SL EC, LLC v. Ashley Energy LLC

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

EASTERN DIVISION

SL EC, LLC, et al., )

)

Plaintiffs, )

)

v. ) Case No. 4:18-CV-01377-JAR

)

ASHLEY ENERGY, LLC, et al., )

)

Defendants. )

MEMORANDUM AND ORDER

This matter is before the Court on Defendants’ Motion for Terminating Sanctions (Doc.

195). The motion is fully briefed and ready for disposition.

I. BACKGROUND

This case concerns the relatively complex purchase of a historic steam power plant in

downtown St. Louis (the “Plant”). This Court has previously summarized the relevant facts:

Until August 2017, the Plant was owned by Trigen-St. Louis Energy

Corporation (“Trigen”), and the City of St. Louis held an assignable right to

purchase the Plant. (Doc. 139 at ¶¶ 1-2). The city assigned this right to Plaintiff

SL EC, LLC (“SLEC”), a company solely owned and controlled by Plaintiff

Michael Becker (“Becker”). (Id. at ¶ 2). In May 2016, after realizing SLEC lacked

sufficient funds to purchase the Plant outright, Becker approached Defendant

Mason Miller (“Miller”), a member of Defendant Power Investments, LLC

(“Power Investments”) and partner at Defendant Miller Wells, PLLC (“Miller

Wells”). Becker proposed to Miller that Power Investments and others provide

funding in exchange for equity in the Plant. (Id. at ¶¶ 14-16).

In October 2016, SLEC executed an agreement (the “Client Agreement”)

engaging Plaintiff Davis & Garvin, LLC (“D&G”) and Bick & Kistner, PC

(“B&K”) to provide legal counsel regarding the “negotiation, acquisition, and

closing of the purchase of the [Plant].” (Doc. 90-1 at 1-2). On November 23,

2016, SLEC created Defendant Ashley Energy, LLC (“Ashley Energy”), the

vehicle which would ultimately be used to purchase the Plant. (Doc. 139 at ¶ 5).

Becker and SLEC’s plans quickly deteriorated. Throughout 2017, the

parties worked to arrange financing for the purchase of the Plant. (Doc. 131-1 at

70-106). On May 15, 2017, Ashley Energy executed an Asset Purchase

Agreement with Trigen to purchase the Plant. On August 3, 2017, however, Jim

Davis (“Davis”) of D&G informed Miller that SLEC could not afford to retain

any ownership in Ashley Energy. (Id. at 59). Over the following few days, the

parties negotiated and executed a Membership Interest Purchase Agreement

(“MIPA”) and Assignment and Assumption of Membership Interests Agreement

(“Assignment Agreement”). Pursuant to these agreements, SLEC sold its entire

membership interest in Ashley Energy to Power Investments for a total purchase

price of approximately $1.7 million. (Doc. 149 at 1-2).

Plaintiffs SLEC, Becker, and D&G bring claims for breach of contract, fraudulent

conveyance, and tortious interference, among others, all resulting from this transaction and the

associated events. (Doc. 90). Defendants Miller Wells, Power Investments, Miller, and Ashley

Energy have filed counterclaims for fraudulent misrepresentation and inducement, unjust

enrichment, and breach of contract, among others. (Doc. 115). To synthesize, there are

essentially three categories of issues in this litigation: (1) Plaintiffs are seeking damages relating

to an alleged breach of the MIPA and Assignment Agreement, particularly regarding the status

of a $1.1 million contingent payment; (2) Defendants have brought counterclaims on related

grounds; and (3) D&G alleges that Defendants owe outstanding legal fees incurred in the Plant

acquisition. Defendants now contend that this Court should dismiss Plaintiffs’ Second Amended

Complaint (“SAC”) with prejudice due to the allegedly intentional spoliation of relevant

evidence. (Doc. 195).

II. LEGAL STANDARD

Defendants bring this motion pursuant to both Fed. R. Civ. P. 37(e) and this Court’s

inherent authority. (Doc. 195 at 1). The Eighth Circuit has advised that the “best practice is to keep

the structured analysis for a particular rule separate from the relatively unstructured analysis

associated with inherent authority.” Sentis Grp., Inc. v. Shell Oil Co., 559 F.3d 888, 900 (8th Cir.

