A Look at a Recent Spoliation Decision and Proposed Rule 37(e)

28 Aug 2014

The controversy of Federal Rule 37(e) and its proposed amendments are issues that have grown out of the ever expanding volume of electronic data. In the case The Regulatory Fundamentals Group LLC v. Governance Risk Management Compliance, et al., 13 Civ. 2493 (KBF) (S.D.N.Y. August 5, 2014), the court meted out spoliation sanctions through the operation of the current Rule 37(e).

In the case at hand, Plaintiff sued Defendant Gregory V. Wood and two of his corporate entities for copyright infringement.

What Actions Did Defendant Take that Constituted ESI Spoliation?

On multiple occasions after the duty to preserve electronic evidence arose:

1. Defendant deleted a large number of relevant emails from his computer;

2. The deleted emails demonstrated how Defendant was modifying and distributing Plaintiff’s goods in a manner that violated the services agreement which the parties had entered into; and

3. Defendant took steps to terminate his contract with a web hosting service that stored additional relevant emails and electronic documents, and took affirmative steps to make sure that the materials were permanently destroyed.

As though such calculated and willful spoliation of evidence was not egregious enough, Defendant then took steps to create a false record of “mere negligence” after Plaintiff’s discovery of the spoliation and insistence on uncovering the root cause of the deletions.

What Sanctions are Appropriate for Egregious Electronic Discovery Spoliation?

When the court iterated the standards for the imposition of sanctions, it clearly stated that the innocent party must prove three elements:

1. That the spoliating party had control over the evidence and an obligation to preserve it at the time of destruction or loss;

2. The spoliating party acted with a culpable state of mind upon destroying or losing the evidence; and

3. The missing evidence is relevant to the innocent party’s claim or defense.

Highlighting the discretion of the trial court in ordering sanctions, the court stated that: “The determination of an appropriate sanction for spoliation, if any, is confined to the sound discretion of the trial judge, and is assessed on a case-by-case basis.” Fujitsu Ltd. v. Fed. Exp. Corp., 247 F.3d 423, 436 (2d Cir. 2001).

Would Proposed Rule 37(e) Change the Court’s Discretion for Spoliation Sanctions?

The discretion of the trial judge is an important facet of our judicial system. As such, it follows that such discretion should not be unreasonably limited. Yet the proposed Rule 37(e) could effectively curtail the court from imposing sanctions that may comport with the harm done by spoliators.

In the present case, we have to look no further than Defendant’s deliberate acts to create a record of false “mere negligence” to see where issues arise with proposed Rule 37(e) and its limitations on sanctions. Had the defendant been successful in asserting mere negligence, then the court would essentially be required to take curative measures, even in the face of a situation where sanctions would be more than appropriate.

Secondly, the court stated that when evidence is destroyed in bad faith, that fact alone can be sufficient to support an inference that the missing evidence would have been favorable to the party seeking sanctions. Proposed Rule 37(e) would do away with this rationale, instead requiring acts to be committed willfully or in bad faith, along with substantial prejudice in the litigation.

In the case before us, the court entered a judgment in favor of the Plaintiff. However, if proposed Rule 37(e) is implemented, the new rule would take such important decisions out of the sound discretion of the trial court.

ILS – Plaintiff eDiscovery Experts