Distefano et al v. Law Offices of Barbara H. Katsos, PC et al
MEMORANDUM AND ORDER re 31 , granting, in limited part, Plaintiffs' Motion for Sanctions, and DENYING the motion in all other respects. SEE ATTACHED ORDER. Ordered by Magistrate Judge A. Kathleen Tomlinson on 5/10/2017. (Tomlinson, A.)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
MICHAEL DISTEFANO and
CV 11-2893 (PKC) (AKT)
LAW OFFICES OF BARBARA H. KATSOS,
PC, and BARBARA H. KATSOS,
A. KATHLEEN TOMLINSON, Magistrate Judge:
This case arises from the ultimate deterioration of the attorney-client relationship between
the Plaintiffs and the Defendants here. It began as an adversary proceeding in a Chapter 11
bankruptcy filed by Michael Distefano and Nicole Distefano (“Plaintiffs” or the “Distefanos”) in
the United States Bankruptcy Court for the Eastern District of New York. The proceeding was
withdrawn from the Bankruptcy Court on August 23, 2010. See Compl. [DE 1-4]. In the
Complaint, Plaintiffs assert claims for breach of contract, negligence/legal malpractice, and
breach of fiduciary duty/duty of care against Defendants Barabara H. Katsos and the Law Offices
of Barbara H. Katsos, PC (“Defendants” or “Katsos”). Id.
During the February 17, 2012 Discovery Status Conference, counsel for the Defendants
advised the Court that Defendant Katsos discarded her computer at some point before this
litigation commenced. See DE 13. The Court directed Defendant Katsos to provide the Court
and Plaintiffs’ counsel with an affidavit detailing the circumstances under which the computer
was discarded. Id. After receiving the affidavit, Plaintiffs filed a motion seeking sanctions for
spoliation. See DE 31. In adjudicating that motion, the Court determined that an evidentiary
hearing was necessary. See Memorandum and Order [DE 48]. Having conducted the evidentiary
hearing, the Court now issues this decision which constitutes its findings as to the spoliation
issue as a result of the hearing testimony and the parties’ motion papers.
BRIEF BACKGROUND FACTS
According to the Complaint, Michael Distefano and non-party Franco Treglia were
owners of SharpImage Enterprises LLC (“SharpImage”).1 Id. ¶¶ 12. SharpImage is the
franchisee of three Cold Stone Creamery, Inc. (“Cold Stone”) ice cream parlors (the
“Franchises”). Id. ¶ 13. In October of 2006, the Franchises began experiencing financial
difficulties due to an extended power blackout in July of 2006 and were having problems
meeting their obligations to their creditors. Id. ¶ 15. As a result, Michael Distefano sought legal
advice from Barbara Katsos and eventually retained her. Id. ¶¶ 16-17. Plaintiffs allege that
Katsos negligently and ineffectively advised the Distefanos to establish an irrevocable trust (the
“Distefano Trust”) in order to protect Michael Distefano’s personal assets from the creditors of
SharpImage. Id. ¶ 11. Plaintiffs further allege that Katsos’ advice not to negotiate with Michael
Distefano’s and SharpImage’s creditors alienated one of the creditors, Telerent Leasing
Corporation (“Telerent”), causing Telerent to sue the Distefanos, SharpImage, and Treglia (the
“Telerent Lawsuit”). Id. ¶¶ 23-24. As a result of Katsos’ alleged negligent representation in the
Telerent Lawsuit, Plaintiffs claim to have incurred substantial losses which ultimately led to
Plaintiffs’ filing for bankruptcy. Id. ¶¶ 25-28. Plaintiffs assert additional acts of professional
negligence, including (1) Katsos’ representation of Franco Treglia without obtaining a waiver of
SharpImage is listed as a plaintiff in the Bankruptcy Court adversary proceeding, but is
not a plaintiff in the instant action withdrawn from the Bankruptcy Court.
conflict of interest from Plaintiffs, id. ¶¶ 29-36, (2) Katsos’ failure to pursue an insurance claim
on behalf of Plaintiffs for their losses resulting from the July 2006 power blackout, id. ¶¶ 37-39,
and (3) Katsos’ failure to take action to prevent Cold Stone from terminating the Franchises, id.
The Previous Motion For Spoliation Sanctions
This Court issued a Memorandum and Order on March 29, 2013 addressing Plaintiffs’
motion for sanctions against the Defendants, brought pursuant to Rule 37 of the Federal Rules of
Civil Procedure, for alleged spoliation of evidence. See DiStefano v. Law Office of Barbara H.
Katsos, PC, No. CV 11-2893, 2013 WL 1339548 (E.D.N.Y. Mar. 29, 2013). At that time, the
Court temporarily denied the motion, without prejudice, pending a hearing. DiStefano, 2013 WL
1339548, at *9.
In the Memorandum and Order, the Court pointed out that the central issue raised in
Plaintiffs’ motion was Defendant Katsos’ destruction of and/or failure to preserve electronic
discovery. Id. at *3. Applying the now benchmark three-part test set forth in Byrnie v. Town of
Cromwell, 243 F.3d 93, 107-112 (2d Cir. 2001), the Court first concluded that Defendant Katsos’
duty to preserve documents and information arose at least as early as February 2009 “when
Michael DiStefano terminated the attorney-client relationship between Plaintiffs and Defendants”
in his letter dated February 24, 2009. Id. at *5. The Court further noted that Plaintiffs had
purportedly questioned the legality of trusts created by Attorney Katsos on behalf of the Plaintiffs
in the Summer of 2008. Id.
As to the second prong of the Byrnie test (“culpable state of mind”), this Court held that
“other factual matters require consideration and clarification and . . . a hearing is necessary to
explore the circumstances under which the alleged spoliation occurred.” Id. at *8 (citing
F.D.I.C. v. Malik, 2012 WL 1019978, at *1 n.1 (E.D.N.Y. Mar. 26, 2012)) (scheduling hearing
to determine attorney’s culpability). In directing that a hearing proceed, the Court instructed
Defendant Katsos to be prepared to testify, among other things, on the following topics:
Katsos’ normal document preservation/retention/deletion/destruction practices;
the number of computers utilized in Katsos’ law office prior to 2009, when the
computers were purchased, and the specific circumstances surrounding the
breakdown of each of those computers;
the service agreements for those computers and the vendor(s) used;
whether Katsos maintained a network server;
AOL’s automatic deletion policies to the extent they were explained to Katsos;
a complete list of every email address used by Defendant Law Offices of Barbara
H. Katsos, PC and Defendant Barbara Katsos or her staff to communicate with
Katsos’ attempts to gain access to the email accounts used by her paralegals and
interns referenced in Paragraph 5 of Katsos Aff. II and page 16 of Plaintiffs’
the document preservation steps undertaken by Katsos when Plaintiffs instituted
an adversary proceeding against her in March of 2010;
the retention and utilization of the services of Jan Sloboda.
Id. To the extent that Defendant Katsos took the position that she would be unable to testify as
to all of these topics, she was directed to bring to the hearing another individual or individuals
from her office who could answer the questions regarding these topics. Id. The Defendants
were directed to prepare a subpoena, to be “so ordered” by the Court directing non-party Jan
Sloboda to appear at the hearing. Id. at *10.
With regard to the third prong of the Byrnie test – that the destroyed evidence was
“relevant” to the party’s claim or defense – the Court pointed out that “[b]ecause the state of
mind of the alleged spoliator determines what standard is necessary to prove relevance,” id. at *9,
a hearing was necessary. At that juncture, the Court found that Plaintiffs had not established the
relevance of the destroyed material, but ruled that Plaintiffs would be given the opportunity to
question Defendant Katsos at the hearing regarding this third prong of the spoliation test. Id.
Which Version of Rule 37(e) Applies to this Motion?
Before assessing the testimony presented at the Evidentiary Hearing, the Court needs to
resolve the issue of which version of Rule 37(e) applies in this case. The Court points out that
when the amendments to the Federal Rules of Civil Procedure concerning discovery became
effective on December 1, 2015, some of the most significant changes took place in the Rule
governing sanctions related to spoliation.2 See Cat3, LLC v. Black Lineage, Inc., 164 F. Supp.
3d 488, 445 (S.D.N.Y. 2016). In particular, amended Rule 37(e) is much more comprehensive
than the previous “safe harbor provision that protected against the imposition of sanctions where
ESI was lost as the result of routine computer functions such as automatic deletion.” Id. United
Prior to the 2015 Amendments, Rule 37(e) stated that “Absent exceptional circumstances,
a court may not impose sanctions under these rules on a party for failing to provide electronically
stored information lost as a result of the routine, good faith operation of an electronic information
system.” The Advisory Committee notes make clear, however, that “[w]hen a party is under a
duty to preserve information because of pending or reasonably anticipated litigation, intervention
in the routine operation of an information system” is required. Advisory Committee Note to the
2006 Amendment to Federal Rule of Civil Procedure Rule 37(e).
States Magistrate Judge Jay Francis, who has been frequently cited on ESI issues and spoliation,
provided a comprehensive and instructive discussion of the Rule change in the Cat3 decision
which this Court finds useful in evaluating which version of the Rule should apply in the instant
case.3 In pertinent part, Judge Francis parsed the changes as follows.
[The amended rule] was adopted to address concerns that parties were incurring
burden and expense as a result of overpreserving data, which they did because
they feared severe spoliation sanctions, especially since federal circuits had
developed varying standards for penalizing the loss of evidence. Fed. R. Civ. P.
37(e) advisory committee's note to 2015 amendment. While some circuits had
required a showing of willfulness or bad faith before a court could dismiss a case,
enter judgment by default, or utilize an adverse inference, the Second Circuit
permitted such sanctions upon a finding that the party that had lost or destroyed
evidence had acted negligently. Residential Funding Corp. v. DeGeorge Capital
Corp., 306 F.3d 99, 108 (2d Cir.2002). The Rules Advisory Committee explicitly
Amended Rule 37(e) states that
If electronically stored information which should have been preserved in the
anticipation or conduct of litigation is lost because a party failed to take reasonable
steps to preserve it, and it cannot be restored or replaced through additional
discovery, the court:
(1) upon finding prejudice to another party from loss of the information, may order
measures no greater than necessary to cure the prejudice; or
(2) upon finding that the party acted with the intent to deprive another party of the
information’s use in the litigation may:
(A) presume that the lost information was unfavorable to the party;
(B) instruct the jury that it may or must presume the information was unfavorable to
the party; or
(C) dismiss the action or enter a default judgment.
rejected the Residential Funding standard, Fed. R. Civ. P. 37(e) advisory
committee's note to 2015 amendment, and instead adopted the principle that
severe sanctions are only permitted where the court finds an “intent to deprive
another party of the information's use in the litigation,” Fed. R. Civ. P. 37(e)(2).
In addressing whether the amendment to Rule 37(e) is to be applied retroactively, Judge Francis
In transmitting the proposed rules amendments to Congress on April 29, 2015,
Chief Justice John G. Roberts included an order providing in part that “the
foregoing amendments to the Federal Rules of Civil Procedure shall take effect on
December 1, 2015, and shall govern in all proceedings in civil cases thereafter
commenced and, insofar as just and practicable, all proceedings then pending.”
2015 US Order 0017. This order is consistent with the relevant statutory provision,
which states in part:
The Supreme Court may fix the extent to which such rule [of
procedure or evidence] shall apply to proceedings then pending,
except that the Supreme Court shall not require the application of
such rule to further proceedings then pending to the extent that, in
the opinion of the court in which such proceedings are pending, the
application of such rule in such proceedings would not be feasible
or would work injustice, in which event the former rule applies.
28 U.S.C. § 2074(a). The issue, here, then, is whether to apply the new version of
The new rule places no greater substantive obligation on the party preserving ESI.
Rather, “Rule 37(e) does not purport to create a duty to preserve. The new rule
takes the duty as it is established by case law, which uniformly holds that a duty
to preserve information arises when litigation is reasonably anticipated.” Report
of Advisory Committee on Civil Rules, App. B-15 (Sept. 2014), available at
This suggests that, since the amendment does not establish a new rule of conduct,
either version of the rule could apply.
However, both the Supreme Court's order and the governing statute create a
presumption that a new rule governs pending proceedings unless its application
would be unjust or impracticable. 2015 US Order 0017; 28 U.S.C. § 2074(a).