2009). The advisory committee’s notes to the 2015 amendment to Rule 37, moreover, specifically

indicate that Rule 37(e) “forecloses reliance on inherent authority or state law to determine when

certain measures should be used.” See also Blazer v. Gall, No. 1:16-CV-1046 KES, 2019 WL

3494785, at *2 (D.S.D. Aug. 1, 2019) (Noting that application of Rule 37(e) “forecloses reliance

on inherent authority.”). But the Eighth Circuit has also held that a federal court is not “forbidden

to sanction bad-faith conduct by means of the inherent power simply because that conduct could

also be sanctioned” under the rules. Schlafly v. Eagle Forum, 970 F.3d 924, 936 (8th Cir. 2020)

(quoting Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991)). Accordingly, this Court will first

consider whether sanctions for Plaintiffs’ alleged destruction of electronically stored information

(“ESI”) are warranted under Rule 37(e), and second, whether sanctions are appropriate pursuant

to this Court’s inherent authority.

III. ANALYSIS

Discovery Background

For Plaintiffs, discovery has become a series of missteps. Before discussing the procedural

history of the discovery issues in this case and addressing whether sanctions are warranted, it is

appropriate to summarize the discovery failures alleged by Defendants which remain relevant on

this motion for terminating sanctions1:

• D&G Billing Software: This is the key issue on Defendants’ motion for terminating

sanctions. D&G 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

this litigation having already begun. Davis explains he was “of course aware of his

1 This summary focuses on the key discovery issues which remain relevant on this motion for terminating sanctions

and does not necessarily discuss every discovery matter raised throughout this extensive litigation.

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.” (Doc. 155 at 2). Plaintiffs

indicated that they have been informed by Clio customer support that the requested

documents are unrecoverable. As a result, D&G can only produce a single invoice

regarding legal fees incurred in the Plant transaction, but such invoice lacks pertinent

information. Defendants point out that Davis failed to preserve time keeping records

beyond the single invoice. This Court has already concluded that D&G “failed to

adequately preserve relevant evidence” and accordingly “reserve[d] the right to impose

appropriate sanctions” should the Clio data remain unrecoverable. (Doc. 158 at 2).

• Becker’s E-mail Account: Plaintiffs identified Becker’s e-mails as key documents in

their Fed. R. Civ. P. 26(a) disclosures. When Defendants requested production,

Plaintiffs responded that the account had been suspended by Google in December 2019

due to a violation of YouTube’s terms of service. This Court ordered Plaintiffs to take

reasonable steps to obtain Becker’s e-mails, including by subpoenaing Google, and

again “reserve[d] the right to impose appropriate sanctions should Becker’s e-mails

remain unrecoverable.” (Id. at 3). Despite further attempts at recovery, Becker’s e-

mails remain unrecoverable. (Doc. 177 at 2).

• Becker’s Stolen Laptop: In response to a request for local files, Plaintiffs indicated that

Becker’s laptop was stolen two months after he was locked out of his e-mail account.

(Doc. 158 at 3). This Court ordered Plaintiffs to produce the police report

demonstrating the laptop was stolen, which Plaintiffs obtained. (Doc. 177-9). There

was apparently a USB drive containing additional relevant documents which was stolen

along with the laptop, though the USB is not mentioned in the police report. (Doc. 196

at 20 n.7). This Court cannot sanction Plaintiffs for being victims of theft, even if such

theft resulted in the loss of discoverable materials and coincided with other discovery

failures.

• Failure to Disclose ESI: During his deposition, Becker indicated that he used an iPad

and Dropbox cloud storage account to store relevant ESI during the course of the Plant

acquisition. It appears that neither source was clearly disclosed or produced for review

prior to the deposition. (Id. at 24).

On December 11, 2020, Defendants filed their first Motion to Compel alleging that

Plaintiffs failed to produce various key documents per the issues discussed above. (Doc. 150).

After full briefing, this Court granted the motion in part, ordered Plaintiffs to attempt to recover

the materials, and expressly “reserve[d] the right to impose any sanctions it deems prudent with

regard to the discovery issues.” (Doc. 158 at 5). On March 3, 2021, pursuant to this Court’s Order,

Plaintiffs filed a status report indicating that despite substantial effort, the additional Clio records,

e-mail account, and laptop all remained unrecoverable. (Doc. 177).

