When is an Adverse Inference Instruction Not a Sanction?

Mali v. Fed. Ins. Co., —F.3d—, 2013 WL 2631369 (2d Cir. June 13, 2013)

Here, the Second Circuit addressed the difference between an adverse inference instruction as a sanction and an instruction “that simply explains to the jurors inferences they are free to draw in considering circumstantial evidence” and determined that the at-issue instruction was not a sanction and that the trial court did not err.  The instruction permitted jurors to infer that an unproduced photograph was unfavorable to Plaintiffs, provided they believed that the photograph was in the plaintiffs’ possession and that the non-production was not satisfactorily explained.

This is not an electronic discovery case.  Nonetheless, because adverse inference instructions are common in e-discovery, the court’s analysis is important to understand.

Briefly stated, Plaintiffs sued their insurance company upon its denial of their claims related to the destruction of a residence in a fire.  Plaintiffs sought compensation for the destruction of items allegedly located on the second floor of the structure, but provided no photographs of that second floor.  Their appraiser, however, testified that she had been provided with such a photograph during her work on behalf of the plaintiffs.  As a result of the non-production and Defendant’s lack of satisfaction with Plaintiffs’ explanation that the appraiser was mistaken, Defendant requested an adverse inference instruction as a sanction.  The request was granted and the instruction (which was “substantially in the form suggested by the Plaintiffs”) was given "as part of the instruction on circumstantial evidence" and stated:

In this case, evidence has been received which the Defendant contends shows that a photograph exists or existed of the upstairs of what had been referred to as the barn house, but no such photograph has been produced.  If you find that the Defendant has proven by a preponderance of the evidence, one, that this photograph exists or existed, two, that the photograph was in the exclusive possession of the Plaintiffs, and, three, that the non-production of the photograph has not been satisfactorily explained, then you may infer, though you are not required to do so, that if the photograph had been produced in court, it would have been unfavorable to the Plaintiffs.  You may give any such inference, whatever force or effect as you think is appropriate under all the facts and circumstances.

On appeal, Plaintiffs alleged that the trial court had erred in imposing a sanction “without first making the findings necessary to justify” it, citing the case of Residential Funding Corp. v. DeGeorge Financial Corp, 306 F.3d 99 (2d Cir. 2002).  The circuit court disagreed, however, reasoning that the argument was “based on a faulty premise," that "[t]he court did not impose a sanction on the Plaintiffs,” and that where the court was merely instructing the jury “as a part of its explanation of circumstantial evidence, on inferences the jury was free to draw depending on the jury’s findings,” the court was not required to “make any predicate findings.”

The court explained that the words “‘adverse inference instruction’ can be used to describe at least two different sorts of instructions.”  One is a sanction.  The other is not.  And it was the latter that was given in this case.

Describing first an adverse inference instruction as a sanction, the court acknowledged that it is “axiomatic that a court may not punish without finding misconduct that merits the punishment,” and that adverse inference instructions are often given to address discovery misbehavior, as was requested in Residential Funding Corp., where the defendant sought to have the jury instructed that it should presume that unproduced emails would have disproved Plaintiff’s theory of the case.  In such cases, “[b]efore imposing any such sanction, the court would need to make findings that justified the sanction.”

However, the second, “fundamentally different, adverse inference instruction is one that simply explains to the jury, as an example of the reasoning process known in law as circumstantial evidence, that a jury’s finding of certain facts may (but need not) support a further finding that other facts are true.  Such an instruction is not a punishment.  It is simply an explanation to the jury of its fact-finding powers.”  “The court need not find any facts to justify such an instruction, which leaves all the fact finding to the jury without encroachment by the court.”  In this case, the court explained:

The court did not direct the jury to accept any fact as true.  Nor did it instruct the jury to draw any inference against the Plaintiffs.  The court left the jury in full control of all fact finding.  It did no more than explain to the jury that in the event it found one fact to be true, it was free, but not required, to infer another fact from the first.  While such an instruction is indeed an “adverse inference instruction,” in that it explains to the jury that it is at liberty to draw an adverse inference, it is not the sort of punitive adverse inference instruction that we discussed in Residential Funding.  It is not a sanction.  It is no more than an explanation of the jury’s fact-finding powers.

While the court acknowledged that Defendant had specifically requested that the instruction be given as a sanction, the court reasoned that the trial court, “in explaining why it would give the instruction . . . did not say it was doing so as a sanction.”  Rather, it “merely said that an adverse inference was ‘appropriate’ because of the conflicting evidence” regarding the photograph.  The court also reiterated that the instruction was “essentially the version suggested by the Plaintiffs” and that it “left all fact finding entirely within the jury’s discretion.”

“In short,” the court concluded, “the passages from Residential Funding on which the Plaintiffs rely related to a different sort of adverse inference instruction—an instruction given as a sanction for misconduct and not one that simply explains to the jurors inferences they are free to draw in considering circumstantial evidence.  The Plaintiffs’ contention on appeal is thus without merit.”

A full copy of the court’s opinion is available here.