Here, because the amendment is in some respects more lenient as to the sanctions
that can be imposed for violation of the preservation obligation, there is no
inequity in applying it [citation omitted]. Cf. Ultra–Temp Corp. v. Advanced
Vacuum Systems, Inc., 194 F.R.D. 378, 381 (D.Mass.2000) (holding that, while
conduct of litigant should be judged by Rule 11 in effect when conduct occurred,
sanctions should be governed by amended rule, which made them discretionary
rather than mandatory).
Cat3, LLC v. Black Lineage, Inc., 164 F. Supp. 3d at 495-96. Finding that there would be no
inequity in the specific circumstances set forth in Cat3, Judge Francis chose to do to consider the
defendants’ spoliation motion under the amended version of Rule 37(e).
Courts within this Circuit have applied the amended version of Rule 37(e) on a case-bycase basis. See Citibank, N.A. v. Super Sayin’ Publishing, LLC, 14-CV-5841, 2017 WL 946348,
at *2 (S.D.N.Y. Mar. 1, 2017) (notwithstanding plaintiff’s argument that application of new Rule
37(e) was not just and practicable, court applied new Rule finding that plaintiff made the motion
more than nine months after the new Rule took effect and cited the current version as the only rule
to be applied); Best Payphones, Inc. v. City of New York, 1-CV-3924, 2016 WL 792396, at *5
(E.D.N.Y. Feb. 26, 2016) (applying amended Rule 37(e) and noting that “as to the emails . . . at
the time in issue, preservation standards and practices for email retention were in flux”). Other
courts have chosen to apply the Rule as it existed prior to the 2015 Amendments. See Hadiyah v.
City of New York, 12-CV-6180, 2017 WL 530460, at *26-*27 (E.D.N.Y. Feb. 7, 2017) (applying
the three-part Byrnie test to find plaintiff negligent in losing her cell phone containing a video of
the underlying incident but denying adverse inference instruction); Learning Care Group, Inc. v.
Armetta, 315 F.R.D. 433, 440 (D. Conn. 2016) (court disagreed with plaintiff’s argument that new
Rule applied and that negligence in destruction of a laptop was not a sufficiently culpable state of
mind to warrant sanctions, finding that applying the new rules would be neither just nor
practicable “because the parties first raised this issue in September 2015, prior to the application
of the new rules”); Thomas v. Butkiewicus, No. 3:13-cv-747, 2016 WL 1718368, at*7 (D. Conn.
Apr. 29, 2016) (finding that “it would be unjust to utilize the new Rule 37(e) in this proceeding,”
and deciding instead to “apply the traditional standard for assessing the need for spoliation
sanctions in this case” where the action “was filed more than two-and–a-half years before the
change to Rule 37(e) took effect”). This Court finds that applying current Rule 37(e) is not “just
and practicable” in the specific circumstances of this case because (1) the parties briefed this
motion under former Rule 37; (2) the Evidentiary Hearing was conducted under the tenets of
former Rule 37; and (3) the conduct relevant to the motion began more than seven years before
the current version of Rule 37(e) took effect. Therefore, the Court will proceed to examine
Defendant Katsos’ conduct under the version of Rule 37 in effect prior to the 2015 Amendments.
THE EVIDENTIARY HEARING
The first prong of the Byrnie test as applied to these circumstances of this case was
discussed in the previous Memorandum and Order. See DE 48 at 4, 6-13. The first element a
party must show when seeking sanctions for the destruction of evidence is “that the party having
Control over the evidence had an obligation to preserve it at the time it was destroyed.” Chin v.
Port Auth. of New York and New Jersey, 685 F.3d 135, 162 (2d Cir. 2012). The Court here
determined that Defendant Katsos had a duty to preserve documents and materials and that such
duty arose as early as late February 2009, “when Michael DiStefano terminated the attorney-client
relationship between Plaintiffs and Defendants.” DE 48 at 8. The termination of Katsos’
services occurred prior to the alleged destruction of the documents at issue here. Id. at 11. In the
specific circumstances of this case, then, the Court held in its March 29, 2013 Memorandum and
Order that Defendant Katsos had a duty to preserve the materials at issue in this motion at the time
those materials were destroyed.
Having already found that Defendant Katsos had a duty to preserve the materials, the
Court now focuses on the two remaining prongs of the Byrnie test, namely, the “culpable state of
mind” factor and the “relevance” of the destroyed evidence to the claims and/or defenses in the
case. Because the state of mind of the alleged spoliaor determines what standard is necessary to
prove relevance, the Court directed that an evidentiary proceeding be held in order to make this
The Testimony of Barbara Katsos
Barbara Katsos testified that she became licensed as an attorney in June 1997. See
Transcript of the June 4, 2013 Evidentiary Hearing at 5.4 As to her educational background,
Katsos received a Bachelor of Science degree in Education and then went on to complete a
Master’s degree in Special Education and a Ph.D. in Educational Administration. Tr. 5. She had
taught every grade level from nursery school to eighth grade and was responsible for setting up the
Cathedral School in New York City, the “flagship school of the Greek Archdiocese” in
Manhattan. Tr. 5-6. From1987 to 1993, Katsos served as the principal of the Cathedral School.
In 1993, Katsos began studies at CUNY Law School and ultimately received her J.D. in
1996. Tr. 7. She was admitted to the Bar of New York State in 1997. Id. While in law school,
Katsos served as an intern in the law office of Theodore Prounis, the President of the Board of
All subsequent references to the hearing testimony on June 4, 2013 are designated
Trustees of the Cathedral School, whose law practice encompassed trusts and estates and business
law. Tr. 7-8. Upon graduation from law school in 1997, Katsos set up her own firm. Tr. 8.
Katsos testified that up until 1997, she had not received any formal training in computers.
Tr. 9. When she started up her practice, she primarily handled landlord/tenant matters and simple
wills. Tr. 9. She continued to practice in the same location – in the suite of offices where Mr.
Prounis worked – up through 2008, the time frame of the incidents giving rise to the instant
Complaint. Tr. 10. In 2008, Katsos had a staff consisting of an office manager and a law student
intern. Id. The intern eventually received her J.D. and then worked as a paralegal for Katsos
while she took the Bar exam Unfortunately, this individual, Jesika Thompson, passed away
before being sworn in as an attorney. Tr. 11. During the summers, Katsos had interns from
Marymount and NYU working in the office. Tr. 12.
When asked about her office’s document retention, deletion and destruction practices in
2009, Katsos testified that “everything was made in hard copy.” Id. She further stated
“[b]asically that’s what I had learned to do was that – make copies of everything. We were very
meticulous. We had close to 100 file cabinets, and about 400 boxes in storage, and we kept every
– every piece of paper was made into a hard copy and it was preserved . . . in file cabinets.” Id.
As to document storage, Katsos testified as follows:
And it would be –
– in file cabinets.
– Would it be put in a file relating to the client matter?
Yeah, there were subject matters. Each client would have a subject matter,
depending on the amount of work of that client. If it was a small will,
obviously it would be in a smaller file. A larger amount of work went into
redwells, and they were categorized and put in file cabinets in the file
All right, and to your knowledge, were those policies followed with
respect to the matters the firm was handling with respect to Mr. Michael
DiStefano and Nicole DiStefano?
According to Katsos, she produced approximately 10,000 pages of documents in the
discovery process relating to the DiStefano litigation. Tr. 13. In 2009, there were five computers
in the office – one for Mr. Prounis, one for the paralegal, one for the office manager, one for the
interns, and one for Katsos herself. Id. Katsos did not know whether the five computers were
connected to a network server, but was told that there was no server. Tr. 14. Any information
regarding matters being handled for Edward DiStefano were stored on Barbara Katos’ own
computer in her office. Id. That computer also contained information pertaining to other clients’
matters which Barbara Katsos was handling. Id. As to the management of client information,
Katsos testified as follows:
All right, and would the computer in your office also hold the information
pertaining to other client matters that you were handling?
All right, and would other – would Mr. DiStefano’s matter, or for that
matter, other client matters, be stored on other computers in the office, to
Not really. Anything that was substantive – my computer was the
computer, sort of like the brains of the operation, that had everything on
it, in my – in my office.
All right. Now you mentioned that the office manager had a computer in
What was on the office manager’s computer?
Besides Solitaire, unfortunately, my office manager was not very computer
literate, so the only thing that she would really have would be how to order
things, she would order the office supplies. She’s an older woman and it’s
fine, and I hired her knowing she was not computer literate, which was
great, because she’s wonderful in many other ways. But computer literate
she is not. So we’ve taught her a little bit more, but she would order
supplies on her computer, and, you know, she could not – she does not
have the ability to write letters and type.
All right, so is it accurate to say that client-related matters were not –
– on that computer?
There were not any.
According to Defendant Katsos, the computer the paralegals used was physically located
in a separate office. Tr. 15-16. That computer stored transmittal letters, essentially cover letters
used when sending documents to a client. Tr. 16. The cover letter would be mailed out but the
document itself would remain on the computer. Tr. 17. Mr. Prounis had his computer in his own
office with him. Tr. 19. Katsos testified that the materials on Prounis’ computer consisted of
Turbo Tax and tax materials since he did taxes for clients. Id. The interns were permitted to use
the computer in the file room for projects assigned by Katsos or someone else in the office. and
they were able to access the internet from the file room computer. Tr. 20.
Katsos also testified that from the time she left the Cathedral School up until 2009, she
never took a course in computers or any CLE courses in computer management. Id. She did not
know the brand name of the computers in her office nor the operating system used in each one
Tr. 21. Katsos retained outside help from an individual named Jan Sloboda. Id. She had
obtained Sloboda’s name from a teacher at the Cathedral School when she left to set up her own
practice. After interviewing Sloboda, Katsos retained him and “he was with me from around”
1998 until 2009, at which point she lost track of him. Tr. 22.
Katsos never had any formal written contract with Sloboda. Tr. 23. When she called him
with a problem, he came and fixed it. She paid him in cash, and on a few occasions, she did some
personal legal work for him, as a “quid pro quo.” Id. Katsos stated that even as she was then
testifying, she was not computer savvy.
In 2009, Katsos and her staff were using email in the office to a limited degree. Tr. 24.
They utilized the email address “email@example.com.” Id. As to saving any emails, Katsos stated
that “if the email was a substantive one, I would print it, so . . . For the most part for myself so I
could remember what I had written. Because finding it was always a problem, and I knew that if
I needed to refer to it and it was substantive, I needed to print it.” Tr. 25. Once the email was
printed, it would be placed in the file. In 2008 - 2009, because the office was using AOL, each
person working there had a separate AOL account, including the paralegal, Prounis and Katsos
herself. Tr. 26. Katsos confirmed the three separate email addresses being used. She also
identified a fourth email address which she believed was set up for the interns’ use so that they
were not using their NYU email addresses. Tr. 28. According to Katsos, she had no control over
any of the email accounts except her own and she did not know any of the passwords. Id.
Paralegal Chris McCarthy (who succeeded Jesika Thompson) did not like AOL and set up another
email address, katsoslaw.com, using Microsoft Outlook. Tr. 29. Katsos testified that she was
never able to access anything from that address and never used it. Tr. 30. She had no personal
knowledge about how to set up or purchase a domain name to register a law firm. Id.
In connection with the spoliation motion, Katsos’ attorney, Paul Callan, had requested
that she go back and attempt to access the email accounts of paralegals who had worked for her in
the past. She was not successful because she did not know the passwords, did not know the
answers to the security questions and was blocked out. Tr. 31. When she contacted AOL for the
very first time – after this litigation had been commenced – Katsos was advised that AOL does not
retain emails unless the user basically does something to retain them. Katsos learned that
retained emails were kept by AOL for 27 days only. Tr. 32. She confirmed that she had never
instituted any mechanism to save AOL emails on her own local computer, as opposed to on the
AOL network. According to Katsos,
I never thought that I had to, no, I didn’t.
Well, did you know how to do it?
You know, I just – know. I mean, I didn’t realize that saving was an
issue, that it was – you know, and I didn’t know how to do it anyway.
Well, what did you think happened to emails?
I don’t know. I thought that everything was – should be there. I didn’t
realize that everything was not there. I mean, I – you know. Because
when I would go down, let’s say the next day, I would see it the next day,
so I assumed it didn’t go anywhere, because I didn’t get rid of it. So I
would assume that it would be there.
Now when you say it, are you talking about –
Anything, you know.
Are you talking about looking at your inbox? When you open AOL and
you look at your inbox –
I looked at whatever is on the screen.
But it is – But it is your testimony that you have made copies of any
emails that were of substance with respect –
– to Mr. DiStefano’s matter?
When it was of substance and I wanted to remember what I had said, I
would print it right away.
And that would be in the file?