During this period of discovery disputes, Defendants filed a Motion for Rule 11 Sanctions.

(Doc. 165). Defendants argued that D&G “misled the Court about the circumstances surrounding

the destruction of its billing records.” (Doc. 166 at 3). In a filing before this Court, Davis indicated

that around June 2018 he “decided to exit the practice of law and work full-time for IPX Exchange

Services, Inc. (“IPX”),” which provides qualified intermediary services for taxpayers. (Doc. 155

at 2). Davis further explained that surrendering his law license “minimized any risk that he would

be a ‘disqualified person’” under the applicable regulations for qualified intermediaries. (Id.).

Davis neglected to mention, however, that he “ceased practice under the cloud of [a] disciplinary

hearing, and the Supreme Court of Missouri entered an order suspending Davis’ law license in

October 2018.” (Doc. 188 at 4; Doc. 166-5). This Court acknowledged it had “little difficulty

recognizing that Plaintiffs were not entirely truthful when initially explaining why Davis ceased

practice” but denied Defendants’ motion for sanctions without prejudice because “the extent of

prejudice . . . remain[ed] unclear” at that juncture. (Id.). In a subsequent deposition, Davis admitted

that statements in a previously filed affidavit representing he allowed the Clio subscription to lapse

due to his work as a qualified intermediary “were probably just superfluous” and he “[p]robably

should have just left it out.” (Doc. 196-2 at 17).

Sanctions Under Fed. R. Civ. P. 37(e)

Rule 37(e) offers two routes for imposition of sanctions in the event that ESI which “should

have been preserved in anticipation or conduct of litigation is lost because a party failed to take

reasonable steps to preserve it,” and such ESI “cannot be restored or replaced through additional

discovery.” First, “upon finding prejudice to another party from loss of information,” the Court

may “order measures no greater than necessary to cure the prejudice.” Fed. R. Civ. P. 37(e)(1).

The range of sanctions available under this section of the rule is “quite broad” and “[m]uch is left

to the court’s discretion.” Fed. R. Civ. P. 37(e), Advisory Committee’s Notes to 2015 Amendment;

see also Paisley Park Enters., Inc. v. Boxill, 330 F.R.D. 226, 237 (D. Minn. 2019).

Second, the Court may issue more substantial sanctions such as an adverse inference

instruction or outright dismissal, but “only upon finding that the party acted with the intent to

deprive another party of the information’s use in the litigation.” Fed. R. Civ. P. 37(e)(2); see Auer

v. City of Minot, 896 F.3d 854, 858 (8th Cir. 2018) (holding “intentional, bad-faith” misconduct

required to impose sanctions under Rule 37(e)(2)). The Eighth Circuit has repeatedly held that the

types of sanctions authorized under Rule 37(e)(2) are only justified upon a finding of “intentional

destruction of evidence indicating a desire to suppress the truth.” Greyhound Lines, Inc. v. Wade,

485 F.3d 1032, 1035 (8th Cir. 2007) (citation omitted).2 The Eighth Circuit has acknowledged,

however, that intent “is rarely proved by direct evidence, and a district court has substantial leeway

to determine intent through consideration of circumstantial evidence, witness credibility, motives

of the witnesses in a particular case, and other factors.” Morris v. Union Pac. R.R., 373 F.3d 896,

902 (8th Cir. 2004).

Rule 37(e)(1)

This Court finds that D&G’s failure to preserve billing records from its Clio account clearly

warrants sanctions under Rule 37(e)(1) at minimum. Such ESI unquestionably “should have been

preserved in the anticipation or conduct of litigation,” was “lost because a party failed to take

reasonable steps to preserve it,” and “cannot be restored or replaced through additional discovery.”

Fed. R. Civ. P. 37(e). This litigation had already begun when D&G terminated its Clio account,

and the Court previously determined that D&G had an obligation to preserve these records but

failed to do so. (Doc. 158 at 2). See Stiriling v. St. Louis Cty. Police Dep’t, No. 4:11-CV-1932

AGF, 2013 WL 2244638, at *1 (E.D. Mo. May 21, 2013) (emphasis in original) (An “obligation

to preserve evidence arises when the party has notice that the evidence is relevant to litigation –

most commonly when suit has already been filed.”). The billing records are integral to D&G’s

claim for legal fees in connection with the Plant acquisition. The Court ordered Plaintiffs to “use

best efforts to recover all available documents from Clio,” (Doc. 158 at 2) and Plaintiffs

subsequently indicated that minimal additional records were available. (Doc. 177 at 1-2). The

2 The Eighth Circuit has clarified that “a district court does not abuse its discretion by imposing sanctions, even absent

an explicit bad faith finding, where a party destroys specifically requested evidence after litigation has commenced.”

