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August 30, 2016 Articles

Discovery Sanctions under Amended Rule 37(e): A Safe(r) Harbor

Early decisions applying the new Rule 37(e) should give comfort to potential litigants who have worked in good faith to preserve potentially relevant ESI.

By Michael J. Miles and Jeffrey E. Jakob

On December 1, 2015, the latest amendments to the Federal Rules of Civil Procedure went into effect, including a totally revamped Rule 37(e):

(e) Failure to Preserve 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. 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.

The original purpose of Rule 37(e) was to provide a safe harbor for litigants who lost electronically stored information (ESI) in the “routine, good-faith operation of an electronic information system.” See Fed. R. Civ. P. 37 advisory committee’s note to 2006 amendment (. However, the rule’s broad language allowed for the development of standards that varied significantly among the circuit courts. Preservation efforts (or lack thereof) resulting in relatively minor sanctions in one circuit could lead to the most Draconian measures in another circuit, and it was not uncommon for courts to rely on their inherent authority in determining sanctions. As noted by the Advisory Committee, such uncertainty bred an overly cautious mentality among potential litigants, which caused them to “expend excessive effort and money on preservation in order to avoid the risk of severe sanctions if a court finds they did not do enough.” Fed. R. Civ. P. 37 advisory committee’s note to 2015 amendment. Thus, an important goal of the latest revisions to Rule 37(e) was to address the problem of the overpreservation of ESI with its attendant costs and burdens by providing uniformity and predictability to the world of e-discovery sanctions.

A Safe(r) Harbor
The most significant feature of the revised rule is that the most severe sanctions—adverse inferences and dismissal—are permitted only in cases of intentional spoliation. In setting the bright-line standard of intent for imposition of the most severe sanctions, the amended Rule 37(e) effectively overrules the circuit courts that previously authorized such sanctions for gross negligence or even ordinary negligence. See Fed. R. Civ. P. 37 advisory committee’s note to 2015 amendment (citing Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99 (2d Cir. 2002)). With this added clarity, the amendments also restore the safe harbor that was always intended by this rule for potential litigants that lost or destroyed ESI through mere inadvertence.

The New Rule 37(e) In Action 
Early decisions applying the new Rule 37(e) should give comfort to potential litigants who have worked in good faith to preserve potentially relevant ESI. Courts to date have consistently denied requests for adverse inferences when presented with mere negligence on the part of the party that failed to preserve the ESI at issue. See, e.g.Martinez v. City of Chi., No. 14-cv-369, 2016 WL 3538823, at *24 (N.D. Ill. June 29, 2016)Living Color Enters., Inc. v. New Era Aquaculture, Ltd., No. 14-cv-62216-MARRA, 2016 WL 1105297, at *6 (S.D. Fla. Mar. 22, 2016). Notably, in Nuvasive, Inc. v. Madsen Medical, Inc., the court initially awarded an adverse inference before the effective date of the rule change but later reversed course and imposed a lesser sanction in its ruling on a Rule 60(b) motion because the trial occurred after the new rule went into effect and the spoliation was not intentional. See Nuvasive, Inc. v. Madsen Med., Inc., No. 3:13-cv-2077-BTM-RBB, 2016 WL 305096, at *2–3 (S.D. Cal. Jan. 26, 2016).

However, even the brightest of lines remain subject to some interpretation. Since the amendments have taken effect, courts have differed in their rulings on what constitutes intentional conduct.

At one end of the spectrum, the court in O’Berry v. Turner applied a more punitive interpretation of what constitutes intentional conduct. In that case, the court was faced with a trucking company defendant that used a third-party vendor to track information about its drivers and maintain driver logs. O’Berry v. Turner, Nos. 7:15-cv-64-HL, 7:15-cv-75-HL, 2016 WL 1700403, at *1 (M.D. Ga. Apr. 27, 2016). Following an accident involving one of its vehicles, the trucking company’s only steps to preserve the relevant driver log was to print out a hard copy of it from the vendor’s website. Id. at *2. At some point, the hard copy was lost, and by that time the vendor had deleted the original electronic data pursuant to its records retention policy. Id. After an evidentiary hearing on the issue, the court found that the trucking company had acted with the intent to deprive the plaintiff of the driver log, and it issued an adverse inference. Id. at *4.

At the other end of the spectrum, the court in Orchestratehr, Inc. v. Trombetta applied a more forgiving interpretation of what constitutes intentional conduct. In that case, an employer brought suit against a former employee for violations of its noncompete and confidentiality agreements. The employer sought sanctions based on the fact that the employee had deleted a significant number of emails just before he resigned. Orchestratehr, Inc. v. Trombetta, No. 3:13-cv-2110-P, 2016 WL 1555784, at *9 (N.D. Tex. Apr. 18, 2016). The employee admitted that he was aware of the potential for litigation at the time he deleted the emails. Id. at *12. He even went so far as to admit, in a series of evasive answers at his deposition, that he “may have” deleted the emails in an effort to “cover his tracks.” Id. at *10–11. However, after the employee certified in opposition to the motion for sanctions that he only deleted emails in the ordinary course of business and that he thought they would have been backed up on a server, the court found that there was “only equivocal evidence about his state of mind at the time that he deleted the emails” and denied the request for an adverse inference. Id. at *12.

