Proposed Amendments to the Federal Rules Provide Some Relief from the Fear of Sanctions in ESI, But Preservation Best Practices Remain the Same

by Wilson Elser

Many potential litigants have been aggressive in their preservation of electronically stored information (ESI) to diminish the risk of spoliation sanctions – a risk driven by courts that have imposed sanctions with little or no showing of either intent to destroy ESI or prejudice to the opposing party. While this extremely expensive over-preservation may seem necessary now, Proposed Rule 37(e) focuses on a variety of considerations that courts should weigh when calibrating sanctions. Indeed, many have argued that potential litigants who make reasonable efforts should not be subjected to serious sanctions when information is lost despite those efforts and with no evidence of intent.

Proposed Rule 37(e)
The centerpiece of the Proposed Rule is intended to replace the disparate treatment of preservation/sanctions issues in different circuits by adopting a single standard. It is also intended to remove a court’s reliance on its inherent power to impose sanctions – something current Rule 37(e) does not do – by affirmatively setting forth guidelines for the imposition of sanctions. Basically, the Proposed Rule has two parts:

First, it provides for both curative measures and sanctions. Specifically, the court may either

  • Permit additional discovery, order curative discovery or order the payment of expenses, including attorneys’ fees, due to the failure to preserve, or
  • Impose any of the sanctions set forth in the Proposed Rule or give an adverse-inference jury instruction.

However, the spoliation sanctions can only be imposed based on findings that the party’s actions (1) caused substantial prejudice and were willful or in bad faith, or (2) irreparably deprived a party of any meaningful opportunity to present or defend against the claims in the litigation. (The definitions of “willfulness” and “bad faith” are open to public comments.)
In requiring a finding of willfulness or bad faith coupled with “substantial prejudice,” a determination of negligence or even gross negligence will not justify the imposition of spoliation sanctions. It is only in the rare case when the loss of evidence “irreparably deprives a litigant of a meaningful opportunity to present or defend against the claims in the litigation” that sanctions may be imposed without a separate determination of willfulness or bad faith. But as a Note in the Proposed Rule makes clear, this must be based on a finding of “an impact more severe than … substantial prejudice” – an incredibly difficult standard to meet.

Second, the Proposed Rule identifies five factors for courts to weigh when determining when the duty to preserve arose and what information should have been preserved. Reasonableness and proportionality are the overarching considerations.

The five factors are:

  • The extent to which a party was on notice that the litigation was likely and that information was discoverable
  • The reasonableness of the party’s efforts to preserve information
  • Whether the request to preserve information was clear and reasonable and whether the parties engaged in a good faith consultation about the scope of the preservation
  • The proportionality of the preservation efforts
  • Whether the party timely sought the court’s guidance about unresolved disputes regarding preservation as early as possible in the litigation.

These factors are not to be considered “bright-line” preservation directives. Rather, they are a guide for a court’s determination as to whether a sanction should be imposed, and the focus should be on the reasonableness of the parties’ conduct.

Notably, the Proposed Rule has already elicited a very strong and somewhat negative judicial response from Judge Shira A. Scheindlin, U.S. District Court, Southern District of New York, who is widely acknowledged for her groundbreaking decisions in the area of e-discovery. On the very day the amendments were released for public comment, Judge Scheindlin issued an opinion and order in which she stated her disagreement with the Proposed Rule: “To shift the burden to the innocent party to describe or produce what has been lost as a result of the opposing party’s willful or grossly negligent conduct is inappropriate because it incentivizes bad behavior on the part of would-be spoliators.” That is, it “would allow parties who have destroyed evidence to profit from that destruction.” (Sekisui Am. Corp. v. Hart, 2013 U.S. Dist. LEXIS 115533, 36 (S.D.N.Y. Aug. 15, 2013)) 

It remains to be seen whether a uniform set of factors to guide the court in making culpability findings that support the imposition of sanctions will address all concerns. It seems clear that these factors are intended to achieve a balanced approach and apprise litigants and potential litigants that intentional actions will have consequences while assuring a party that has made “reasonable preservation decisions in light of the factors identified” it will not face sanctions. Although the proposed amendment may provide some relief to producing parties who may feel that they live under an increasingly constant fear of sanctions, the best practice remains to conduct diligent and purposeful preservation efforts as soon as the litigation “trigger” occurs.

The Advisory Committee on Civil Rules, on August 15, 2013, released for public comment the proposed amendment to Rule 37(e), together with proposed amendments to Civil Rules 1, 4, 16, 26, 30, 31, 33, 34, and 36 as well as the abrogation of Rule 84 and the Rule 84 official forms. The comment period remains open until February 15, 2014, and the Advisory Committee has posed five questions seeking comment.

  • Should the rule be limited to sanctions for loss of electronically stored information?
  • Should Rule 37(b)(1)(B)(ii) be retained in the rule?
  • Should the provisions of current Rule 37(e) be retained in the rule?
  • Should there be an additional definition of “substantial prejudice” under Rule 37(e)(1)(B)(i)?
  • Should there be an additional definition of "willfulness" or bad faith under Rule 37(e)(1)(B)(i)?

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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