Gallagher v. Magner, 619 F.3d 823, 845 (8th Cir. 2010) (citation omitted). There is some tension between this holding

and the clear requirement of Rule 37(e)(2) that a court find the party acted with intent to destroy evidence.

Court also believes that Plaintiffs were less than forthright regarding the reason Davis ceased

practicing law, as discussed further below.

Regarding the loss of access to Becker’s e-mail account, this Court does not have sufficient

evidence to conclude that Becker and SLEC “failed to take reasonable steps to preserve” the

information. Fed. R. Civ. P. 37(e)(1). Google suspended the account due to an apparent violation

of YouTube’s terms of service. The record reflects that Google suspended the account on or about

November 30, 2019, and Becker began corresponding with Google in an attempt to restore access

as early as December 4, 2019. (Doc. 155 at 4-5; Doc. 155-2). Per this Court’s Order (Doc. 158),

Plaintiffs issued a subpoena to Google on January 27, 2021. (Doc. 177-4). After initially objecting

(Doc. 177-5), attorneys for Google indicated that the e-mail account was deleted “shortly” after

the suspension for violation of Youtube’s terms of service. (Doc. 177-7). Because many e-mails

within Becker’s account included Davis or were forwarded to Plaintiffs’ counsel, a substantial

number of e-mails have still been produced. (Doc. 155 at 5-6). The termination of the e-mail

account is extremely unfortunate, and Defendants’ associated frustration understandable, but the

Court does not believe these events or the other discovery failures alleged by Defendants justify

sanctions against Becker and SLEC under Fed. R. Civ. P. 37(e)(1).

Rule 37(e)(2)

The more difficult question is whether Defendants have adequately demonstrated that

D&G “acted with the intent to deprive another party of the information’s use in litigation.” Fed.

R. Civ. P. 37(e)(2). The Eighth Circuit recognizes that intent “is rarely proved by direct evidence,

and a district court has substantial leeway to determine intent through consideration of

circumstantial evidence, witness credibility, motives of the witnesses in a particular case, and other

factors.” Morris, 373 F.3d at 902. The question before this Court is whether D&G intentionally

deprived Defendants of ESI.

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.” (Doc. 155-1 at ¶ 9). 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. (Doc. 196-2 at 35-38).

Yet Davis repeatedly claims in his deposition that he does not “have the technical background to

answer” particular questions about the lost data. (Id. at 37). At minimum, Davis acted in bad faith

by failing to obtain necessary assistance when under a clear requirement to preserve important

information.

D&G has produced a single invoice lacking pertinent information (Doc. 196 at 18); it is

implausible that Davis could have believed that such invoice was sufficient to pursue a claim for

legal fees in this complex litigation. The misconduct here is “made all the more egregious by the

fact that [Davis] is an attorney.” Brown v. Ameriprise Fin. Servs., Inc., 276 F.R.D. 599, 606 n.6

(D. Minn. 2011); see also Banco Portugues Do Atlantico v. Magi France, Ltd., No. 88 CIV. 5221

(JES), 1990 WL 16109, at *3 (S.D.N.Y. Feb. 14, 1990) (“[A]n attorney is held to a higher standard

because of his or her professional obligations.”).

Third, and perhaps most critically, Plaintiffs had already filed this case when Davis

terminated the Clio subscription. See Gallagher v. Magner, 619 F.3d 823, 845 (8th Cir. 2010)

(citation omitted) (“[A] district court does not abuse its discretion by imposing sanctions, even

absent an explicit bad faith finding, where a party destroys specifically requested evidence after

litigation has commenced.”). Destruction of critical evidence after litigation has begun is

particularly egregious. See E*Trade Secs. LLC v. Deutsche Bank AG, 230 F.R.D. 582, 589 (D.

