eDiscovery: What Every Legal Professional Should Know About FRCP 37(e): Part 1

Originally published on Legal IT Insider.

by Stan Pierson…

Changes are coming to the Federal Rules of Civil Procedure this year. The revisions are set to take effect in December – and there’s a lot of interest in the proposed changes to Rule 37(e), which focuses on spoliation.

Let’s take a look at the expected changes.

The current rule 37(e) reads:

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 information system.

Rule 37 was amended in 2006 to include subsection (e) and was sometimes referred to as the “safe harbor” rule. This was because, in its attempt to protect parties whose good faith operations result in lost ESI, the rule provided no clear guidance for how or when courts should impose sanctions. As a result, it did not give judges detailed guidance on when sanctions might be appropriate, nor when sanctions were required.

Problems with the Current Rule

Even when the amendment was first adopted in 2006, the Advisory Committee knew that ESI would continue to grow and that difficulties related to maintaining critical ESI would inevitably create more problems. The move toward amending or changing the current rule started with the 2010 Civil Litigation Conference at Duke Law School, where the Judicial Conference Advisory Committee on Civil Rules gathered and produced a recommendation that revisions to 37(e) were needed.

Many thought the rule, as it was, lacked direction. If judges were to impose sanctions, they had to be based on other rules. But judges were inconsistent. As a result, parties felt forced to spend a lot of money on preserving ESI for fear of being hit with sanctions. In 2014, the committee recognized this in its official report to the Standing Committee:

This limited rule has not adequately addressed the serious problems resulting from the continued exponential growth in the volume of such information. Federal circuits have established significantly different standards for imposing sanctions or curative measures on parties who fail to preserve electronically stored information. These developments have caused litigants to expend excessive effort and money on preservation in order to avoid the risk of severe sanctions if a court finds they did not do enough.” (Committee on Rules of Practice and Procedure, Report of the Advisory Committee on Civil Rules, Washington, D.C. May 29-30 2014, p. 318.)

No one argues that the duty to preserve ESI is always present. When litigation is anticipated, a party has an absolute duty to preserve any related evidence—no court has said otherwise. The problem is that sometimes relevant ESI simply gets lost. The courts have struggled with how to respond when the duty is triggered but ESI is lost anyway.

Unpredictable courtroom reactions to lost ESI are not the only problem. Another is the fear that any loss of ESI will be considered negligent. That fear has meant parties often feel they must preserve or collect way too much data—and over-preservation creates a logistical and financial burden on everyone involved. Over-collecting can leave case teams drowning in data for review. It’s tough to manage the important information alone; when a case is bogged down by thousands or millions of unnecessary records, the time and cost required to minimize the risk of accidental disclosure or missed relevant documents are huge. And when the production eventually gets to opposing counsel, over-inclusiveness means the same problems for their review team.

The Proposed Rule

The committee did not attempt to detail how to preserve ESI, but to address what a court’s response should be when there is a loss. These revisions are expected to go into effect in December, along with a handful of other changes:

(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 may:

(1) upon finding prejudice to another party from loss of the information, 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:

(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 new rule is intended to settle disagreements regarding what action should be taken when ESI is lost. However, courts still need to use discretion when addressing ESI loss because no two cases are the same. Additionally, the increasing volume of ESI requires that the rule be broad enough to encompass the changing landscape.

The word ‘sanction’ does not appear in the revision. Further, there is no reference to 37(b)(2)(A) as a source for sanctions (as there was in an earlier version). The new rule is more about solving problems caused by lost ESI than punishment for the loss.

Breaking Down the New Guidelines

The focus is on what a court can do to cure a loss. The rule only comes into play if a party fails “to take reasonable steps” to preserve ESI.

If the lost ESI cannot be replaced or restored, the court may make one of two findings:

1. A party is prejudiced due to the loss of information, OR

2. The party acted intentionally to keep the ESI from being used.

Even if reasonable steps to preserve were not taken, the court will consider the relevance of the lost ESI. Then, it will ask whether there was prejudice as a result of the loss.

For 37(e)(2), the consequences are severe. If the loss is intentional, the court can issue an adverse jury instruction, dismiss of the action, or enter a default judgment.

Is there often intent to hide or destroy ESI? Not likely. Proving intent is important because, often, the real problem is that there is just so much ESI to keep track of and store in the first place.

Reflections

Judges may have clearer guidance on how to address lost ESI under the new rule, but there will certainly be questions. To prevent themselves from running afoul of the rule, parties must be thorough in creating, following, and documenting good faith processes that show good intent. In our next article, we’ll highlight a few tips for doing just that.