Toman Eng'g Co. v. Koch Constr., Inc.
| Decision Date | 26 May 2022 |
| Docket Number | 20210186 |
| Parties | TOMAN ENGINEERING COMPANY, Plaintiff and Appellee v. KOCH CONSTRUCTION, INC. and Marilyn Koch, Personal Representative of the Estate of Michael P. Koch, Defendants and Appellants |
| Court | North Dakota Supreme Court |
John E. Ward (argued) and David A. Tschider (appeared), Bismarck, ND, for plaintiff and appellee.
Randall J. Bakke (argued) and Bradley N. Wiederholt (on brief), Bismarck, ND, for defendants and appellants.
[¶1] Koch Construction, Inc.; Marilyn Koch, Personal Representative of the Estate of Michael P. Koch; and Koch Property Investments, Inc. (collectively "appellants") appealed from the judgment and amended judgment entered in favor of Toman Engineering Company ("Toman"). The appellants argue the district court erred in deciding they committed intentional spoliation of evidence and dismissing their counterclaim as a sanction. We conclude the district court abused its discretion when it dismissed the appellants’ counterclaim as a sanction for spoliation of evidence. We reverse the judgment and remand for a new trial.
[¶2] Michael Koch owned and operated Koch Construction and Koch Property Investments ("KPI"). Michael Koch died in August 2017, and his wife, Marilyn Koch, was appointed the personal representative of his estate.
[¶3] Toman provided engineering services to Koch Construction on various projects, including designing a stormwater management system for the Koch Meadow Hills residential development project in Dickinson. The stormwater management system included a detention pond referred to as the Marilyn Way Stormwater Pond, which is the detention pond at issue in this case.
[¶4] In 20161 , Janet Prchal, Dean Kubas, and Geraldine Kubas, owners of property near the Koch Meadow Hills development, sued the City of Dickinson and KPI for damages, alleging the development of Koch Meadow Hills caused water to drain and collect on their properties. The Prchal lawsuit was settled in September 2018, and the settlement required modifications to be made to the Marilyn Way Stormwater Pond before June 30, 2019. The reconstruction work on the detention pond occurred during the summer and fall of 2019.
[¶5] In November 2017, Toman served a summons and complaint on Koch Construction and Marilyn Koch, as personal representative of the Estate of Michael P. Koch, (collectively "defendants") to collect unpaid amounts for engineering services Toman provided to the defendants. Toman filed the complaint in the district court in June 2019.
[¶6] On December 7, 2017, the defendants served Toman with an answer and counterclaim requesting monetary damages. The defendants alleged Toman failed to perform and negligently performed the engineering services, causing damages to the defendants, including requiring the defendants to hire other engineering companies to correctly perform the engineering services. The defendants also alleged Toman's negligent performance in properly surveying, designing, and providing for required drainage had caused the defendants damages and subjected them to the Prchal lawsuit. The defendants requested that the district court award damages for Toman's negligence and failure to perform and that the court determine Toman is "liable for Defendant, Koch Property Investment, Inc.’s, attorney's fees and costs, and any and all liability, in [the Prchal lawsuit]." On June 17, 2020, the defendants and non-party KPI moved for leave to serve an amended counterclaim.
[¶7] On August 3, 2020, Toman moved for sanctions for spoliation of evidence. Toman argued the defendants willfully modified the Marilyn Way Stormwater Pond before giving Toman any notice that the defendants were claiming Toman improperly designed the detention pond. Toman argued it was completely deprived of its right to have an independent expert inspect the pond as it existed prior to modification. Toman requested the counterclaim be dismissed as a sanction.
[¶8] The defendants opposed Toman's motion for sanctions for spoliation of evidence. They claimed that the Marilyn Way Stormwater Pond is located on public property open to inspection at all times; the pond was reconstructed to bring it into compliance with local ordinances and as a settlement condition in the Prchal lawsuit; Toman was on notice of the claimed defects in the pond since the summer of 2014; and Toman was unequivocally put on notice on December 7, 2017, that the defendants were suing Toman for its defective design work on the pond. The defendants claimed the 2019 reconstruction of the pond was not a secret and Toman failed to inspect the pond or have its representatives or experts inspect the pond during that time.
