In December 2015, amendments to the Federal Rules of Civil Procedure went into effect.  One of the amended rules, Rule 37(e), was completely rewritten in an attempt to develop a uniform, national standard for the imposition of sanctions involving the loss or spoliation of electronically stored information ("ESI"). This article briefly reviews the district court decisions that have applied Rule 37(e) since it went into effect.  One conclusion that can be gleaned from those decisions, even at this early stage of the rule's development, is that the Rule 37(e) is being applied in a way to limit or deny sanctions that in years past would likely have been imposed.  To understand why this is the case, we need to first turn to the Rule 37(e) itself, and then highlight several provisions from the rule's 2015 Committee Note.

Rule 37(e) provides:

If electronically stored information [1] that should have been preserved in the anticipation or conduct of litigation is lost [2] because a party failed to take reasonable steps to preserve it, and [3] 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 text of the Rule itself contains three preconditions, or safe harbors, that have to be navigated before any type of sanction can be imposed. We added the bracketed numbers to the first paragraph of the rule to identify Rule 37(e)'s safe harbor provisions. According to the text of the rule itself, if ESI is lost or destroyed before any duty to preserve is triggered, or if a party takes reasonable steps to preserve ESI but despite those efforts it is lost, or if the lost ESI can be restored from another source or replaced through additional discovery (such as through a subpoena directed to a third party for the missing ESI or emails), then no sanction or curative measure of any type is warranted under Rule 37(e).

It should also be noted that by its express terms, Rule 37(e) only applies to the spoliation or loss of ESI. It does not apply to the loss of paper records or tangible information or evidence. This means that two bodies of law will likely develop in the future, one for the loss of ESI and the other involving the spoliation of tangible records.

It should also be noted that the Rule itself only makes reference to a party. Contrast Rule 37(e)'s language with the text of Rule 11(c)(1), which authorizes sanctions against any "attorney, law firm or a party" and with Rule 37(f), which authorizes sanctions against a party or an attorney. Recently the Tenth Circuit in Sun River Energy, Inc. v. Nelson, 800 F.3d 1219 (10th Cir. 2015), addressed whether an attorney could be sanctioned under Rule 37(c), which also only includes a reference to parties in the text of the rule, just like Rule 37(e). In Sun River Energy, the court held that only parties and not attorneys could be sanctioned under Rule 37(c). Id at 1226-27. Thus, based Sun River Energy, a strong argument can be made that sanctions are not available under Rule 37(e) against attorneys (unless an attorney happens to be the defendant or a party in the action). That being said, there are a number of other federal rules that could trigger the imposition of sanctions against a lawyer for discovery violations.

The 2015 Committee Note to Rule 37(e) should be carefully reviewed by lawyers because it contains a treasure trove of potential arguments to avoid or limit the imposition of sanctions against their clients. Several of these points will be briefly discussed below.

First, the 2015 Committee Note explains that Rule 37(e) forecloses reliance on a court's inherent authority to impose sanctions for the loss of ESI. The Note also highlights that only reasonable steps to preserve ESI must be taken; the rule does not call for perfection, and the Note acknowledges that perfection in preserving ESI "is often impossible." The Note warns that information can be lost due to circumstances beyond a party's control. It further explains that Rule 26's concept of proportionality is a relevant consideration when evaluating the reasonableness of a party's preservation efforts. A party can act reasonably by choosing a less costly form of preservation if it is substantially as effective as more costly forms. Before a suit is filed, or during the early stages of litigation, a party may not precise know the scope of ESI to be preserved, and the Committee Note warns courts not to be blinded to this reality by assertions made in a pleading that is subsequently filed. The Note also addresses the impact of preservation obligations that arise independent of a lawsuit then before the court:

[C]ourts may sometimes consider whether there was an independent requirement that the lost information be preserved. Such requirements arise from many sources — statutes, administrative regulations, an order in another case, or a party’s own information-retention protocols. The court should be sensitive, however, to the fact that such independent preservation requirements may be addressed to a wide variety of concerns unrelated to the current litigation. The fact that a party had an independent obligation to preserve information does not necessarily mean that it had such a duty with respect to the litigation, and the fact that the party failed to observe some other preservation obligation does not itself prove that its efforts to preserve were not reasonable with respect to a particular case.

It's with this background that we provide you with a summary of district court decisions addressing Rule 37(e) since it went into effect.