Minn. 2005) (internal quotations omitted) (“When litigation is imminent or has already

commenced, a corporation cannot blindly destroy documents and expect to be shielded by a

seemingly innocuous document retention policy.”).

Fourth, Davis proceeded to mislead the Court when explaining why he ceased practicing

law and terminated the Clio account. In an affidavit in response to Defendants’ initial motion to

compel, Davis stated that he “made the decision to exit the practice of law and work full-time for

IPX,” and “[l]eaving D&G and surrendering [his] law license minimized the risk of being a

‘disqualified person’ under the regulations.” (Doc. 155-1 at ¶¶ 4, 6). In reality, Davis conceded to

the Missouri bar in July 2018 that he was guilty of professional misconduct and agreed to a joint

recommendation providing for an indefinite suspension of his law license. (Doc. 166-4). On

October 30, 2018, the Missouri Supreme Court accepted this recommendation and suspended

Davis’ law license indefinitely. (Doc. 166-5). As this Court has previously noted, Davis operated

both IPX and his law practice for years before his license was suspended, “add[ing] further doubt

to D&G’s claim that D&G ceased practice so that Davis could become a qualified intermediary.”

(Doc. 188 at 4 n.2). Davis has now admitted that the statements in his affidavit “were probably

just superfluous” and he “[p]robably should have just left it out.” (Doc. 196-2 at 17). Davis’

affidavit was deceptive at best, and Plaintiffs’ multiple attempts to explain away these

misstatements have been unpersuasive. See Keefer v. Provident Life and Acc. Ins. Co., 238 F.3d

937, 941 (8th Cir. 2000) (citations omitted) (“[W]hen a litigant’s conduct abuses the judicial

process, the remedy of dismissal is within the inherent powers of the court.”). Davis had clear

motivation to hide his suspension given the central role of his credibility in this case.

Fifth, the Court must contextualize this particular intentional destruction of ESI within

Plaintiffs’ consistent pattern of discovery abuses in this case. See Chrysler Corp. v. Carey, 186

F.3d 1016, 1021 (8th Cir. 1999) (affirming district court’s sanctions where particular discovery

abuse was just “the tip of the iceberg”). As discussed above, Becker lost access to his e-mail

account, which presumably contained numerous relevant communications concerning the Plant

acquisition and associated legal services by D&G. Plaintiffs also failed to promptly disclose

additional sources of ESI, while Davis misled the Court when attempting to explain away the

termination of D&G’s Clio subscription. See Schubert v. Pfizer, Inc., 459 Fed. App’x 568, 573

(8th Cir. 2012) (per curiam) (noting pattern of discovery violations).

The Court recognizes that in “our system of justice the opportunity to be heard is a litigant’s

most precious right and should be sparingly denied.” Chrysler Corp. v. Carey, 186 F.3d 1016,

1020 (8th Cir. 1999) (citation omitted). Accordingly, there is a “strong policy in favor of deciding

a case on its merits, and against depriving a party of his day in court.” Id.; see also Bergstrom v.

Frascone, 744 F.3d 571, 575 (8th Cir. 2014) (internal quotations omitted) (“Ultimate sanction” of

dismissal “should only be used when lesser sanctions prove futile.”). Having considered potential

sanctions, this Court concludes that it must dismiss Counts I and II of Plaintiffs’ SAC with

prejudice because the missing billing records go directly to these counts. The Court cannot permit

D&G to bring a claim for legal fees incurred in the Plant acquisition when, after the litigation

commenced, it intentionally permitted the deletion of critical evidence concerning such fees and

then misled the Court as to the reason for such deletion. In these circumstances, a lesser sanction

of attorneys’ fees or an adverse inference instruction “would not remedy the wrong that has been

done to the litigation process before us.” Carey, 186 F.3d at 1022; see also Keefer, 238 F.3d at 941

(“The district court is not, however, constrained to impose the least onerous sanction available.”).

The Court will not dismiss the entire action or issue an adverse inference instruction as to

Defendants’ counterclaims because the remaining claims in this litigation are separate and distinct

from D&G’s claim for legal fees. Defendants have not suffered meaningful prejudice as to these

other claims, at least with respect to the destruction of the billing records.3 See Keefer, 238 F.3d at

941 (citation omitted) (Sanction must be “just and specifically related to the claim at issue.”).