And that would be in the file, yeah.
Katsos testified that she was not aware of any method to set up automatic deletion of
emails from the email account nor was she aware of how emails might be saved or deleted from a
“sent file” or “sent folder.” Tr. 34. She never took a class in AOL nor did she read anything
about the inner workings of AOL email. Tr. 34-35.
As to the difficulty with the operation of her office computer system in 2009, Katsos
stated that she went into the office one day and there was a blue screen on her computer. Tr. 36.
She called Jan Sloboda and told him and he responded “about something called blue screen death,
which did not make me happy.” Id. Sloboda came to the office, examined the computer, and told
her that it was “bad and that nothing could be recovered.” Tr. 37. He added that her computer
was “gone” and “fried.” Id. In checking the other computers in the office, Sloboda told her that
those computers “went out” and that he would try to see what he could do to recover as much as
he could. Id. Sloboda believed it was a virus because of the way it had spread. Katsos does not
know if Sloboda ever found the cause of the problem. Tr. 38. According to Katsos, Sloboda told
her that the least expensive way to address the problem was to “let him change the components.”
Tr. 39. They did not buy new units, but rather changed the components. Id. Katsos did not have
any service agreements for the computers with any other vendors, nor did she have any financial
records from Sloboda relating to the purchase of those computers. Id. She denied ever
intentionally destroying documents related to Plaintiff DiStefano’s lawsuit. Id.
When questioned about office management, Katsos testified that in 2008 and 2009, her
office did not have a case management software system on any of the computers in the office.
Tr. 41. Katsos organized information on her computer using WORD. Id. As she described it, “I
would break down the folders into alphabetical order in the Word system, and I would put from
A to Z folders. And as – whatever the client’s name was, I would keep it in their in alphabetical
order so it would be easy for me to find.” Id. She did the same thing with billing records,
namely, print them out. Id.
On cross-examination, Katsos was asked about her document retention policies in 2006
when she began her representation of Plaintiff Edward DiStefano. Katsos testified that there were
five computers in the office in 2006, but she was not sure if they were the same ones which were
there in 2008. Tr. 44. When Jan Sloboda came in to fix problems, he may have removed the
hard drive, but she was uncertain. Id. All she knew was that after Sloboda left, the computer
worked. Id. She had a “sneaking suspicion” that the interns were downloading things they`
probably should not have been downloading when they were there in the summers. Tr. 45.
When asked about the specific kinds of issues she had with the computers, Katsos responded that
the “computer wouldn’t work. It wouldn’t start. It was dragging. It wasn’t giving us responses.
. . . Mine and a lot of the others.” Tr. 45-46.
Katsos re-confirmed that she paid Sloboda in cash or kind and may have cut two checks to
him over a period of ten years. Tr. 47. She did not keep a record of cash expenses for servicing
the computer and did not record those expenses for tax purposes. Tr. 47-48. When asked if there
were any documents which would show when in time Jan Sloboda did the various repairs or
switchings of the main computer or the other computers in 2006-2007, Katsos responded “no.”
Tr. 48. She described her conversation with Sloboda in 2008 about re-setting the computer
When you discussed setting up the computer system for the Law Offices
of Barbara Katsos and for yourself, did you give him direction as to the
system requirements, the things you needed?
In what way, other than that I needed a computer – five computers to be
Did you ever explain to him that these were client records and these were
documents that needed to be protected or kept protected from deletion?
I said to him, these are, you know, well, these – we need to have these in
the – these are lawyer’s files, and I think he – I’m assuming he understood
that, that they were lawyer’s files and they were client files. He didn’t
assume that they were anything else, and that these were confidential files
that we were responsible for, yeah.
Did you ever ask him to set up a backup for the computer files, any of
I didn’t discuss it with him because I normally thought that he would do
it. Whatever he needed to do to set it up, because it was a lawyer’s office,
and that he knew how to do that, and therefore, he would do it . . .
With regard to the specific domain name for the Law Offices of Barbara Katsos which was
set up by Chris McCarthy, Katsos testified that McCarthy did not discuss with her beforehand
what he was doing. Tr. 51. According to Katsos, that was one of the reasons for McCarthy’s
termination. Id. She knew that McCarthy did not like AOL, but McCarthy never mentioned any
preservation issue as the reason he switched to Microsoft Outlook. Tr. 51-52. Katsos
acknowledged that she asked Mr. Prounis questions regarding Edward DiStefano and/or Franco
Treglia, but never by email. Tr. 53. Prounis did DiStefano’s tax work, including tax work on any
Plaintiffs’ counsel showed Defendant Katsos a three-page email chain which was
eventually admitted as Plaintiffs’ Exhibit (“PX”) 1 [Distefano 1643-45]. The exhibit contains two
emails, both dated March 28, 2008, the earliest one ending with “Regards, Barbara.” That email
was directed to Clay Hodges, Esq., local counsel for Katsos in the Telerent matter which was
pending in North Carolina, with a copy to Melisa Daigneault, Esq., opposing counsel from the
Parker Poe firm in North Carolina. The second email was sent some 42 minutes later from
Attorney Daigneault to Attorney Hodges and Attorney Katsos. See PX 1 [March 28, 2008
emails]. The two emails contain discussions between Katsos and Daigneault regarding
Daigneault’s complaint that she had not received responses to discovery demands served on
Katsos. The email address appearing for Attorney Katsos is “Tpassoc@aol.com.” Id. When
asked about the exhibit, Katsos responded as follows:
Now, do you see on the third page –
Yeah, and I’m familiar with it, yeah, absolutely. Many times what would
happen is, I wasn’t in the office, and I would speak on the phone to Mr.
Prounis, and something had to get out, and he would type it up and send
it from his e-mail. I was discussing it with him, and I gave him permission
to write my name on it, because it had to get out, and I didn’t have access
to a computer. I’m looking at the March 28th, 2008. I was probably not
in the office at that time and I was discussing it with Mr. Prounis, and
something had to get out to Clay, and I discussed it with Mr. Prounis and
had him send it out. He would not go in and send it out from my e-mail.
He would send it from his, yeah. That’s correct.
So, the “regards Barbara” even though it says that, it is Ted Prounis who
With my permission, yeah.
Did you often use Ted Prounis’ e-mail account to send e-mails in Mr.
Well. I didn’t use it. I mean, if Mr. Prounis and I were discussing it and
I was not there and something had to be taken care of, it’s like any other
paralegal would be able to do that. He would do that. He was in the office
all the time. . . .
You did not produce this document in your production, did you?
I – if it was there, it was produced. If it’s not there, then it was not
Katsos acknowledged that her retention policy was to look at a document and decide
whether it was relevant, and then print it out if it was. Tr. 58. As to emails received from Edward
DiStefano, Katsos testified as follows:
When Mr. DiStefano’s matter was over, when he fired you – or
terminated the services in February of 2009, what did you do with respect
to his e-mails?
I – nothing. I mean, I didn’t do anything with them. What was I
supposed to do with them?
Did you go online to AOL and select any documents to print out?
No, because any documents that I would have printed out, I would have
printed out already, and 2009, when I was having the computer issue, so
I wouldn’t have been able to do anything anyway.
Tr. 58-59. Katsos confirmed that at the time Plaintiff DiStefano terminated her services, she had
copies of any email she previously had printed, but she did not download any of the emails
regarding any DiStefano matters which were then in the computer. Tr. 59. She turned over
anything that had been previously printed and whatever else was in the paper file. Tr. 60.
According to Katsos, “any e-mails that we deemed relevant or in the course of any kind of
representation, would be printed out and would be in the files. So there was no reason to do
anything other than that in our office.” Tr. 63.
The Katsos firm did not generate time records on the computer. Tr. 64. Those records
were written down and reviewed with the respective clients when the firm was completing flatrate work, such as a will. Id. Katsos testified that she did not have written records of the date and
time that things were done for the clients. Tr. 65. Litigated cases were a little different. In those
matters, the firm had a monthly retainer and itemized bills for which the clients were expected to
make monthly payments. Id. Katsos confirmed that the litigation bills probably contained time
entries of what was done during a particular month. Those bills were mailed to clients. She
believed that DiStefano’s bills were mailed to him, not emailed to him. Id. The policy was to
make a photocopy of the bill, put it in the file, and then send out the bill in the mail. Tr. 66.
Plaintiffs’ counsel then introduced nine pages of “Invoices” from the “Law Offices of
Barbara H. Katsos, P.C.,” addressed to “Mr. Franco Treglia” and “Mr. Michael Distefano” or
“Eversharp Physical Therapy.” See PX 2, CKBB 000941-950 [2007 Invoices]. All of the
Invoices are for work done in 2007. When asked if she had more bills that she sent to DiStefano
than these, Katsos responded that she could not remember. Tr. 68. She testified that she wrote
the time to be billed on a yellow pad and “they” would type it up. That information was typed
onto the computer – either hers or the paralegal’s – and was then printed. Tr. 70.
Defendant Katsos was shown, among other things, a series of 2007 emails apparently sent
by Jesika Thompson, Katsos’ paralegal, transmitting monthly billing statements to Michael
DiStefano (and sometimes Franco Treglia) for work done on behalf of SharpImage Enterprises
LLC. See PX 3 [Thompson Emails]. Katsos confirmed that Jesika Thompson was forwarding
these monthly billing statements to the Plaintiff by email, although some bills were mailed. Tr.
74. Likewise, Katsos was shown a series of 2008 emails sent by “Jason K. Ciarlante,
Paralegal/Legal Support Staff, Law Offices of Barbara H. Katsos, P.C.” similarly transitting
monthly invoices to Michael DiStefano, including a “Final Invoice” dated February 2009. See PX
4 [Ciarlante Emails]. Katsos confirmed that Jason Ciarlante continued the procedure followed by
Jesika Thompson as to the sending of the billing statements by email. TR 76. After being
directed to an entry designated “XLS” on one of the emails, Katsos did not know if Microsoft
Excel was used with respect to the firm’s billing practices. Tr. 76-77.
The Court then permitted the testimony of non-party witness Jan Sloboda to proceed out of
time. Once Mr. Sloboda finished testifying, Defendant Katsos returned to the witness stand.
Katsos testified that the first time she searched her AOL email account in connection with
this litigation was when the Complaint was served and her attorneys asked her to do so. Tr. 124125. With regard to the preservation issue, Katsos responded as follows:
Did you ever initiate some form of litigation hold?
Litigation hold, are you familiar with the term, of a litigation hold?
No. I’m not familiar with the term.
Okay. Did you, upon finding out that there was an adversary proceeding
that had been filed against you, take any affirmative steps to save
I did not believe that I – there was anything to save. Everything I had, I
had. I never believed that there was anything that I didn’t have, that there
was something to save, and I couldn’t get anything from the computers
after a certain point. So I knew that there was nothing there and anything
that I would have had that was of importance was printed out and put in
When her attorneys asked her to do a search of her AOL account for relevant
emails, Katsos stated “I was a little bit amazed that I couldn’t pick up any more e-mails.” Tr. 127.
She never manually deleted emails, never moved them to any saved folder on the AOL account,
and never forwarded them to any email address. Tr. 127-128. She printed them out and sent them
to her attorneys. Tr. 128. She logged back into the AOL account in 2012 while discussing with
one of her attorneys who walked her through the process of where she should look and she came
up with a few more emails that she sent over to counsel. Id. These emails were in her “sent”
items folder, but there were no emails in her “inbox.” Tr. 129. When she called AOL, the
technician told her that AOL “had no ability to save e-mails past the 27 day mark unless . . . I had
affirmatively done it.” Tr. 129-130.
After being given a further explanation of what a litigation hold is, Katsos testified that
she did implement a hold when she was “served with papers.” Tr. 136. She emphasized that she
never destroyed anything and the policy in her office was that they never destroyed anything.
They kept files and she has files back to 1964. Id. When asked if she ever gave her paralegals or
office manager an instruction to preserve any notes, correspondence and anything on the computer
system related to this case, Katsos responded that “there was no way that they would destroy
anything without talking to me first.” Tr. 137. After being told that the question was not about
destroying anything, but rather whether she had given the staff a specific instruction to segregate
all of the documents and information that may have been in the office concerning the DiStefano
matter, Katsos answered that she told the staff to keep everything in boxes, to take any documents
“from where they were physically, put them in boxes and them separate into the conference room
so that they would not get lost or destroyed. . .” Tr. 138. She did not give them the same
instruction for their computer accounts or their email addresses “because there was nothing to do
on them.” Id.
