*1 Daniel Castagna claims that his recreational vehicle caught fire as a result of a faulty power inverter. He sued Newmar Corporation, which manufactured the RV, for breaching the implied warranty of merchantability (among other claims). Newmar, in turn, filed an indemnification claim against the inverter's manufacturer, Magnum Energy, Inc.

Newmar and Magnum have now filed motions for sanctions, asking the Court to dismiss the case or impose other sanctions because Mr. Castagna failed to preserve evidence relating to the fire's cause. They note that some of the contents of the RV were removed when a tow driver made make-shift repairs to allow the vehicle to be towed, and that the site of the fire—an acquaintance's home in a remote location where Mr. Castagna's son was staying—was not preserved. They also note that some components of the inverter went missing after the parties’ experts first inspected the device. As explained below, the Court denies the motions. While Mr. Castagna should have exercised greater diligence to ensure the evidence's preservation, the severe sanctions the defendants seek are unwarranted in light of the limited prejudice to both sides from the loss of that evidence and Mr. Castagna's limited degree of culpability.

In August 2014, Mr. Castagna's RV caught fire in Covelo, California. The RV had been parked there for several months at a home that belonged to a friend of a friend. Mr. Castagna's son had been staying at the home, but Mr. Castagna was not there at the time. Mr. Castagna's son discovered the fire when he returned to the home and saw smoke coming from the RV. He and his friend unplugged the RV from the shore power connection and looked for the source of the smoke, but did not find any fire. A couple of days later, Mr. Castagna emailed Newmar for assistance repairing the RV, and asked them to “step up” and help him trade in the vehicle. Newmar offered to assist in arranging a repair appointment, but also advised Mr. Castagna to contact his insurance company to investigate the fire.

About a week after the incident, Mr. Castagna's insurance company hired a tow truck to tow the RV from the home to a storage facility several hours away. In order to allow the RV to be towed, however, the tow truck driver had to make some repairs, including fixing damaged airlines. To do so, he cleared out the contents of the lower compartments of the RV, where the fire damage had occurred. Those contents were not preserved and were lost. A fire investigator retained by Mr. Castagna's insurance company inspected the RV at a rest stop en route to the storage facility, but he did not visit the site where the fire occurred.

Several months later, an inspection was held with representatives for Mr. Castagna, his insurance company, and Newmar. At that time, they noted that the RV's inverter (a device that can convert AC power to DC power, and vice versa) had suffered a failure and could be a source of the fire. Another inspection was thus held with a representative from Magnum, the inverter's manufacturer. The inverter was visually inspected and it was removed from the RV and shipped to Mr. Castagna's expert. From there, the inverter was shipped to Oracle Forensics, an expert retained by Mr. Castagna's insurance company, and the parties held a visual inspection of the inverter at that facility. The inverter was then sent back to Mr. Castagna's expert, where the parties scheduled another joint inspection to perform testing on the device.

*2 At that inspection in July 2016, however, the parties discovered that a critical component—the inverter's “FET board”—was not present. They thus asked Oracle to ship that component as well, and Mr. Castagna's counsel followed up shortly thereafter to confirm that request. Oracle did as requested and sent the FET board, so another joint inspection was convened in August 2016. At that time, though, the parties discovered that some pieces of the FET board were not included. In particular, three “TVS diodes” were missing.[1] Those pieces had been present when the parties visually inspected the inverter at Oracle, but was not among the materials shipped from Oracle. The next day, Mr. Castagna's counsel contacted Oracle and implored it to search for the missing pieces. It searched its facility, but did not find any other pieces, and those pieces have never been found.

During discovery, the parties each retained experts to opine on the cause of the fire and whether the inverter in particular caused the fire. Newmar and Magnum offered several experts on that topic. One of them, Ronald Kilgore, opined “to a reasonable degree of engineering certainty” that the fire “was not the result of a failure within the Magnum Inverter.” Though he noted that some pieces were lost, and that testing of those pieces “may aid in the determination of the precise failure mode” of the inverter, he confirmed that his opinions “do not require such testing.” [DE 154-3 p. 25–26]. A Magnum engineer likewise testified that he had everything he needed to “confirm to a very high degree of certainty” that the inverter did not cause the fire, even though being able to conduct tests on the missing pieces might have been helpful too. [DE 154-2 p. 43]. A cause-and-origin investigator also examined the available evidence and opined “to a reasonable degree of professional certainty” that the fire started within a particular compartment within the vehicle. While he has unable to determine what did cause the fire, he could conclude that the inverter did not. [DE 154-5 p. 67].

