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A Brief Look At The New Framework For Dealing With Lost ESI And Spoliation Sanctions In Rule 37(e)

As many (if not most) aspects of everyday life are becoming increasingly digitized, digital footprints are growing at breakneck speeds.  As a result, electronically stored information (“ESI”) is taking on a more central role in litigation.  Given its nature, however, ESI can sometimes be lost or destroyed (either intentionally or innocently) fairly easily. Historically, the Federal Rules of Civil Procedure have lagged behind the times in terms of dealing with that reality.

Enter Rule 37(e), which took effect on December 1, 2015.  The rule is designed to provide greater uniformity amongst the federal trial courts on the issue of how to handle lost ESI. The full text of Rule 37(e) is as follows:

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:

  • upon a finding of prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
  • only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:
  • presume that the lost information was unfavorable to the party;
  • instruct the jury that it may or must presume the information was unfavorable to the party; or
  • dismiss the action or enter a default judgment.

F.R. Civ. P. 37(e).

The first step in the analysis is determining whether or not the ESI at issue “should have been preserved” in the first place.  Relatedly, the second step is determining whether the party that had control of the ESI “failed to take reasonable steps to preserve it.”  If you are anything like me, you probably find these first two inquiries the most obvious questions raised by Rule 37(e).  As you might surmise, both questions turn on a case-by-case analysis.

I would suggest that both of these inquiries can be informed, at least in part, by the new “proportionality” standard set forth in Rule 26 (which was also amended effective December 1, 2015). Rule 26 now provides that parties may obtain discovery of nonprivileged information that is relevant “and proportional to the needs of the case” taking into account “the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.”

With regard to what ESI “should have been preserved”, the Advisory Committee’s notes indicate that Rule 37(e) was not intended to replace the common-law duty to preserve “relevant” evidence.   If the duty is one to preserve relevant evidence—the permissible scope of which has now been refined to include the proportionality concept—it stands to reason that proportionality ought to play a role in Rule 37(e) as well.

Similarly, in discussing what factors ought to be considered in determining whether “reasonable steps” were taken, the Advisory Committee’s notes make explicit reference to the concept of proportionality.  In this context, proportionality can relate to the relative cost versus effectiveness of different data preservation efforts, as well as the staff and resources that a party has available to devote to such preservation efforts.  In addition to proportionality, the Advisory Committee’s notes state that other factors can also be considered as part of the “reasonable steps” analysis, such as: whether the ESI was lost during the routine, good-faith operation of the electronic information system; the party’s sophistication with regard to litigation; and whether the ESI was lost due to reasons beyond the party’s control (e.g., the failure of a cloud service or a malware attack).

Assuming that the ESI should have been preserved and that reasonable steps were not taken to preserve it, the question then becomes whether the ESI has actually been “lost.”  The Advisory Committee Notes recognize that ESI often exists in multiple locations, and even though it might be lost from one location it might still be able to be retrieved from another.  In that event, the ESI is not truly “lost.”  The plain language of Rule 37(e) makes it clear that if restoration or replacement is possible, sanctions are not warranted.  If you suspect that ESI may have been lost, therefore, it is probably a good idea to have an IT specialist look into the possibility of data retrieval.

If it turns out that the ESI is actually lost, there are two questions that must be answered next: (1) has the non-offending party been prejudiced as a result of the lost ESI?; and (2) did the offending party intend to deprive the non-offending party of the use of the ESI in the litigation?

If the non-offending party has not suffered any prejudice and the offending party did not act with any intent to deprive, the inquiry ends and no sanctions are appropriate.  The negligent loss of ESI with no resulting prejudice thus will not warrant sanctions, period.

In the event there was prejudice but no intent to deprive, Rule 37(e) permits the court to “order measures no greater than necessary to cure the prejudice.”  That leaves the court a great amount of discretion, while at the same time keeping the focus remedial and not punitive in nature.

That is not to say, however, that the court has unbridled discretion in remedying a negligent loss of ESI with resulting prejudice—the most severe forms of sanctions are expressly reserved for instances in which the offending party acted with the intent to deprive the non-offending party of the use of the ESI in litigation.  In that circumstance, the court has three major weapons in its arsenal: it may presume that the lost ESI was unfavorable to the offending party; it may instruct the jury that it may or must presume that the lost ESI was unfavorable to the offending party; or it may either dismiss the case or enter a default judgment against the offending party.

In summary, Rule 37(e) provides a uniform framework for analyzing spoliation issues in the context of ESI.  Sanctions for the loss of ESI are only appropriate if the ESI should have been preserved, and reasonable steps were not taken to preserve it, and it cannot be restored or replaced, and there was either prejudice to the other party or some sort of bad faith.

Disclaimer

These materials have been prepared by Rudman Winchell for educational purposes only.  They should not be considered legal advice. The transmission of this information to you is not intended to create a lawyer-client relationship. Readers should not act upon this information without seeking professional counsel.  You should not send any confidential or private information to Rudman Winchell until a formal attorney-client relationship has been established, in writing.