Amendments to ESI Spoliation Sanctions Seek to Create Uniformity in Federal Courts

Federal Rule of Civil Procedure 37(e) sets forth the requirements for the retention of electronically stored information ("ESI") and the corresponding sanctions available to remedy the loss of ESI.New amendments to Rule 37(e) came into effect on December 1, 2015 in an effort to create a uniform federal standard for preserving ESI and for the application of sanctions on parties failing to fulfill their duty to preserve.Prior to the amendments, federal courts lacked uniformity in granting spoliation sanctions, and a defendant's exposure to such sanctions often varied depending on the jurisdiction where the plaintiff decided to file the complaint.The standards for granting the harshest spoliation sanctions—dismissal and an adverse inference instruction—broadly ranged from a showing of "bad faith"[1] to proof of negligence.[2] This inconsistent approach to the treatment of preservation obligations and sanctions among the courts caused confusion in litigation and led to heightened expenses for parties who over-preserved ESI for fear of sanctions. The new language of Rule 37(e) attempts to address these issues by clarifying two types of standards:

1. If a party's spoliation was unintentional but prejudicial, a court may order remedial measures "no greater than necessary to cure the prejudice."[3]
2. If the spoliation was intentional, a court may presume the lost information was unfavorable, grant an adverse jury instruction, dismiss the action, or grant a default judgment.[4]

These revisions are intended to create uniformity in federal courts, and ensure that sanctions are proportional to the degree of intent attributed to the party responsible for the spoliation and the harm caused to the opposing party. The extent of the uniformity greatly depends on how district courts will interpret the amendments moving forward.While decisions applying the amended rule have just starting issuing, its impact can already be seen. That said, it is too early to tell if the amended rules will relieve the pressure on parties to over-preserve all information and encourage parties to take "reasonable steps" to preserve ESI.

Spoliation Sanctions Under the Prior Rule

The prior Rule 37(e) simply stated: "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."[5]

Many courts considered the previous language of Rule 37(e) very limiting, given that it suggested sanctions for ESI spoliation only applied in "exceptional circumstances," and could never apply to routine, unintentional destruction of evidence.[6] Some courts even interpreted the rule as a type of "safe harbor" section that protected parties who inadvertently destroyed ESI.[7] Although courts recognized that Rule 37(e) authorized them to impose discovery sanctions as a result of ESI spoliation, many of them were reluctant to invoke the rule in most spoliation cases that simply involved routine information maintenance practices.[8] As a consequence, even though courts previously granted sanctions or other discovery remedies for ESI spoliation, they did not frequently refer to Rule 37 as the source authorizing their discovery orders.[9]

Rather than relying on Rule 37(e) whenever they granted spoliation remedies or sanctions, courts opted to invoke their "inherent authority" to oversee and control their cases.[10] Because there were no federal guidelines for the application of spoliation sanctions when courts invoked this authority, federal circuits developed various approaches, creating inconsistencies and uncertainty in the discovery process. For example, courts in the Ninth Circuit granted terminating sanctions including dismissals and summary judgments when there was evidence of "bad faith" on the part of the offending party.[11] Similarly, courts in the Fifth Circuit required evidence of "culpability" or "willful spoliation" when imposing an adverse inference instruction on the offending party.[12] In contrast, the courts in the Second Circuit merely required a showing of negligent behavior when granting the same exact sanction for ESI spoliation.[13] As a consequence, a party whose negligence resulted in the destruction of ESI could avoid the harshest spoliation sanctions in the Ninth and Fifth Circuits, but would be severely punished in the Second Circuit.

Spoliation Sanctions Under the Amended Rule

The language of the amended rule sets forth requirements for applying the rule, and authorizes two distinct types of discovery remedies depending on the level of culpability that caused the spoliation, assuming certain prerequisites are met.