Newmar and Magnum have filed motions for sanctions. They argue that Mr. Castagna spoliated evidence by failing to preserve the site of the fire and the contents that were removed from the RV when it was towed, as well as the pieces of the inverter that were later lost. They seek multiple forms of sanctions as a result. Magnum first seeks dismissal of Mr. Castagna's claims. Both defendants also ask for an adverse inference. The instruction they request, though, would have the same effect as dismissal; their requested instructions would tell the jury that it must conclude that the missing evidence would show that the fire started outside the inverter, which would preclude a finding of liability for the fire. Magnum also asks to strike one of Mr. Castagna's expert opinions, and for an award of costs.

A. Applicable Law

Before addressing the substance of the motions for sanctions, there is a lurking issue to address about the source of law governing the motions. Magnum invoked federal sources of authority for its motion (Federal Rule of Civil Procedure 37 and a federal court's inherent authority to sanction parties appearing before it); Newmar relied primarily on cases applying Indiana law; and Mr. Castagna cited a mix of both state and federal law. The distinction could be important, as Indiana law allows sanctions for negligent losses of evidence, while federal law generally requires at least “fault,” which has been described as at least gross negligence, before authorizing dismissal. None of the parties acknowledge the distinction, though, or address which source of law should apply.

Every circuit court to have considered the question has concluded that federal law governs the imposition of sanctions for spoliation in federal courts, even in cases arising under diversity jurisdiction.[2] Sherman v. Rinchem Co., 687 F.3d 996, 1006 (8th Cir. 2012) (“We now hold, in accordance with our sister circuits, that federal law applies to the imposition of sanctions for the spoliation evidence.”) (also collecting cases to the same effect from six other circuits). The Seventh Circuit has not confronted that question, though, and several district courts in this circuit have reached the opposite conclusion.

*3 The Court believes that the consensus among the circuits that federal rules govern is better reasoned. The duty to preserve evidence can arise from many different sources, including state law. See Allstate Ins. Co. v. Sunbeam Corp., 53 F.3d 804, 806 (7th Cir. 1995) (accepting the parties’ agreement, though not offering a holding, that state law governs the pre-suit duty to preserve evidence); Banks v. Enova Fin., 2012 WL 12539830 (N.D. Ill. July 10, 2012) (“The duty to preserve evidence arises from many sources, including common law, statutes, regulations, or a court order in the case.”). But the power to issue sanctions for violations of that duty is derived from rules of civil procedure and courts’ inherent powers, which are procedural in nature. Adkins v. Wolever, 554 F.3d 650 (6th Cir. 2009) (en banc) (holding that federal law governs sanctions motions, in part because “the authority to impose sanctions for spoliated evidence arises not from substantive law but, rather, from a court's inherent power to control the judicial process”).[3] Sanctions also involve case-management decisions and evidentiary rulings, which are likewise procedural in nature. Adkins, 554 F.3d at 652 (“[A] spoliation ruling is evidentiary in nature and federal courts generally apply their own evidentiary rules in both federal question and diversity matters.”); see also Park v. City of Chi., 297 F.3d 606, 612 (7th Cir. 2002) (“The exclusion of documents as a sanction for nondisclosure is a subject for regulation by the federal court as a matter of procedure.”). Because federal courts apply their own procedural rules even where state law supplies the substantive rule of decision, Musser v. Gentiva Health Servs., 365 F.3d 751, 754 (7th Cir. 2004), the Court analyzes the motions for sanctions under federal law.

That said, while the path may differ somewhat, the result would be the same even applying Indiana law. Though Indiana law may allow sanctions for the negligent loss of evidence (as with the lost inverter components), it would not compel sanctions in that event. Aqua Envtl., 102 N.E.3d at 302 (holding that “a finding of spoliation alone does not necessarily require the imposition of sanctions”). Rather, Indiana courts weigh the spoliating party's culpability and the degree of prejudice to the opposing parties in deciding whether to impose sanctions. Id. at 303 (“When deciding whether to sanction a party for the spoliation of evidence, courts consider two primary factors: (1) the degree of culpability of the party who lost or destroyed the evidence; and (2) the degree of actual prejudice to the other party.”). For the same reasons discussed below, the Court does not find that Mr. Castagna's degree of culpability or the resulting degree of prejudice warrant the sanctions the defendants seek. The Court would thus deny the motions even if it applied Indiana law.

