StoneX Group Inc. v. shipman

Background

StoneX Group Inc. and StoneX Financial Inc. sued Howard Shipman. StoneX moved for sanctions under Federal Rule of Civil Procedure 37(e), which governs the failure to preserve electronically stored information (ESI). Shipman was representing himself. StoneX argued that Shipman intentionally destroyed ESI despite an obligation to preserve it and asked the court to strike his pleadings, prevent him from presenting a defense, and award the costs and expenses caused by the destruction.

Magistrate Judge Valerie Figueredo recommended granting StoneX’s sanctions motion. Her recommendations included entering a default judgment against Shipman, striking his counterclaims, and awarding StoneX attorney’s fees and costs for the sanctions motion. The recommendation relied substantially on an expert report from Charles River Associates, which concluded that Shipman had deleted data from his devices, potentially used a file-wiping program, and engaged in extensive efforts to destroy, alter, and conceal relevant evidence.

Court’s Analysis

The district court reviewed the portions of the recommendation to which Shipman objected from the beginning. It found that his objections—including challenges to the expert report and the handling of two electronic devices—did not undermine the report’s reliability. The court also found no clear error in the portions of the recommendation that Shipman had not specifically challenged.

Under Rule 37(e), the court considered whether Shipman failed to take reasonable steps to preserve ESI, whether the loss prejudiced StoneX, and whether Shipman acted intending to deprive StoneX of the evidence’s use in the litigation. The court agreed with the magistrate judge that Shipman’s duty to preserve the evidence arose no later than December 27, 2022, and that he deleted ESI on February 2, 2023, after the lawsuit began.

The court further agreed that the evidence showed Shipman took affirmative steps to destroy the ESI, including using software designed to delete data and deleting a log file to make the data harder to recover. The court found clear and convincing evidence that he intentionally deprived StoneX of the evidence. It also agreed that Shipman had lied about his conduct during depositions and a hearing, including his use of a file-wiping program called “SDelete.”

Ruling

The court adopted the Report and Recommendation in its entirety and overruled Shipman’s objections. The court accepted the recommendation that StoneX’s motion for sanctions be granted and that terminating sanctions—the most severe sanctions, ending a party’s ability to continue litigating claims or defenses—were appropriate. The recommendations included entering default judgment against Shipman, striking his counterclaims, and awarding StoneX attorney’s fees and costs for the sanctions motion. The court directed the Clerk to close the listed docket matters and referred the case back to the magistrate judge to formulate an appropriate judgment, subject to the bankruptcy court’s lifting of the stay concerning the sanctions decision.