Version 2.0 of Rule 37(e): Rebooting the Framework For Evaluating Sanctions Under the Federal Rules

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By its nature, Electronically stored information ("ESI") has a tendency to become voluminous and can had a profound impact on the cost of litigation and the issues and obligations faced by litigants. Federal Rule of Civil Procedure 37(e) is intended to provide a safe harbor from sanctions for the loss of ESI resulting from "the routine, good-faith operation of an electronic information system." Since the rule was put in place in 2006, courts have applied very different analytical frameworks and standards when considering requests for sanctions for lost ESI. Because of the problems created by the inconsistency and uncertainty of the rule's application, including concerns that parties would be held to a standard that required the over-preservation of ESI, the old rule has been scrapped and a revised version of Rule 37(e) goes into effect on December 1, 2015.

The new Rule 37(e) provides as follows:

If electronically stored information that should have been preserved in the anticipation of litigation is lost because a party failed to take reasonable steps to preserve the information, and the information cannot be restored or replaced through additional discovery, the court may:

(1) Upon a finding of prejudice to another party from loss of the information, order measures no greater than necessary to cure the prejudice;

(2) Only upon a 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 eliminates a court's inherent authority and ensures that sanctions for lost ESI are based on the specific criteria laid out in the rule. Under the new rule, courts may consider sanctions for lost ESI only when the initial three elements are present: 1) ESI that should have been preserved in the anticipation or conduct of litigation has been lost; 2) because a party failed to take reasonable steps to preserve the information; and 3) the information cannot be restored or replaced through additional discovery. By including the failure to take "reasonable steps" as part of the initial inquiry, the new rule requires courts to consider the circumstances of the litigation, such as the amount at issue, and other common sense considerations rather than simply focusing on the timing of when ESI may have been deleted relative to the commencement of litigation.

Once the initial 3-part test is met, the new rule requires there to be prejudice before a party may be sanctioned. For the most severe sanctions, such as an adverse inference, there must be a finding that the party acted with the intent to deprive the other party of the use of the ESI (i.e. bad faith). The new rule's requirement that there be "an intent to deprive" before the most severe sanctions can be granted is specifically intended to set a national standard for severe sanctions. In fact, the advisory committee expressly rejects cases such as Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002), that authorize the giving of adverse-inference instructions on a finding of negligence or gross negligence. Notably, the advisory committee notes also urge courts to exercise caution and emphasizes that even where there has been an intent to deprive, does not require a court to a court is never required to use the most sever sanctions.

While much remains to be seen concerning the practical effect of the new Rule 37(e), the creation of a single national standard for claims of lost ESI is a significant improvement for any party that may be subject to litigation in more than one jurisdiction. In particular, larger businesses will no longer face the uncertainty that conduct that is appropriate in one court will be sanctionable somewhere else.

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