[¶9] On August 24, 2020, the district court ordered that KPI was allowed to join as a necessary party and granted the motion to amend the counterclaim. On August 25, 2020, the defendants and KPI filed an amended counterclaim, listing KPI as a counterclaim plaintiff. They alleged Toman failed to perform and negligently performed engineering services, including design work, construction administration, and construction management work that Toman agreed to perform for or on behalf of KPI and/or Koch Construction. They also alleged they incurred damages as a result of Toman's negligent performance, including the cost of hiring another engineering company, Apex Engineering Group, to correctly perform the engineering services Toman should have performed and the costs of the remedial work to the detention pond.
[¶10] On October 21, 2020, the district court granted Toman's motion for sanctions for spoliation of evidence. The court determined the defendants and KPI were culpable in the destruction of the evidence and ordered dismissal of the counterclaim as a sanction.
[¶11] The defendants subsequently moved to vacate the order dismissing the counterclaim, arguing Toman had advance notice that the detention pond was at issue in the lawsuit and had notice the pond would be reconstructed during the 2019 construction season. Toman opposed the motion. The district court denied the motion.
[¶12] Toman moved to exclude the testimony of Marilyn Koch with respect to the operation, course of business, business practices, and relationship between Koch Construction and Toman which occurred before Michael Koch's death. Toman alleged Marilyn Koch testified that she had no involvement with Koch Construction before Michael Koch's death, she has no personal knowledge, and therefore all testimony related to such matters should be excluded. The defendants opposed the motion. After a hearing, the district court granted the motion to exclude Marilyn Koch's testimony, concluding it was inadmissible because of her lack of personal knowledge.
[¶13] Before trial, Toman moved to exclude evidence associated with the defendants’ equitable recoupment and other defenses related to the alleged deficiencies of the Marilyn Way Stormwater Pond, arguing the spoliation sanction dismissing the counterclaim also applied to the defenses.
After a hearing, the district court granted Toman's motion, concluding the evidence used for the counterclaim would also be used for the defenses. The court excluded all testimony relating to alleged deficiencies of the detention pond, including the counterclaim and defenses.
[¶14] Toman also moved to exclude the testimony of the defendants’ expert witness, Scott Schneider, arguing Schneider cannot provide expert testimony because he lacked personal knowledge and did not conduct an independent analysis of Toman's design of the stormwater detention pond. The district court granted the motion and excluded Schneider's testimony.
[¶15] A jury trial was held, and the jury returned a verdict in favor of Toman and against the defendants. The jury found there was a contract between Toman and the defendants, the defendants breached the contract, Toman did not breach the contract, and Toman was entitled to $181,277.36 in damages as a result of the defendants’ breach of contract. Judgment was entered in favor of Toman and against Koch Construction and Marilyn Koch, as personal representative of Michael Koch's estate, for the amount of the damages with interest. The district court later ordered the defendants pay Toman's costs and disbursements in the amount of $26,711.46. An amended judgment was entered.
[¶16] The appellants argue the district court abused its discretion when it determined they committed intentional spoliation of evidence and dismissed their counterclaim and defenses as a sanction. They contend the court erred in making various findings in support of its decision.
[¶17] The district court's decision to impose a sanction for spoliation of evidence will not be reversed on appeal unless the court abused its discretion. Simmons v. Cudd Pressure Control, Inc. , 2022 ND 20, ¶ 15, 969 N.W.2d 442. A court abuses its discretion when it acts in an arbitrary, unreasonable, or unconscionable manner, it misinterprets or misapplies the law, or when its decision is not the product of a rational mental process leading to a reasoned determination. Id. The appellant has the burden to prove the district court abused its discretion, and "that burden is met only when it is clear that no reasonable person would agree with the trial court's assessment of what sanctions are appropriate." Ihli v. Lazzaretto , 2015 ND 151, ¶ 8, 864 N.W.2d 483 (quoting Fines v. Ressler Enters., Inc. , 2012 ND 175, ¶ 15, 820 N.W.2d 688 ).
[¶18] There is a duty to preserve evidence when litigation is reasonably foreseeable. Simmons , 2022 ND 20, ¶ 16, 969 N.W.2d 442. Spoliation is the destruction or failure to preserve probative evidence. See Ihli , 2015 ND 151, ¶ 8, 864 N.W.2d 483.
[¶19] The district court may exercise its inherent power to sanction when a party violates the duty to preserve evidence and evidence relevant to the lawsuit is destroyed. Fines , 2012 ND 175, ¶ 7, 820 N.W.2d 688. Sanctions, including dismissing claims, may be appropriate when...
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