July 02, 2014 Articles

Rule 37(e) and the Failure to Preserve Sanctions in E-Discovery

This Federal Rule of Civil Procedure undergoes possible revisions.

By Camisha L. Simmons

E-discovery is a critical component of the contemporary litigation process. One issue that arises in e-discovery is the extent of a party’s obligation to preserve relevant electronically stored information (ESI) in anticipation of foreseeable litigation. A party’s failure to properly preserve relevant ESI may result in sanctions being levied on the party, including a court’s instruction to a jury that the jury should assume that the “lost” ESI was adverse to the party’s litigation position.

Rule 37(e) of the Federal Rules of Civil Procedure (FRCP) is the applicable federal rule governing the standard by which a party’s failure to preserve ESI is judged and sanctions imposed accordingly. This rule is made applicable to adversary and contested matters in bankruptcy by Rules 7037 and 9014 of the Federal Rules of Bankruptcy Procedure, respectively. Rule 37(e) is now in the process of being revised to clarify the standard for preservation of ESI. 

On April 11, 2014, the Judicial Conference of the United States Advisory Committee on Civil Rules approved for adoption a revised version of Rule 37(e) of the Federal Rules of Civil Procedure.

This article provides bankruptcy litigators an overview of the current version of FRCP 37(e) and what practitioners should expect with the Revised Rule.

Current Rule Resulted in Circuit Split
With respect to a party’s failure to provide ESI, the current rule provides as follows:

(e) Failure to Provide Electronically Stored Information.  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.

FRCP 37(e) (emphasis added).

The current rule resulted in a circuit split regarding the level of culpability required for imposition of sanctions. A number of federal circuit courts of appeal will not impose sanctions on a party that failed to properly preserve relevant ESI unless the courts find the non-preserving party acted in bad faith or with wrongful intent. See Dalcour v. City of Lakewood, 492 F.App’x. 924 (10th Cir. 2012); Sherman v. Rinchem Co., 687 F.3d 996 (8th Cir. 2012); Rutledge v. NCL (Bahamas), 464 F.App’x 826 (11th Cir. 2012); Faas v. Sears, Roebuck & Co., 532 F.3d 633, 644 (7th Cir. 2008); Russell v. Univ. of Tex. of Permian Basin, 234 F. App’x 195, 208 (5th Cir. 2007); Hodge v. Wal-Mart Stores, 360 F.3d 446 (4th Cir. 2004). If the party was merely negligent, the courts will not find the party violated its duty to preserve under the current rule. See id.

Other federal circuits, on the other hand, do not require a finding of bad faith for the imposition of sanctions for spoliation of ESI. See Talavera v. Shah, 638 F.3d 303, 312 (D.C. Cir. 2011); United States v. Laurent, 607 F.3d 895, 902–03 (1st Cir. 2010); Beaven v. United States DOJ, 622 F.3d 540, 554 (6th Cir. 2010); Residential Funding v. DeGeorge Fin., 306 F.3d 99 (2d Cir. 2002); Glover v. The BIC Corporation, 6 F.3d 1318 (9th Cir. 1993). A finding of negligence may be enough to impose sanctions if the injured litigant demonstrates prejudice. See id. As noted in the proposed notes to the Revised Rule, many parties may have opted to over-preserve ESI in an effort to avoid adverse consequences in the event of future litigation in light of the lack of uniformity in application of the current rule.
The revised rule, therefore, is in part a result of the noted discontent of the litigation bar with respect to the uneven application of the current rule.

Revised Rule
The current draft of the revised rule, which has been approved by the Advisory Committee, provides the following:

(e) Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve the information, and the information cannot be restored or replaced through additional discovery, the court may:

(1) Upon a finding of prejudice to another party from loss of the information, order measures no greater than necessary to cure the prejudice;
(2) Only upon a finding that the party acted with the intent to deprive another party of the information’s use in the litigation,

(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.

Based on a plain reading of the revised rule, (1) for relief to be granted for failure to preserve ESI a party must be prejudiced by the failure to preserve ESI and any curative measure must be “no greater” than necessary to cure the prejudice and (2) “good faith” operation of an ESI system is no longer the standard governing the party’s conduct. Instead, a party’s conduct in preservation of ESI now will be evaluated under a reasonableness standard. Further, an adverse instruction that an inference may be drawn that the lost ESI data would have been unfavorable to the party responsible for its preservation and production will not be levied unless the non-preserving party acted with wrongful intent to lose the ESI.  

Current Status of Revised Rule
Now that the advisory committee and the Judicial Conference of the United States Committee on Rules of Practice and Procedure (the standing committee) have approved the revised rule, the Judicial Conference of the United States will next review the revised rule in September 2014 and, if satisfied, will recommend the approved revised rule to the United States Supreme Court. The Supreme Court will consider the revised rule and, if it accepts the revised rule, will officially promulgate the revised rule by order, to take effect no earlier than December 1 of the year approved unless Congress enacts legislation to reject, modify, or defer the revised rule. The Supreme Court must complete its review by April 2015.

Camisha L. Simmons – July 2, 2014