v. Milwaukee Metropolitan Sewerage Dist.

• Decision Date: 09 February 1993
• Docket Number: No. 92-0002,92-0002
• Citation: 177 Wis.2d 523,502 N.W.2d 881
• Parties: MILWAUKEE CONSTRUCTORS II, a joint venture consisting of Harrison Western Corporation, a Colorado corporation, and Hunzinger Construction Company, a Wisconsin corporation, Plaintiff-Appellant-Cross Respondent, v. MILWAUKEE METROPOLITAN SEWERAGE DISTRICT, a municipal body corporate, Defendant-Respondent-Cross Appellant, d CH2M Hill Central, Inc., an Oregon corporation, Defendant-Respondent.d> . Oral Argument
• Court: Wisconsin Court of Appeals

Page 881

502 N.W.2d 881

177 Wis.2d 523

MILWAUKEE CONSTRUCTORS II, a joint venture consisting of

Harrison Western Corporation, a Colorado corporation, and Hunzinger Construction Company, a Wisconsin corporation, Plaintiff-Appellant-Cross Respondent, v. MILWAUKEE METROPOLITAN SEWERAGE DISTRICT, a municipal body

corporate, Defendant-Respondent-Cross Appellant,

d

CH2M Hill Central, Inc., an Oregon corporation,

Defendant-Respondent.d>

No. 92-0002.

Court of Appeals of Wisconsin.

Oral Argument Feb. 9, 1993.

Opinion Released June 2, 1993.

Opinion Filed June 2, 1993.

Before WEDEMEYER, P.J., and SULLIVAN and SCHUDSON, JJ.

WEDEMEYER, Presiding Judge.

Milwaukee Constructors II (MCII) appeals from a final judgment dismissing its cause of action against Milwaukee Metropolitan Sewerage District (MMSD) and CH2M Hill Central, Inc. (CH2M Hill). The trial court dismissed the case based on its conclusion that MCII had intentionally destroyed numerous documents that deprived MMSD and CH2M Hill of relevant information essential to their defense. MCII asserts that the trial court erroneously exercised its discretion in dismissing the case.

MMSD cross-appeals from that part of the final judgment denying its request for photocopying expenses as an allowable cost pursuant to sec. 814.04(2), Stats. The trial court found as a matter of law that sec. 814.04(2) does not authorize photocopying expenses as an allowable cost. MMSD asserts trial court error in that sec. 814.11, Stats., contains specific authority for the allowance of copying costs as a taxable disbursement.

Because we conclude that the trial court erroneously exercised its discretion in sanctioning MCII with a dismissal of its cause of action, we reverse the judgment. Because the judgment is to be reversed, MMSD's cross-appeal regarding copying costs is moot and, therefore, we do not address the issue.

I. BACKGROUND

This case involves an action by MCII, a joint venture consisting of two general construction contractors--Harrison Western Corporation and Hunzinger Construction Company--to recover approximately $32.5 million in damages resulting from MMSD's alleged breach on three separate but related contracts.

In the summer of 1984, MMSD, as part of its overall water pollution abatement program, solicited bids for three separate, multi-million dollar contracts, comprising the project known as "Cross Town Interceptor--Phase 1B, CT-8, CT-7 and CT- 5/6 Dropshafts and Ancillary Facilities." MCII submitted the lowest responsive bids, and in late December 1984, MMSD awarded MCII all three contracts.

MCII began work on the three projects in the spring of 1985 and completed work in the spring of 1988. MCII had originally planned to complete the projects by the fall of 1986, but alleged groundwater problems delayed completion for several years. MCII also alleged that CH2M Hill, the engineer/construction manager for the projects, hampered completion time by forcing MCII to implement ineffective and time- consuming methods to deal with the groundwater problems.

In late 1987 and early 1988, MCII commenced two separate actions against MMSD. The cases were subsequently consolidated. In June 1989, MCII joined CH2M Hill as a defendant. The parties conducted substantial discovery. In May of 1990, MMSD discovered that Lyle Pearson, an employee of Harrison Western Corporation, one of the MCII joint venturers, had authorized the disposal of over 700 of some 3,900 boxes of documents which MCII had stored in a warehouse operated by Archives, Inc.

On May 25, 1990, MMSD filed a motion for sanctions in connection with MCII's destruction of documents. During June and July 1990, the parties undertook discovery on the destruction of the documents. On September 10, 1990, the matter was argued before the trial court. Because the trial court had specific questions that it deemed necessary for a determination on the issue of appropriate sanctions, it scheduled another hearing for December 17, 1990. The hearing was subsequently rescheduled for January 28, 1991. At the January 28 hearing, the trial court, without accepting additional evidence or argument from counsel, announced its decision to dismiss MCII's complaint with prejudice, and to award MMSD and CH2M Hill their costs and reasonable attorneys' fees for prosecuting the motion. ¹

MCII filed a motion for reconsideration which was denied by written order on May 15, 1991. MCII now appeals. Additional facts relevant to the disposition of the appeal will be presented below.

