In SL EC, LLC v. Ashley Energy, LLC, No. 4:18-CV-01377-JAR (E.D. Mo. Sept. 21, 2021), Missouri District Judge John A. Ross granted the defendants’ motion for terminating sanctions with regard to the plaintiff attorney firm Davis & Garvin, LLC (D&G)’s failure to preserve billing records before letting its Clio account expire after the litigation had commenced, finding that attorney Jim Davis “acted with intent to deprive Defendants of D&G’s full billing records and sanctions under Rule 37(e)(2) are appropriate”.

Case Background

In this case involving claims for breach of contract, fraudulent conveyance, and tortious interference, among others, resulting from a complex purchase of a historic steam power plant in downtown St. Louis, the defendants brought a motion for terminating sanctions pursuant to both Fed. R. Civ. P. 37(e) and the Court’s inherent authority.  There were several discovery failures alleged by Defendants including the loss of data from the D&G Billing Software. D&G, one of the plaintiffs in the case utilized Clio, a subscription-based software service, to track its billing.

When D&G ceased practice in 2018, it simply allowed its Clio account to expire despite the litigation having already begun. To explain the inaction, Davis stated he was “of course aware of his obligations both to retain client files as well as to retain and preserve records relevant to ongoing litigation,” but he “did not at the time understand the nature or existence of the electronic details Defendants are now requesting.” Clio customer support informed the plaintiffs that the billing records were unrecoverable.  This was represented as “the key issue on Defendants’ motion for terminating sanctions.”  Davis subsequently indicated in a court filing that he “decided to exit the practice of law” to take another job but failed to mention that it was “under the cloud” of a disciplinary hearing and that his law license was suspended.

Also identified in the motion were emails lost from Plaintiff Michael Becker’s e-mail account (account was suspended by Google and the e-mails remained unrecoverable), Becker’s stolen laptop (for which the plaintiffs produced a police report) and Becker’s failure to disclose ESI from an iPad and Dropbox cloud storage account used to store relevant ESI.

Judge’s Ruling

Judge Ross finding that “D&G’s failure to preserve billing records from its Clio account clearly warrants sanctions under Rule 37(e)(1) at minimum”, went on to consider sanctions under Rule 37(e)(2) and stated:

“Considering the unique circumstances, the Court concludes that Davis acted with intent to deprive Defendants of D&G’s full billing records and sanctions under Rule 37(e)(2) are appropriate. First, D&G put its legal fees at issue in this litigation and then proceeded to terminate their billing software without preserving all relevant records. Second, Davis’ status as an attorney means he must have been acutely aware of the relevance of detailed billing information in this litigation. No reasonable person would believe Davis’ claim that at the time he permitted the Clio account to expire he “did not…understand the nature or existence of the electronic details Defendants are now requesting.”…Even if the Court accepted this implausible statement, Davis has admitted in his deposition that upon receiving a discovery request from Defendants he declined to involve his information technology contractor…Yet Davis repeatedly claims in his deposition that he does not “have the technical background to answer” particular questions about the lost data…At minimum, Davis acted in bad faith by failing to obtain necessary assistance when under a clear requirement to preserve important information.”

Judge Ross also stated: “The misconduct here is ‘made all the more egregious by the fact that [Davis] is an attorney.’”  He stated that “Plaintiffs had already filed this case when Davis terminated the Clio subscription”, that “Davis proceeded to mislead the Court when explaining why he ceased practicing law and terminated the Clio account” and that “the Court must contextualize this particular intentional destruction of ESI within Plaintiffs’ consistent pattern of discovery abuses in this case.”

As a result, Judge Ross ruled: “The Court has determined that dismissal of Counts I and II is appropriate under Fed. R. Civ. P. 37(e)(2). As discussed above, advisory committee notes to the 2015 amendments to Rule 37 specifically provide that the rule ‘forecloses reliance on inherent authority or state law to determine when certain measures should be used.’ The sanctions imposed by this Court adequately address D&G’s failure to preserve ESI, and reliance on this Court’s inherent authority is accordingly unnecessary… In the alternative, however, the Court finds that it would impose the same sanction pursuant to its inherent authority if such sanction were not warranted under Rule 37(e)(2).”

So, what do you think?  Do you agree that the plaintiff’s failure to preserve billing records warranted dismissal of specific counts in the case?  Please share any comments you might have or if you’d like to know more about a particular topic.

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