The 2015 Amendment to Federal Rule of Civil Procedure 37(e)

Rule 37(e) as it exists today was adopted in 2006. It applies to electronically stored information (ESI) lost through "routine good-faith operation" of an electronic information system rather than through intentional acts intended to make evidence unavailable in litigation. Currently the rule states:

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.

Current Rule 37(e) is sometimes referred to as a "safe harbor" rule: its drafters recognized the need to protect the good faith operations of businesses dealing with an ever-growing volume of ESI through the use of backup policies and procedures that routinely and systematically delete ESI.

The Advisory Committee on Civil Rules, in its "Committee Notes on Rules—2015 Amendment," observed that the current rule "has not adequately addressed the serious problems resulting from the continued exponential growth in the volume of such information." Proposed Rule 37(e) was intended to address the complications arising from the growing volume of ESI and the velocity with which it is increasing. The new rule provides:

(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 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) only 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.

It is instructive to note that while new Rule 37(e) consists of approximately 130 words, it took the rules committee over 2,500 words to explain and interpret it. The committee felt the need to parse the rule, explain its application, give examples of when to use curative remedies and/or sanctions, and explicitly state that the source of these remedies stem from this new rule—not the court's inherent authority to punish spoliation. "[The rule] therefore forecloses reliance on inherent authority or state law to determine when certain measures [curative remedies or sanctions] should be used." Committee Notes—2015 Amendment.

Since the 2006 amendments to the federal rules, the federal circuits have established significantly different standards for imposing sanctions or curative measures on parties who fail to preserve ESI. See Rimkus Consulting Grp., Inc. v. Cammarata, 688 F. Supp. 2d 598, 614–15 (S.D. Tex. 2010) (discussing cases). The committee notes stress a desire to provide a uniform standard in the federal courts for use of the most serious sanctions when addressing the failure to preserve ESI. They specifically reject the approach adopted in cases such as Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002), that authorize giving adverse-inference instructions on a finding of negligence or even gross negligence. "The better rule for the negligent or grossly negligent loss of electronically stored information is to preserve a broad range of measures to cure prejudice caused by its loss, but to limit the most severe measures to instances of intentional loss or destruction." Committee Notes—2015 Amendment.

In Rimkus, Judge Rosenthal of the Southern District of Texas, confronted with several dispositive motions including "doomsday" motions for sanctions due to spoliation of ESI, offered a prescient analysis of the spoliation and sanction issues that arise in electronic discovery disputes. She distinguished the often cited decision in Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 685 F. Supp. 2d 456 (S.D.N.Y. 2010), on the grounds that it involved allegations of intentional destruction of potentially relevant ESI and not negligence (or even gross negligence).

Analyzing the case law and authorities discussing when deletion becomes spoliation, Judge Rosenthal recognized that

[c]ulpability can range along a continuum from destruction intended to make evidence unavailable in litigation to inadvertent loss of information for reasons unrelated to the litigation. Prejudice can range along a continuum from an inability to prove claims or defenses to little or no impact on the presentation of proof. A court's response to the loss of evidence depends on both the degree of culpability and the extent of prejudice. Even if there is intentional destruction of potentially relevant evidence, if there is no prejudice to the opposing party, that influences the sanctions consequence.

Rimkus, 688 F. Supp. 2d at 613 (emphasis added). She also pointed out that in the Fifth Circuit and elsewhere, "negligent as opposed to intentional, "bad faith" destruction of evidence is not sufficient to give [rise to] an adverse inference instruction and may not relieve the party seeking discovery of the need to show that missing documents are relevant and their loss prejudicial." Rimkus, 688 F. Supp. 2d at 615.

Although it was not cited in the committee notes, Judge Rosenthal's decision in Rimkus set the stage for the new Rule 37(e). It not only distinguished negligence and gross negligence from bad faith and intent to deprive but also discussed the need for sanctions to be proportionate to the culpability involved and the prejudice that results. Rimkus, 688 F. Supp. 2d at 618. The new rule is intended to resolve the split among the circuits on the use of the most serious ESI spoliation sanctions, and it is designed to provide a straightforward framework for the issuance of any remedies or sanctions evolving from the failure to preserve relevant ESI. Judicial Conference Report, supra, at app. B-56 to -57.