Four prerequisites

Revised Rule 37(e) recites four prerequisites every court should find prior to authorizing discovery remedies:

1. ESI is at issue in the case;
2. a duty to preserve ESI has been triggered;
3. no "reasonable steps" were taken to preserve the information; and
4. the lost information cannot be restored or replaced through additional discovery.[14]

The advisory committee stated that the amendments to Rule 37(e) were not meant to alter the existing law regarding a party's "duty to preserve" information, and courts should still rely on the same common law standard they had previously applied.[15] For instance, in the Ninth Circuit, a party has a duty to preserve relevant ESI "as soon as a potential claim is identified."[16] In regard to the interpretation of "reasonable steps" for the preservation of ESI, the advisory committee stressed that this requirement does not call for perfect preservation of all information; instead, courts should focus on proportionality and should consider the importance of the information, the sophistication of the parties, and the resources available to each party.[17]

Two Types of Sanctions

The revisions highlight the emphasis on proportional sanctions by setting forth two types of remedies available depending on a party's level of intent once the four prerequisites are established. First, if the spoliation was the result of negligence or inadvertence, and the non-offending party suffered prejudice as a result, then a court is authorized to "order measures no greater than necessary to cure the prejudice."[18] The rule leaves judges with wide latitude in determining the presence of prejudice in a particular case.[19] The advisory committee suggests that judges should focus on the importance of the lost information and on placing the burden of proof in a fair manner, depending on the facts of a case.[20] If unintentional spoliation creates prejudice, a court is only authorized to order a remedy that is proportional to the harm caused and cannot grant the severe sanctions authorized in cases of intentional misconduct. In one of the first cases to substantively consider the amended rule, the Southern District of California recognized the new focus on proportionality in spoliation sanctions, and applied the amended Rule 37(e) to vacate an order granting an adverse inference sanction when there was no evidence of intentional spoliation.[21]

Second, if a court finds that the spoliation resulted from an "intent to deprive" the other party of information, then a court may grant the harshest sanctions against the culpable party, including an adverse inference, dismissal, or default judgment.[22] This part of the rule creates a uniform standard that courts should apply when considering the most severe sanctions, and replaces the contrasting and conflicting standards that federal courts developed using their "inherent authority." The extent of uniformity will depend on how jurisdictions interpret the rule. In the only other decision substantively applying the updated rule to date, the Southern District of New York held that the new rule prevents courts from using a negligence standard to grant the most severe spoliation sanctions, but it did not entirely preclude courts from relying on inherent authority to grant sanctions if Rule 37(e) is inapplicable.[23] In interpreting this new "intent to deprive" standard, it is likely that courts will refer to the "bad faith" standards previously used for harsh discovery sanctions.[24] Given the amendment's emphasis on proportionality, it is not surprising that the advisory committee stated that these severe sanctions are not mandatory, even when there is evidence of intent, and that a court should consider less drastic measures when appropriate.[25]

Practical Implications

The amendments to Rule 37(e) can have a substantial effect on how courts issue remedial discovery orders. Clients should consider the following implications:

1. Remain Aware of Your Duty to Preserve – The commentary to the rule was explicit in stating that the amendments did not alter a party's duty to preserve ESI.[26] As a consequence, clients need to monitor all potential litigation and remain vigilant as to when this duty arises. Once this duty arises, clients should proactively issue a litigation hold to maintain all relevant ESI in their possession and control.
2. No Need to Over-Preserve ESI – The new focus on the importance of the ESI lost and the proportionality of the remedy should ease concerns that you need to maintain all of your ESI intact during a litigation hold. If information is stored in two separate locations, there would not be a need to preserve both forms, given that the rule allows parties to replace lost information with additional discovery. As the advisory committee indicated, perfect preservation of ESI is not required.[27]
3. Always Employ "Reasonable Efforts" When Preserving ESI – A client must use preservation efforts that are reasonable considering the facts of the case. "Perfection in preserving all relevant electronically stored information" is not necessary,[28] and duplicative information may not be maintained if it could be replaced in the event it is lost. The term "reasonable efforts" is not defined in the rule, but the advisory committee notes that a court will consider the sophistication and the resources of the party required to preserve ESI.[29] It is likely that courts will expect more robust preservation practices, and will be less lenient, towards defendants who have experience in information technology systems.
4. Although It Cannot Lead to a Default Judgment, Negligent Spoliation Is Still Risky – The negligent destruction of evidence can no longer lead to the most severe discovery sanctions under Rule 37(e). Nevertheless, if the negligent spoliation creates prejudice on the opposing party, it may result in other damaging sanctions, including the exclusion of supporting evidence and allowing for the presentation of evidence to the jury regarding the loss of information.
5. New Focus on Proportionality May Lead to Lower Discovery Costs – Considering Rule 37(e) was meant to address the costly problem of over-preserving ESI, it should be expected that the rule's new emphasis on proportionality and the importance of the information lost will reduce discovery expenses. With this new structure, courts should not be as strict in requiring parties to preserve all of their ESI during a litigation hold.

