John Mellencamp sang, “I fight authority, authority always wins,” but inherent authority may not carry the day anymore when it comes to e-discovery sanctions under the new rules. Federal Rule of Civil Procedure Rule 37(e) now provides the following:

(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 Advisory Committee’s Note on the 2015 amendments states that the new Rule 37(e) limits the remedies for lost electronic data and specifies the “findings necessary to justify these measures.” The notes further state that “[i]t therefore forecloses reliance on inherent authority or state law to determine when certain measures should be used.”

While courts are vested with the inherent authority to manage their cases in the best interest of justice, “the exercise of an inherent power cannot be contrary to any express grant of or limitation on the district court’s power contained in a rule or statute.” Dietz v. Bouldin, No. 15-458, 2016 WL 3189528 (U.S. June 9, 2016). Several district courts have recognized that the exercise of inherent authority for electronic discovery sanctions is contrary to the mandates in Rule 37(e). In Fiteq Inc. v. Venture Corp., No. 13-cv-01946, 2016 WL 1701794 (N.D. Cal. Apr. 28, 2016), the court agreed with the defendant that its ability to impose an adverse inference instruction for spoliation of electronic discovery was “foreclose[d]” by the amendments to Rule 37(e). Similarly, in Brown Jordan Int’l, Inc. v. Carmicle, No. 14-cv-60629, 2016 WL 815827 (S.D. Fla. Mar. 2, 2016), the court quoted the advisory committee’s note to Rule 37(e) stating that the rule “forecloses reliance on inherent authority” in connection with its evaluation of a spoliation claim.

However, some courts are not thrilled about the usurpation of their authority to sanction litigants, and there is still some uncertainty in how courts will apply the amended rule. For example, in Internmatch, Inc. v. Nxtbigthing, LLC, No. 14-cv-05438, 2016 WL 491483 (N.D. Cal. Feb. 8, 2016), the court noted that the Rule 37(e) amendments were designed to provide a uniform standard in determining sanctions for the spoliation of electronic evidence, but then went on to say that “[w]hether a district court must now make the findings set forth in Rule 37 before exercising its inherent authority ... has not been decided.” The Internmatch court did, however, find that the factors in Rule 37(e)(2) were present and that it therefore “need not resolve the question of the relationship of the recent amendments to the existing case law.”

In CAT3, LLC v. Black Lineage, Inc., No. 14 Civ. 5511, 2016 WL 154116 (S.D.N.Y. Jan. 12, 2016), the court went a bit further. In that case, the court analyzed the issue under Rule 37(e), but said that even if Rule 37(e) “were construed not to apply to the facts here,” the court “could nevertheless exercise inherent authority to remedy spoliation under the circumstances presented.” In CAT3, plaintiffs allegedly intentionally altered emails, but the original emails were available.  Plaintiffs argued that sanctions were not appropriate under Rule 37(e) because the information could “be restored or replaced through additional discovery.” Although the court ultimately found that Rule 37(e) did apply, it nonetheless addressed the plaintiffs’ argument and concluded that its inherent authority to sanction would be appropriate under these circumstances. 

The amendment to Rule 37(e) is intended to reduce the enormous costs associated with litigation data preservation by standardizing the rule in federal courts.  The rule does this by limiting extreme sanctions to intentional acts, offering companies more predictability. With any luck, the rule will not be undermined by application of different, more unpredictable standards under the guise of inherent authority.