Katsos further testified that she did contact her former paralegal, Jason Ciarlante, in 2010
to inform him that Mr. Prounis had passed away. Tr. 140. However, she did not tell him at that
time that he needed to preserve any information relating to the DiStefano matter. Id. As to
Jesika Thompson who had passed away, Katsos did not take steps to try to obtain or protect
Thompson’s emails because Katsos did not have the password and could not access them. Id. In
retrospect, Katsos was concerned that she did not have the staff passwords at the time and stated
she now has a different practice in place. Tr. 141.
With regard to her knowledge of computers, Katsos testified that she never took any CLE
classes to try to expand her knowledge of this area because she was “introduced to lawyering as
lawyering” and “spent a lot of time with issues, with client issues, and trying to resolve client
problems.” Id. At the time, she considered the computer a “tool,” it was “a way to write
documents quickly, and if it doesn’t work, we call somebody and they fix it. And that’s – it
wasn’t in my scope of what I felt I needed to do, and obviously that’s not correct. . . I did not get
that involved in it.” Tr. 142. As to Franco Treglia, Katsos testified that she may have emailed
him in the period between 2006 and 2010 and her paralegals may have emailed him. Tr. 143. She
did not pursue trying to recover any emails to Treglia because of the same issue, namely, that she
did not have the password and was blocked out. Tr. 144.
At the time she was experiencing computer problems in the office and was working with
Jan Sloboda, Katsos confirmed that she never discussed with him backing up the data on the
office computers because she “assumed that that’s what they did . . . they being computer IT
people.” Tr. 145. She further assumed that Sloboda would give her a recommendation if needed.
Id. She selected Sloboda to do the work based on a recommendation from someone she had
worked with at the Cathedral School. Tr. 145. He was willing to come at any time she needed
him and that was key for her.” Tr. 145-146. She did not look into any of his credentials or
background based on the recommendation she had received. Tr. 146.
Katsos confirmed that she was aware in 2011, when the document requests were served in
this case, that one of the specific instructions in those demands required her to identify any lost or
destroyed documents. Tr. 149. She stated that she did not know of any lost or destroyed
documents. Tr. 150. As to the AOL email account, Katsos responded “. . . how would I know
what those emails were if they weren’t printed out. And unless they were substantive, they
wouldn’t have been printed out. If they were substantive, they were printed out.” Id.
Jan Sloboda Testimony
The first time Jan Sloboda began working with computers was in 1981 when he found a
job in the School of Medicine at the University of Nevada. Tr. 83. He pointed out that the IBM
PC was a new device at that time. Id. He returned to New York City at the end of 1983 and
started working at Walsh Greenwood Information Systems, a subsidiary of Wang Information
Systems, and later for Wang itself. Tr. 85. He worked as a senior programmer on the PC
development for front end terminals and stayed with Wang until 1986. Id. He left at that time to
try something on his own. Id. He eventually returned to Wang Laboratories and remained there
until September 1994. Id. He then began freelancing as a computer advisor/consultant and spent
most of his time doing repairs and “getting the computers to be operational.” Tr. 86.
Sloboda first went to the Katsos law office in 1997 or 1998 to deal with a problem with
one of the PCs. Tr. 84. At that time, there were two personal computers in the office. Tr. 87.
Each one had its own printer and they were running Windows 95. Id. Later, these two computers
were replaced with more powerful computers which Sloboda selected and bought at computer
trade events. Id. He would buy the components and then configure them into a system. Tr. 88.
His business did not have a name, just his personal name. Id. According to Sloboda, he never
issued an invoice for work that he had done and that he never had a contract with a customer.
Tr. 89. He would discuss with the client whether it was a one time or single day operation and
would reach an agreement on how much the service would cost. Id.
Sloboda maintained and serviced the computers at the Law Offices of Barbara Katsos
between 2006 and 2009. Tr. 90. Originally, the two computers in the office were not connected.
Each one had a modem and the staff could dial in to the America Online service. Each computer
had a printer and one had a scanner to scan in forms. Id. Sloboda testified that he never installed
a network server at the Katsos office. Tr. 91. Three additional computers were eventually
obtained, which Sloboda referred to as “a work group connection.” Id. He noted that “with the
advent of the broadband, it started to make sence because we run the router. We were able to
connect all computers to the internet. . .” Id. A work group network could do the “file services,”
“database services,” and would be able to set up the “network Oasis.” Id. Sloboda stated that at
the beginning, the office was using “very basis services,” namely, the printers. Tr. 93. Later, the
computer was able to open a browser and use the computer for internet research or something
In 2008-2009, Sloboda recalled that one of the major problems Katsos had “was with the
viruses on the net – on the computers. . . . And there were situations when one individual
computer was infecting the others.” Id. When this first happened, Sloboda disconnected the
computers individually. Tr. 94. The viruses were removed from each one and when they looked
like they were clean, he reconnected them and they were operating again for some time. Id.
According to Sloboda
. . . and for whatever reason, the situation repeated again very much, few months
later. And, I don’t – I never got a full understanding why, but probably the reason
is that it was not happening before so much, it was just sometimes it was
happening when she had some of those young people – it – on – those interns. It’s
– it was happening more frequently. The complete failure of the computers what’s
was not happening but they were slowing down very badly, and they were still
working on it but I would be on there – but to use those computers you were able
to have to have a patience. And, second time what happened – Ms. Katsos called
me that her computer is malfunctioning and it had the blue screen or a black
screen . . .
In terms of how he serviced the computers, Sloboda testified that he would first have to
diagnose the problem. When there was a more serious problem, such as viruses, that could sometimes
cause the hard disk to slow down and that disk had to be replaced “as quickly as possible.” Tr. 96.
Sloboda stated that “I had to make sure that the other hard disk is going to be discarded, but
functionally completely destroyed.” Id. There came a time when Sloboda had to replace all of the
hard drives in the office because of the virus problem. Id. Attorney Katsos asked him to try to save
the data that was on the computers. Id. According to Sloboda, it “was impossible to save any data.”
Tr. 97. Katsos’ computer had “that blue screen or black screen of death.” Id. When he pulled out
the hard disk, he could not get any information out of it. Whole directories were missing. Sloboda
used a utility disk to see if there was recoverable information on the disk but could not find any. Id.
As to his conversation with Katsos about the situation, Sloboda testifed as follows:
And did you tell Barbara Katsos that the data on her computer could not
be recovered after you had done this exploration with the software that
Yes, I was showing that to her, and –
And how did she react when you told her this?
She did not like it. She asked me what else I can do about it, and then I
could not say anything. I was thinking just to ask if I can get some other
software and I said that it looks like the worst-case scenario would be to
go to the data recovery services, which are much better, but which are
specialized in this kind of operation. However, it – one them would be the
Ontrack Corporation, which actually was a company salvaging the data
from – or recovering the data with a faulty hardware or somehow
destroyed file systems. However, this service is expensive and one of their
own Ontrack software which they are offering, it was unable to get
anything out of that disk. So, it would be a situation where you would
send for the recovery of the drive. You would pay up front the amount,
some large amount, and without any guarantee that you would get anything
back. That would be the deal. And I saw that the data is not recoverable.
That was my opinion.
And were you of the opinion that that could – that the –
And the software was showing that it could not recover anything out of it,
and that was there. Even if it would show it, I would be unable, with that
software, to recover, the files from the system. I would have to send them
to the recovery services.
And were you –
They were available some other – some software which would do these
things, but I tried – I cannot recall, I had it on the (indiscern.) B-E CD set
and I did not get any results, again.
And did you ultimately advise her that it was your opinion that the data
was not recoverable?
And after you made this determination, what did you do with the hard
drive that had been on Ms. Katsos’ computer?
It was destroyed.
What did you do with it physically?
All these drives are in – I was destroying for years. The way that I
vertically drilled hole through the platters, and preferably when I had the
small holes done, then I was using the much blunter, wider drill which
would drill the platters and at same time it would cause tremendous
vibration in it that it would cause as bid damage to the platters as possible.
And you did that with respect to the hard drives?
With every hard drive. I never tossed away a hard drive which would not
be destroyed, not in the past 20 years or before.
All right. And did you replace the hard drive, then, with new hard drives?
Yes, I did.
Sloboda testified that he did not do much more work for Katsos after that since Katsos
“did not like it very much.” Tr. 101. He had never set up a backup system for the Katsos law
office “because I was never asked and I did not do any backup system” for her. Id. Nor did
Sloboda ever set up an email system for the Katsos law office. Id.
On cross-examination, Sloboda testified that he was not aware that the Katsos law office
did not have a backup system and that he was never asked to back up the data. Tr. 105. He found
out that there was no backup system at the time the computer crashed and he was attempting to fix
the problem. Id. As to replacing the hard disks, Sloboda confirmed that he would take the hard
disk that had been compromised and transfer the data on it to a different hard drive in the hope of
transferring the data into a functional hard drive. Tr. 107. When asked why he destroyed the old
hard disks, Sloboda confirmed that this was done to prevent the data from falling into the wrong
hands. Tr. 107-108. However, he did not agree with counsel that the hard drive data was
potentially able to be recovered – or pieces of it – but in order to try to do so it would be
incredibly expensive. Tr. 109. Sloboda testified that in his opinion, it was not worth the effort,
which is what he told Barbara Katsos. Tr. 109-110.
When asked if Barbara Katsos asked him to keep the hard drives before he destroyed
them, Sloboda responded that he had them at home and asked her some time later what to do with
them. Tr. 110. Sloboda stated that Katsos asked him if he tried some other options and he said
that he did, but he “could not get anything out of it. It looked like a lost cause and I asked her if I
can discard the hard disk and she agreed to do that.” Id. He never sent the disks to one of the
expensive forensic companies. Id. He understood that Katsos’ office had everything on paper and
had extensive file cabinets. Tr. 111. At some point prior to the computers crashing, Sloboda says
Katsos told him that the office had paper copies of everything. Id.
According to Sloboda, in the early stage when the office went to five computers, the work
group had a shared folder, but when the “infections were starting to happen, and it was some years
before, that option was disabled. Tr. 111-112. Sloboda did not know if the staff saved their
emails even locally on AOL. He primarily dealt with hardware issues and not software solutions.
Id. In 2009, he was mostly replacing the parts on the computers, not purchasing new computers.
Tr. 113. Those replacements parts were primarily hard disks. Sloboda did not see staff members
ever using portable storage devices, memory cards, key cards, or USB drives or any other
detachable device to store data, but he said they could have. Tr. 114. The paralegal had a
Blackberry telephone but he did not know if Barbara Katsos ever had a Blackberry. Id. Sloboda
did not help anyone to set up a Blackberry to communicate with the computers. Tr. 114-115.
And he never communicated with Barbara Katsos by email. Tr. 115. As an
After being asked in several ways if there was any method or way he could think of to get
any of the data or if he could think of any other place where the computer data might reside or still
exist, Sloboda responded no. Tr. 116. Nor was there any document that would help him
remember or find out at what time a particular computer’s hard drive in Katsos office had to be
replaced. Id. And he had no calendar which would show his visits since he had moved three
times in the interim. Tr. 117. The best he could recall was that it “was the end of 2008 – some –
the winter – that cold, cold part of the 2008 or the cold spring part of 2009. That’s what I can
The Post-Hearing Briefs
Plaintiffs’ post-hearing submission consists primarily of a summary of the hearing
testimony, with counsel’s conclusions about what the testimony meant, and without citations to
supporting case law.5 Defendants’ provided a more abbreviated summary of the testimony, along
with some limited legal argument and citations to case law.
Plaintiffs maintain that Defendant Katsos’ “destruction of ESI” shows that she acted
intentionally or was grossly negligent. See Plaintiffs’ Brief Regarding June 4, 2013 Sanctions
Hearing (“Pls.’ Brief”) [DE 59] at 1. According to Plaintiffs, “Katsos allowed each and every one
of her 5 different computers to be destroyed (containing all of her ESI, including e-mails,
electronic documents and her billing records stored thereon), failed to initiate any meaningful
litigation hold on ESI preservation, and directed that all her hard drives be destroyed.” Pls.’ Brief
at 1. Plaintiffs’ counsel asserts that Kastos’ hearing testimony is inconsistent with her previously
submitted affidavits as to the number of computers involved and the timing of the destruction of
the emails at issue. Id. at 2-3, 5. Plaintiffs also highlight that Katsos (1) had no invoice system
The Court is compelled to point out that post-hearing briefs were limited to ten pages,
particularly in light of the voluminous submissions on the original motion for sanctions.
