Ballast Advisors v. Scott A. Peterson

Background

Ballast Advisors, LLC sued Scott A. Peterson, Melinda M. Bradley, and several related entities. The opinion states that Ballast alleged Peterson violated a two-year nonsolicitation provision in his employment agreement by soliciting Ballast clients after moving toward a competing investment business. Peterson also asserted a counterclaim against Ballast and Paul Parnell.

Ballast moved for sanctions against Peterson under Federal Rule of Civil Procedure 37(e), which governs lost electronically stored information, or ESI. Ballast alleged that Peterson failed to disable automatic deletion of text messages and deleted relevant emails. The parties agreed that some messages had been lost. Ballast identified 139 text messages sent to Ballast clients between December 15, 2022, and October 24, 2023, and eight emails sent between April 2022 and February 8, 2023, that had not been produced. Peterson and his counsel attempted to obtain copies from other sources, but some messages could not be recovered.

Duty to Preserve and Lost Information

The court rejected Ballast’s proposed preservation-trigger dates in April, May, June, and September 2022. It concluded that seeking legal advice about an employment agreement did not, by itself, establish that Peterson anticipated litigation. The court found that Peterson’s duty to preserve relevant information began on December 2, 2022, when he formed MMX Wealth Partners while still employed by Ballast. In the court’s view, forming a competing investment company under those circumstances created a high risk of litigation.

The court concluded that Peterson failed to take reasonable steps to preserve relevant ESI. He acknowledged that a 30-day automatic deletion setting remained enabled for text messages. The court also stated that personal Gmail accounts do not have a general automatic-deletion function and reasoned that any deletion of the relevant emails would have been manual or caused by a manually created filter. The court found that the lost information could not be restored or replaced through additional discovery.

Prejudice and Sanctions

Rule 37(e)(1) permits measures necessary to cure prejudice when relevant ESI is lost because a party failed to take reasonable preservation steps. The court found Ballast prejudiced because the missing messages concerned 24 former Ballast clients and were exchanged around the time Peterson began a competing firm and left Ballast. It characterized the prejudice as self-evident.

The report recommends that Ballast’s motion under Rule 37(e)(1) be granted. It further recommends sanctioning the defendants by requiring payment of Ballast’s costs and attorneys’ fees for bringing the sanctions motion and the earlier motion to compel. Ballast was directed to submit an accounting by May 15, 2026. The report does not state a dollar amount for the recommended award.

Rule 37(e)(2) permits more severe sanctions, such as an instruction allowing the jury to presume that lost information was unfavorable, only when the party acted with the intent to deprive the opposing party of the information’s use in the litigation. The court found that the evidence did not clearly establish or reject that intent. It therefore recommends deferring the Rule 37(e)(2) request until trial and submitting the intent question to the jury.

Disposition and Procedural Status

The recommendation states that Ballast’s Rule 37(e)(1) motion should be GRANTED, that the related costs-and-attorneys’-fees sanction should be imposed, and that Ballast’s Rule 37(e)(2) motion should be DEFERRED until trial and submitted to the jury. Because this is a magistrate judge’s report and recommendation, it is not a final district court order or judgment. The notice states that parties may file written objections within 14 days after being served and that the report is not directly appealable to the Eighth Circuit.