Terminating Sanctions Imposed for Intentional Destruction of ESI
In Schlossburg v. Abell, Bankruptcy Case No. 13-13847, Adversary No. 14-00417 (Bankr. D. Maryland, April 11, 2016), Defendant Abell filed Chapter 11 bankruptcy; thereafter, Plaintiff was appointed as Chapter 11 trustee. Before the bankruptcy filing, Defendant Abell was sued by multiple plaintiffs for his role in an allegedly fraudulent mortgage rescue scam; after being sued, Abell allegedly transferred significant assets to the other Defendants to keep his property out of the reach of creditors. Plaintiff filed an adversary proceeding against Defendants in the Chapter 11 case to claw back the fraudulently transferred assets. During the case, it came to light that in the myriad state court lawsuits against Abell that he had engaged in discovery misconduct and had even been ordered to serve jail time as a result. Plaintiff filed a motion for sanctions, alleging that Defendants had intentionally spoliated ESI evidence.
The court found that Defendants’ duty to preserve ESI was known to them as early as July 2, 2012, as they were on notice not only in Abell’s bankruptcy case but in the other cases against him. Defendant Bertola, an attorney, was deposed a few weeks later and testified that she understood that she had a duty to preserve electronically stored information. Several parties sent subpoenas to Defendants seeking ESI or sent correspondence indicating that they would be seeking ESI. When Abell filed his bankruptcy in 2013, he was once again told to preserve ESI.
The court noted that in 2011, Defendants hired someone to install software on their computers such as CCleaner, which contains many options for destroying electronic evidence, but which options were not activated on the computers at installation. Defendant Bertola activated these features and deleted data, admitting to others that she had done so to keep the data away from one of the parties suing Abell. She used these file wiping programs repeatedly throughout 2012 and 2014 after knowing of her duty to preserve. The court found that Defendants also disposed of hard drives or withheld hard drives from Plaintiff and reformatting their computers. The court found that the spoliation was intentional and in bad faith and that the information lost was relevant, and therefore ordered terminating sanctions, entering judgment against Defendants and awarding attorneys’ fees and costs to Plaintiff.