Plaintiffs’ brief is 11 pages and contains 25 footnotes, all in a smaller font, with no spacing
between the notes – done in a less than subtle manner presumably to get around the ten-page
restriction. The Court could have rejected the brief on that basis alone.
and “did not have, produce, or maintain any billing records, id. at 4; (2) directed Sloboda to
destroy the hard drives, id. at 5; (3) did not make any effort to obtain the passwords of staff
members or institute a litigation hold following her duty to preserve, id. at 6-7; and (4) prevented
Plaintiffs from further demonstrating the conflict in Katsos’ dual representation of both Michael
DiStefano and Franco Treglia because of missing/destroyed contemporaneous itemized billing
records which would have contained detailed time entries of the work actually being done on the
DiStefano matter. Id. at 6-10. Based on the hearing testimony, Plaintiffs contend that “Katsos
was acting with a sufficiently culpable state of mind to award sanctions for the destruction of ESI
and/or relevant ESI that was helpful to Plaintiffs’ claims, and/or harmful to Katsos. . .” Id. at 11.6
Because of Katsos’ status as an attorney, Plaintiffs argue that she should be held to a higher
standard in assessing the degree of culpability here. Plaintiffs seek an adverse inference or “other
sufficient sanction awarded to remedy the spoliation of ESI.” Id.
On the other hand, Defendants maintain that there is “no evidence of any bad faith or
willfulness by Barbara Katsos and no evidence that any documents were destroyed.” See
Defendants’ Post-Hearing Memorandum of Law (“Defs.’ Brief”) [DE 60] at 2. Moreover,
Defendants argue, “Plaintiffs have failed to demonstrate how any of the alleged lost materials
were relevant to and supportive of their claims in this litigation and there was no evidence
Plaintiffs reference Vendor Capital Corp. v. DiStefano et al., which was before the
Supreme Court, Nassau County in 2008, and state that Defendant Katsos “had just been
admonished by a Judge in the N.Y. Sup. Court . . . for involvement in potentially fraudulent
conveyances, and failure to respond to discovery demands regarding those conveyances.” Pls.’
Brief at 2 and 2 n.4; see also Affirmation of John A. Karol, Esq. In Support of Plaintiffs’ Motion
for Sanctions and Other Relief (“Karol Aff.”) [DE 34], ¶ 20. The purpose of Plaintiffs
interposing this information seems clear. However, in its discretion, the Court declines to
consider this information as outside the scope of the instant proceedings.
adduced at the hearing to support this requisite element of their claim of spoliation. Defs.’ Brief
Defendants rely on Katsos’ testimony that although she did not access any of the emails in
her account for matters involving Michael DiStefano when DiStefano terminated her services in
February 2009, Katsos had “already printed out all substantive e-mails pursuant to her own
policy.” Id. at 4. Those printed out emails were already in the file and were turned over to
Plaintiffs’ counsel. Id. As to legal bills for DiStefano, Defendants point out that generally, the
bills were mailed and a copy placed in the file and some were actually emailed to DiStefano by
paralegals Jesika Thompson and Jason Cianfante. Id. Counsel emphasizes Katsos’ testimony that
she did not destroy anything from the DiStefano files and in fact implemented the equivalent of a
litigation hold when she “advised her staff to put all the files related to the DiStefano matters
together and that they be kept together in the conference room so as not to get lost and to be made
available to her attorneys.” Id. at 4-5.
As to his client’s testimony regarding Jan Sloboda, Defendants’ counsel points to the fact
that Sloboda did not install a network server, but rather a “work group connection” to connect all
of the computer to the internet. Id. at 5. When Katsos contacted Sloboda about the blue or black
screen on her computer, Defendants maintain that because of the virus, Sloboda said he had to
replace the hard drives on the units and Katsos asked him to save the data that was on the
computers. Id. When Sloboda was unable to retrieve any data, Defendants rely on his testimony
that he told Katsos it was his opinion that the data was not recoverable and that additional
recovery effort would have to be done by a larger entity specializing in such services, which
would be very expensive. Id. In contrast to Plaintiffs’ assertion that Katsos directed Sloboda to
destroy the hard drives, Plaintiffs take the position that Sloboda was ultimately the individual who
determined that the hard drives should be removed from the office and discarded. Consequently,
Defendants argue that Barbara Katsos was not acting with a culpable state of mind, id. at 7, and
that Katsos’ regular practice of “printing out all substantive e-mails relating to client
representation, ensure that the great majority of documents relating to the representation were
retained and produced in this litigation.” Id. at 8.
Further, Defendants argue that Plaintiffs have not established the third prong of the test set
forth in Byrnie – that the purported missing ESI was relevant to the party’s claim or defense – so
that a jury could find that the missing ESI would support that claim or defense. Id. Defendants’
counsel asserts that under applicable Second Circuit case law, notwithstanding a party’s deficient
efforts at preservation, “sanctions are not warranted unless there is proof that some information of
significance was lost.” Id. at 9 (citing Orbit One Commc’ns., Inc. v. Numerex Corp., 271 F.R.D.
429, 431 (S.D.N.Y. 2010). Finally, Defendants contend that the Plaintiffs failed to show that any
additional emails sent out by the firm paralegals or Mr. Prounis to Michael DiStefano and which
may have been lost because of the computer virus were “anything other than non-substantive
emails that would not have been relevant or significant to plaintiffs’ claims in this case.” Id. at
APPLICABLE LEGAL STANDARD
“Spoliation is the destruction or significant alteration of evidence, or the failure to preserve
property for another’s use as evidence in pending or reasonably foreseeable litigation.” West v.
Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999); accord Byrnie v. Town of
Cromwell, 243 F.3d 93, 107 (2d Cir. 2001). A court may impose sanctions against a party who
spoliates evidence pursuant to Rule 37(b) of the Federal Rules of Civil Procedure as well as
through the Court’s inherent powers to control the judicial process and the litigation before it. See
Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 106-07 (2d Cir. 2002); West,
167 F.3d at 779; Centrifugal Force, Inc. v. Softnet Commc'n, Inc., 783 F. Supp. 2d 736, 741
(S.D.N.Y. 2011); Zubulake v. UBS Warburg LLC (“Zubulake V”), 229 F.R.D. 422, 430 (S.D.N.Y.
2004). In situations where sanctions are warranted, district courts have broad discretion in
“crafting an appropriate sanction for spoliation.” West, 167 F.3d at 779; see Fujitsu Ltd. v. Fed.
Express Corp., 247 F.3d 423, 436 (2d Cir. 2001) (“The determination of an appropriate sanction
for spoliation, if any, is confined to the sound discretion of the trial judge . . . .”); Reilly v. Natwest
Mkts. Grp. Inc., 181 F.3d 253, 267 (2d Cir. 1999) (“Whether exercising its inherent power, or
acting pursuant to Rule 37, a district court has wide discretion in sanctioning a party for discovery
abuses.”). The applicable sanction “should be molded to serve the prophylactic, punitive, and
remedial rationales underlying the spoliation doctrine.” West, 167 F.3d at 779. Stated another
way, the selected sanction should be designed to “(1) deter parties from engaging in spoliation; (2)
place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3)
restore the prejudiced party to the same position he would have been in absent the wrongful
destruction of evidence by the opposing party.” Id. (internal quotation marks omitted); accord
Chin v. Port Auth. of New York & New Jersey, 685 F.3d 135, 162 (2d Cir. 2012).
In some instances, the spoliation of evidence “can support an inference that the evidence
would have been unfavorable to the party responsible for its destruction.” Zubulake V, 229 F.R.D.
at 430 (quoting Kronisch v. United States, 150 F.3d 112, 126 (2d Cir. 1998)). A sanction in the
form of an adverse inference instruction is, however, “an extreme sanction and should not be
imposed lightly.” Treppel v. Biovail Corp., 249 F.R.D. 111, 120 (S.D.N.Y. 2008); see Zubulake
v. UBS Warburg LLC, 220 F.R.D. 212, 219 (S.D.N.Y. 2003) (“Zubulake IV”) (“In practice, an
adverse inference instruction often ends litigation – it is too difficult a hurdle for the spoliator to
Once again, a party seeking sanctions has the burden of establishing “(1) that the party
having control over the evidence had an obligation to preserve it at the time it was destroyed; (2)
that the records were destroyed with a ‘culpable state of mind’; and (3) that the destroyed
evidence was ‘relevant’ to the party’s claim or defense such that a reasonable trier of fact could
find that it would support that claim or defense.” Residential Funding Corp., 306 F.3d at 107
(quoting Byrnie, 243 F.3d at 107-12); accord Centrifugal Force, Inc. v. Softnet, 83 F. Supp. 2d
736, 741 (S.D.N.Y. 2011); Zubulake V, 229 F.R.D. at 430. With these principles in mind, the
Court now turns to the second and third prongs of the test to establish spoliation of evidence.
The Court concludes that the ultimate failure to save emails violated Katsos’ duty to
preserve ESI regarding communications between (1) herself and the plaintiffs and (2) herself and
non-parties. Plaintiffs have argued that these communications go directly to the issues raised by
the DiStefanos in the alleged legal malpractice claims they assert against Katsos in this case.
However, that is not the end of the spoliation analysis. The Court now turns to the second and
third prongs of the Byrnie standard regarding spoliation of evidence.
Culpable State of Mind
The Law in the Second Circuit
“Even where the preservation obligation has been breached, sanctions will only be
warranted if the party responsible for the loss had a sufficiently culpable state of mind.” In re
WRT Energy Sec. Litig., 246 F.R.D. 185, 195 (S.D.N.Y. 2007); see Residential Funding, 306 F.3d
at 107-08; Byrnie, 243 F.3d at 109. Failures to preserve relevant evidence occur “‘along a
continuum of fault -ranging from innocence through the degrees of negligence to intentionality.’”
Reilly, 181 F.3d at 267 (quoting Welsh v. United States, 844 F.2d 1239, 1246 (6th Cir. 1988)). In
this Circuit, “the ‘culpable state of mind’ factor is satisfied by a showing that the evidence was
destroyed ‘knowingly, even if without intent to breach a duty to preserve it, or negligently.’”
Residential Funding Corp., 306 F.3d at 108 (quoting Byrnie, 243 F.3d at 109) (internal alterations
and emphasis omitted); Curcio v. Roosevelt Union Free Sch. Dist., 283 F.R.D. 102, 111(E.D.N.Y.
“‘In the discovery context, negligence is a failure to conform to the standard of what a
party must do to meet its obligation to participate meaningfully and fairly in the discovery phase
of a judicial proceeding.” In re Pfizer Secs. Litig., 288 F.R.D. 297, 314 (S.D.N.Y. 2013) (internal
quotations omitted); accord Harkabi v. SanDisk Corp., 275 F.R.D. 414, 418-19 (S.D.N.Y. 2010)).
A party is negligent even if the failure “results from a pure heart and an empty head.” In re Pfizer,
288 F.R.D. at 314; Curcio, 283 F.R.D. at 111; see Mastr Adjustable Rate Mortgages Trust 2006OA2 v. UBS Real Estate Sec. Inc., 295 F.R.D. 77, 84 (S.D.N.Y. 2013), aff'd No. 12 CIV. 7322
HB, 2013 WL 6840282 (S.D.N.Y. Dec. 27, 2013) (“In order to ‘protect the innocent litigant from
the destruction of evidence by a spoliator who would otherwise assert an empty head, pure heart
defense,’ one who fails to preserve evidence will be sufficiently culpable even when acting with
ordinary negligence.”) (quoting Orbit One, 271 F.R.D. at 438) (alterations omitted).
“It follows that gross negligence also satisfies the culpability requirement.” Sekisui Am.
