Rule 37(e)’s New Analytical Framework
Before amendment, Rule 37(e) provided that, “[a]bsent 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.” The 2015 amendments completely overhauled the rule, which now reads:
(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; or
(C) dismiss the action or enter a default judgment.
The revised rule sets forth three preliminary findings a court must make before imposing “curative measures” for the loss of ESI. (The rule now speaks in terms of “curative measures,” not “sanctions.”) First, the court must find that the party who lost the ESI had a duty to preserve it in the anticipation or conduct of the litigation. Second, the court must conclude that the party who lost the ESI failed to take “reasonable steps” to preserve it. Third, the court must find that the lost ESI cannot be restored or replaced.
If all three of these preliminary findings are made, the court next must decide the appropriate “curative measure” to ameliorate the loss. To make this determination, the court should evaluate (1) whether any other party has been prejudiced by the loss of ESI, and (2) whether the party who lost the ESI intended to deprive another party of that information. Where prejudice is found, the court has broad discretion to impose measures “no greater than necessary to cure the prejudice.” But if the court finds the party intended to deprive another party of the lost information, the court may impose more severe measures, including giving negative inference instructions or dismissing the case.
The advisory committee notes encourage litigants and courts to consider proportionality at virtually every stage of this analytical framework.
The Role of “Proportionality” in the Rule 37(e) Analysis
As explained above, in conducting the threshold inquiry under the revised Rule 37(e), a court must consider, among other things, whether the party that lost the ESI failed to take “reasonable steps” to preserve it. In evaluating the reasonableness of a party’s preservation efforts, the advisory committee expressly instructs courts to consider “proportionality.” In this context, proportionality requires courts to be sensitive to the resources of the party who lost the ESI, realizing “aggressive preservation efforts can be extremely costly, and parties (including governmental parties) may have limited staff and resources to devote to those efforts.” This comment is welcome news to smaller companies with modest (or nonexistent) litigation budgets, which at times had been required to make disproportionately significant up-front investments in ESI preservation to avoid the risk of potentially crippling sanctions. Indeed, the staggering costs associated with preservation have been known to prevent smaller companies from prosecuting valid claims. But this new sensitivity to litigants’ resources should allow smaller companies to use less costly preservation methods (like custodian self-preservation), easing the costs typically associated with preservation and the attendant operational disruptions.
Proportionality also is an important consideration in the court’s determination that a party’s failure to take reasonable steps to preserve ESI resulted in the loss of that information. In such a scenario, the court must evaluate whether the lost information can be restored or replaced through additional discovery before the court imposes sanctions. Here again, the advisory committee notes emphasize proportionality, explaining that any “efforts to restore or replace lost information through discovery should be proportional to the apparent importance of the lost information to claims or defenses in the litigation.” In other words, a party should not be required to undertake substantial measures to restore or replace information that is duplicative or only marginally relevant to the material issues in the litigation. Restoration and replacement obligations must correlate to the lost information’s value to the case.
The advisory committee did not restrict proportionality considerations only to those areas where courts are evaluating whether a litigant has satisfied an affirmative obligation, like preservations and restoration obligations. Significantly, courts also must consider proportionality in imposing “curative measures” to address spoliation of ESI. Thus, although courts have broad discretion to impose curative measures where they find that a party who lost ESI acted with the intent to deprive another party of that information, the advisory committee cautions that “[t]he remedy should fit the wrong, and the severe measures authorized by [subdivision (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” (emphasis added).