B. Spoliation sanctions

Parties have a duty to preserve evidence once they know or should know that litigation is imminent. Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 681 (7th Cir. 2008); see Aqua Envtl., 102 N.E.3d at 301 (holding that the duty to preserve evidence arose when the plaintiffs “knew, or at the very least, should have known, that litigation was possible, if not probable”). Both the Federal Rules of Civil Procedure and courts’ inherent authority allow courts to impose sanctions for violations of that duty. To impose the extreme sanction of dismissal, a court must find that evidence was lost or destroyed due to a party's “willfulness, bad faith, or ... fault.” Ramirez, 845 F.3d at 776; e360 Insight, Inc. v. Spamhaus Project, 658 F.3d 637, 642 (7th Cir. 2011). “Fault, in contrast to willfulness or bad faith, does not require a showing of intent, but presumes that the sanctioned party was guilty of ‘extraordinarily poor judgment’ or ‘gross negligence’ rather than mere ‘mistake or carelessness.’ ” Ramirez, 845 at 776 (quoting Marrocco v. Gen'l Motors Corp., 966 F.2d 220, 224 (7th Cir. 1992)). Absent such a showing, courts can impose sanctions to the degree necessary to cure any prejudice. See Fed. R. Civ. P. 37(e)(1). But to justify an adverse inference that the lost evidence would have been harmful to the opposing party, the evidence must have been lost in “bad faith,” meaning “for the purpose of hiding adverse information.” Mathis v. John Morden Buick, Inc., 136 F.3d 1153, 1155 (7th Cir. 1998); Bracey v. Grondin, 712 F.3d 1012, 1019 (7th Cir. 2013) (“[T]he crucial element is not that the evidence was destroyed but rather the reason for the destruction.”).

*4 The Court begins with the loss of the inverter components. There is no question that the duty to preserve evidence had attached by that time, and the evidence was lost while in control of a party acting on Mr. Castagna's behalf (an expert retained by his insurance company). The Court cannot find, though, that the evidence was lost with a degree of culpability that could warrant dismissal or an adverse inference. Simply put, the pieces were lost through pure mistake or inadvertence. No one suggests that the pieces were intentionally lost, much less that they were lost for the purpose of hiding adverse information. The inverter was being held by a responsible custodian for the very purpose of preserving it and allowing it to be inspected. At some point between when the parties initially inspected it and when it was packaged for shipment, though, some pieces became separated from the inverter. When that was discovered, Mr. Castagna's attorney promptly requested that the remaining pieces be sent, and some pieces were found and sent as a result. When it came to light that some pieces were still missing, counsel again promptly inquired and conveyed the urgency of his inquiry, but further searching was unsuccessful. It is unclear why those pieces went missing in the first place or why they were not found, and the custodian may well have been negligent in allowing pieces of the inverter to go missing,[4] but that sort of inadvertent mistake does not warrant the extreme sanction of dismissal or an adverse inference. Bracey, 712 F.3d at 1020 (“Simply establishing a duty to preserve evidence or even the negligent destruction of evidence does not automatically entitle a litigant to an adverse inference instruction in this circuit.”).

Moreover, even if the Court had the discretion to do so, it would decline to impose such harsh sanctions under these circumstances. See Langley v. Union Elec. Co., 107 F.3d 510, 515 (7th Cir. 1997) (“An award of sanctions must be proportionate to the circumstances surrounding the failure to comply with discovery.”). Most notably, despite any missing evidence, the defendants’ experts opined without qualification that the inverter did not cause the fire, and they all confirmed that the missing pieces were not necessary to and would not change their opinions. While the experts asserted that the missing pieces might have provided further support for their opinions, they were quite emphatic that they did not need those pieces in order to conclude that the inverter did not cause the fire. Granted, the defendants may have suffered a degree of prejudice by not being able to perform additional tests that might have added greater support to their conclusions. But that possibility would not warrant dismissing the claims when both sides’ experts were still able to testify unequivocally as to whether the inverter caused the fire.