Inherent Authority

Federal courts “possess certain inherent powers, not conferred by rule or statute, to

manage their own affairs so as to achieve the orderly and expeditious disposition of cases.”

Goodyear Tire & Rubber Co., 137 S. Ct. at 1186 (internal quotations omitted). Such authority

includes “the ability to fashion an appropriate sanction for conduct which abuses the judicial

process.” Chambers, 501 U.S. at 44-45. “Because of their very potency, inherent powers must be

exercised with restraint and discretion.” Id. at 44 (citation omitted). A court’s inherent powers

include the imposition of sanctions when a party has acted in bad faith, vexatiously, wantonly, or

for oppressive reasons. Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 258-59

(1975).

3 No hearing is necessary to impose this sanction because the record demonstrates a willful abuse of discovery and

D&G cannot be fairly surprised by the sanction. See Comiskey v. JFTJ Corp., 989 F.2d 1007, 1012 (8th Cir. 1993).

This Court has repeatedly expressed its right to impose sanctions for the discovery violations at issue and D&G has

had numerous opportunities to explain its position. Finally, neither party has requested a hearing in advance of this

decision.

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. See Shell Oil Co., 559 F.3d at 899 (internal quotations omitted) (“[W]e

emphasize that the better practice is to apply Rule 37 where appropriate and not allow an exercise

of inherent power to obscure the Rule 37 analysis.”).

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). The Eighth

Circuit has held that a federal court is not “forbidden to sanction bad-faith conduct by means of

the inherent power simply because that conduct could also be sanctioned” under the rules. Schlafly

v. Eagle Forum, 970 F.3d 924, 936 (8th Cir. 2020) (quoting Chambers v. NASCO, Inc., 501 U.S.

32, 50 (1991)). The Eighth Circuit has also consistently recognized that courts have, by virtue of

their inherent authority, the discretion “to fashion an appropriate sanction for conduct which

abuses the judicial process.” Sherman v. Rinchem Co., Inc., 687 F.3d 996, 1006 (8th Cir. 2012)

(citation omitted); see also United States v. Harrington, No. 4:18-CV-460 JAR, 2018 WL

4838543, at *2 (E.D. Mo. Oct. 4, 2018).

As discussed above, the Court has determined that D&G acted in bad faith by consciously

failing to preserve relevant billing records after this litigation commenced and misrepresenting the

reason such records were lost. The Eighth Circuit has also clarified that, “[t]o be sure, a district

court does not abuse its discretion by imposing sanctions, even absent an explicit bad faith finding,

where a party destroys specifically requested evidence after litigation has commenced.” Gallagher,

619 F.3d at 845 (emphasis added). In this case, considering all the attendant circumstances and the

Court’s “substantial leeway to determine intent,” the Court concludes that D&G intentionally

destroyed evidence unquestionably integral to its own claim for legal fees and that its subsequent

misrepresentations concerning these events constitutes an abuse of process. Morris, 373 F.3d at

902. D&G’s behavior warrants dismissal of Counts I and II of the SAC pursuant to this Court’s

inherent authority.

IV. CONCLUSION

This Court has substantial discretion in determining appropriate sanctions for failure to

preserve relevant ESI. After careful consideration, the Court finds that D&G’s behavior with

regard to the ESI at issue amounts to intentional, bad-faith misconduct meriting sanctions under

Rule 37(e)(2). Ultimately, having considered less onerous sanctions, the Court deems it

appropriate to dismiss Counts I and II of the SAC under these particular circumstances where a

former attorney sued to recover legal fees and, after commencing litigation, consciously permitted

the destruction of material billing records and proceeded to mislead the Court regarding the reason

for such destruction. Alternatively, if such sanction were not available under Rule 37(e)(2), the

same sanction would be appropriate under this Court’s inherent authority. The Court does not

believe that any further sanctions are appropriate considering the clear separation between D&G’s

claim for legal fees and the other issues in this case.

Accordingly,

IT IS HEREBY ORDERED that Defendants’ Motion for Terminating Sanctions (Doc.

195) is GRANTED in part and DENIED in part. Counts I and II of the Second Amended

Complaint (Doc. 90) are hereby DISMISSED with prejudice. The motion is denied in all other

respects.

Dated this 21st day of September, 2021.

/ 9 OHN A. ROSS

UNITED STATES DISTRICT JUDGE

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