Corp. v. Hart, 945 F. Supp. 2d 494, 503 (S.D.N.Y. 2013) (citing Chin, 685 F.3d at 162); see
Residential Funding Corp., 306 F.3d at 109. “‘Gross negligence has been described as a failure to
exercise even that care which a careless person would use.’” Williams v. New York City Transit
Auth., No. 10 CV 0882, 2011 WL 5024280, at *7 (E.D.N.Y. Oct. 19, 2011) (quoting Pension
Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., L.L.C., 685 F.Supp.2d 456,
463-64 (S.D.N.Y. 2010) (abrogated on other grounds by Chin, 685 F.3d 135)). Courts in this
circuit have found that the “failure to preserve evidence resulting in the loss or destruction of
relevant information is surely negligent, and, depending on the circumstances, may be grossly
negligent.” Pension Comm., 685 F. Supp. 2d at 464–65; see SJS Distribution Sys., Inc. v. Sam's
East, Inc., No. 11 CV 1229, 2013 WL 5596010, at *4 (E.D.N.Y. Oct. 11, 2013). Moreover,
although the failure to institute a “litigation hold” is not gross negligence per se, whether the party
implemented good document preservation practices is a factor that courts should consider “in the
determination of whether discovery sanctions should issue.” Chin, 685 F.3d at 162; see Orbit
One, 271 F.R.D. at 441. The Court may also consider Defendant Katsos’ “status as an attorney
and the fact that [she] certainly should have been aware of the preservation requirements of
litigation.” DiStefano, 2013 WL 1339548, at *8 (citing Elmo v. Callahan, No. 10-CV-286, 2012
WL 3669010, at *12 (D.N.H. Aug. 24, 2012) (“[L]itigants (especially when they are lawyers) who
act intentionally or with willful disregard to subvert their opponents’ ability to find and offer
relevant evidence should face harsh sanctions . . . .”)); accord Neverson-Young v. BlackRock, Inc.,
No. 09-CV-6716, 2011 WL 3585961, at *3 (S.D.N.Y. Aug. 11, 2011) (finding plaintiff who
donated her laptop “merely negligent” based on the fact that “[i]n contrast to corporate actors . . .
[plaintiff] is unsophisticated and unaccustomed to the preservation requirements of litigation.”).
Katsos’ State of Mind
At the outset, there is no dispute that in 2009, there were five computers being used in the
day-to-day operations of the Law Offices of Barbara H. Katsos, P.C.7 Michael DiStefano
terminated Katsos’ services in February 2009, prior to the alleged destruction of the ESI at issue
here. It is also undisputed that Katsos did not have a back-up system in place to preserve data in
the event anything happened to compromise the existing computers. While it is clear that the
hard drives for the five computers were eventually destroyed by Jan Sloboda, the question remains
how much of the data on those hard drives, particularly the emails in the AOL accounts, had
actually been preserved by Katsos through her then somewhat primitive retention protocol – the
answer to which none of the parties here are ever likely to know with any degree of certainty.
The Plaintiffs argue that Katsos had no written policies or procedures in place at the law firm
regarding the preservation or destruction of documents generally, nor any procedures for
preserving ESI, including email communications. The hearing testimony bears out that position.
The Plaintiffs have continued to assert that Katsos’ hearing testimony is inconsistent with
her previously submitted affidavits as to the number of computers involved and the timing of the
destruction of the emails at issue. Pls.’ Brief at 2-3, 5 (“Katsos’ prior affidavits were at the best,
vague and inconsistent, and perhaps deliberately evasive”). Although far from being models of
clarity and completeness (and not fully responsive to the Court’s directives), the Court does not
find the affidavits inconsistent with the hearing testimony. The affidavits are brief and leave out
many of the details amplified at the evidentiary hearing. The Court finds that the additional
hearing testimony was likely the result of the Court’s cautions and admonishment to Katsos to be
prepared to answer the questions at the hearing with specific information within her knowledge
The retention or preservation protocol in the Katsos’ firm in 2009 was to type documents
and correspondence on the computer and then make a hard copy of everything, put it in the
client’s file, and store the files in the 100 office file cabinets. The firm maintained hard copy
documents consisting of certain materials relating to the specific matter being worked on for each
client – in this case the DiStefanos – but only “substantive” email communications were printed
out and eventually put in the client’s file.
Likewise, Katsos did not issue any written instructions to her staff regarding the obligation
to preserve e-mails and ESI in connection with client matters, nor did she issue any specific
instructions to preserve e-mails or ESI following the receipt of the letter from Michael DiStefano
terminating her representation, which reasonably should have alerted her to the prospect of
potential problems with the clients, including possible malpractice claims. The selection of
“substantive” emails was entirely subjective and left to the discretion of Katsos. Significantly,
Katsos did not know what a “litigation hold” was when she was asked during the hearing. See
Mastr Adjustable Rate Mortgages Trust 2006 v. UBS Real Estate Securities, Inc., 295 F.R.D. 77,
85 (S.D.N.Y. 2013) (“A litigation hold is not, alone, sufficient; instead compliance must be
Katsos maintains that she did not knowingly or willfully destroy relevant information. It is
apparent from her testimony that she believed her actions were reasonable and not negligent at
time she undertook them, though she acknowledged that she has learned a great deal as the
spoliation aspect of this case has unfolded. Katsos insists that she preserved all of the substantive
emails which came into or went out of the office – in most cases so she could remember what she
had said or done. In sum, she believes that any emails that have not been retrieved would not lead
to the discovery of admissible evidence. The Plaintiffs essentially counter that Katsos’
characterization of her actions as not being knowingly or willfully destructive is not a defense
here because the emails were knowingly discarded/destroyed, even if Katsos did not intend to
breach any duty to preserve them.
The Court finds that Plaintiffs have met their burden of showing that Katsos acted with the
requisite culpable state of mind. In reaching this conclusion, the Court points out some of the
factors more clearly brought to light during the hearing:
Katsos was well aware that her office manager was not very computer
literate and hired her knowing that (Tr. 14-15);
from the time she left the Cathedral School, Katsos never took a course in
computers or any CLE courses in computer management, nor did she even
know the brand name of the computer in her office (Tr. 21);
having never previously met Jan Sloboda, Katsos hired him on the word of
a colleague; she never had any written contract or agreement with Sloboda
Katsos paid Sloboda in cash and on occasion did some legal work for him
in exchange; she admits she was not computer savvy, but also made no
attempt to understand the computer set-up in her office nor any
maintenance protocol, other than when something went wrong, she called
Sloboda (Tr. 23);
her approach to “saving” emails was to print out only those she considered
to be “substantive” (Tr. 25); she never instituted any mechanism to save
the AOL emails on her own local computer (Tr. 33-34); when DiStefano
terminated her legal services, she did not do anything with respect to his
emails because she had already printed out the previous substantive ones;
when the computer problems occurred, she would not have been able to do
anything about them anyway (Tr. 58-59);
in 2008-09, each person working at the firm had a separate AOL account,
each with its own separate email address and password; Katsos had no
control over any of the email accounts except her own, did not know any
of the passwords for the other accounts, and made no attempt to find out
those passwords (Tr. 26-30);
when her attorney asked her to go back and attempt to access the email
accounts of her former staff members, she was unsuccessful because she
did not know the passwords, did not know the security answers and was
blocked out (Tr. 31);
Katsos had no service agreements for any of the computers and no records
to show when the computers were purchased, no records of cash expenses
for servicing the computers, even for tax purposes (Tr. 39, 47-48);
when Katsos discussed with Sloboda setting up the five computers in
2008, she did not give him any direction as to the system requirements;
she did tell him these were client files and she assumed he understood they
were lawyer’s files and were confidential (Tr. 49-50);
Katsos never asked Sloboda to set up a back-up system for the computer
files because she thought he would do whatever needed to be done in a
lawyer’s office and that he knew how to do that (Tr. 50);
although Katsos could not remember whether she sent any bills/invoices to
DiStefano and Treglia beyond the nine pages from 2007 shown to her in
PX 2, the additional emails presented as PX 3 show that both of her
paralegals, Jesika Thompson and Jason Ciarlante, sent invoices to
DiStefano by email in 2008 and 2009 (Tr. 70-77)
Although Katsos had a loose procedure for preserving written documents which had been typed
on the computer, she had no policies or procedures in place for ensuring the preservation of
electronic information. Instead, it appears that her general practice was not to preserve all emails
and to leave to her discretion the ones which were sufficiently “substantive” and were to be
downloaded and placed in the clients’ files. See F.D.I.C. v. Horn, No. CV 12-5958, 2015 WL
1529824, at *12 (E.D.N.Y. Mar. 31, 2015). This is one of the factors that cannot be ignored in the
Court’s determination whether to impose sanctions. Chin, 685 F.3d at 162.
Moreover, as an attorney, Katsos should have been familiar with her ethical “obligation to
preserve documents in the event that litigation seems likely for a particular matter.” SJS
Distribution Sys., Inc., 2013 WL 5596010, at *4; see Distefano, 2013 WL 1339548, at *7. It is
also difficult to fathom how an attorney would not have taken steps to obtain and secure the
passwords for the other four computers in the office. While the failure to timely institute a
litigation hold does not constitute gross negligence per se, see Chin, 685 F.3d at 162, the facts
here establish Katsos’ failure to take basic steps to preserve ESI, even after DiStefano’s letter
terminating her representation. SJS Distribution, 2013 WL 5596010, at *4; see Dataflow, Inc. v.
Peerless Ins. Co., No. 3:11-CV-1127, 2013 WL 6992130, at *7 (N.D.N.Y. June 6, 2013) (finding
gross negligence where defendant failed to preserve e-mails related to plaintiff’s claim during a
system upgrade, and where the record was devoid of evidence that defendant ever implemented a
However, contrary to the Plaintiffs’ argument that Katsos acted intentionally or was
grossly negligent, the Court is not convinced that Katsos’ conduct supports a finding of gross
negligence. As the court noted in Williams,
Neither negligence or gross negligence has been clearly defined in the
context of discovery misconduct, such as spoliation. These terms
simply describe a continuum. Conduct is either acceptable or
unacceptable. Once it is unacceptable the only question is how bad is
the conduct. That said, it is well established that negligence involves
unreasonable conduct in that it creates a risk of harm to others.
2011 WL 5024280, at *7 (internal citation, quotation marks, and alterations omitted). Here,
Katsos insists that no documents or information were intentionally destroyed. But she does not
refute the fact that she permitted Jan Sloboda ultimately to remove the computers from the office.
She did ask Sloboda, as he confirmed, whether any of the data could be saved. When Sloboda
told her that he doubted it and that the hard drives would have to be sent to a large vendor
experienced in retrieving the data in such circumstances – which in his opinion was not worth it –
Katsos did not attempt to get an estimate of the cost to retrieve that data before permitting
Sloboda to discard it. The Court disagrees with Plaintiffs’ assertion that Katsos “directed Sloboda
to destroy the hard drives.” The testimony of both witnesses does not support that assessment.
Similarly, it is difficult to credit Plaintiffs’ broad claim that Katsos “destroyed everything,” when,
in fact, Defendants produced 10,000 pages of documents during discovery.
“A fair reading of the record overall indicates that [Katsos] did not act in bad faith.”
Abcon Assocs., Inc. v. Haas & Najarian, No. CV 12-928, 2014 WL 4981440, at *12 (E.D.N.Y.
Oct. 6, 2014); see Mastr, 295 F.R.D. at 85. In particular, although Katsos permitted Sloboda to
take away the computer hardware, she did not do so with the intention of destroying potentially
relevant ESI. Compare Sekisui, 945 F. Supp. 2d at 506 (finding “ESI was willfully destroyed”
where it was undisputed that the plaintiff directed that the ESI be permanently deleted and
“demanded the destruction” despite the fact that the an employee “recommended against such
action”). The Court notes that Katsos was licensed to practice law in 1997 after a lengthy career
as a teacher and educational administrator. She had no training in using computers in a law office
context at any time since she was licensed. Rather than bad faith, the Court finds that Katsos’
actions were occasioned by (1) her position as a solo practitioner utterly naive about her
obligations to preserve electronic evidence and (2) her total reliance upon and complete delegation
to an outside consultant the responsibility for setting up and maintaining the computer system in
her office. Moreover, Katsos’ utter ignorance of (i) her ESI preservation responsibilities and (ii)
her saving “substantive” emails to the files can be considered, to some degree, as “positive
evidence of good faith” Mastr, 295 F.R.D. at 85. The record shows that Katsos subjectively
believed that by downloading copies of select emails she perceived to be substantive, she had no
duty to preserve any others. While, as noted above, this mistaken belief does not excuse the
failure to preserve, it does undercut the existence of bad faith. Id.; see, e.g., Abcon, 2014 WL
4981440, at *12.
Based on the foregoing factors, the Court finds that, on the “continuum of fault ranging
from innocence through the degrees of negligence to intentionality” in determining a culpable
state of mind, this case falls on the spectrum somewhere between negligence and gross
negligence, and closer to the former than the latter. Residential Funding Corp., 306 F.3d at 108
(internal punctuation and citations omitted). While the Court does not find evidence of
intentional, malicious spoliation in this case, Katsos has, at the very least, acted with “a pure heart
and an empty head.” In re Pfizer, 288 F.R.D. at 314; see Harkabi, 275 F.R.D. at 419 (quoting
Pension Comm., 685 F.Supp.2d at 464); see also Mastr, 295 F.R.D. at 85 (“That [defendant] acted
in good faith does not mean, however, that it lacks the requisite culpability.”). Taking all of these
factors into account, the Court finds that Katsos had a sufficiently culpable state of mind.