Even where the intent of the potential litigant is clear, there remain some questions as to when imposition of the most severe sanctions is appropriate under the new Rule 37(e). For example, what is to be done when a potential litigant intentionally destroys ESI to deprive the other party of it, but the ESI is not central to the case? The Advisory Committee’s note indicates that “the severe measures authorized by [(e)(2)] should not be used when the information lost was relatively unimportant or lesser measures such as those specified in subdivision (e)(1) would be sufficient to redress the loss.” Fed. R. Civ. P. 37 advisory committee’s note to 2015 amendment. That was the approach taken by the court in Ericksen v. Kaplan Higher Education, LLC, which denied a request for dismissal, despite a finding of intentional destruction, on the grounds that a lesser sanction could cure the harm. Ericksen v. Kaplan Higher Educ., LLC, No. RDB-14-3106, 2016 WL 695789, at *2 (D. Md. Feb. 22, 2016).

Another question is this: How will courts address unintentional spoliation where the prejudice cannot be cured without the most severe sanctions? The Advisory Committee’s note provides some guidance. In cautioning that courts should ensure that (e)(1) sanctions do not have the same effect as (e)(2) sanctions, the Advisory Committee suggests that courts may not be able to cure every instance of prejudice. Fed. R. Civ. P. 37 advisory committee’s note to 2015 amendment. Indeed, the Advisory Committee’s note explains that while subsection (e)(1) authorizes courts to use measures “necessary to cure the prejudice,” that language should be read as a limit on the court’s discretion and not as an obligation to cure every possible prejudicial effect. Id. While courts have yet to encounter this situation, it seems clear that the most severe sanctions will not be available for unintentional conduct even if there is no other way to cure the prejudice.

Practical Considerations 
With the added clarity of the new Rule 37(e) and restored safe harbor that it provides, it is no longer necessary for potential litigants to preserve every available piece of ESI as an insurance policy against potential sanctions. Without the threat of adverse inferences or a default judgment hanging over their heads, potential litigants can be more confident in limiting their efforts to preserve ESI to those efforts that are reasonable.

To satisfy their preservation obligations while taking full advantage of the safe harbor offered by the new Rule 37(e), potential litigants should engage with their counsel early to assess the potential litigation and universe of potentially relevant ESI. Witnesses, including IT personnel where applicable, should be interviewed to identify the key custodians of potentially relevant ESI, reasonable date ranges, and potential search terms. Litigation holds should then be put in place for the ESI identified as potentially relevant. When litigation begins, consideration should be given to notifying opposing counsel of what ESI has been preserved and that, unless notified otherwise, all other ESI will be subject to destruction pursuant to the terms of the normal document retention policy. Such steps will go a long way to evidencing good faith in any subsequent motion practice. The litigation hold should also be revisited throughout the case as the court issues rulings limiting the scope of discovery or resolving certain issues or claims. This will ensure that ESI is not preserved longer than necessary.

Throughout this process, potential litigants should be guided by the concepts of proportionality that feature prominently throughout the 2015 amendments to the Federal Rules of Civil Procedure. The Advisory Committee’s note to Federal Rule of Civil Procedure 37 suggests that “[t]he court should be sensitive to party resources; aggressive preservation efforts can be extremely costly, and parties (including government parties) may have limited staff and resources to devote to those efforts.” Fed. R. Civ. P. 37 advisory committee’s note to 2015 amendment. If the costs and burden of preserving certain ESI are disproportionate to the nature of the claims at issue, the issue should be raised with the court at the Rule 26(f) conference. Counsel should be armed with specific details regarding the costs and burdens associated with preserving the ESI at issue, as well as possible alternatives to the preservation. Such alternatives may include responding to interrogatories or providing deposition testimony on the issues.

In moving for or opposing a motion for sanctions, practitioners should be mindful that courts have a myriad of options in fashioning a sanction to remedy prejudice caused by the loss or destruction of ESI under (e)(1). Such remedies may include “forbidding the party that failed to preserve information from putting on certain evidence, permitting the parties to present evidence and argument to the jury regarding the loss of information, or giving the jury instructions [other than those permitted by (e)(2)] to assist in its evaluation of such evidence or argument.” Fed. R. Civ. P. 37 advisory committee’s note to 2015 amendment. Practitioners should also be mindful that sanctions under (e)(2) are not limited to the three that are specifically listed in that subsection. In fact, all measures available under (e)(1) are also available under (e)(2). See id. The overriding policy in all cases is that “[t]he remedy should fit the wrong.” Id.

Potential litigants who have struggled with the tremendous costs and burdens of the overpreservation of ESI and the fear of sanctions can now breathe a sigh of relief. The amendments to Rule 37(e) bring a new level of clarity to the obligations of potential litigants to preserve ESI and provide a safe harbor from the harshest sanctions to those who operate in good faith. By identifying the sources of potentially relevant ESI early and working with opposing counsel and the court to circumscribe the scope of litigation holds using concepts such as proportionality, potential litigants should be able to meaningfully reduce the costs and burdens of preserving ESI—and the specters of adverse inferences and default judgments should no longer haunt the dreams of potential litigants who operate in good faith.

Keywords: litigation, pretrial practice, discovery, Rule 37(e), amendments, sanctions, electronically stored information, safe harbor, adverse inference


Michael J. Miles is a partner and Jeffrey E. Jakob is an associate at Brown & Connery, LLP, in Westmont, New Jersey.