Although these changes should create uniformity among federal courts, the interpretation of Amended Rule 37(e) and its effect on the discovery of ESI are issues that should be carefully monitored.

[1] Vick v. Texas Employment Comm'n, 514 F.2d 734, 737 (5th Cir. 1975); Leon v. IDX Sys. Corp., 464 F.3d 951, 959 (9th Cir. 2006).

[2] Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 108 (2d Cir. 2002).

[3] Fed. R. Civ. P. 37(e)(1).

[4] Fed. R. Civ. P. 37(e)(2).

[5] Fed. R. Civ. P. 37(e) (2006).

[6] See, e.g., Grove City Veterinary Serv., LLC v. Charter Practices Int'l, LLC, No. 3:13-cv-02276-AC, 2015 U.S. Dist. LEXIS 108491, at *5-6 (D. Or. Aug. 18, 2015); Coburn v. PN II, No. 2:07-cv-00662-KJD-LRL, 2010 U.S. Dist. LEXIS 110613, at *3 (D. Nev. Sep. 30, 2010).

[7] Coburn, 2010 U.S. Dist. LEXIS 110613, at *10.

[8] See Gonzalez v. City of San Jose, No. 5:13-cv-00695-BLF, 2014 WL 6687138, at *2-3 (N.D. Cal. Nov. 25, 2014); Coburn, 2010 U.S. Dist. LEXIS 110613, at *10.

[9] See, e.g., Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 685 F. Supp. 2d 456, 464 (S.D.N.Y. 2010).

[10] See id.

[11] Leon, 464 F.3d at 958-59.

[12] Vick, 514 F.2d at 737; Gateway Senior Hous., Ltd. v. MMA Fin., Inc., No. 1:06-cv-458, 2008 U.S. Dist. LEXIS 109947, at *19-20 (E.D. Tex. Dec. 4, 2008).

[13] DeGeorge, 306 F.3d at 108.

[14] Fed. R. Civ. P. 37(e).

[15] Fed. R. Civ. P. 37(e) advisory committee's note to 2015 amendment.

[16] Apple Inc. v. Samsung Elecs. Co., 888 F. Supp. 2d 976, 991 (N.D. Cal. 2012) (quoting In re Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1067 (N.D. Cal. 2006)).

[17] Fed. R. Civ. P. 37(e) advisory committee's note to 2015 amendment.

[18] Fed. R. Civ. P. 37(e)(1).

[19] Because the term "prejudice" remains undefined in the rule, it is likely courts will refer to the common law definition applied in their circuits. See Allen v. Bayer Corp. (In re Phenylpropanolamine (PPA) Prods. Liab. Litig.), 460 F.3d 1217, 1227 (9th Cir. 2006) (prejudice exists when spoliation "threaten[s] to interfere with the rightful decision of the case" (internal quotation marks omitted)); FDIC v. Conner, 20 F.3d 1376, 1381 (5th Cir. 1994) (prejudice means that a party's spoliation impaired the other party's "timely and appropriate preparation for trial" (internal quotation marks omitted)).

[20] Fed. R. Civ. P. 37(e) advisory committee's note to 2015 amendment.

[21] Nuvasive v. Madsen Med., Inc., 13cv2077 BTM(RBB), 2016 WL 305096, at *6-7 (S.D. Cal. Jan. 26, 2016).

[22] Fed. R. Civ. P. 37(e)(2).

[23] CAT3, LLC v. Black Lineage, Inc., 14 Civ. 5511 (AT) (JCF), 2016 WL 154116, at *1-2 (S.D.N.Y. Jan. 12, 2016).

[24] See Leon v. IDX Sys. Corp., 464 F.3d 951, 959 (9th Cir. 2006) (interpreting "bad faith" as "some notice that the documents were potentially relevant to the litigation before they were destroyed"); Vick v. Texas Employment Comm'n, 514 F.2d 734, 737 (5th Cir. 1975) (defining "bad faith" as acts that "sustain an inference of consciousness of a weak case").

[25] Fed. R. Civ. P. 37(e) advisory committee's note to 2015 amendment.

[26] Id.

[27] Id.

[28] Id.

[29] Id.