By its terms, proposed Rule 37(e) only deals with ESI—not paper documents or physical things. The rule sets forth three conditions that must be satisfied before its remedies can be applied:

1. ESI that should have been preserved in the anticipation or conduct of litigation is lost;

2. A party failed to take reasonable steps to preserve the information; and

3. The information cannot be restored or replaced through additional discovery.

If the court finds that these three conditions are satisfied, then:

• Upon a finding of prejudice to another party from the loss of the information, it may order measures no greater than necessary to cure the prejudice, under the terms of Rule 37(e)(1); or
• Only upon a finding that the party acted with intent to deprive another party of the information's use in the litigation, it may, under the terms of Rule 37(e)(2):

(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.

Practitioners should pay particular attention to the following elements of the new rule.

Application of the Duty to Preserve
Proposed Rule 37(e) does not apply when information is lost before the duty to preserve attaches. The duty to preserve arises when litigation is reasonably foreseeable and is based upon a longstanding common law duty. See, e.g., Micron Tech., Inc. v. Rambus Inc., 645 F.3d 1311, 1320 (Fed. Cir. 2011).

Focus on "Reasonable Steps" to Preserve ESI
The requirement that a party "failed to take reasonable steps to preserve" ESI evidence provides the defending party the opportunity to explain why and how it was unable to do so. One can only imagine the difficulties involved in accounting for all the potentially relevant ESI that might exist. This is especially true in a world that uses new forms of communication technology almost daily. In addition to email, people are increasingly using new services and formats for communication, including new forms of chat/texting, real-time video communication, and new social media platforms. Whether a party had possession, custody, or control of all forms of the material ESI could be relevant to what preservation is considered reasonable. Whether or not the defending party even knows that potentially relevant ESI exists and is in its custody or control may be reason enough to absolve it of the obligation to produce.

Also, there are a growing number of mechanisms using Internet technologies to communicate information among "the Internet of Things," e.g., electronic systems in cars that park themselves, "smart homes" linking HVAC, kitchen appliances, and security systems, not to mention the explosion of new medical devices, all of which use Internet protocols to communicate stored electronic information via the Internet. See Daniel Burrus, "The Internet of Things Is Far Bigger Than Anyone Realizes," Wired (last visited Oct. 21, 2015).

The Sophistication and Relative Resources of the Parties
The committee notes also suggest that the court look at the parties' sophistication, their relative resources, and the importance of the ESI to the claim or defense when considering the appropriate and proportionate remedy. Could this become a new area of discovery? That is, how sophisticated is the party withholding ESI? What kind of IT and/or financial resources does the requesting or producing party have? Is this David vs. Goliath? How will these inquiries relate to the issue of proportionality and/or the failure to produce ESI?

Whether Lost ESI Can Be Restored or Replaced with Additional Discovery
In the preliminary analysis of the request for relief under the proposed rule, the court must also determine whether the lost ESI can be restored or replaced through additional discovery. If the information can be restored or replaced, then no further measures should be taken.

If the information is considered lost and cannot be replaced or restored, then the court must determine what prejudice flows from the loss of the information in order to determine whether or not it "may order measures no greater than necessary to cure the prejudice." The committee notes indicate that once a finding of prejudice is made, the rule leaves judges with discretion to determine how best to assess prejudice in particular cases.

Intent to Deprive a Party of the Use of ESI in the Litigation
If the court determines that a party acted with the intent to deprive another party of the information's use in the litigation, it may allow the factfinder to draw the adverse inference that the lost information was unfavorable to the party; dismiss a claim, defense, or the entire action; or enter a default judgment.

Conclusion
In 2006, a new category was added to the definition of "documents" under Federal Rule of Civil Procedure 34(a): "electronically stored information." The rules committee indicated that the term was meant to be broadly interpreted. See Fed. R. Civ. P. 34 & 2006 advisory committee notes. It is safe to say that, today, a document is not your father's document. Tomorrow's document will most likely not even look like the documents your children are creating. Today, documents are highly dynamic electronic bits that travel at the speed of light in multiple directions and in multiple iterations before they "end up" (if they end up) at a given location.

The world in which paper discovery began has turned into an ESI world that is often difficult to capture and can be very costly to harness. The 2015 amendments to the Federal Rules of Civil Procedure, and in particular proposed Rule 37(e), are a laudable attempt to provide litigants a roadmap for conducting electronic discovery in a more cost-effective, reasonable fashion and in a manner that requires the application of proportionality as set forth in Federal Rule of Civil Procedure 26(b)(1).

Keywords: litigation, commercial, business, e-discovery, spoliation, sanctions, Rule 37, ESI

_{Copyright © 2015, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).}