The New Standard for Spoliation Sanctions: Amended Rule 37

21 Mar 2016

As of December 2015, federal courts have a set of amended Rule 37 standards to apply when faced with motions for ESI-related spoliation sanctions. Specifically, the amendments substantially changed subsection (e), setting forth a clearer standard for the courts regarding ESI preservation obligations and when a court can impose sanctions.

The Text of the Amended Rule 37(e)

Fed. R. Civ. P. 37(e), as amended on December 1, 2015, provides as follows:

(e) Failure to Preserve Electronically Stored Information. 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:

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

(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:

(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 Committee Notes to the 2015 amendment note that the previous subsection (e) was “limited” and did not adequately address “the serious problems resulting from the continued exponential growth in the volume” of ESI. The new subsection (e) provides more specific measures when parties fail to preserve evidence, and it clarifies the findings the court must make to justify taking such measures. See Committee Notes to the 2015 Amendments to Rule 37. Specifically, the courts must determine 1) whether lost information should have been preserved; 2) whether the party failed to take reasonable steps to preserve it; 3) when the duty to preserve arose; 4) whether the lost information can be restored; 5) whether the party seeking the information was prejudiced by its loss; and finally 6) what measures can be taken that are “no greater than necessary to cure the prejudice.”

The below decisions reflect the early attempts by the federal courts to consider spoliation sanctions in the new landscape.

Amended Rule 37 Case Updates

  • Cat3, LLC et. al. v. Black Lineage, Inc. et. al., Case No. 14-5511 (S.D. N.Y., January 12, 2016): In this business torts case, Defendants accused Plaintiffs of altering emails before production. An expert concluded that the Plaintiffs had deleted emails and replaced them with duplicates that included altered information. The court looked to the amended Rule 37(e) and determined that Plaintiffs had a duty under the Rule to preserve the emails. The court also found that Plaintiffs had purposely deleted and then replaced the emails in an altered form with the intent to deprive Defendants of the information in the unaltered emails. Based upon these findings, the court ordered that Plaintiffs were not only barred from using the altered versions of the emails at trial, but were further ordered to pay the costs and fees incurred by Defendants in investigating the spoliation issue and bringing the motion before the court.
  • Nuvasive, Inc. v. Madsen Medical, Inc. et. al, Case No. 13-2077 (S.D. Cal., Jan. 26, 2016): This case is particularly interesting because of the court’s retroactive application of the amended Rule 37(e) sanction standard after a prior ruling granting a sanction order under the pre-amendment Rule. Previously in the case, and prior to the effective date of the amended FRCP, certain of the Defendants filed a Motion for Sanctions against Plaintiff and obtained an order for an adverse inference instruction. After the effective date of the amended Federal Rules but prior to trial, Plaintiff filed a Motion to Vacate the order imposing the adverse inference instruction, based upon the argument that the stricter standard of intent in amended Rule 37(e) should be retroactively applied. The court agreed with the argument as to the retroactive application of the amended Rules, reviewed the amended 37(e) and held that Plaintiff’s actions did not meet the new standard requiring a finding of intent to deprive a party of use of information in litigation. The court made a further finding that no prejudice would result to Defendants in vacating the prior order for an adverse inference instruction and so granted the motion.
  • Marten Transport, Ltd. V. Plattform Advertising, Inc., Case No. 14-02464 (D. Kansas, Feb. 8, 2016): In this Lanham Act case alleging trademark infringement and unfair competition, Plaintiff trucking company sued Defendant trucking websites operator for improperly using Plaintiff’s trademark and identifying information and posting Plaintiff’s job openings without authorization on Defendant’s websites. During discovery, it came to light that an employee of Plaintiff may have accessed Defendant’s customer access portal and placing the postings on Defendant’s websites. However, Plaintiff had destroyed the employee’s computer and therefore did not have her internet history. In response to Defendant’s motion for spoliation sanctions, Plaintiff claimed that at the time it destroyed the employee’s computer it did not know the internet history would be relevant to the litigation. In denying the motion for sanctions, the court held that the new Rule 37(e) required only reasonable steps toward preservation, not perfection, and that Plaintiff’s duty to preserve did not arise until defense counsel notified Plaintiff of the employee’s logins, which was after the computer had already been destroyed.
  • InternMatch, Inc. v. Nxtbigthing, LLC, et. al., Case No. 14-05438 (N.D. Cal., Feb. 8, 2016): Defendants in this case claimed that electronic copies of potentially responsive documents could not be produced because the drives housing the data were destroyed by two separate electrical occurrences: a lightning strike on one day which destroyed the computer drive housing the original database, and a power surge years later during the pending litigation which destroyed a reconstructed database housed in the drive of a desktop computer. Plaintiff sought terminating sanctions. Applying the amended Rule 37(e), the court held that the destruction had been willful based upon its findings that Defendants’ representations about the power surge were not credible and that no effort had been made to try to recover data from the desktop computer after the alleged power surge. However, in deciding upon the scope of the order for sanctions, the court held that terminating sanctions were too severe since it could still resolve the case on its merits. The court instead ordered an adverse inference instruction against Defendants be given at trial, that Defendants be precluded from offering argument and testimony that the destroyed evidence supported a defense argument, and further ordered Defendants to make payment for the fees and costs incurred by Plaintiff in investigating the spoliation and bringing the motion for sanctions.

Contact our Plaintiff ESI Discovery Experts

Preservation of electronic documents is key in today’s digital world, and plaintiffs’ counsel need to stay on top of not only preservation, but also ways to recover destroyed records and avoid running afoul of Rule 37(e). Contact the plaintiff eDiscovery experts at ILS today to learn more about our litigation services.