SUMMARY OF NEW DECISIONS

Best Pay Phones, Inc. v. City of New York, 2016 WL 792396 (E.D.N.Y. Feb. 26, 2016).

Lawsuit was filed in 2000 and the court noted preservation standards and practices for email were then in a state of flux. Plaintiff failed to issue a litigation hold or instruct its principal to save his email communications and other electronic records. Emails between plaintiff and third parties that allegedly sought to buy plaintiff's business as well as revenue information, bank statements, contracts and agreements between the plaintiffs and various service providers were not preserved. Many of the documents that defendant sought such as emails from prospective buyers and bank statements could have been requested from third parties.

• Rule 37(e) requires a separate analysis for the loss of tangible evidence and electronic evidence.

• The court may enter sanctions under Rule 37(e) only if plaintiff failed to take reasonable steps to preserve evidence which cannot be restored or replaced through additional discovery. The court noted defendants did not attempt to retrieve copies of emails or information from perspective buyers which would have cured the purported violation of Rule 37(e).

• Imposing "curative measures" under 37(e)(1) requires a finding of prejudice to another party from loss of information.

• Absence of prejudice can be shown by demonstrating that other parties were able to obtain the same evidence from another source and defendant's failure to seek the information from other sources fails to establish the defendants were prejudiced.

• Party not prejudiced by loss of ESI that does not support its claims or defenses.

• Adverse inference instruction under Rule 37(e)(2) only permitted where a party acted with an intent to deprive others of the lost information.

• The court found that the plaintiff acted with mere negligence and, thus, refused to enter any adverse inference or other curative measures under Rule 37(e), but did award attorney's fees and costs in connection with the bringing of this motion under Rule 37(a)(5)(A).

Accurso v. Infra-Red Services, Inc., 2016 WL 930686, (E.D. Pa. Mar. 11, 2016)

Defendant sought the imposition of an adverse inference regarding the content of emails its former employee allegedly deleted.

• The imposition of an adverse inference is appropriate only on a finding that the party responsible for the destruction acted with the intent to deprive another of access to that information.

• Defendant failed to provide any basis for the court to conclude there was actual destruction of evidence or that the plaintiff was responsible for the destruction of the evidence.

• Defendant failed to demonstrate the allegedly lost evidence could not be obtained from other sources or that plaintiff acted with an intent to deprive.

• The briefing on these issues occurred before the effective date of Rule 37(e), but the court found it was "just and practicable" to apply the amended version of Rule 37(e).

Ericksen v. Kaplan Higher Educ., LLC, 2016 WL 695789 (D. Md. Feb. 22, 2016).

A forensic exam of the plaintiff's computer revealed that plaintiff had run several "data destruction" programs that had wiped data from a computer. The plaintiff's action occurred prior to the effective date of the act, but the court applied amended Rule 37(e).

• Plaintiff acted willfully by running a computer program that she knew, given her computer expertise, would destroy at least some data.

• The court applied, however, the "curative measures" subsection of Rule 37(e) rather than subsection (e)(2) which applies when a party acts with the intent to deprive another of information.

• The court noted that under Rule 37(e), it could impose "measures no greater than necessary to cure the prejudice."

• The court precluded plaintiff from introducing certain information at trial, defendants were permitted to present evidence related to the loss of that information and plaintiff was ordered to pay reasonable attorneys' fees incurred as a result.

Living Color Enterprises, Inc. v. New Era Aquaculture, Ltd., 2016 WL 1105297 (S.D. Fla. Mar. 22, 2016).

The decision addressed spoliation of text messages which defendant admitted should have been preserved. Defendant admitted that he regularly deleted text messages in order to keep his phone running efficiently. A great majority of the text messages were provided to plaintiff by another party, therefore, sanctions under Rule 37(e) were not available as to those text messages.

• The court recognized Rule 37(e)'s Committee Note forecloses reliance on its inherent authority or state law to determine when certain measures or sanctions should be used involving the loss of ESI.

• Rule 37(e) does not apply when information or evidence is lost before a duty to preserve attaches.

• Rule 37(e) precludes any sanctions or curative measures if the lost ESI can be restored or replaced through additional discovery.

• The court found no prejudice to plaintiff as a result of the lost text messages – plaintiff failed to explain how the missing text messages would help to prove a claim or defense.