Relevance of the Evidence
Relevance may be assumed where the breaching party acted in bad faith or with gross
negligence. Neverson-Young, 2011 WL 3585961 at *2; Orbit One, 271 F.R.D. at 441 (refusing to
presume relevance where the evidence was merely destroyed due to the party’s failure to abide by
recommended preservation practices). However, where the spoliating party has acted only
negligently, the moving party must make a showing that the lost materials were relevant. In re
Pfizer, 288 F.R.D. at 315; Harakabi, 275 F.R.D. at 419-20; Deanda v. Hicks, 13 Civ. 1203, 2015
WL 5730345, at *6 (S.D.N.Y. Sept. 30, 2015). A party may establish relevance by “‘adducing
sufficient evidence from which a reasonable trier of fact could infer that the destroyed or
unavailable evidence would have been of the nature alleged by the party affected by its
destruction.’” Harakabi, 275 F.R.D. at 420 (quoting Residential Funding Corp., 306 F.3d at 109)
(interanal alterations omitted). “Courts must take care not to hold the prejudiced party to too strict
a standard of proof regarding the likely contents of the destroyed or unavailable evidence because
doing so would subvert the purposes of the adverse inference, and would allow parties who have
destroyed evidence to profit from that destruction.” Residential Funding Corp., 306 F.3d at 109
(internal alterations and citations omitted); accord Slovin v. Target Corp., No. 12-CV-863, 2013
WL 840865, at *5 (S.D.N.Y. March 7, 2013).
Relevance of Unpreserved Emails
In light of the Court’s determination that Katsos’ conduct falls somewhere between
“negligent” and “grossly negligent” on the continuum (and closer to the “negligent” end), the
Court finds it necessary for Plaintiffs to make a showing that the lost materials are relevant. To
determine whether the unpreserved emails would have been relevant to the claims and/or defenses
raised in this case, the Court must look to the nature of the underlying malpractice claims. Those
claims against Katsos focus on: (1) the creation of the irrevocable trust allegedly to protect
Plaintiff Distefano’s personal assets from the creditors of SharpImage; (2) Katsos’ advice not to
negotiate with creditors and the impact on Telerent which caused it to sue the Distefanos, Treglia
and SharpImage; (3) the conflict of interest in Katsos’ simultaneous representation of both
Distefano and Treglia; and (4) Katsos’ alleged failure to take action to prevent Cold Stone
Creamery from terminating the Franchises.
In the previous decision setting this case down for the evidentiary hearing, the Court
pointed out that Plaintiffs had tried to delineate “general categories of documents that have been
adversely affected.” DiStefano, 2013 WL 1339548, at *9. As the Court then stated, merely laying
out these categories (i.e., emails between the parties; billing and invoices and attorney time
records; internal emails; other ESI such as drafts of documents, research, calendars) does not
satisfy Plaintiffs’ burden to produce sufficient evidence from which the Court could infer that the
categories listed were indeed destroyed. See In re Pfizer, 2013 WL 76134, at *21 (finding general
description of the allegedly destroyed documents insufficient to establish relevancy); Treppel v.
Biovail Corp., 249 F.R.D. 111, 122-23 (S.D.N.Y. 2008) (same). On that basis, the Court
informed Plaintiffs they would be given the opportunity to question Defendant Katsos at the
hearing with regard to the third prong of the spoliation test. DiStefano, 2013 WL 1339548, at
At the hearing, Plaintiffs’ counsel introduced a number of 2007 invoices sent by the Law
Office of Barbara Katsos/Jesika Thompson to Michael DiStefano, Franco Treglia and Eversharp
Physical Therapy, containing billed time entries and disbursements, with a folder/cover sheet
stating “DiStefano Bills.” These Invoices were produced by the Defendants as reflected in the
Bates’ numbers “CKBB 000941-950.” See PX 2. Plaintiffs also moved into evidence a
composite exhibit of (1) several 2006 and 2007 bills for legal services from Barbara Katsos to
DiStefano and Treglia, (2) a 2007 letter from Barbara Katsos to DiStefano and Treglia advising
them of the status of another case pending in Queens County, (3) several 2007 emails between
paralegal Jesika Thompson and Michael DiStefano forwarding and responding to enclosed billing
statements, and (4) an August 30, 2007 email from paralegal Christopher McCarthy to DiStefano
transmitting the August 31, 2007 invoice for SharpImage. These materials, however, were
produced by the Plaintiffs as reflected by Bates numbers “DiStefano 00745, 01045-047, 00255256, 00249-250, 00243, 00232-234, 00229 and 00224.” PX 3. The last exhibit entered into
evidence consists of seven pages of 2008 emails – one with a single page attachment – from Jason
Ciarlante, Katsos’ paralegal, forwarding invoices to DiStefano, along with some responses to
those emails. The last email in that grouping is dated February 27, 2009 and was sent from
Ciarlante to DiStefano with the message “Herewith transmitted please find your Final Invoice.”
PX 4. The invoice attached to that email lists time billed for “Review of Discovery Demands”
and two separate entries for “Transmittal Letter with Discovery Demands,” one sent to DiStefano
and one sent to Treglia. Id. These materials were also produced by Plaintiffs and are marked with
Bates’ numbers “DiStefano 00192, 00180, 00177-178, 00039, 00025, 00016-017.” Id. No other
exhibits (except PX 1 which was previously discussed) were introduced at the hearing.
Although the Court acknowledges that the sum total of the emails introduced at the
hearing, especially those coming from the Katsos’ production, is small, the Court is also mindful
of the 269 emails retrieved and produced by Plaintiff DiStefano from his own computer.
Although none of these emails were cited or introduced at the hearing, Plaintiffs attached a full set
of these emails as Exhibit D, Parts 1, 2 and 3, to the Affirmation of John A. Karol, Esq. in
Support of Plaintiffs’ Motion for Sanctions and Other Relief (“Karol Aff.”) [DE 34]. Attorney
Karol states that “[t]his production therefore represents 269 pages of information that Ms. Katsos
allowed to be destroyed, that had Mr. DiStefano not managed to preserve, would have been lost.”
Karol Aff. ¶ 8. Plaintiffs also maintain that these emails “contain information that is negative to
Defendants – including, for example, the fact that the Defendants were engaged in setting up the
trusts complained of, and knew that the course of action they were counseling Plaintiffs to take,
were in all likelihood going to be considered fraudulent conveyances.” Id. ¶ 15. The Court notes
that counsel did not identify any such emails by Bates’ number, but rather by general conclusions.
Indeed, the Court found no such emails in the compilation and questions the logic and
reasonableness of an unsupported assumption that any attorney would commit to writing
information which the attorney knew would likely be deemed a fraudulent conveyance as
Plaintiffs contend. Counsel further maintains that “. . . emails have been lost showing inter alia
what Ms. Katsos and Defendants actually did in their representation of Plaintiffs, what was
communicated between Plaintiffs and Defendants, and what was communicated between
Defendants and third parties, including information that could be used to substantiate Plaintiffs’
position.” Id. ¶ 14. However, Plaintiffs do not identify the “what” referred to, nor do they point
to any specific email among the 269 produced that provides a factual basis for the link Plaintiffs
wish the Court to make here.
The Court has examined the full set of emails (Karol Aff., Ex. D, Parts 1, 2 and 3) from
the DiStefano production. Many of the pages show routine attorney-client communications which
one might expect between DiStefano and the Katsos firm (transmitting forms, reminders of court
appearances and other appointments, inquiries and responses about what has been paid toward
legal bills, inquiries to and responses from Ted Prounis about tax issues). Other pages show lists
of questions from DiStefano to Katsos, with very short responses from Katsos, often stating that
they will talk. Other emails show DiStefano following up in writing on conversations he had with
Katsos. There are also many pages reflecting communications between DiStefano and third
parties (copied to Katsos) when DiStefano was attempting to gather information from other Cold
Stone Creamery franchisees, along with correspondence with the attorney who was handling the
Cold Stone litigation.
One thing which stands out to the Court after such review is the pattern and number of
responses made by Jason Ciarlante to DiStefano’s inquiries. The Court finds this fact significant
in that it appears Barbara Katsos herself did not utilize email as a regular means of
communicating with Michael DiStefano, but rather had her paralegal convey those responses.
This finding lends some support to Katsos’ sworn statement that
[w]hile I did communicate with Mr. DiStefano through email, it was mostly in
response to his emails and only to provide him brief answers to his queries or to
advise that I would follow-up with him over the phone. Generally, I prefer to
speak about substantive matters with my clients over the phone or in person and
that was my practice with Mr. DiStefano. In addition, most of my contacts with
other persons involved in the DiStefano matters, such as my communications with
Telerent counsel and our local counsel in North Carolina, were by telephone or
written correspondence rather than email.
May 2, 2012 Affidavit of Barbara Katsos in Opposition to Sanctions Motion (“Katsos Aff. I ”)
[DE 40], ¶ 6.
Defendants argue in their initial opposition to the motion for sanctions that Plaintiffs’
counsel “mischaracterizes what was produced to them in the initial ten thousand pages of
documents produced, claiming there were only a ‘few e-mails.’” Affirmation of Marc R. Wilner,
Esq. In Opposition to Plaintiffs’ Motion for Sanctions and Other Relief (“Wilner Aff.”) [DE 42],
¶ 5. Attorney Wilner added that “[w]hile some of the emails are duplicates from the maintained
files there are many more than simply a few e-mails that plaintiff would have this Court believe.”
Id. Significantly, Attorney Wilner points out that “. . . we offered to allow plaintiffs’ counsel to
come to our office to inspect the files but plaintiffs’ counsel never responded to that offer.” Id.
¶ 6. The Court notes that by simply taking Exhibits A and B alone (attached to the Wilner
Affirmation), there are 200 pages of material, representing approximately 2% of the Katsos
document production (10,000 pages). Within these first 200 pages are 97 email exchanges, a fact
which undermines Plaintiffs’ argument that “very few” emails were produced, particularly since
this calculation represents a mere 2% of the production.
After the initial production, Defendant Katsos learned that she could access her “sent box”
from the time period at issue and was able to recover some other emails. Id. ¶ 12; see March 5,
2012 Affidavit of Barbara Katsos in response to Court’s Feb. 17, 2012 Order (“Katsos Aff. II”),
annexed to the May 3, 2012 Wilner Aff. as Ex. 1, ¶ 8. Those emails were served in a
supplemental production to the Plaintiffs and are attached as Exhibit 1 to the May 2, 2012 Katsos
Affidavit as Exhibit 1. Katsos Aff, I, Ex. 1.
Having reviewed the supplemental production made by Katsos, the Court points out that
this production consists of another 57 pages of emails. See id. The Court notes that there are a
handful of duplicate emails in this grouping. Overall, the emails are not in chronological order,
but they cover a time frame from October 2006 through February 2009. As to content, the emails
run the gamut and include, among other things: DiStefano forwarding information to Barbara
Katsos regarding the lawsuit against Cold Stone Creamery; DiStefano notifying the law office
that Cold Stone was raising his rent; DiStefano forwarding emails to Katsos regarding the issues
and activities of other Cold Stone franchisees, especially Tony Mauro; DiStefano asking for
feedback on a letter he drafted to Cold Stone; DiStefano questions to Katsos and paralegal
Thompson about adding items to the Eversharp Trust property list; Scott Kreppein’s (DiStefano
attorney in lawsuit against Con Ed regarding blackout damages ) email to Katsos asking her to
contact him; New York State Court law clerk’s email to DiStefano, copied to Katsos, regarding
next day mediation before the special referee in the Vendor Capital matter; and various emails to
Katsos from the attorney at Hiscock and Barclay handling the Telerent matter regarding motion
papers, a court conference, and the need to bring a $100,000 check from her escrow regarding the
Vendor Capital matter. There are also two October 2006 interoffice emails from Jesika
Thompson to Katsos about a meeting with DiStefano as well as a fax from DiStefano to
Thompson to set up a three-way teleconference about transferring property titles to a trust, with
attachments from CitiMortgage. Id.
