Preservation of ESI Under Rule 37(e)

In the short amount of time since the amendment to Rule 37(e) of the Federal Rules of Civil Procedure, courts have confronted the task of applying the parameters of this newly revised Rule. Importantly, in contrast to the prior version of Rule 37(e), the new Rule differentiates between bad faith spoliation and negligent failure to preserve Electronically Stored Information (ESI). The revised 37(e) states:

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:
  • presume that the lost information was unfavorable to the party;
  • instruct the jury that it may or must presume the information was unfavorable to the party; or
  • dismiss the action or enter a default judgment.

In the small but steady growing body of case law, courts are now directly addressing the application of the newly amended Rule 37(e). A few themes are developing as courts apply the revisions. The first theme is the acknowledgement of increased leniency under the amended version of Rule 37(e) because of the heightened bad faith standard and the language in the revised Rule stating courts may “order no measures greater than necessary to cure the prejudice.” Relatedly, the second theme in the developing case law is that courts are starting to carefully delineate between bad faith spoliation and negligent failure to preserve.

This post will outline a few illustrative examples of these themes below, including cases where courts have: (1) changed their previous rulings based on the amendment to Rule 37(e); (2) delineated between bad faith spoliation and negligent failure to preserve evidence; and (3) evaluated the appropriate sanctions for non-preservation of ESI based on the newly amended Rule 37(e).

Change of Previous Decisions after Enactment of Amended Rule 37(e)

At least two courts have modified their previous determinations regarding spoliation after the enactment of amended Rule 37(e).

On November 3, 2015, the court in SEC v. CKB168 Holdings, Ltd., recommended that the Securities and Exchange Commission (SEC) be granted two adverse inference instructions because of defendants’ failure to preserve information on a hard drive.[1] The court explained that defendants’ actions evidenced “a sufficiently culpable state of mind” of either gross negligence or bad faith. As a result, the court ordered an adverse jury instruction, which essentially stated the jury could infer: (1) that no such documents ever existed and that the defendants made no preparations to take their company public; or (2) to the extent the documents existed, they would support the SEC’s allegations against the defendants.

However, after the enactment of amended Rule 37(e) the court directed the parties to file submissions addressing the recent revision of Rule 37, specifically asking why the court should not modify its prior recommendation. On February 2, 2016, the court reversed course, specifically citing the significant changes to Rule 37as the reason the “Court now modifies its recommendation.” The court found that the first jury instruction regarding the inference that no such documents ever existed, could not be given independently of the second jury instruction because under the amended version of Rule 37(e) a “party cannot be sanctioned for spoliation without a finding that some spoliation occurred.” Next, the court addressed the second jury instruction. Quoting part of the amended Rule the court explained that under the new Rule 37(e) “a court may not now impose an adverse jury instruction as a sanction for the spoliation of ESI absent a showing of a loss of ESI ‘because a party failed to take reasonable steps to preserve it,’ as well as [absent a showing of] ‘intent to deprive another party’ of the use of that information.” The court found that not only was there insufficient evidence to show that the defendant intended to deprive the SEC of the ESI, but there was also a “strong likelihood the evidence never existed.” As a result, the court denied the SEC’s amended motion for sanctions without prejudice. However, the court granted the SEC the right to renew the motion in the event the case proceeded to trial, stating that the SEC could attempt to make the requisite showing of intent and lost ESI based on the evidence adduced at trial.

Similarly, in NuVasive Inc. v. Madsen Medical Inc., the court also changed its previous findings after applying the newly amended Rule 37(e).[2] In a July 22, 2015 hearing, the court granted in part the defendant’s motion and ruled that it would give an adverse jury instruction that the jury could infer that the ESI destroyed was favorable to the defendant. After the amendment to Rule 37(e), the Plaintiff sought relief under Rule 60(b) from the court’s previous order. The court vacated its initial order, specifically pointing to portions of the Committee Notes to the amendment, which stated that the measures employed for negligent failure to preserve should not affect measures that are permitted for bad faith spoliation. The court went on to reason that because it “did not make any finding that [the plaintiff] intentionally failed to preserve the text messages so the Defendants could not use them in [the] litigation,[. . . . .]under Rule 37(e), as amended, it would not be proper for the Court to give the adverse inference instruction.” As a result, the court held that when the case went to trial, it would not give an adverse jury instruction. However, the court would allow the parties to present evidence at trial regarding the loss of ESI to the jury.