• The court found the defendant "to be a relatively unsophisticated litigant" and at worst found his actions negligent. The court ruled there was no intent to deprive or bad faith.

Core Laboratories, LP v. Spectrum Tracer Services, LLC, 2016 WL 879324 (W.D. Okla. Mar. 7, 2016).

Several months after a lawsuit was filed, defendant changed its email service provider to ensure that emails were captured to comply with the preservation requirement triggered by the lawsuit. Defendant's prior email service provider could not capture or archive emails, however, and all emails sent or received prior to the new email service provider was engaged were lost. The court addressed the loss of those emails and personal files deleted from one employee's computer before it was forensically imaged and the wiping of another employee's computer.

• The court found defendant should have taken steps to ensure that any emails prior to switching over to new email service provider were saved.

• The court granted the request for an adverse inference instruction to the jury presuming that the emails that were lost would have been unfavorable to the defendant.

• Deleting personal files from the hard drive of a computer used by one of the defendant's employees prior to the forensic analysis of the computer's hard drive to recover any of plaintiff's proprietary software from the computer did not result in prejudice to the plaintiff. The court found it was reasonable for the employee to delete personal files from the hard drive before it was turned over for forensic imaging and that there was no bad faith on the part of the defendants. The court's finding of no prejudice was supported by plaintiff's failure to produce any evidence of documents deleted from the hard drive other than the employee's personal files.

• Plaintiff suffered no prejudice by the "wiping" of another employee's computer that was having problems because everything on that computer was first exported to an external hard drive. Plaintiff could not demonstrate that files on that computer were lost or could not be produced in discovery as a result.

Internmatch, Inc. v. Nxtbigthing, LLC, 2016 WL 491483 (N.D. Cal. Feb. 8, 2016).

The case involves a trademark dispute where the only electronic versions of evidence reflecting the defendant's use of documents were on a desktop computer that defendant discarded after the lawsuit was filed allegedly because a power surge damaged the computer. Defendant made no effort to determine whether the hard drive was salvageable or if any data on it could be recovered. As a result, the parties could only access existing paper copies of documents rather than electronic files which would show their creation and modification history. Defendant claimed that the wife of one of the principals discarded the computer on her own accord without notifying them in advance.

• The court found defendant's conduct was willful, in bad faith and that defendant acted with an intent to deprive another party of the information's use under Rule 37(e)(2).

• The court ruled plaintiff was entitled to an adverse inference instruction and precluded the defendant from making any argument or offering any testimony that the destroyed evidence, or any versions of it in hard copy or otherwise supported their assertions that they had a priority to the trademark.

• "Whether a district court must now make the findings set forth in Rule 37(e) before exercising its inherent authority to impose sanctions for the spoliation of electronic evidence has not been decided," but the court ruled it did not resolve the question of the relationship of the recent amendments to existing case law in light of its findings of willfulness and bad faith.

CAT 3, LLC v. Black Lineage, Inc., 2016 WL 154116 (S.D.N.Y. Jan. 12, 2016).

The case involves a trademark infringement, false designation of origin and cybersquatting claim under the Lanham Act. Plaintiff produced emails with a domain name @slamxhype.com (e.g., jeremiah@slamxhype.com) when the true domain name was @ecko.com (e.g., jeremiah@ecko.com). Evidence was presented by the defendant that the deletion of emails with the @ecko.com domain suffix and the substitution of emails containing the @slamxhype suffix could not have occurred accidentally.

• In response to plaintiff's argument that there was no loss of information as required under Rule 37(e), the court found that the existence of two sets of near duplicate emails showing different domain addresses cast doubt on the authenticity of both sets. The court ruled that as long as plaintiff was permitted to rely on emails to argue that the defendant had notice of plaintiff's use of the @slamxhype mark as of the date of those emails, a different version of the same email was not an adequate substitute.

• The court rejected plaintiff's argument that it could not be sanctioned because even if Rule 37(e) were construed to not apply to these facts, the district court could exercise its inherent authority to remedy spoliation under the circumstances presented.

• While the Committee Note indicates that Rule 37(e) forecloses reliance on a court's inherent authority to sanction the loss of ESI, that was interpreted to mean that the court could not rely on its inherent authority to dismiss a case as a sanction for merely negligent destruction of evidence as it would have been able to do prior to the 2015 amendment to Rule 37(e).

