In Terra Mgmt. Grp., LLC v. Keaten, 572 P.3d 126 (CO 2025), the Supreme Court of Colorado (Supreme Court) considered whether the trial court properly imposed sanctions on the defendants for failing to preserve evidence before the commencement of litigation. The trial court noted that the defendants, who owned and managed an apartment building, began removing the evidence from an apartment after the plaintiffs complained of toxins originating from the apartment building. As a sanction, the trial court imposed a negative inference that the defendants’ destruction of evidence would have established a link in the chain of evidence against them. The court also awarded over $2.5 million in exemplary damages. The Supreme Court held that there is a duty to preserve relevant evidence when a party knows or should know that litigation is pending or is reasonably foreseeable. The Supreme Court provided clarification on this standard but did not find it necessary to remand the case because the trial court relied on available evidence to reach its findings on causation.

The Keaten case involved personal injury claims by tenants of the defendants’ Section-8 housing complex related to toxic fume inhalation from unauthorized meth production inside an apartment unit below where they resided. In March 2018, the plaintiffs reported chemical smells to the property manager. The plaintiffs also told the property manager that they thought the fumes were coming from a meth lab in an apartment below their unit. About a week later, the property manager conducted a walk-through inspection of the apartment and did not find any signs of odor or foul play. In April 2018, the plaintiffs sent a letter to the defendants’ vice president detailing the various symptoms that they were experiencing due to exposure to the meth fumes from the apartment below. These symptoms included nose bleeds, burning sensations, heart palpitations, and difficulty in breathing. The Littleton Housing Authority inspected the plaintiffs’ apartment in April 2018 and confirmed a slight chemical smell.