Proposed revised FRCP 37(e) seeks to clarify and standardize handling of ESI spoliation

On April 11, 2014, the Judicial Conference Advisory Committee on Civil Rules approved for adoption^[1] a revised version of Rule 37(e) of the Federal Rules of Civil Procedure, hoping to bring clarity and uniformity to an area of the law in which there has long been significant disagreement between the various federal court of appeals circuits: sanctions arising from the spoliation of electronically stored information, commonly known as ESI. And, in its proposed revised form, Rule 37(e) may finally do just that. But before considering the merits of the revised rule, it is important to understand the circumstances leading to its drafting.

Background

When large businesses are sued, even careful in-house counsel may find themselves facing spoliation claims based on routine deletion or overwriting of ESI. With hundreds or even thousands of employees working on multiple lengthy projects, the chance is high that data—relevant or not—will be lost over time. For plaintiffs having difficulty supporting their claims, this loss of data presents a golden opportunity to "fill in the blanks" via an adverse inference instruction—i.e., the court telling jurors that that they may (or, in some jurisdictions, must) infer that any data destroyed would have been unfavorable to the party responsible for its destruction. There are two main components that courts consider in awarding this severe sanction: (1) the non-movant's culpability and (2) the prejudice suffered by the movant as a result of the loss of data.

Culpability

In the Fifth, Seventh, Eighth, Tenth, and Eleventh Circuits, there must be a showing of bad faith on the part of the non-movant, i.e., the deletion or overwriting of any data must have been the result of wrongful intent.^[2] Mere negligence is not enough, as such does not support an inference that the party was conscious of a having a weak case. Thus, even if a party's handling of data was not perfect, they may still be able to avoid an adverse inference, with records of litigation hold instructions and other steps to preserve known relevant data especially useful in those efforts.

In the First, Second, Third, Fourth, Sixth, Ninth, and D.C. Circuits, while the non-movant's state of mind is obviously relevant, bad faith is not a requirement for the imposition of severe sanctions for spoliation, including adverse inferences. If the prejudice to the movant is great, an instruction may be awarded where only negligence is demonstrated. The Third Circuit also considers whether a lesser sanction might be more fair to the non-movant while still serving as an adequate deterrent to others similarly situated.

Prejudice

Prejudice to the movant is an important part of the spoliation sanctions analysis, and the burden is on the movant to make such a showing. After all, if the data destroyed was not relevant and unfavorable to the non-movant, then an inference that it was would not be just. To establish the relevance and prejudicial nature of a loss of data, a movant often can use extrinsic evidence such as deposition testimony or other documents. However, courts have shown some leniency in imposing this burden, to avoid allowing spoliating parties to profit from more the destruction of evidence. And at least two district courts in the Second Circuit have held that a rebuttable presumption of relevance and prejudice may be appropriate in cases involving gross negligence.

The 2006 Version of the Rule

The current version of Rule 37(e) (originally called Rule 37(f)), created in 2006 to address the problems arising from routine ESI deletion and overwriting, reads 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 discovery system.

This version was met with immediate criticism, and in practice, it proved not to be the safe harbor its drafters (and company counsel) had hoped for. With the "good-faith" and "exceptional circumstances" language, courts were still free to address ESI spoliation as they saw fit, with general spoliation case law providing the only real guidance to practitioners.

The Proposed Revised Rule

Following substantial public comment and hearing testimony, the Advisory Committee approved the following language for adoption:

(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.

If these changes are made, the standard followed by the Fifth, Seventh, Eighth, Tenth, and Eleventh Circuits should become the law of the land, although even the most careful drafting cannot control how a court will interpret a statute or rule. Still, regardless of the circuit in which a case is pending, a party fighting a motion for sanctions is well served by any evidence showing that the data lost, if any, was either present elsewhere or not relevant, and that any loss of ESI was not the result of intentional conduct. Properly engaging in (and documenting) data preservation at the outset of a dispute can help to avoid significant stress and bad outcomes later on.

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[1] The proposed revised rule will next go before the Standing Committee on Rules of Practice and Procedure for approval, then to the Judicial Conference, then to the Supreme Court, and then to Congress.

[2] Rimkus Consulting Group, Inc. v. Cammarata, 688 F.Supp.2d 598 (S.D. Tex. 2010), an 81-page opinion by the Honorable Lee Rosenthal, provides a handy, albeit somewhat dated, overview of the standards applied by each of the Circuits.