Magnum asks in the alternative that the Court strike testimony about the inverter by one of Mr. Castagna's experts, Peter Layson. That is not warranted either, though. Mr. Layson had the exact same opportunity to inspect the inverter and the missing pieces as the other experts. Just like the other experts, he was able to visually observe the inverter and its components (including the pieces that later went missing) at the pre-suit inspections. And like the other experts, he was unable to conduct testing on the missing pieces once they were lost. But he was still able to examine the inverter itself and conduct whatever other inquiry he saw fit to analyze the cause of the fire, just like the other experts who also reached firm opinions as to whether the inverter caused the fire. Because Mr. Layson had no greater access to the missing pieces than any of the other experts, striking his testimony because of the loss of those pieces would not level the playing field or alleviate prejudice. The Court thus declines to impose that sanction either.[5]

Magnum[6] also argues that sanctions are warranted for the loss of evidence from the scene of the fire, including the contents of the RV and the site of the fire. As to the site of the fire itself, though, Magnum has not shown that any evidence was destroyed. Magnum focuses on the shore power connection, which it suggests is a potential cause for the fire because shore power connections are notoriously suspect. Magnum never specifies how it believes the shore power connection was altered, though. The RV was disconnected from shore power when smoke was first seen, but a party does not spoliate evidence by taking steps to make sure a fire is out and that the scene is safe. Magnum does not indicate that the condition of the shore power connection has changed since it was disconnected from the RV, either. Nor has it sought to visit the home to inspect the connection or shown that the connection would have been in any different condition had it done so. Magnum has thus failed to show spoliation in that respect.

*5 The contents of the RV are a different story, though. Some materials from the area of the fire were removed by the tow truck driver when he made repairs to allow the RV to be towed, and those materials were not preserved. The Court finds that the duty to preserve evidence had attached by then. Though Mr. Castagna may not have know who he would assert a claim against at that point, he knew or should have known that he would likely assert a claim against someone. In fact, before he had the vehicle towed, Mr. Castagna sent an email to Newmar saying that he expected Newmar and two other companies to “step up and help [him] on the value of trading this coach in[.]” [DE 154-5 p. 2]. Newmar had also told him to contact his insurance company “to have them look at and investigate the issue.” Id. Mr. Castagna plainly anticipated by that time that he would assert a claim arising out of the fire, and thus had a responsibility to preserve evidence. See Aqua Envtl., 102 N.E.3d at 301 (finding that a duty to preserve evidence “arose at or near the time of the fire” that gave rise to the plaintiffs’ claim). In addition, Mr. Castagna's failure to do so may well constitute “fault,” as required to allow dismissal, as the materials were removed by someone acting on Mr. Castagna's behalf and there is no indication that Mr. Castagna took steps to make sure evidence was preserved.

Still, the Court does not find that the severe sanctions Magnum seeks are warranted. First, as already discussed, the prejudice is limited. Despite the loss of this evidence, all of the experts were still able to offer opinions on whether the inverter caused the fire. Newmar's cause-and-origin expert was even able to opine where the fire began. Though he noted that the precise cause of the fire could not be determined in light of the missing contents, Mr. Sargent was still able to conclude based on the available evidence that the fire began in a particular compartment within the RV (a different compartment than the inverter), and that the inverter did not cause the fire. The Court understands Magnum's concern that it might have a stronger defense if it could point to a specific source as the cause of the fire, instead of just showing that the fire started somewhere else and wasn't caused by the inverter. But again, in light of all the expert opinions notwithstanding the lost evidence, the marginal value of that potential defense does not justify the extreme sanction of dismissal.

The Court also finds that Mr. Castagna's degree of culpability is mitigating. Again, there is no suggestion that he (or anyone on his behalf) lost evidence on purpose, much less that he did so to conceal adverse evidence. At the time of the fire, the RV was not in his possession; it was being stored at a home that apparently belonged to a friend of a friend, at which his son was staying. Mr. Castagna did not have control over that property, and he was not present to personally ensure that any evidence was preserved—he was thousands of miles away in Florida. The contents of the RV were removed by the tow truck driver, but there is no reason to believe that Mr. Castagna knew the driver would have to make repairs or that doing so would entail removing items from the RV. Nor would the driver have likely known that those materials needed to be preserved. Mr. Castagna may still be accountable for the evidence being lost, these circumstances still weigh against such a punitive sanction as dismissal.

In sum, this is not a situation where the case is not triable due to the loss of any evidence, nor is any party hamstrung in its ability to present its case. Though some evidence was lost, both sides’ experts were still able to offer unequivocal and unqualified opinions on the key issue: whether the inverter caused the fire. The marginal value to that inquiry of any lost evidence does not warrant the sanctions the defendants request, particularly when viewed against Mr. Castagna's degree of culpability. The Court thus denies the motions.

The Court DENIES the motions for spoliation sanctions. [DE 154, 157].

SO ORDERED.