Implementing Proportionality Considerations in the Context of ESI Preservation
The proportionality considerations infused into Rule 37(e) provide an opportunity for litigants, especially those with modest litigation budgets, to rein in the costs traditionally associated with preservation of ESI and to create a more manageable and cost-effective preservation plan. This is fully consistent with the overarching purpose of the Federal Rules of Civil Procedure—to “secure the just, speedy, and inexpensive determination of every action and proceeding.” Fed. R. Civ. P. 1 (emphasis added). Here are five tips to help you leverage proportionality considerations in the context of ESI preservation:
Tip No. 1: Create and document your client’s preservation plan as early as practicable. Remember that Rule 37 does not require perfection in preservation; litigants are required only to take reasonable steps to preserve ESI. This means that counsel should work with their clients at the earliest possible opportunity to create a written preservation plan that can be defended if the need arises. The preservation plan should outline a reasonable approach to ensure that ESI relating to the dispute will be available in the litigation if it is requested, bearing in mind the client’s resources and the sophistication of the client’s business operations.
Tip No. 2: Immediately learn and understand your client’s document management system. You cannot craft a reasonable document preservation plan until you understand how your client’s document management system operates. Many attorneys eventually interview their client’s custodian of records, but these interviews often occur later in the process than is advisable. Make a concerted effort to engage your client’s custodian as early as practicable, because an early conversation may reveal areas of concern that can be addressed before they become problems.
Tip No. 3: Raise proportionality issues with opposing counsel as early as practicable. If you have engaged in early communications about preservation with your client and its custodians, you should have a clear idea about whether proportionality considerations exist. To the extent these early conversations reveal that ESI preservation obligations may negatively and disproportionately burden your client, try to raise that issue with opposing counsel before the initial scheduling conference, but not later than the meet and confer that precedes that conference. Be prepared to present a preservation plan that is reasonable and proportionate under the circumstances, and to explain your rationale with an appropriate degree of specificity. If the parties cannot agree on a reasonable preservation plan, raise the issue with the court during the initial scheduling conference. The 2015 amendments to Rule 16(b) now expressly permit courts to make provisions in their scheduling orders for the preservation of ESI.
Tip No. 4: Distinguish material issues from marginal issues as early as possible. Understanding the issues in dispute and being able to distinguish material and marginal issues early on is incredibly helpful in crafting a reasonable preservation plan for your client and in having a meaningful conversation with opposing counsel about why your client should not be required to invest resources to preserve ESI that is not likely to be produced in the litigation. In the summer of 2014, Professor William H.J. Hubbard from the University of Chicago Law School published his Preservation Costs Survey, which provides insight into how and at what costs companies (ranging in size and industry focus) were meeting their preservation obligations. Notably, Professor Hubbard’s research demonstrated that rule amendments geared toward reducing over-preservation were likely to have no adverse impact on discovery and the ultimate resolution of litigation because so little preserved data is ever used. This revelation crystalizes the need to separate the wheat from the chaff early enough in the litigation to potentially lessen (or eliminate) your client’s obligation to unnecessarily preserve ESI on marginal issues.
Tip No. 5: Recognize the amount in controversy does not always determine case value. One of the key considerations in the proportionality analysis is the value of the case. In other words, the value of the case bears directly on the scope of a litigant’s preservation obligations. A party should expect to have a greater preservation burden in a consumer class action lawsuit than in a small breach of contract case. But there are some instances where a case with a modest amount in controversy still could justify a somewhat disproportionate preservation burden. Typically, such cases implicate important public policy considerations, like free speech and employment practices. Where a case seeks to vindicate policies recognized as vital by courts or the legislature, the fact that the plaintiff seeks a relatively modest amount of damages (or no damages) does not necessarily mean that the corresponding preservation burdens should be minimized. When evaluating proportionality, always be mindful of whether considerations beyond monetary stakes should be weighed in the analysis.
The advisory committee has made the concept of proportionality one of the primary considerations in the 2015 amendments to the Federal Rules of Civil Procedure, including in connection with litigants’ obligations to preserve ESI. Understanding and leveraging proportionality considerations in this context could help ease your clients’ preservation burdens and go a long way to achieving the elusive promise of Rule 1—a just, speedy and inexpensive resolution of their disputes.
Keywords: litigation, woman advocate, Federal Rules amendments, Rule 37, proportionality, ESI, e-discovery, discovery