Great American Insurance Company (GAIC) filed a lawsuit against Twin Cities Dance & Entertainment, LLC (TCDE), alleging fraud related to an insurance claim. During the discovery process, TCDE failed to comply with court-ordered discovery obligations, prompting GAIC to file a motion for sanctions. U.S. Magistrate Judge Shannon Elkins issued a Report and Recommendation (R&R), suggesting an adverse inference sanction for the spoliation of evidence, specifically the loss of relevant text messages. Judge Elkins recommended a permissive rather than mandatory adverse inference instruction.
Judge Elkins’s recommendation was based on Rule 37(e)(2) of the Federal Rules of Civil Procedure, which allows for sanctions when electronically stored information is lost due to a party’s failure to take reasonable preservation steps. Because the recommended sanction was nondispositive (i.e., it didn’t resolve a claim outright), the district court applied a highly deferential standard of review. GAIC objected only to the permissive nature of the proposed jury instruction, seeking a mandatory version instead.
The R&R concluded—and both parties accepted—that TCDE should have known the text messages would be relevant to litigation as early as July 7, 2021, and failed to take adequate steps to preserve them. The messages were irretrievably lost, and TCDE acted with the intent to deprive GAIC of their use. These findings met the threshold under Rule 37(e)(2) for imposing an adverse inference instruction. However, the R&R did not identify the destroyed messages as singularly crucial to the case, which influenced the choice of a permissive instruction.
The court emphasized that an adverse inference instruction is a powerful and potentially prejudicial tool. According to precedent, a mandatory instruction—essentially directing a jury to presume misconduct—should be reserved for situations involving the destruction of a uniquely critical piece of evidence. Since the lost messages did not constitute such definitive evidence, the court found that a permissive instruction, which allows but does not require the jury to draw a negative inference, was more appropriate and consistent with Eighth Circuit guidance.
The district court overruled GAIC’s objection and adopted the R&R in full. It granted GAIC’s motion for sanctions in part, ordering a permissive adverse inference instruction as a remedy for TCDE’s spoliation, but denied the request for a mandatory instruction or for additional sanctions under Rule 37(e)(1). The court reaffirmed that even under a de novo standard of review, it would reach the same conclusion. This decision highlights the careful balancing courts must perform in imposing sanctions for discovery violations.
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