By Sam O. Lumpkin

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Rule 37(e) of the Federal Rules of Civil Procedure, also known as the “Safe Harbor Rule” of electronic discovery, governs the consequences of a party’s failure to preserve discoverable Electronically Stored Information (ESI). Currently, Rule 37(e) provides:

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.

While intended to protect parties who implement timely litigation holds, but who nevertheless may have deleted discoverable ESI in the regular course of business, the rule in its current form has provided little guidance to the courts applying it. This has resulted in inconsistent application across the circuits and varying standards for when sanctions are appropriate under the rule. As a result, in September 2014 the Judicial Conference Committee on Rules of Practice and Procedure unanimously approved an entirely rewritten version of Rule 37(e) several years in the making that will, if approved by the Supreme Court and Congress, unify the approach courts take to sanctioning the loss of ESI. The proposed rule now reads:

Rule 37(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 may:

 (1) upon finding prejudice to another party from loss of the information, 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:

 (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.

Rather than providing specific details regarding the preservation obligation itself, the proposed rule empowers courts to take remedial measures when a party loses ESI because the party “failed to take reasonable steps to preserve the information, and the information cannot be restored or replaced through additional discovery.” According to the September 2014 Report of the Judicial Conference Committee on Rules of Practice and Procedure, this language is intended to retain the duty to preserve “that has been uniformly established by case law: the duty arises when litigation is reasonably anticipated.” As a result, the proposed rule does not impose strict liability for failure to produce ESI—the rule only applies when a party fails to take “reasonable steps” to preserve the ESI once litigation is reasonably anticipated. Even if the opposing party is prejudiced, as long as “reasonable steps” are taken the rule does not permit sanctions. The remedial measures available to a court are split into two sections.

Rule 37(e)(1) provides that the court, “upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice.” This permits a court to take measures regardless of whether the loss of ESI is the party’s fault, and while it preserves broad trial court discretion to take steps to cure prejudice, it strictly limits the scope of the court’s action to measures that will cure the prejudice.

Rule 37(e)(2) resolves the circuit split on when a court may deliver an adverse inference jury instruction for loss of ESI. Under the current rule, some circuits have held that an adverse jury instruction for loss of ESI is justifiable only upon a showing of bad faith by the losing party, whereas the Second Circuit in particular required only a showing of negligence. See Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99 (2002). The consequence under the Second Circuit’s rule was essentially that if a party was found to have lost ESI not through routine, good-faith operation of an ESI system—essentially a finding of negligence—they could almost automatically be subject to an adverse inference instruction. If the safe harbor was not available, a party was immediately at risk of receiving the full weight of sanctions. The danger of severe sanctions upon a finding of mere negligence resulted in a tendency to over-preserve ESI at significant cost to parties to civil litigation. The proposed rule, however, permits adverse inference instructions, dismissal, or default judgment “only upon a finding that the party acted with the intent to deprive another party of the information’s use in the litigation.” Notably, this section of the proposed rule does not require actual prejudice to the opposing party—intent alone is sanctionable by adverse instruction.

The proposed changes to Rule 37(e) have the potential to make a real change in the frequency and severity of sanctions for loss of ESI. Whereas current Rule 37(e) was intended as a safe harbor but has rarely been used as such, the new rule authorizes limited court action only when reasonable steps were not taken to preserve ESI and the loss of ESI cannot be cured by additional discovery. As a result, a party that has lost discoverable ESI can always defend itself by arguing: 1) that it took “reasonable steps” to preserve the ESI; and 2) that the loss may still be cured through additional discovery. In addition to these defenses, under Rule 37(e)(1) a party may also argue: 3) that the opposing party has not been prejudiced; and 4) that the requested remedy will not cure the asserted prejudice.

Only one of these possible defenses relates to the conduct of a party before it loses ESI: taking “reasonable steps” to preserve discoverable ESI. While the proposed rule does not define “reasonable steps,” jurisprudence on the duty to preserve generally refuses to apply a per se test to what is reasonable. See Automated Solutions v. Paragon Data Systems, 756 F.3d 506, 516-17 (6th Cir. 2014); Chin v. Port Authority, 685 F.3d 135, 162 (2nd Cir. 2012). The Rules Committee has also suggested that a factor in evaluating the reasonableness of preservation efforts is the proportionality of those efforts—in other words, whether the steps taken to preserve ESI are proportional to the needs of the individual case.