II. DISCUSSION

A. Standard of Review

A trial court's decision to dismiss a cause of action as a sanction is discretionary and will not be disturbed unless the party claiming to be aggrieved by the decision establishes that the trial court has erroneously exercised its discretion. Johnson v. Allis Chalmers Corp., 162 Wis.2d 261, 273, 470 N.W.2d 859, 863 (1991). A discretionary decision will be upheld if the trial court has examined the relevant facts, applied a proper standard of law, and, utilizing a demonstrated rational process, reached a conclusion that a reasonable judge could reach. Id. "The question is not whether this court as an original matter would have dismissed the action; it is whether the circuit court [erroneously exercised] its discretion in doing so." Id.

B. Application

Literally hundreds of thousands of documents were generated by MCII or Harrison Western in connection with the three contracts at issue in this lawsuit. Likewise, both MMSD and CH2M Hill also generated thousands of documents concerning the project. What is eminently apparent from the record, however, is that the discovery process was proceeding smoothly until the revelation that MCII had allegedly destroyed relevant documents. The parties had stipulated that all documents capable of discovery, excepting those that were deemed privileged, would be available for review.

A careful consideration of how and why the documents were destroyed is appropriate. Once a thriving company, Harrison Western incurred losses during the mid-1980's that forced it to radically downsize and partially liquidate its operations. As a result, thousands of boxes of Harrison Western's now inactive files had to be stored at Archives, Inc., a storage facility located in Aurora, Colorado. Storage of these documents cost Harrison Western approximately $12,000 per year.

In March of 1989, Donald Bozarth was appointed Harrison Western's Vice President of Finance. In the course of considering options to reduce overhead, Bozarth concluded that he could cut the document storage costs by having them screened for age, obsolescence and duplication. If any of the documents met certain criteria, they would be destroyed, thus saving the company money.

Bozarth selected Lyle Pearson to perform the task. At the time, Pearson was Harrison Western's purchasing manager. Bozarth selected Pearson because he was the only employee left who was familiar with the company's document generation and distribution practices, its accounting system, the various projects in which the company had been involved, and the names and responsibilities of the persons involved in those projects.

The task, as Bozarth explained to Pearson, was to reduce the inventory of "old, obsolete, and duplicate documents maintained in dead file storage at Archives." At the time, both men were aware of MCII's lawsuit against MMSD and CH2M Hill, and the general nature of the claims. Neither man, however, was cognizant of the fact that MCII had recently added a claim for loss of bonding capacity. ² Pearson finished his assignment in the second week of February 1990.

As of May 1990, Archives' computer-generated records indicated that 782 boxes had been "deleted." Of these boxes, MMSD narrowed its focus to a list of sixty-two files contained in fifty-two boxes which, it asserted, had "been identified by MMSD's counsel and consultant as being potentially relevant to MMSD's analysis and defense." One box in particular that had been "deleted," entitled "Estimating--Milwaukee Dropshafts I, II, III," ("Dropshafts box") became the focus of great debate among the parties. Indeed, in rendering its decision that MCII's case should be dismissed, the trial court relied heavily on the fact that this box had not been made available. The parties continue to contest the relevance of this box. MCII, however, asserts that irrespective of the relevance question, the "Dropshafts box" and its contents were never destroyed and are available for the defendants' review.

In dismissing the complaint, the trial court relied on Struthers Patent Corp. v. Nestle Co., 558 F.Supp. 747 (D.N.J.1981) for its analytical framework. ³ In Struthers, the court outlined a five-step process for evaluating an allegation concerning document destruction:

(i) identification, with as much specificity as possible, of the documents which were destroyed; (ii) the relationship of those documents to the issues in the present action; (iii) the extent to which such documents can now be obtained from other sources; (iv) whether [the party responsible for the document destruction] knew or should have known at the time it caused the destruction of the documents that litigation against [the opposing parties] ... was a distinct possibility, and (v) whether, in light of the circumstances disclosed by the factual inquiry, sanctions should be imposed upon [the party responsible for the document destruction] and, if so, what the sanctions should be.

Id. at 756. We agree with the trial court that this is an appropriate process to utilize when evaluating the details, significance and sanctions concerning document destruction allegations. In addition, however, in accord with Trispel v. Haefer, 89 Wis.2d 725, 732, 279 N.W.2d 242, 245 (1979), dismissal is a sanction that should rarely be granted and is appropriate only in cases of "egregious conduct." See also Johnson, 162 Wis.2d at 279-80, 470 N.W.2d at 864.

1. Finding of...