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Proposed FRCP 37(e); "Perverse Incentives and Sloppy Behavior"

Proposed FRCP 37(e); "Perverse Incentives and Sloppy Behavior"

This is my second post in a series about the pending amendments to the FRCP. I began with commentary on the proposed amendment to FRCP 26(b)(1), which would narrow the scope of discovery.

On to FRCP 37(e). First, the text of the amendment. Added text, deleted text.

Rule 37. Failure to Make Disclosures or to Cooperate in Discovery; Sanctions

(e) 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.

(e) Failure to Preserve Discoverable Information.

(1) Curative measures; sanctions. If a party failed to preserve discoverable information that should have been preserved in the anticipation or conduct of litigation, the court may:

(A) permit additional discovery, order curative measures, or order the party to pay the reasonable expenses, including attorney’s fees, caused by the failure; and

(B) impose any sanction listed in Rule 37(b)(2)(A) or give an adverse inference jury instruction, but only if the court finds that the party’s actions:

(i) caused substantial prejudice in the litigation and were willful or in bad faith; or

(ii) irreparably deprived a party of any meaningful opportunity to present or defend against the claims in the litigation.

(2) Factors to be considered in assessing a party’s conduct. The court should considerall relevant factors in determining whether aparty failed to preserve discoverableinformation that should have been preservedin the anticipation or conduct of litigation, and whether the failure was willful or in bad faith. The factors include:

(A) the extent to which the party was on notice that litigation was likely and that the information would be discoverable;

(B) the reasonableness of the party’s efforts to preserve the information;

(C) whether the party received a request to preserve information, whether the request was clear and reasonable, and whether the person who made it and the party consulted in good faith about the scope of preservation;

(D) the proportionality of the preservation efforts to any anticipated or ongoing litigation; and

(E) whether the party timely sought the court’s guidance on any unresolved disputes about preserving discoverable information.

Current Law. Nothing like the proposed amendment currently exists in the FRCP. (Maybe because it would violate the Rules Enabling Act, but more on that later.) Current Rule 37(e) provides a safe harbor from sanctions under the Federal Rules for ESI lost through routine, good faith operation of systems. Current 37(e) applies, for example, to innocent violations of preservation order issued during litigation. But since the Federal Rules are not applicable until litigation is filed, current 37(e) does not apply to preservation failures before litigation commences.

However, all circuits recognize the common law duty to preserve relevant evidence when litigation is reasonably anticipated. All circuits use their inherent power (independent of Rule 37) to sanction parties who breach that duty. All circuits determine whether and what sanctions to impose by evaluating the relevance of lost material, the prejudice to the victim, and the culpability of the conduct resulting in the loss of information. A couple of circuits differ slightly in how they weigh the factors. A good (though slightly outdated) survey in chart form can be found in Victor Stanley, 269 FRD 497. According to that survey, all but three circuits employ sanctions to redress a party’s negligent failure to preserve. (Only the 5th the 8th and the 11th appear to require a finding that the destruction of evidence was in bad faith.)

Under current law, in evaluating when a duty to preserve arises – when litigation is reasonably anticipated – the test is not subjective, but objective. Not what a party knew, but what a reasonable party should have known. (See, e.g., Mastr and Apple.)

Proposed Amendment. This amendment dramatically expands the reach of Rule 37, as it would govern failures to preserve “in anticipation of” – occurring prior to – litigation. Further, under this proposed rule, the court may order sanctions or give an adverse inference instruction only if the victim can prove: “substantial prejudice” from the destruction of the information (that the victim and the court will now never see) AND that the destroyer’s actions were “willful” or “in bad faith.”

The amendment then lists factors for courts to consider in assessing the existence of the duty and the culpability of conduct: including whether the party was “on notice” that the information would be discoverable in litigation, and whether the party “received a request to preserve.” This erodes the current (objective) test for preservation trigger, and replaces it with a new (subjective) one. Sneaky, right?

This amendment is specifically designed to legalize negligent destruction of relevant evidence, and is meant to reverse decisions finding that sanctions are necessary to remedy it. Don’t take my word for it. From the Committee Note:

A central objective of the proposed new Rule 37(e) is to replace the disparate treatment of preservation/sanctions issues in different circuits by adopting a single standard. In addition, the amended rule makes it clear that — in all but very exceptional cases in which failure to preserve “irreparably deprived a party of any meaningful opportunity to present or defend against the claims in the litigation” — sanctions (as opposed to curative measures) could be employed only if the court finds that the failure to preserve was willful or in bad faith, and that it caused substantial prejudice in the litigation. The proposed rule therefore rejects Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99 (2d Cir. 2002), which stated that negligence is sufficient culpability to support sanctions. Amendments, p.272

Remember our earlier fact pattern, in which DrugsRUs failed to preserve backup tapes containing Wendy Whistleblower’s email? In the later lawsuit, DrugsRUs says, “Gee, Judge, we’d really like to produce Wendy’s email. But look at new FRCP 26(b)(1). We believed in good faith that burden outweighed benefit, therefore this material was not discoverable, therefore we didn’t have to put the tapes in storage. They happened to be re-used in the ordinary course of business and in accordance with our rotation policy. We didn’t destroy anything in bad faith, and our conduct was at worst negligent. You can’t issue sanctions or give an adverse inference instruction under new FRCP 37(e).”

Wendy’s email is nevertheless gone forever. Is this justice?

Judge Shira Scheindlin, to some, the “Godmother of EDiscovery,” encountered a reference to the proposed amendment in a recent case. She responded with the following observation:

I do not agree that the burden to prove prejudice from missing evidence lost as a result of willful or intentional misconduct should fall on the innocent party. Furthermore, imposing sanctions only where evidence is destroyed willfully or in bad faith creates perverse incentives and encourages sloppy behavior. Under the proposed rule, parties who destroy evidence cannot be sanctioned (although they can be subject to “remedial curative measures”) even if they were negligent, grossly negligent, or reckless in doing so. In any event, the proposed rule has not been adopted… The public comment period has not yet begun, and no public hearings have yet been held… Sekisui Am. Corp. v. Hart, 2013 U.S. Dist. LEXIS 115533, 16, 2013 WL 4116322 (S.D.N.Y. Aug. 15, 2013), footnote 51.

Absoutely right. Not only that, it deprives spoliation victims of substantive rights currently recognized by the great majority of the federal courts across the country.

This also underscores the need for public comment. You can submit a comment electronically by clicking here.

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