The Court finds that the arguments regarding the 269 emails cut both ways. Plaintiffs
argue that emails produced by the Defendants confirm that Katsos did, in fact, engage in relevant
e-mail communications. Defendants contend that, even if any other emails existed, they would
not be relevant to Plaintiffs’ claims. Having reviewed the emails independently, the Court points
out that there are almost none which provide a link to draw a conclusion that other emails must
have existed, beyond speculation, regarding advice Katsos gave to DiStefano not to negotiate
with creditors, or Katsos’ failure to take action to prevent Cold Stone Creamery from terminating
the Franchises – two of the four components of the malpractice claim. There are some emails
from DiStefano relating to trust properties – mostly informing Katsos of what he was doing or
asking questions – but the Court is not convinced based on the record that Plaintiffs have met
their burden to establish that Katsos either intentionally or negligently destroyed any emails
offering DiStefano advice about these issues or strategies or any knowledge of fraudulent
conveyances.8 Nor does it appear that either side has taken the time to carefully parse the emails
which actually are contained within the 10,000 pages of documents which Katsos did produce.
However, the invoices in evidence and those in the productions do show that Katsos apparently
was simultaneously representing both DiStefano and Treglia, which goes to the Plaintiffs’
conflict of interest claim. In light of anticipated testimony from DiStefano and perhaps from
Treglia, along with the emails, Plaintiffs are in a position to proceed with their conflict of interest
claim and to present documentation relevant to that claim. Although the Court finds that any lost
billing invoices would be relevant as to this issue, adding more billing statements, even if they
are relevant, is not likely to make or break that argument.
Although Plaintiffs were given the opportunity to present sufficient evidence at the
hearing from which the Court could infer that the categories listed were in fact destroyed,
Plaintiffs did not meet that burden with respect to the majority of those categories. Taking into
account the original motion papers and massive exhibits included with them, the hearing
testimony, and the post-hearing briefs, the Court finds that the great majority of what has been
presented here does not go beyond the general description of the allegedly destroyed documents
found to be insufficient in In re Pfizer, 2013 WL 76134, at 21, with the limited exception of the
The Court has also considered the two affidavits submitted by Michael DiStefano in
support of the motion for sanctions, along with the attached exhibits. See April 6, 2012 Affidavit
of Michael DiStefano in Support of Motion For Sanctions (“ DiStefano Aff.”); May 15, 2012
Reply Affidavit of Michael DiStefano (“ DiStefano Reply Aff.”). Mr. DiStefano asserts that he
personally maintained “a much more complete set of e- mails” between himself and the
defendants and that many of the email correspondences he had with Defendant Katsos and her
paralegals were not produced. DiStefano Aff. ¶¶ 6, 7. The majority of these emails consist of
inquiries, updates and frustrations expressed by DiStefano to Katsos or one of the paralegals,
with no corresponding responsive email from the Katsos law office. Much of the Distefano
Reply Affidavit is directed to refuting by paragraph the May 2, 2012 Katsos Affidavit. There is
no information in either affidavit which would cause the Court to contravene the analysis it has
undertaken or the conclusions reached in this Memorandum and Order.
invoices and Plaintiffs’ claim of conflict of interest.
The Second Circuit has made it clear that “relevant” in the “context of a spoliation
motion ‘means something more than sufficiently probative to satisfy Rule 401 of the Federal
Rules of Evidence.’” Curcio, 283 F.R.D. at 112 (quoting Residential Funding Corp., 306 F. 3d
at 108-09) (internal quotations omitted); Best Payphones, Inc., 2016 WL 792396, at *5. As the
Court pointed out in Pension Committee, “[i]t is not enough for the innocent party to show that
the destroyed evidence would have been responsive to a document request. The innocent party
must also show that the evidence would have been helpful in improving its claims or
defenses–i.e., that the innocent party is prejudiced without the evidence. Proof of relevance does
not necessarily equal proof of prejudice.” Pension Committee, 685 F. Supp. 2d at 467. With
this principle in mind, the Court now turns to the issue of prejudice,
“When evidence is destroyed willfully or through gross negligence, prejudice to the
innocent party may be presumed because that party is ‘deprived of what [the court] can assume
would have been evidence relevant to [the innocent party’s claims or defenses].’” Sekisui, 945 F.
Supp. 2d at 504-505 (citing S. New England Tel. Co. v. Global NAPs Inc., 624 F.3d 123, 148 (2d
Cir. 2010) (affirming imposition of default judgment against defendants as discovery sanction
where defendants willfully and in bad faith deleted relevant documents without requiring
innocent party to prove prejudice)). When, however, the destruction of evidence is negligent, the
burden falls on the innocent party to prove prejudice. Id. at 505 (citing Byrnie, 243 F.3d at 108).
“This circuit has ‘repeatedly held that a case-by-case approach to the failure to produce relevant
evidence, at the discretion of the district court, is appropriate.’” Id. (quoting Chin, 685 F.3d at
“The failure to adopt good preservation practices is ‘one factor in the determination of
whether discovery sanctions should issue.’” Sekisui, 945 F. Supp. 2d at 505 (quoting Residential
Funding Corp., 306 F.3d at 108). “No matter what level of culpability is found, any
presumption is rebuttable and the spoliating party should have the opportunity to demonstrate
that the innocent party has not been prejudiced by the absence of the missing information.”
Pension Comm., 685 F. Supp. 2d at 468. Significantly, where the missing information has been
obtained from other sources, courts have been reluctant to find that the moving party has suffered
prejudice. See Field Day, LLC v. County of Suffolk, No. 04-2202, 2010 WL 1286622, at *14
(E.D.N.Y. Mar. 25, 2010) (“[I]t is unclear that Plaintiffs suffered any prejudice as destroyed
documents apparently have been otherwise obtained.”) (citing Pension Comm., 685 F. Supp. 2d
at 478 (“While many of these documents may be relevant, the Citco Defendants suffered no
prejudice because all were eventually obtained from other sources.”)). Finally, the “equities” of a
case may not favor “a drastic remedy” such as an adverse inference instruction where “[t]here is
no evidence of bad faith” on the part of the spoliating party. SJS Distrib., 2013 WL 5596010, at
Plaintiffs maintains that because the record shows that the relevant material was wilfully
destroyed, they are under no obligation to prove prejudice. Under these circumstances, Plaintiffs
argue that the Court should presume Plaintiffs have been prejudiced and should issue an adverse
inference instruction. Id. The Court respectfully disagrees.
Because Katsos’s culpability falls on the continuum between negligence and gross
negligence, the Court declines to presume that Plaintiffs were prejudiced by any destruction of
ESI. See generally SJS Distrib., 2013 WL 5596010, at *5. Rather, Plaintiffs must demonstrate
prejudice in order for the Court to consider imposing an extreme sanction such as an adverse
inference instruction. See, e.g., Treppel, 249 F.R.D. at 120 (adverse inference instruction is “an
extreme sanction and should not be imposed lightly”). Generally, the aggrieved party must
demonstrate through extrinsic evidence, such as other existing documents or deposition
testimony, that a reasonable jury could find that the missing ESI would have been favorable to
that party’s claims. Curcio, 283 F.R.D. at 113. Plaintiffs have not met this burden. Although
Plaintiffs have presented other documentation and affidavits as well as the hearing testimony
(even though neither side called Plaintiff DiStefano to testify at the hearing), they have not
established that any missing emails would have been favorable to their claims. The record in this
case shows that not all electronically stored information was discarded or destroyed. Here, some
emails were produced by the Defendants. Others were obtained from Plaintiff DiStefano himself
based on steps taken to retrieve emails from his own computer. The number of emails obtained
is not insubstantial. The Court finds it somewhat puzzling that neither side attempted to
introduce any of the other emails actually produced originally by the Defendants nor the emails
contained in Defendants’ supplemental production – other than the few put into evidence by the
Plaintiffs – during the evidentiary hearing.9 However, the Court has taken these emails into
account by virtue of its own study of the exhibits submitted with the original motion papers.
The Court notes that the emails admitted into evidence as PX 1– containing discussions
between Katsos and Daigneault regarding Daigneault’s complaints about Katsos’ lack of timely
responses in an outside litigation – does little to establish relevance or prejudice in the specific
circumstances of this case.
Although the Court has found some limited relevance in the invoices/billing records, the
Court also points out that if the Plaintiffs are relying upon the content of the existing billing
records as proof of or emblematic of critical information they think they would have obtained if
all the billing records were intact, their expectations of obtaining such substantive information
based on what can currently be seen in the existing ESI appears unrealistic and unwarranted.
Although any missing billing records and transmittal emails may have aided the Plaintiffs in
gaining additional information relevant to at least one of their malpractice claims, it cannot be
said that the emails would have corroborated Plaintiffs’ account of events or proven its claims
against Katsos. See SJS Distrib., 2013 WL 5596010, at *5.
Moreover, there is some indication that the missing information has been (or could be)
obtained from other sources, which weighs against finding prejudice here. Field Day v. County
of Suffolk, 2010 WL 1286622, at *14; see SJS Distrib., 2013 WL 5596010, at *5 (adverse
inference not warranted where “other evidence is still available to defendant”) (citing Golia v.
Leslie Fay Co ., No. 01 CV 1111, 2003 WL 21878788, at *10 (S.D.N.Y. Aug. 7, 2003) (finding
that the spoliator's “misconduct has not robbed [the opposing party] of the only evidence on
which they could base their case”)). There is no indication that either side attempted to depose
Franco Treglia or even subpoenaed any documents or emails from him. It also seems that no
effort has been undertaken thus far to arrange a potential deposition of Jason Cirlante or any
other non-party who may have knowledge, documents, or ESI regarding the underlying
transactions on which Plaintiffs base their malpractice claims. The Court notes that there are any
number of third parties copied on the emails that have been produced whom the parties could
have reached out to as well. The Court likewise points out that discovery is still ongoing in this
case. Because Plaintiffs have not shown that a reasonable jury could find that the missing ESI
would have been favorable to their claims, the Court finds that they have not established the
degree of prejudice that is required in these specific circumstances. To the extent that there is
any prejudice here, it is minimal.
Even where a court finds that a discovery failure does not result in prejudice, courts still
maintain broad discretion in “crafting an appropriate sanction for spoliation.” West, 167 F.3d at
779; Fujitsu, 247 F.3d at 436. The Court will not grant a default nor an adverse inference since
Katsos’ conduct, while negligent and troubling, was not malicious or in bad faith. Learning Care
Group, Inc., 315 F.R.D. at 441. However, Katsos is not exonerated and her actions (or lack of
action) require accountability and necessitate a response. Curcio, 283 F.R.D. at 114.
Plaintiffs request attorneys’ fees for this motion. A court “has discretion to award
attorneys’ fees and costs in connection with spoliation motions ‘to punish the offending party for
its actions and deter the litigant’s conduct, sending the message that egregious conduct will not
be tolerated.’” Best Payphones, 2016 WL 792396, at *7 (quoting Field Day v. , 2010 WL
1286622, at *14. Although sanctions in the form of an adverse inference, striking of pleadings or
entry of default are not appropriate here, an award of monetary sanctions for the amount of
reasonable attorneys’ fees and costs incurred in connection with this motion is warranted. Field
Day, LLC v. County of Suffolk, 04 Civ. 2202, 2010 WL 5490990, at *1 (E.D.N.Y. Dec. 30,
2010). In this instance, Defendants will be required to pay the attorneys’ fees and costs incurred
by the Plaintiffs in making this motion based on Defendants’ negligent conduct. “This remedy
ameliorates the economic prejudice imposed . . . and also serves as a deterrent to future
spoliation.” Cat 3, 164 F. Supp. 3d at 502.
The Court further advises Plaintiffs’ counsel that he is free to explore at trial the issue of
records being discarded, without an adverse inference charge. See Congregation Rabbinical
Coll. of Tartikov, Inc. v. Village of Pomona, 138 F. Supp. 3d 352, 392 (S.D.N.Y. 2015) (citing
F.D.I.C. v. Horn, 2015 WL 1529824, at *16 (counsel “free to explore at trial the issue of records
being discarded, without an adverse inference charge, certainly during cross-examination or for
For the foregoing reasons, Plaintiffs’ motion for spoliation is GRANTED, to the limited
extent set forth in this Memorandum and Order, and is DENIED in all other respects. Plaintiffs
are awarded reasonable attorneys’ fees and costs incurred in connection with the motion.
Counsel shall confer to determine if they can come to an agreement as to the amount of
attorneys’ fees and costs to be paid. If they are unable to do so, Plaintiffs shall submit a fee
application, with supporting affidavit(s) and contemporaneous billing records on or before June
12, 2017. Defendants may submit opposition by June 26, 2017. No reply is permitted.
Dated: Central Islip, New York
May 10, 2017
/s/ A. Kathleen Tomlinson
A. KATHLEEN TOMLINSON
United States Magistrate Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?