Interpretation of recent amendments to FRCP 37(e) taking shape

Significant amendments to Federal Rule of Civil Procedure 37(e) went into effect almost two years ago (December 1, 2015). Rule 37(e) governs the “Failure to Preserve Electronically Stored Information” and provides guidelines for the imposition of sanctions where spoliation of electronically stored information (“ESI”) has occurred. Regardless of whether a party is alleging or defending against claims of spoliation, the amended Rule has serious ramifications for those involved in the discovery of electronic information. Given the reality of the exponentially growing use of electronic systems in today’s world—resulting in more frequently occurring discovery disputes involving large volumes of electronic data—the amendments to Rule 37(e) and interpretive case law inform how attorneys and their clients may approach and address issues relating to the storage, preservation, and production of ESI.

Motivation Behind Revisions to Rule 37(e)

According to the Advisory Committee’s Notes accompanying the 2015 amendment, the decision to overhaul Rule 37(e) was the result of several factors. See Fed. R. Civ. P. 37 2015 amendment advisory committee’s notes. First, the prior iteration of the Rule failed to adequately address several issues resulting from the expanding volume of ESI at issue in many discovery disputes. Id. In addition, since the original adoption of Rule 37(e) in 2006, federal circuits had developed different standards “for imposing sanctions or curative measures on parties who fail to preserve electronically stored information.” Id. As a result, courts in one jurisdiction might grant an adverse inference instruction on a finding of negligence or gross negligence, for example, while the same conduct in another jurisdiction would not result in such a sanction.

The combination of the exponential growth of ESI over the past decade, along with the uncertainty and inconsistency in the application of court-ordered sanctions across jurisdictions, resulted in the need for 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.” See Fed. R. Civ. P. 37 2015 amendment advisory committee’s notes. Rule 37(e) as amended seeks to standardize the application of sanctions across jurisdictions by enumerating the specific measures a court may take in response to the loss or destruction of ESI that cannot be recovered.

Revisions to Rule 37(e)

Prior to the 2015 amendment, Rule 37(e) 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.”

The amended version of the Rule provides that where electronically stored data that should have been preserved is lost and cannot be restored “because a party failed to take reasonable steps to preserve it,” the Court may: (1) order curative measures “no greater than necessary” to cure the prejudice suffered by the opposing party; or (2) if the Court finds that the party “acted with the intent to deprive” the opposing party of the information, it may enter an adverse inference, dismiss the action, or enter a default judgment. Fed. R. Civ. P. 37(e).

Snider v. Danfoss, LLC

In Snider v. Danfoss, LLC, the Northern District of Illinois provided helpful analysis regarding the application of Rule 37(e) as amended. No. 15 CV 4748, 2017 WL 2973464 (N.D. Ill. July 12, 2017), report and recommendation adopted, No. 1:15-CV-04748, 2017 WL 3268891 (N.D. Ill. Aug. 1, 2017). In Snider, the plaintiff brought suit against her former employer, alleging that she was demoted and retaliated against for filing a sexual harassment complaint. Id. at *1. Shortly after the plaintiff’s attorney sent the defendant a preservation letter, the plaintiff left her job working for the defendant. Id. Pursuant to the defendant’s internal policies, the company deleted the plaintiff’s email account 90 days after she left her job. Id. It was subsequently discovered that some emails belonging to another key employee in the dispute were also deleted. The plaintiff filed a motion seeking sanctions for the destruction of the emails at issue. Id.

The Court began its analysis under amended Rule 37(e) with a “five-part winnowing process” that must occur before courts “can even consider imposing sanctions”:

1. The information must be ESI.

2. There must be anticipated or actual litigation.

3. Because of anticipated or current litigation, the ESI “should have been preserved.”

4. The ESI must have been (a) lost because (b) a party failed to take (c) reasonable steps to preserve it.

5. The lost ESI must be unable to be restored or replaced through additional discovery.

Id. at *4, *6.

Only if all five considerations are answered in the affirmative does the Court then consider whether the receiving party was prejudiced by the absence of the ESI, and whether the deletions occurred “with intent to deprive.” Id. at *5. If the receiving party was prejudiced by the loss if the ESI, the Court may order curative measures no greater than necessary to cure the prejudice suffered. Id. If, however, the Court finds that the party “intended to deprive” the opposing party of the use of the ESI, prejudice is presumed, and the court may impose “the harsher sanctions available, including presuming that lost ESI was unfavorable, instructing the jury that it may or must presume the information was unfavorable, or entering default or dismissal.” Id.

In Snider, after finding that the fifth prerequisite under amended Rule 37(e) (“[t]he lost ESI must be unable to be restored or replaced through additional discovery”) was not satisfied, the Court denied the plaintiff’s motion for sanctions. Id. at *6-7. The Court further reasoned that “no prejudice exist[ed]” as to plaintiff’s emails, as she had first-hand knowledge of such emails and could provide testimony about them as needed. Id. at *7. The Court similarly found that plaintiff was not prejudiced by the deletion of the key employee’s emails, as it was “pure speculation that the lost ESI would benefit Plaintiff under these circumstances.” Id. The Court further noted that the plaintiff presented no evidence to suggest that the defendant destroyed the emails in question “with the intent to deprive Plaintiff of this ESI.” Id. at *8. As a result, the Court concluded that no sanctions were warranted under amended Rule 37(e), as “Defendant’s admitted and erroneous destruction of electronically stored information (ESI), which does not appear to be relevant, has not prejudiced Plaintiff.” Id.

What We Know and Open Questions

As with any amended Rule shortly after implementation, several open questions remain as to how the new Rule 37(e) will be interpreted and applied. For example, when deciding whether ESI has been “lost because a party failed to take reasonable steps to preserve” the information, the types of conduct courts will deem to be “reasonable” is unknown. In addition, the advisory committee’s notes to the 2015 amendment state that the Rule “does not place a burden of proving or disproving prejudice on one party or the other,” instead leaving “judges with discretion to determine how best to assess prejudice in particular cases.” See Fed. R. Civ. P. 37 2015 amendment advisory committee’s notes. The Rule is also silent as to the burden of proof with respect to the intent to deprive. As a result, it is unclear which party will be required to show prejudice or intent to deprive—or lack thereof—in order to satisfy the standards enumerated under Rule 37(e).

Nevertheless, cases applying amended Rule 37(e) since the Rule took effect in late 2015, such as the Snider case outline above, provide some guidance as to factors courts are likely to consider in applying the Rule’s provisions. For example, for spoliation that occurs prior to litigation, courts may consider whether the party had reason to believe that litigation might occur, as well as whether a party should have known that the lost or destroyed data could be discoverable.

In addition, the text of the rule itself provides that the “reasonableness” of a party’s preservation efforts must be considered—further emphasizing the importance of the proper imposition of litigation holds as soon as a party is aware that litigation may occur. Similarly, the 2015 Advisory Committee’s Notes address the proportionality of any such preservation efforts, by noting that “[a] party may act reasonably by choosing a less costly form of information preservation, if it is substantially as effective as more costly forms.” See Fed. R. Civ. P. 37 2015 amendment advisory committee’s notes.

Finally, parties should consider the contours of the amended Rule within the context of other intersecting Federal Rules of Civil Procedure, such as Rule 26’s limitations on the production of ESI, as well as the proportionality limitations on the scope of discovery in general. See Fed. R. Civ. P. 26(b). 