Law Firm Defendant Sanctioned for Negligent Destruction of ESI
In DiStefano v. Katsos et. al., Case No. 11-2893 (E.D. N.Y., May 10, 2017), Plaintiff business owners hired Defendant lawyer Katsos to advise them regarding their financial difficulties, including how to establish a trust to protect their personal assets from business creditors and how to negotiate with creditors. Plaintiffs allege that Defendant’s counsel caused them great financial damage.
In 2013, Plaintiffs filed a Motion for Sanctions against Defendants; the court denied the motion without prejudice pending a hearing. The Motion alleged that Defendants destroyed and/or failed to preserve ESI discovery. The court determined that Defendants’ duty to preserve arose in 2009 when Plaintiffs terminated the attorney-client relationship. The court then scheduled a hearing to determine intent, ordering Defendant Katsos to testify about her document retention policies, computers, and various other items related to ESI. The court further found that at that time, Plaintiffs had not established the relevance of the destroyed materials.
As the actions leading to the motion took place more than seven years ago, the court determined that it must use the version of FRCP 37(e) that existed at the time and not the current version that was modified by the 2015 amendments.
At the evidentiary hearing, Defendant Katsos testified extensively about her lack of computer training, the computer use at her office, and the office’s ESI retention policies. She testified about having computer difficulties before 2009 and that she had hired an IT professional who had to replace several computers due to viruses. Defendant Katsos testified ever destroyed anything. The IT person testified that the computers had to be replaced because of viruses.
The court found that Defendant Katsos had a culpable state of mind, as she hired staff who lacked computer knowledge and never learned about computers herself. She had “loose” procedures that resulted in the loss of documents, and although she was not computer savvy, she was aware of her obligation as an attorney to preserve documents. However, the court found that the attorney’s actions due to lack of computer knowledge were merely the negligent (not grossly negligent) destruction of ESI. The court also found that Plaintiffs’ had not shown relevance sufficiently for a spoliation finding and that Plaintiffs suffered minimal prejudice. Therefore, the court awarded costs and attorneys’ fees to Plaintiffs but declined to sanction Defendants further.