Line Drawing: Bad Faith Spoliation versus Negligent Spoliation

As highlighted in NuVasive, courts are now differentiating bad faith spoliation under 37(e)(2) from failure to preserve evidence under 37(e)(1).

In Accurso v. Infra-Red Services, Inc., the defendants argued that the court should draw a negative inference regarding the contents of the e-mails that plaintiff allegedly deleted upon the termination of his employment with the defendants.[3] The court denied the defendants’ motion without prejudice because, among other reasons, the defendants did not show the plaintiff acted with intent to deprive the defendants with access to the information. The court specifically explained that the new Rule “makes explicit that an adverse inference is appropriate only on a finding that the party responsible for the destruction of the lost information acted with the intent to deprive another party of access to the relevant information.”

In Living Color Enterprises v. New Era Aquaculture, Ltd., the court found that an individual who had failed to turn off an auto delete feature on his phone after litigation began “simply acted negligently in erasing the text messages either actively or passively.” [4]   Sanctions were not imposed because the “amended 37(e) does not permit an adverse inference instruction or other severe sanctions for negligence.” The court in Best Payphones, Inc. v. City of New York made a similar observation, noting that a court may not issue an adverse inference instruction “with regard to electronic evidence (i.e,. e-mails) unless the Court finds that plaintiff acted with intent to deprive.”[5] The Best Payphones court went on to determine that the plaintiff’s conduct of not preserving and turning over e-mails between plaintiff and third parties did not support a finding that the plaintiff acted willfully or grossly negligently.

Determining Sanctions Under Rule 37(e) After a Finding of Intent

In Ericksen v. Kaplan Higher Education, LLC, the court also noted the elevated “intent” standard when determining sanctions under Rule 37(e). Even though the court determined the plaintiff intentionally destroyed ESI, the court relied on the newly amended 37(e) to determine that the case should not be dismissed altogether.[6] In this case, the plaintiff ran a computer program that she knew would destroy some data. The court specifically stated that [u]nder the recently amended Rule 37(e) of the Federal Rules of Civil Procedure, however, this Court need impose ‘measures no greater than necessary to cure the prejudice.’ As a result, the court found that dismissal of the case was not a necessary antidote and instead, the court would “abide by the high standard set forth in the amended Rule 37(e) by allowing the case to proceed. The court did, however, restrict the plaintiff from presenting evidence that the defendants could not, due to the plaintiff’s actions of deleting ESI, confirm as authentic. Thus, the court specifically fashioned a sanction that was commensurate with the harm.

Taken as a whole, the developing case law demonstrates the importance of the new “bad faith” standard. Notably, courts’ continued delineation between negligent failure to preserve evidence, and bad faith spoliation may mean that litigants seeking to impose sanctions on opposing parties will have to meet a higher burden than under the previous version of Rule 37(e). Additionally, in applying the Rule’s requirement that courts impose sanctions “no greater than necessary to cure the prejudice,” courts may begin to restrict the sanctions available for non-preservation of ESI.

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[1] No. 13-CV-5584 (RRM), 2016 BL 38154 (E.D.N.Y. Feb. 2, 2016), at *1-2.

[2] No. 13cv2077 BTM(RBB), 2016 WL 205096 (S.D. Cal. Jan. 26, 2016), at *1.

[3] Civil Action No. 13-7509, 2016 WL 930686 (E.D. Pa. March 11, 2016), at *3.

[4] No. 14-CV-62216, 2016 WL 1105297 (S.D. Fla. Mar. 22, 2016), at *6.

[5] No. 1-CV-3924 (JG) (VMS) 2016 WL 792396 (E.D.N.Y. Feb. 26, 2016), at *4.

[6] 2016 WL 695789 (D. Md. Feb. 22, 2016), at *2.

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