• The decision noted that in Chambers v. NASCO, Inc., 501 U.S. 32, 49 (1991), the Court recognized that "the inherent power of a court can be invoked even if procedural rules exist which sanction the same conduct."

• Thus, sanctions would be available under the court's inherent authority even if Rule 37(e) did not apply.

• A party's falsification of evidence and attempted destruction of authentic, competing email information threatened the integrity of the judicial proceeding even if the evidence was not successfully deleted as here.

• The court concluded that plaintiff intentionally altered the emails at issue in an attempt to gain advantage in the litigation which was inconsistent with taking reasonable steps to preserve the evidence.

• Plaintiffs were precluded from relying upon these emails to demonstrate notice to the defendants of the plaintiff's use of the @slamxhype mark. Plaintiff directed to pay all reasonable attorneys' fees by the defendants in establishing their misconduct.

Brown Jordan Int'l, Inc. v. Carmicle, 2016 WL 815827 (S.D. Fla. Mar. 2, 2016).

Plaintiff was a high ranking employee and the issue was whether he was properly terminated. A bench trial was held which began before, but concluded after the effective date of new Rule 37(e). The court applied the new Rule 37(e), however, because its application was neither "unjust nor impractical." On the day plaintiff's employment was terminated, he remotely wiped a company-owned iPad and restored it to factory settings and used the "Find My iPhone" application to remotely lock a company-owned laptop with a password and PIN. Plaintiff claimed he could not remember the PIN and failed to provide the company with the information necessary to unlock its laptop computer. A forensic examination of the plaintiff's personal laptop computer revealed that 2.4 million files had been accessed within 48 hours prior to the date that plaintiff was ordered to surrender the laptop for a forensic examination, which altered the metadata of those files. Plaintiff claimed that this was not the result of any affirmative act on his part, but offered "a number of scenarios" that could account for how this happened such as running a virus scan.

• Rule 37(e) forecloses reliance on inherent authority or state law to determine when certain measures should be used.

• Rule 37(e) does not create a duty to preserve.

• The court concluded that plaintiff acted with an intent to deprive the defendants of the use of information in this litigation by his various actions and, thus, presumed that the information lost was unfavorable to the plaintiff under Rule 37(e)(2).

• The court declined to impose additional sanctions including dismissal of the case in view of its ultimate determination that plaintiff's employment was properly terminated for cause and plaintiff was not entitled to any profits or severance pay as a result of his actions.

Marten Transport, Ltd. v. Platform Advertising, Inc., 2016 WL 492743 (D. Kan. Feb. 8, 2016).

The case involves an action under the Lanham Act for trademark infringement and unfair competition. Defendant requested an order sanctioning the plaintiff for failing to preserve the computer internet search history of one of plaintiff's employees who allegedly posted some of the information via defendant's customer access portal system that plaintiff claimed infringed its trademark. Plaintiff had imposed a litigation hold and identified the particular employee as having discoverable information. Plaintiff preserved the employee's email communications and attachments, Outlook calendar and all electronic and physical files in the employee's possession and control, but not his internet history because it did not know or believe it was relevant at that time. By the time defendant raised the issue that the employee may have been the source of the allegedly infringing information, the computer internet history had been discarded.

• Rule 37(e) is based on the common law duty to preserve; it does not purport to create any new duty.

• Preservation questions involve not only when a duty to preserve arises, but also what evidence must be preserved.

• The Committee Note to Rule 37(e) explains that often a party may only have limited information about the prospective litigation which makes the scope of the information to be preserved uncertain. The Note explains: "It is important not to be blinded to this reality by hindsight arising from familiarity with an action as it is actually filed."

• Plaintiff had never preserved an employee's internet search history in connection with any prior litigation and did not believe that search history bore any relationship to the matter when the lawsuit was initially filed. Plaintiff introduced the testimony of a computer forensics expert who opined that in his experience, businesses typically did not save, backup or maintain internet search history files, which are lost when a computer is replaced.

• Rule 37(e) provides that reasonable steps to preserve ESI will suffice. The Rule does not call for perfection.

• The court rejected the request for spoliation sanctions because the plaintiff took reasonable steps to preserve information it thought to be relevant and because the court refused to use hindsight bias or a perfection standard in determining the scope of a duty to preserve ESI.