Rule 37(e):  The Road to Clarity for ESI Preservation

Sierra Palmer, Law Clerk
Schwartz Semerdjian Cauley & Moot LLP
Published:  08.01.2017

Since the onset of E-discovery, electronically stored information (ESI) data preservation has proven itself to be one of the most problematic concerns in today’s legal market. Is it okay to delete those client emails from 2004? How many text messages need to be saved in order to avoid sanctions in this case? The fluctuating court opinions that used to define what sanctionable destruction of ESI consisted of under Federal Rule of Civil Procedure 37(e) were causing litigants to spend unreasonable amounts of time and money in order to cover their bases and avoid legal sanctions. Recent updates to Rule 37(e) have attempted to clarify when the court is permitted to issue sanctions and what those sanctions will be depending on the severity of the ESI preservation spoliation.

The Origins of Rule 37(e)

Federal Rule of Civil Procedure 37(e) was originally adopted in 2006 when E-discovery took off. The statute used to read:

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.

Although its drafters intended to protect parties who preserved ESI in good faith, the lack of guidance on how or when courts should impose sanctions caused severe inconsistencies among the courts and panic among litigators trying to follow protocol.

On December 1, 2015, Federal Rule of Civil Procedure 37(e) was updated in order to restructure a litigant’s preservation duty based on the court’s determination of reasonableness and good faith. It has come to be known as a “safe harbor” rule, taking into consideration the need for structured protection for litigants who present a good faith ESI operation despite the constantly expanding volume of E-Discovery documentation and information. After one year of grappling with this new federal preservation standard, courts have turned out several opinions that address what intending to deprive a party of relevant data actually means and how to take reasonable steps to decipher where a proper preservation line can be drawn in order to avoid sanctions.

Under Rule 37(e), a court is permitted to issue sanctions upon a litigant for failure to preserve ESI if that information (1) should have been preserved in the anticipation or the conduct of litigation, (2) if it is lost, (3) if that loss is due to a failure of the party to take reasonable steps to preserve it, and (4) if it cannot subsequently be replaced or restored through additional discovery measures. Marshall v. DentFirst, P.C., 313 F.R.D. 691, 695 (N.D. Ga. 2016); see also Broughel et al., The New Federal Rule of Civil Procedure 37(e): What Have The First Three Months Revealed? Paul Hastings (2016).

After the court determines that the four conditions are met, it must determine whether or not the failure to preserve the information prejudiced the non-offending party. Id. If so, it may only order measures necessary to cure the prejudice. Id. However, if the court finds that the offending party acted with the intent to deprive the non-offending party of the information’s use in the litigation, it may subsequently (1) presume that the information lost was unfavorable to the offending party, (2) instruct the jury that it may or must presume that the lost information was unfavorable to the offending party, (3) dismiss the action, or (4) enter a default judgment. Id.

This newly structured rule directs courts to take a step-by-step approach to determining whether or not sanctions apply and, if they do, how to apply them in a way that promotes justice.

Recent Interpretations of Rule 37(e)

In January 2016, the District Court for the Southern District of New York was one of the first to delve into the logistics of new Rule 37(e) when it decided the outcome of Cat3, LLC v. Black Lineage, Inc., 164 F.Supp.3d 488, 488 (S.D.N.Y. 2016) (“Cat3”).  In this case, defendants claimed that plaintiffs purposefully altered certain emails relevant to the claims in the case prior to producing those emails to opposing counsel during discovery. Id. at 491. The court concluded that each threshold requirement of Rule 37(e) was met, that the plaintiffs acted with intentions to deprive the other party of the information’s use in the litigation, and that a proper sanction should be imposed. Id.

The Cat3 court interpreted Rule 37(e) to give courts discretion to issue sanctions that “fit the wrong,” and that each sanction should be designed to: “(1) deter parties from engaging in spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore the prejudiced party to the same position he would have been in absent the wrongful destruction of evidence by the opposing party.” Id. at 502. For the above reasons, the court precluded plaintiffs from relying on their versions of the emails at issue in their case in order to protect defendants against legal prejudice that arose from the plaintiff’s conduct. Additionally, the plaintiffs were required to bear all costs incurred by the defendants in establishing the plaintiffs’ misconduct, including attorney fees. Id.

In March 2016, the United States District Court for the Northern District of Georgia addressed the new rule’s requirement that the plaintiff prove prejudice beyond a mere showing of an offending party’s duty and failure to preserve ESI. Marshall, 313 F.R.D. at 694. In this case, the plaintiff sought sanctions against the defendant, her previous employer, based on the defendant’s alleged failure to preserve emails and web browsing history after she was fired.  Id. The court concluded that even though the defendant should have reasonably anticipated litigation regarding plaintiff's termination after being notified of plaintiff’s EEOC charge and therefore had a duty to preserve the relating ESI, the plaintiff failed to show that the evidence in question was crucial to her case or that the defendant acted with the bad faith intention of depriving the plaintiff of the information in this litigation. Id. at 697.

The Marshall court provided the “safe harbor” relief that the new Rule 37(e) drafters intended when it denied the plaintiff’s motion to dismiss and refused to impose sanctions for spoliation of evidence. Although the court did not deny an affirmative duty to preserve ESI once the defendants could have reasonably anticipated litigation, it held that Rule 37(e)(2) requires a showing of bad faith intentions by the non-offending party before the court may presume that the lost information was unfavorable to the offending party.

In June 2016, the court in Learning Care Group Inc. v. Armetta provided helpful precedent to dictate what happens when the non-offending party only satisfies certain elements of Rule 37(e)’s new requirements. Learning Care Grp., Inc. v. Armetta, 315 F.R.D. 433, 434 (D. Conn. 2016). Here, the defendants destroyed a laptop with evidence pertaining to the plaintiff’s case during the normal course of business and prior to any notice of pending litigation. Id.  However, the plaintiffs proved that the emails on the laptop were relevant to their case and were destroyed in a negligent way. Id. at 436.

In an attempt to issue sanctions appropriately and fairly, the court concluded that the behavior in this case fell short of what is required by Rule37(e) for an entry of default, but it was evident that some sanction was appropriate. Id. at 441. To address the identified negligence, the court awarded reasonable costs and attorneys’ fees incurred as a result of the spoliation. Id.

Most recently, the court held in 2017 that when it exercised its inherent authority to sanction bad-faith conduct during discovery by ordering the litigant to pay opposing counsel’s legal fees, that award was limited to the fees that innocent party incurred solely because of that misconduct. Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1181 (2017). The Supreme Court reversed the appellate court’s decision requiring the defendant to pay the entire sum the plaintiffs spent on legal fees and costs since the start of litigation ($2.7 million) and instead sent it back to the district court to determine the proper damages that resulted directly from the discovery violation. Id.

What’s to Come?

Although Rule 37(e) is still new to litigators and courts, the handful of published opinions that have interpreted its ramifications show the direct and abrupt impact it is having on E-Discovery practices in today’s legal market. The abovementioned cases prove that courts are delving into each individual requirement of the new rule, including the loss of information, the duty to preserve it, the prejudice it presents to the non-offending party, the reasoning behind the loss of information, and the intent of the offending party in discovery spoliation. This step-by-step process has created a more structured approach to imposing and predicting sanctions, while allowing litigators to better allocate their time and resources to comply with the new rule.

The remainder of 2017 will likely continue to reveal cases that hone in on the subsections of 37(e) as they apply to intent and purpose. These court holdings have begun and will continue to prove that, even though ESI mistakes will sometimes occur, good faith in the practice of ESI preservation will bode well for attorneys and their clients in the course of litigation.